Working out how much is enough.
When you first start a business it’s possible to think that growth comes easy.
The initial traction, the mountains of enthusiasm, the founders’ little black book ready to be tapped up. Many start up businesses will likely record triple digit growth in their first few years. After all, 100% growth of a £100k previous year isn’t too big a leap.
But, consistent, relentless growth. Now that’s hard.
When you manage to take a breathe for a minute to celebrate hitting £1m turnover for the first time, only to realise you need at least £2m next year to keep the growth curve looking good. Tiring.
So how do you achieve this constant month after month growth? It would be understandable to think it’s about doing 'lots of things'. Launching in new countries, creating new product offerings, multiplying your marketing spend.
The question is, do you need to do all these things?
The answer. Possibly. But possibly not.
Clear as mud? Let me explain.
The question is, how much is a huge mount of money for you?
I was at this cross roads personally when scaling Molzi. We had launched in a couple of new territories successfully and we had created a decent track record of expanding our service offering to open up new routes to revenue.
The strategy was working. Molzi’s early revenue was…
Year 1 - £115k
Year 2 - £365k
Year 3 - £1.5m
That year 2 to 3 leap was driven by these ‘bets’ as we would call them. Basically not just relying on doing more of the same things better, or harder, or faster. But creating new revenue routes to allow us to scale the revenue quicker.
Having broken through the £1m revenue wall at pace, there was no stopping us, in our heads of course. We had plans that got us to £10m, £20m and beyond. We had so many plans I almost ran out of pieces of A4 paper to scribble them on (true entrepreneurs don’t use technology do they? Or just me?).
On a spreadsheet this all looked like a walk in the park. Even if we only executed 50% of our new planned bets successfully then we’d be valued at high 8 figures.
But, thinking that previous sentence was exactly what made me hit the brakes.
High 8 figures. Why on earth would I need to get the business to be high 8 figures. I was a solo founder, still retaining 75% of the equity in the business. Yes I had dreams of becoming a millionaire like many other founders do, but strangely I’d always been wary of getting too much money. At 36 years old (at the time, in case you’re thinking I look older than that, I am now) the last thing I wanted was enough money to mean I never had to try again.
So what I did was work backwards from the amount of money I did want to get. I figured out the things we’d want to buy, like a new house. Plus enough money to have a decent life if I changed my mind and decided retirement was for me. I accounted for the tax I’d have to pay and the amount that would go to other shareholders and I ended up with a pretty accurate number that the business would need to sell for, to be able to make all my dreams come true.
I then worked backwards again to turn this target sell price into an annual revenue/EBITDA that we would need to be doing to get the required valuation. Then I took this annual number and broke it down to monthly.
Suddenly, I had a very clear picture of what my business would need to do to get from where it was, to where it would deliver my dreams. And when broken down to a monthly delta, it didn’t look too big a leap. It was easy to think of it in terms of number of new clients, or new countries.
What was instantly very clear was that we didn’t need to do half of the bets we were planning. In fact we only really needed to properly focus on the ones we already had in play.
This clarity of thinking made us absolutely fly during our 4th year, which then lead to the acquisition. It also made it much less stressful and exhausting than it could have been.
If you’re running a business on a growth journey, I would urge you to pause for a second to think about where you’re trying to grow to. Then work out the delta. It might not be as big a leap as you think.