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To Take Your Startup From $0 to $1 Million, You Have to Get This Right

your business needs to work at the smallest unit level possible before you even think about scaling

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how to build a successful business

According to the Bureau of Labor Statistics, small businesses make up 99.9 percent of the businesses in America. That’s impressive. What isn’t impressive, though, is that only 7 percent of them reach $1 million in revenue.

As disheartening as that statistic might be, there’s really only one reason why 93 percent of small businesses never reach the million-dollar mark. In almost every instance, the reason a small business struggles is that the entrepreneur or small business owner fails to get their unit-level economics right. (This term refers to your specific business’s revenues and costs as they relate to an individual unit.) 

What does that mean for you as an entrepreneur and would-be empire builder? If you want to build a billion-dollar business—and ultimately, an empire—first you have to build the perfect million-dollar business. No, scratch that: first you have to build the perfect hundred-thousand-dollar business. In other words, your business needs to work at the smallest unit level possible before you even think about scaling.

Get It Right Small

I can’t tell you how many times I’ve heard entrepreneurs say, “I’ll figure out how to be profitable once I’m bigger.” That’s the mindset that gets small business owners into trouble. Get it right small—or walk away early, before you waste valuable time, money, and effort on a losing proposition.

If you aren’t sure how to do that, don’t worry. We’re going to walk through how to check your unit-level economics right now. For the purposes of example, we’ll use a landscape maintenance company, but the concept holds true for every kind of business in every kind of industry and every geographic market.

The first step to getting your unit-level economics right is to identify what they are. In our mythical landscape maintenance business, the unit-level economics—based on some lightly researched numbers—are the monthly payment, fuel costs, insurance costs, and maintenance reserves for one truck ($1,400), one fully burdened (includes wages and benefits) two-person crew ($8,736), and the operating costs of the equipment necessary to maintain your customers’ lawns: a commercial lawn mower, a blower, a weed whacker, some rakes, shovels, and so on ($400).

Build Your Mathematical Formula for Success

Now that we’ve identified those, we can build a mathematical formula for success. This formula is specifically focused on revenue and direct operating costs; it does not include capital expenditures or Sales and General Administration (SG&A) costs—you’ll factor those in later.

Add these numbers up, and you get your unit-level direct operating expenses: $10,536/month, or $126,432/year. Now, you need to ask yourself a question: Can I bring in enough revenue to cover my direct operating expenses while leaving enough gross profit to cover overhead and generate the minimum acceptable net profit?

Again, let’s use some lightly researched numbers to explore how you can find the answer to that question. For illustrative purposes and simplicity, this example assumes a warm climate where lawns are cut throughout the year. A typical crew can cut 15 lawns per day, at $50 per cut. Assuming an average of about 22 cutting days per month, the average monthly revenue per crew is approximately $16,500, and the average annual revenue per crew is approximately $198,000.

Subtract the annual unit-level direct operating cost ($126,432) from the annual average gross revenue ($198,000) to get the annual gross operating profit per crew. The answer: $71,568, or 36 percent. Now, deduct the SG&A (which includes your costs to manage the business, get customers, pay yourself, and so on). It should never be more than 20 percent, so let’s assume 20 percent, which will leave you with 16 percent in pretax net profit. The minimum pretax net profit percentage a business must achieve to be viable is 10 percent, so in this example, the unit-level economics seem to work.

To build a successful business, you must start small and dream big.” — Aliko Dangote

Factor in the Variables

Of course, there are a lot of variable costs built into this formula. The cost of gasoline, insurance, and labor costs can go up, for example. So can the cost to service and operate your equipment. The revenue you can get per lawn can fluctuate, too, as can the number of lawns your crew can cut each day. You also need to account for bad weather days or times when a worker calls in sick. 

