Earning a million dollar is the dream of many people, let alone creating and building a business that generates a hundred million dollars every year. With tens of thousands of new start-ups being created every year, the potential of a company to truly scale and become large, stand-alone business is more crucial than ever before.
That does not mean that building a hundred million dollar business is not possible. In fact, many companies like Snapchat, Whatsapp, Yelp, Workday, Salesforce.com, Evernote, Shopify, MailChimp, and more, are generating more than $100 million in revenues each year.
If you want to build a business that brings in $100 million each year, you must follow a set of proven strategies. More importantly, you must understand how your business can scale and how much you can profit from each of your customer on average. In a nutshell, your business can be represented by a metaphor where you are hunting for animals; flies, mice, rabbits, deer, and elephants. And each animal represents different set of target market with different profit price point.
By following a proven set of strategy, the opportunity to build and grow a $100 hundred million dollar company is very possible. Zappos.com started by selling shoes online, and nobody knew that the company could grow and eventually acquired by Amazon for $1.2 billion in 2009.
Every big business started from scratch and has the potential to grow into a giant conglomerate through hard work. Nobody would have thought that a normal guy from Malaysia with the name Vishen Lakhiani is able to build a website selling meditation courses and eventually, growing the business and becomes one of the largest companies in the personal development education industry in the world.
Vishen is the founder of Mindvalley. In 2013, the company generated a revenue of $40 million dollars and today, the company is well on its way to reaching the hundred million dollar mark. Not only that, Vishen’s target is to list Mindvalley for an initial public offering (IPO) and become the largest technology company IPO from Malaysia.
Therefore, it is very possible to start a business and grow it to a hundred million dollar mark. And basically speaking, there are five ways how you can build a $100 million dollar business.
If you want to build a company with $100 million in annual revenues, for instance, you can:
1. Attract 1,000 enterprise customers paying you at least $100k per year each, or
2. Attract 10,000 medium-sized companies paying you at least $10k per year each, or
3. Attract 100,000 small businesses paying you at least $1k per year each, or
4. Attract 1 million active consumers paying you at least $100 per year each, or
5. Attract 10 million active consumers who you can monetize at a minimum of $10 per year each
5 Profound Strategies
In the business world, people represent this strategy with animals so that it is easy to understand. If you need to get 1,000 customers paying you $100k each to make a hundred million, you are hunting elephants. If you need to get 10,000 customers paying you $10k each, you are hunting deer. And so on and so forth, and the remaining three levels are represented by rabbits, mice, and flies.
So which animal should you hunt? Or in the more direct term, which category of business do you want to be in? Do you want to hunt flies by building a hundred million dollar business where you need to have 10 million clients each paying you just $10 each? Or do you want to go for elephant hunting where you need just 1,000 clients, but each has to pay you $100k each?
Well, there is no right or wrong. Let us discover each strategy and how you can cater your business and come up with a profound strategy to hit the $100 million dollar mark.
1. Hunting Flies
In this business strategy, for your business to earn $100 million dollars a year, you need to have 10 million active users or customers each paying you at least $10 per year each. If you are in the online business world, you need to create an app or attract 10 million visitors a year to visit and use your website.
Of course, this is just a rough estimation, and the precise number depends on many other factors like your conversion rate, the engagement of your website, how many returning visitors, etc. However, the fact stays the same. If you are trying to earn $10 from each customer, you are going to need a huge customer base and millions of visitors to your website each year.
This is not to say that it is impossible to achieve the hundred million dollar mark. In fact, quite a number of companies have grown at a staggering pace and hit the target. Companies such as Snapchat, Whatsapp, Instagram, YouTube, and even Google and Facebook started this way.
And if you are aware, all of these companies have one thing in common, and that is they have a very strong viral co-efficient effect. Companies like Whatsapp, Instagram, and Snapchat grow at an amazing pace due to its viral-ability. Millions of people are using them and even if they just earn a mere $10 from each paying customer a year, they can make more than a hundred million dollars a year.
Besides having a strong viral effect, these companies also rely on user-generated content to grow. Another great example is Wikipedia. It is an information website that largely depends on user-generated content for its growth. Today, Wikipedia is a billion-dollar business.
2. Hunting Mice
In this “hunting mice’ strategy, you need to acquire at least a million paying customers who will pay you a minimum of $100 per year each. Again, this number is just a gross simplification. If two people come to your website and one buys from you, you need to have two million visitors to your website because your conversion rate is 50%.
Like hunting flies, you still need a huge number of visitors and paying customers to hit the hundred million dollar target. And this means that your business still requires a certain level of virality. Well, maybe not Snapchat or Instagram type of virality, but you still need to incorporate and grow your business viral.
