February 8th, 2019 | By: Wil Schroter | Tags: Emotional Support
In a world of billion dollar exits and absurd funding rounds, startup Founders have lost sight of what financial success really is.
Don’t get me wrong… Having billions of dollars is amazing. But, you know what else is cool? Making a million flipping dollars. Especially when you don’t have a million flipping dollars!
Let’s take the time to recalibrate how we think about startup success — and more specifically — Founder success. When we get to the point where we can only think of “success” as some astronomical, arbitrary outcome, we’re headed down a very dangerous path that affects our startup, our finances and — if we’re being honest — our health.
No, a million dollar business isn’t very big. But, that doesn’t mean it’s a “bad business”, or — heaven forbid — an insignificant one. The real question is whether or not a million dollar business can achieve the Founder’s goals.
When launching a business, the most common goal is personal financial success — so, let’s talk about that.
A million dollar business on a 25% margin yields a single founder $250,000 per year worth of income. In most states that puts us in the Top 5% of income earners. Try telling the other 95% of income earners in the entire state (or country) that the $250k a Founder makes isn’t “significant”. When we do, we should prepare to defend ourselves!
That, of course, implies that we’re profitable, or that we’re not splitting those profits with lots of other partners. So, maybe that’s a best case scenario – but it’s important to ask the question “What would that million dollars generate for the Founders?” versus just assuming a million dollars isn’t enough. Many Founders are living awfully well on a million dollar business.
Even if the amount of money we could make would be less than what we’d make at a job — who cares? The real payoff in a startup isn’t the money. It’s the independence.
In all fairness, that independence can come at a really high cost of personal debt, long hours, and insane frustration. But, most Founders (myself included) care more about their independence than anything. In some cases (again, myself included) it doesn’t matter how much money one could make at a higher paying job. The value of independence makes a $1 million business invaluable.
That independence isn’t as simple as “I don’t have a boss”. It’s so much more than that. It’s “We’re all going to work from home today because we can” or “We’re going to work on this product feature because it’s important to us personally, not because someone told us we have to.”
Whether we build a $1 million business or anything bigger, the “home run” is that we’ve unlocked this independence. For those that truly value that independence, the fact that a million dollars is all it takes to get it is just incredible.
What may be more valuable about a million dollar business than generating substantial income or unlocking our independence is actually being successful at all. It doesn’t matter if we have billion dollar ambitions if we can’t ever build a successful business to begin with.
If personal wealth and independence are important to us, the next most important thing should be optimizing for the most achievable path to get there. If we say “It has to be a billion dollars!” and make a ton of decisions based on that singular outcome — raising capital, staffing up, incurring debt — we may be optimizing for that outcome while destroying the probability of any smaller outcome that may have achieved our actual goals.
Perhaps a better approach would be: “What’s the shortest path to get to my most important goals?”
Chances are that isn’t going to be raising a $10 million round and having a billion dollar IPO in a decade. If we can pull that off — awesome. But, given the number of companies that are started per year (6 million in the U.S.) versus the number that go IPO (160 with some caveats), we’d be looking at a freakishly low success rate here.
Just because a business opportunity “only looks like a million dollar business” doesn’t mean that’s the end of it. Some businesses spend years in the single digit revenue club and then find their footing much later. Being a “million dollar opportunity” doesn’t mean the business can’t grow – it just means it hasn’t grown yet. You can be a local coffee chain and decide you want to expand to the next Starbucks. Frankly, that’s even easier to do when you’ve achieved some financial milestones.
If we don’t properly calibrate our goals and expectations in the context of a million dollar business — or, whatever our number is — there are some serious costs.
The first cost is abandoning an opportunity just because it doesn’t immediately seem to fit a “big outcome” goal that we set for ourselves. This can lead a Founder to not pursue a great idea because they thought (or were told) it’s “only a million dollar business”. If we think about a million dollar business as the shortest and most probable path to achieving all our near term goals – that sounds like a pretty amazing opportunity!
The second is the emotional cost of feeling like our business is somehow “not good enough”. We might see tens of thousands of dollars per month roll in and think our revenue is “a day’s pay” compared to bigger, more credible businesses. F*ck that. The value of our revenue is commensurate with our goals, not calibrated to the goals of some random company. If the company is making us dollars (as Founders), then the company is making sense.
The last cost is irreversible decisions we may make when calibrating to the wrong goal. If we are thinking “this has to be a billion dollars!” then yes, we may go out and raise a ton of money (if we can). But, that capital will certainly come with conditions that will never let us run as a $1 million business netting us $250k per year. We’ll be forever working for that billion dollar outcome —, even if we have a sweet ass $10 million business.
When we stack all of these issues up, we can send ourselves down a really perilous path that prevents us from achieving the very goals that are important to us. All because our “perception” of a valuable business is all gnarly.
The takeaway here is simple: If a $1 million business can achieve all of our critical goals in the shortest and most likely possible path — it’s a home run. Whether or not we choose later to grow that business further or just enjoy the fruits of a successful operation is up to us.
What we should be focused on right now is whether we can ever get to $1 million to begin with, and if we do, then make some decisions as to how much bigger we want to make it. But, we shouldn’t let a bunch of half baked assumptions cloud our judgement on how to make really important decisions in the near term.
The only people who think a million dollars isn’t a lot of money… are the people who don’t have it.
Wil Schroter is the Founder + CEO @ Startups.com, a startup platform that includes Bizplan, Clarity, Fundable, Launchrock, and Zirtual. He started his first company at age 19 which grew to over $700 million in billings within 5 years (despite his involvement). After that he launched 8 more companies, the last 3 venture backed, to refine his learning of what not to do. He's a seasoned expert at starting companies and a total amateur at everything else.