All of these scenarios mean you need to be very diligent about monitoring your variable costs to ensure your unit-level economics remain sound. But ultimately, by getting the variables right and tracking the basic economics of your business at the very smallest level—in this case, the economics of running a business with one crew—you create the foundation from which you can build an empire.

Once you’ve perfected your operating formula, you can determine exactly how to scale to $1 million. Let me show you how to do this using the same numbers we came up with initially. Take your revenue goal ($1 million), and divide it by your annual revenue per crew ($198,000). That calculation returns an answer of 5.05, but since you can’t buy 0.5 of a truck or hire 0.5 of a crew, let’s round up to 6. So, you need 6 trucks and 12 employees to hit your revenue target.

Six trucks and 12 employees will bring in about $1,188,000 in revenue; $427,680 in gross profit; and $190,080 in pretax net profit. To hit your revenue targets, you will need 450 regular weekly customers.

Take Your Business to $1 Million

Again, these numbers are just to illustrate the fundamental concept. The bottom line is that success is tied to your unit-level economics. 

Get your formula right at the smallest level, and you will be well on your way to ensuring your small business is one of the 7 percent that reach the million-dollar milestone. Get it wrong, though—or fail to consider it at all because you assume profitability is tied to how big your business is—and chances are high that your business will fail to reach the million-dollar mark…and may even fail altogether.

For more advice on how to take your business from $0 to $1 million and beyond, you can find Empire Builder on Amazon.

Empire builder, CEO coach, in-demand speaker, and three-time #1 bestselling author Adam Coffey builds high-performance cultures that drive transformative exponential growth. A CEO for more than two decades, he led three national private equity-backed service companies for nine PE sponsors, completing 58 acquisitions and realizing billions of dollars in successful exits. Coffey is a founding partner of CEO Advisory Guru, serving as management consultant and independent director to PE portfolio companies, family offices, and elite executives. His specialties include growth strategy, mergers and acquisitions, new business development, and exits. A proud US Army veteran, Coffey lives in Texas with his family.

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Success Advice

Mindful Productivity: How Top Achievers Combine Focus and Balance

By being aware of your emotions, thoughts, and surroundings, you can work with your internal and external environments

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Mindful productivity

Your big-dream goals matter … but not at the expense of your health. (more…)

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Change Your Mindset

The Art of Convincing: 10 Persuasion Techniques That Really Work

The knack for persuading others can act as a catalyst for change, open doors, forge alliances, and effect positive change

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how to be more persuasive

Persuasion is not as complicated as it may sound. In fact, it is something that we have been practicing since childhood. Do you remember convincing your parents to let you skip school, asking your teacher not to assign homework, or persuading your boss to give you a day off? Well, these are just small examples of what persuasion looks like. (more…)

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Success Advice

5 Steps to Leveraging Industry Speaker Events for Career Advancement

Jumping into industry events is a smart move for your career, but there’s a knack to it

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How to advance your career by networking

Jumping into industry events is a smart move for your career, but there’s a knack to it. It’s not just about sitting in a room full of people. You’ve got to find the ones that fit your career puzzle, dive in while you’re there, and then make the most of what you’ve learned afterward. (more…)

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Success Advice

Overcoming Plateaus: 6 Powerful Strategies for Breakthrough Success

A plateau is not a full stop; it’s a comma that allows you to pause, reflect, and shift gears

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how to overcome obstacles for success

In the pursuit of personal and professional growth, plateaus are inevitable. They appear when progress seems to halt, despite your continuous efforts. But remember, a plateau is not a full stop; it’s a comma that allows you to pause, reflect, and shift gears. This article provides six powerful strategies to overcome plateaus and achieve breakthrough success.

1. Find Out the Root Cause

When facing a plateau, there is likely something causing you to sabotage your progress. Identify the root cause. What is sabotaging your progress? Examine your daily routine and how you spend your time. Are you wasting time on unnecessary activities? Or are you taking on too many tasks that you can’t handle?