Some good examples of companies are like Evernote and MailChimp. And if you are building an e-commerce business, your business can and have the potential to reach a million customers, but that will require a lot of funding as you will need to spend quite a large amount into paid marketing.
CNBC once covered an article of a 33-year-old guy earning a million dollars in just 92 days selling Kevlar pants online from an e-commerce website that he has built. This real-life story has shown that building a hundred million dollar business is really possible when you tap on the right platform and follow a proven blueprint.
3. Hunting Rabbits
Next, comes the hunting the rabbit method. Most of the Software-as-a-service (SaaS) companies that target small businesses charge something around $100 per month, and this means that their Average-Revenue-Per-Account (ARPA) per year will be around $1,000. And in the hunting rabbits business, you just need 100,000 paying customers, each pays you a thousand a year and you will have a hundred million dollar business.
A very successful company that sells software is Adobe. Adobe is a billion-dollar business, and they charge customers plenty of products ranging from Photoshop to Flash. Even Microsoft itself is a software company that leverages on the Original-Equipment-Manufacturer (OEM) strategy. Microsoft builds the software, and it leverages on IBM to distribute to the consumers.
The issue with most software companies is that they are not inherently viral, and there usually are not enough inventories to make paid advertising work at scale. Plus, cold-calling usually will not work at Average-Revenue-Per-Account level. The key is through inbound marketing.
Inbound marketing is a technique for drawing customers to products or services via content marketing, social media marketing, and search engine optimization. And for inbound marketing to work, the business must have a great product with a high net promoter score (NPS) and be obsessively focused on funnel optimization.
Besides that, the OEM technique can work wonderfully for businesses aiming at hunting the rabbits.
4. Hunting Deer
In the hunting deer business, you want to acquire 10,000 customers paying you at least $10,000 per year each. The technique mentioned in hunting rabbits will work for hunting deer too. The traditional enterprise sales work usually is not enough to generate $100 million revenue when it comes to ARPA of $10k per year. And highly likely, you will still need to generate more than 10k leads in order to convert to paying customers.
When you are hunting deer, the transaction will be substantially higher. You are aiming at each customer paying you $10k per year, thus, you can use an inside sales force to close the leads. Not to mention that you can use the similar sales force to generate leads as well.
One potential method to boost sales to reach the hundred million dollar mark is through channel partners and Value-Added Reseller (VAR), whereby your business pays attractive commissions to these partners.
5. Hunting Elephants
Finally, you can grow your business into hunting elephants, selling expensive and high-ticket products. In this business strategy, you will need to acquire just 1,000 customers a year, and each customer will pay you $100k per year to hit the hundred million dollar revenue. And usually, your business clients will be large enterprises.
Companies that implement this strategy include SuccessFactors, Salesforce.com, Veera, and Workday. Businesses that follow this path have a more straightforward and direct approach. After all, you need only 1,000 customers. This happens when you have a good solution to a serious and significant problem experienced by large enterprises.
This can often be represented by a heart surgeon or a doctor who can cure stage-four cancer. Obviously, a heart surgeon earns a substantially higher pay than a general doctor who treats and care for all types of illnesses. And in this case, a heart surgeon can be represented by businesses that hunt for elephants, while a general practitioner can be represented by businesses that hunt for flies.
All five business strategies mentioned above, regardless of whether you are hunting flies, rabbits or elephants, as long as you follow the proven path, understand your business and clients, you can grow it to become a hundred million dollar business.
The truth is that it may take you years before you are able to build a $100 million business. Besides that, it will require a lot of capital, problem-solving skills, and hard work to make things work. And every business strategy requires different skills no matter you are selling physical products through e-commerce or selling software subscriptions.
Scaling Your Business: Two Factors
There are plenty of ways how you can build a $100 million dollar business. However, two factors that stand out the most when it comes to scaling your business to hit that target.
The first factor is the Life Time Value (LTV) of your customer. When you have a high LTV per client, you can generally spend more into customer acquisition because your customers tend to pay more than the average.
The second factor is the viral coefficient effect that allows your business to grow exponentially without worrying too much on the monetization or spending too much on customer acquisition.
Factor #1 – High Life Time Value Per User
A customer lifetime value is the total of all the financial profit a customer brings in for the business. Many business owners take LTV into consideration hand-in-hand with the ratio of Customer Acquisition Cost (CAC). For example, if a business has a four or five times LTV greater than the cost to acquire a customer, the business will be very interesting and has a higher potential for venture capitalist investment.
The biggest driver for a high LTV is repeating purchase behavior. Businesses that fulfill regular needs and offer a unique experience usually has a higher LTV. For instance, an e-commerce company selling supplements can have a higher LTV because their customers will come back to them and buy for more after they finish consuming the supplement.
