$100M is a nice big and round number. I know it’s not $1B but it’s still a very respectable revenue figure for almost any company to reach. What if I told you that you had 10 years to reach $100M. That’s PLENTY of time, right? 10 years seems like a really long time and we all know several examples of tech startups reaching that figure in considerably less than 10 years. So why couldn’t that be you? It could, it’s just much more amazingly difficult than most think.
Below is a hypothetical path to $100M, including the associated annual growth rates:
The early years in this scenario where growth rates are 100% or more certainly can happen, especially since they are starting from a relatively small base. In fact, probably the easiest way to grow to $100M quicker than 10 years is to post growth rates in the 200-500% range in the first couple of years. But I also see lots of startups that take three years or more just to reach the $1M milestone due to needed pivots, fundraising difficulties, co-founder funk, and a long list of startup trials and tribulations.
Even though the hypothetical path involves decreasing growth rates over time, you should understand that continuing to deliver 50-80% growth rates in the middle years and even sustaining 35-45% growth in the last couple of years is so amazingly difficult that it’s hard for me to describe.
Side Note: If you’ve ever found yourself using the phrase “exponential growth” to describe your prior, or projected, phase of hypergrowth, read this article titled “The Elephant in the Room: The Myth of Exponential Hypergrowth” from Jason Cohen that does a brilliant job of explaining what exponential versus hyper really means from a mathematical point of view.
Triples & Doubles
You might read about tripling revenue for a couple of years then doubling for a couple of more. Introduced by an investor named Neeraj Agrawal, the “triple, triple, double, double, double” phrase is somewhat familiar in venture fund circles. If starting from $1M you can achieve the TTDDD growth rates over the following five years, you’ll reach $72M. Amazing, but also amazingly difficult to achieve.
If, instead, you only triple once and then double each year from there (ie – TDDDD), the result is still very respectable, but much lower: $48M. In fact, if you don’t start with a triple, but rather just double each year (ie – DDDDD), the end result is $32M.
I’ve been a part of three reasonably aggressive growth scenarios during my career helping run tech companies. Below I’ve listed the annual revenue results from the time I joined until our exit. I can tell you for certain that the rocket ships were vibrating as if they were about to explode during most of the journeys. (see related article titled “Always on the Verge of Out-of-Control“)
$5M $22M $20M
$10M $32M $38M
$17M $45M $60M
Major Milestones Along the Way
Growing to $100M obviously involves regular advancements every week that are mostly unnoticeable. It’s like watching your kid grow up. Week-by-week changes aren’t noticeable to a parent but if the grandparents only see the child once per year, they are amazed at how much has changed since their last encounter.
Below, I have broken the path to $100M into four major milestones, each with some suggested critical success factors for reaching the milestone. There are obviously many other things that need to happen in order to accomplish the ultimate goal, but the main point of this exercise is to see how dramatic the different required actions and accomplishments are for reaching each milestone. I’ve tried to avoid suggesting required actions and accomplishments that are unique to a specific type of company, which means you might need to adjust some for yours. For example, there are differences between hardware and software companies, and the same for companies with consumer versus large enterprise solutions.