Often, adding more tasks overloads your already tight routine and distracts you from focusing on the most important tasks. Therefore, often eliminating unnecessary activity will work to overcome plateaus. However, be cautious of not doing things right, such as tasks you have not yet undertaken or missing something. What actions do you need to take or improve to achieve your goal? Are you avoiding them, or have you not started yet?

2. Never Tolerate Problems

Once you’ve identified the root cause, never tolerate problems. If you tolerate them, you’ll end up staying stuck. You get what you tolerate. Once you recognize the problem you’re facing, never tolerate it. Instead, address and improve the situation.

3. Focus on a 100% Solution and 0% Problems

To overcome a challenge, it’s essential to plan how to get through it. Yet, people often find themselves asking, ‘Why is it bad?’ or ‘What is wrong with it?’ Questions of this nature limit our thinking, leading our brains to generate responses like ‘Because you’re not good enough’ or ‘Everything is wrong with you.’ These limited answers tend to resonate with the situation and drag you down further.

Instead, ask empowering questions without limits, such as ‘What is not perfect yet, and how can I turn things around while making a more positive impact?’ By asking unlimited empowering questions, you’ll shift your focus from the problem to the solution. Additionally, you will also notice that asking empowering questions can expand available options and allow you to see from an angle you couldn’t see before.

Focusing on problems rarely yields positive outcomes. The key to positive results lies in concentrating on the solution. The next time you face adversity and notice getting caught by unresourceful thoughts, snap out of it and direct your focus to a 100% solution and 0% problems.

“Obstacles are those frightful things you see when you take your eyes off your goal.” – Henry Ford

4. Cultivate Success-Driven Traits

Identify the traits you need to have and get rid of to become the person you aspire to be. Consider your specific goals – for instance, attracting positive relationships. To achieve this, note down the traits you need to embrace, such as being open-minded, gentle, healthy, and treating others the way you want to be treated.

Cultivate a positive mindset. Simultaneously, get rid of traits like criticizing others, having a short temper, and engaging in unhealthy habits like taking drugs.

Learn from individuals who have achieved similar goals. Study their traits, both the ones they have and those they’ve consciously avoided. Implement these traits to align with the person you want to become.

Once you have your lists of traits to embrace and eliminate, diligently follow them. Place the list on your desk or the door of your room, ensuring you read it at least once a day to reinforce your commitment to these traits.

5. Track Your Habits

Carry a notepad to track your habits throughout the day, especially those contributing to plateaus, as well as your new habits or traits aligned with achieving your goals. For instance, if your root cause is excessive internet use, record instances of mindless scrolling on social media. Note when you engage, the emotional state prompting it, and the approximate duration.

Calculate the total minutes wasted at the end of the day. This habit tracking makes you aware of the emotions triggering these behaviors (stress, boredom, and frustration) and the time wasted.

Additionally, track positive new habits, like reading good books and exercising. Document what you’ve learned from the book and the time spent exercising. This practice helps you build new positive habits by enabling you to compare today’s results with those from yesterday or a week ago. 

Moreover, consistently sticking to new habits for around 18 months transforms them into lifelong habits. Even if you take breaks, you will find yourself naturally returning to those habits.

6. See Obstacles as Opportunities

Every obstacle can be an opportunity to turn things around. If the economy is in a downturn, it’s time to recognize it as an opportunity to thrive while everyone else is struggling and focused on the problem. If someone makes fun of you or causes you trouble, ask yourself, ‘What can I learn from this experience?’

Alternatively, consider that the person underrating you is setting low expectations, which are easier to exceed. If your business receives a bad review from a customer, see it as free feedback that guides you on how to improve and take your business to the next level.

Always try to see different angles that others may overlook. This perspective can reveal aspects you might be missing. When you view a problem as an opportunity, it has the potential to foster growth.

In the journey toward success, plateaus are just temporary pauses, not dead ends. So, keep moving, keep growing, and make your breakthrough.

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