Companies selling subscription-based products and services have higher LTV too. Take Adobe, for example, their clients will continue to pay to stay subscribed to their services and get updates from the company.
One of the biggest challenges in getting and evaluating the LTV metric is that the number can change drastically. This is because customer acquisition cost can be easily influenced by many factors. Apart from that, when efficient marketing channels are maxed out, the company needs to find new customers through other less efficient means.
Not only that, usually the users and customers who get onboard to the company often are strong advocates and act as a company and product ambassadors, while those customers acquired through paid marketing channels down the road show far less loyalty.
Factor #2 – The Viral Effect
Another crucial factor business owner should take into account is the viral effect generated from their business. The viral-ability or the network effect can be a powerful way to scale and let businesses grow to tens or even hundreds of millions of users. Think about Facebook, Instagram, Snapchat, and Whatsapp, and how the viral effect brought these companies to reach hundreds of millions of users.
Businesses that built in with this viral effect model will have lower customer acquisition cost or even free. Instagram, Facebook, and Whatsapp did not pay much to acquire users. It is their viral ability that makes the word spread and people use their services or products willingly.
However, things are a little different these days. As more and more people enter into business and create more start-ups, the market is getting more crowded each day. And the viral effect of a business has become a challenging milestone to achieve.
Many businesses built in the early days of the Facebook platform such as Zynga benefitted from a huge viral coefficient and scaled very rapidly. This is no longer the case as Facebook has removed most of the free viral-channels and business owners have to pay to advertise and to acquire new users through Facebook now.
The Problem Most Businesses Face Today
The problem with today’s start-ups is that most of the businesses find themselves stuck in the middle of these two factors. They have a low monetization per user and also very limited viral effects to leverage on. This combination, unfortunately, makes it difficult to reach the hundred million dollar mark.
As more and more people getting online and the online business space becomes more crowded, every start-up founder needs to be thinking about these two factors and how they can leverage on them to scale their business to a higher level. Having a cool product or providing a great service will not automatically scale your business.
The old adage of “build and they will come” is not going to work anymore. Take blogging for example. Today, there are hundreds of millions of blogs out there in the cyberspace. According to WordPress, there are over 1.97 million blogs created a day. And this figure is only referring to WordPress alone. MarketingProfs reported that there are over 2 million blog posts published each day. Hence, consider these numbers and think how you can rise above the crowd and stand out from the noise.
If your business strategy is to build a good product or provide good service and hope that customers will come to you, you are underestimating the market. While this is not to say that build a good product or providing great service is not important, it is simply not enough.
The competition is getting tougher each day, and one crucial key that will determine the life and death of your business is your distribution or marketing strategy. When you have a great product, you must know how to market it and distribute well so that the masses will buy what you have to offer.
Begin With The End
If you are serious about building a standalone company and capture the attention of investors, you will need a solid plan to scale your business. The earlier you figure this out the better. In fact, you should know and learn how to scale even before you start a business.
Thomas John Watson, the CEO who brought IBM into a stellar success, once said:
“IBM is what it is today for three special reasons. The first reason is that, at the very beginning, I had a very clear picture of what the company would look like when it was finally done. You might say I had a model in my mind of what it would look like when the dream — my vision — was in place.
The second reason was that once I had that picture, I then asked myself how a company which looked like that would have to act. I then created a picture of how IBM would act when it was finally done.
The third reason IBM has been so successful was that once I had a picture of how IBM would look when the dream was in place and how such a company would have to act, I then realized that, unless we began to act that way from the very beginning, we would never get there.
In other words, I realized that for IBM to become a great company it would have to act like a great company long before it ever became one.”
You have to begin with the end in your mind. Like what Tom Watson has to say, you must first have a clear and vivid picture of how your company will be like in the future, and then you come up with strategies and act that way from the very beginning.
Most start-ups today lack the viral effect and have low monetization per customer because they do not start with the end in their minds. They do not see the whole picture from a bigger perspective. Rather, they are like opportunity seekers and jump on the bandwagon without understanding their business.
When you know how to scale your business successfully, you can integrate and build your products or services around your marketing strategy, rather than building having a product or service first.
Hitting the $100 million dollar target is definitely not an easy task. It is very challenging, requires a lot of hard work, and you as the business owner needs to think out of the box in order to achieve that amazing feat.
References:
- msn.com/en-us/money/smallbusiness/how-a-33-year-old-made-dollar1-million-in-92-days-selling-kevlar-pants-online/ar-BBBGaSx
- versionone.vc/the-only-2-ways-to-build-a-100-million-business/
- quora.com/How-many-blog-posts-are-written-every-day
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