Getting to $1
- Identify a problem that truly needs to be solved
- Develop a product or service that solves the stated problem
- Learn how to advance forward with little financial resources
(see related article titled “How Long Should You Bootstrap?“)
- Recruit other driven team members that share a common passion
- Find someone that is willing to either pay for the product or pay for some attribute related to the product’s usage
Getting to $1M
- Recruit quality team members into specific functions
- Carefully institute a set of founding principles that will later influence the company’s culture
(see related article titled “Founding Principles – Do You Have Them?“)
- Maintain a high degree of focus on a single product for a single market, accessed with a single go-to-market strategy
- Implement a repeatable method of acquiring customers or users
- Refine pricing such that it ties to customer value and supports efficient customer acquisition
(see related article titled “Extreme Value-Based Pricing“)
Getting to $10M
- Implement an effective management system for making decisions and setting priorities
- Cultivate a strong, positive company culture
- Institute processes for employee engagement, professional development and performance management
- Expand along one or more of the following dimensions – product offerings, geographies, industry verticals, application use, buyer personas, target company size
- Activate one or more strategic partnerships that provide positive leverage along some important dimension
(see related article titled “A Secret to Securing a Strategic Partnership“)
Getting to $100M
- Recruit executive talent with large company experience and empower them to run their functions with very minimal oversight
- Implement robust strategy and planning processes with a longer-range horizon (2-3 years)
- Replace most operational systems and tools to support the company’s larger size and increased complexities
- Further expand along one or more of the following dimensions – product offerings, geographies, industry verticals, application use, buyer personas, target company size
- Avoid becoming inflexible and irrelevant in light of smaller competitors with more innovative solutions and much larger competitors with seemingly unlimited resources
Fun with Numbers
Have you ever tried to conceptualize what it means for there to be 100 billion galaxies in the universe or the fact that our own Milky Way galaxy is home to about 300 billion stars? The numbers are so huge that it becomes mind-boggling and paralyzing to contemplate. For first-time founders or those that have never worked for a large company, conceptualizing what it’s like to be in a company that’s generating $100M in revenues can be equally mind-boggling. What’s funny is that for those that work for $5B+ revenue companies, $100M mostly seems like a startup.
Below, I’ve provided some attributes of a hypothetical $100M tech company to help you conceptualize what it’s like. Rather than providing ranges of numbers, I’m just picking a single number that is representative. And rather than spending time finding research reports, I’m just giving what I’ve witnessed throughout my career.
- 400 employees, including 80 engineers
- $10M annual marketing budget
- $1M annual travel budget
- $500K CEO salary and $350K Sr. VP salary
- Company operations on at least two continents and probably three
- 200,000 cups of coffee consumed per year by employees
The customer acquisition efforts required of a $100M company is quite substantial. Below is a view based on the number of customer transactions that are needed and the average price of a subscription service:
- Mobile app for consumers: 8.4 million users at $0.99/mo
- Small business solution: 8,400 customers at $1,000/mo
- Enterprise solution: 840 customers at $10,000/mo
The Venture Investors’ Perspective
$100M is an arbitrary number but, actually, a fairly relevant one for startups that plan to pursue venture funding. Most venture investors evaluate opportunities based on the potential and likelihood of getting a 10X return on their investment when the company eventually exits via acquisition or IPO. For typical Series A investments, this means the company will need to exit with a valuation in the $300M to $500M range. Guess what? That probably means the startup needs to grow to something in the range of $100M in revenues to earn such an exit valuation. With this, it should be no surprise that Series A and Series B investor due diligence involves so many questions, concerns and arguments related to the possibility and likelihood of reaching that magic $100M revenue milestone.
For more information on the formula investors use to determine the exit valuation you’ll need in order to provide them a 10X return, read my article titled “Negotiating Valuation with Investors” and scroll down to the section related to potential exit returns.
Investors aren’t just concerned with you successfully reaching the next round of funding, but rather reaching an eventual exit that provides them a great return on investment. Because of this, their assessment of your team and your business plan in totality involves trying to evaluate and predict all the way into the future to a milestone like $100M in revenue. Does your team have the skills, experience and determination to do that or might new leadership need to enter the picture along the way? Is your market big enough? What competitive forces exist, both now and over the course of the next 10 years? You get the idea. Many founders think the main thing that matters is building a good product, but there is much, much more required to build a great company. (see my related article titled “Build a Company, Not Just a Product“)
The items in each milestone list are not easy to accomplish, but rather the opposite. They are extremely difficult. And remember that I’m suggesting that all, or most, of the items in each list are critical to reaching the stated milestone. Failing to achieve just one or two items in a given list likely means not reaching the milestone. Now do you see how unbelievably difficult it is to reach $100M in revenues at all, not to mention in 10 short years?
I often hear founders dream out loud for the day when they reach $1M in revenue because of how much easier things will be. It’s funny that I also hear founders of companies that have reached the $1M milestone dream out loud for the day when they reach $10M in revenue because of how much easier things will be. It doesn’t matter which milestone they’re at, I tell them the same thing. Building a great company never gets easy. Instead, it remains extremely difficult, but just in different ways over time. I hope this article provides additional insights into that proclamation.