If you are a seasoned business person, read many business books or have had any amount of business training, you have probably heard that 80-90% of all businesses fail within 5 years. I have been spreading this message for years partially because one of the reasons companies fail is lack of planning and in my case and reason for using this statement is due to lack of marketing planning.
As I was reading this morning I found another interesting fact that I had not heard before and I thought I would share it with you. There are roughly 28 million firms in the US. 96% of these companies create revenues of less than $1 million annually. Maybe this is a no-brainer, but I was surprised to think that only 4% reach the $1 million plus mark.
At this point we fall in the 96% group, but our goal is break this mark in the next 3 years. Is this possible, can we reach the top 4% of US companies? Well, we shall see. We do however have this as a goal to reach and only now do we realize how few people actually reach this mark.
1 in 10 reach the $10 million in annual revenue mark. That’s .4% of all US companies. Why do you think so few make either of these marks? Do you think it also is lack of planning? Or is it something else like lack of leadership or as mentioned in Good to Great not having the right people on the bus or the right people in the right seats on the bus?
What goals do you set for your company? Where do you want to be compared to all other US businesses? Feel free to add your thoughts in the comment section below.
Dale:
Very interesting numbers. Some businesses may not be able to make the $1M mark just because of what they sell. I would guess the majority of businesses are retail, don’t know for sure, but think about what it would take for an ice cream shop or small restaurant with only one outlet. They would have to sell over $80k in product each month. A house painter with a small crew probably has no chance to reach $1M in a year. Manufacturing or multi-site businesses have a better shot and my guess is you can create a long list of reasons why they may not be able to hit the $1M mark including the ones you mentioned plus fear of the unknown with the potential of higher taxes and health care costs or a lack of capital to expand. In the end I think one of the key components for business growth is the multiplier. Is there a product or service that you sell that you can sell large quantities of without significant expense or personnel? If there’s not a multiplier the $1M number may be forever out of reach.
Dale:
Very interesting numbers. Some businesses may not be able to make the $1M mark just because of what they sell. I would guess the majority of businesses are retail, don’t know for sure, but think about what it would take for an ice cream shop or small restaurant with only one outlet. They would have to sell over $80k in product each month. A house painter with a small crew probably has no chance to reach $1M in a year. Manufacturing or multi-site businesses have a better shot and my guess is you can create a long list of reasons why they may not be able to hit the $1M mark including the ones you mentioned plus fear of the unknown with the potential of higher taxes and health care costs or a lack of capital to expand. In the end I think one of the key components for business growth is the multiplier. Is there a product or service that you sell that you can sell large quantities of without significant expense or personnel? If there’s not a multiplier the $1M number may be forever out of reach.
Chuck,
Excellent comments. Of course there are a ton of lawn care services and house painters that may never see a $1 million year. In this case though, I am wondering if this might be lack of planning and leadership. Is it even possible at all?
So let’s say instead of starting a lawn care business because you were in need of cash, had a mower and enjoyed being out in the yard. Let’s say that the entrepreneur that starts the company wants to start a lawn business that (s)he can grow and expand with a goal to go national. If they charge $25 per lawn (hour) they need to mow 40,000 lawns. Let’s say they mow their clients lawns 10 times a year. That means they need 4000 clients a year. What if they added landscaping and maybe pool cleaning and snow removal (depending upon where they do business). If they can only get half of their clients to add on some of these other features at $25 per time (to keep it simple) and they service these clients only 4 times a year, this would knock of $200k of the top. I don’t know maybe it isn’t possible for some companies.
I do know that I started my company similar to the lawn care guy. I knew nothing about planning, strategy, financing and growth. I have certainly worked on learning a few of these things strategy and planning were easier for me to pick up than the financing, sales and growth. If I had it to do all over again, I would have done it similar to the second lawn guy. More planning and strategy up front, knowing target markets and understanding how best to sell to them and how to best manage the financial side of the business. So finding the multiplier is key. I too and planning how to add a multiplier to our business since selling a $25 lawn clipping is a long hard road.
I am wondering if thinking almost franchise like and developing standardized systems would be a multiplier. As for the lawn care guy or the B2B company.
Capital is a big factor for a lot of businesses. Cash is king and without it you are “stuck” as a friend of mine likes to say.
It will be an interesting journey to $1 million or as close as we can get to this number. As always it is fun finding the multiplier or business edge to get there.
Chuck,
Excellent comments. Of course there are a ton of lawn care services and house painters that may never see a $1 million year. In this case though, I am wondering if this might be lack of planning and leadership. Is it even possible at all?
So let’s say instead of starting a lawn care business because you were in need of cash, had a mower and enjoyed being out in the yard. Let’s say that the entrepreneur that starts the company wants to start a lawn business that (s)he can grow and expand with a goal to go national. If they charge $25 per lawn (hour) they need to mow 40,000 lawns. Let’s say they mow their clients lawns 10 times a year. That means they need 4000 clients a year. What if they added landscaping and maybe pool cleaning and snow removal (depending upon where they do business). If they can only get half of their clients to add on some of these other features at $25 per time (to keep it simple) and they service these clients only 4 times a year, this would knock of $200k of the top. I don’t know maybe it isn’t possible for some companies.
I do know that I started my company similar to the lawn care guy. I knew nothing about planning, strategy, financing and growth. I have certainly worked on learning a few of these things strategy and planning were easier for me to pick up than the financing, sales and growth. If I had it to do all over again, I would have done it similar to the second lawn guy. More planning and strategy up front, knowing target markets and understanding how best to sell to them and how to best manage the financial side of the business. So finding the multiplier is key. I too and planning how to add a multiplier to our business since selling a $25 lawn clipping is a long hard road.
I am wondering if thinking almost franchise like and developing standardized systems would be a multiplier. As for the lawn care guy or the B2B company.
Capital is a big factor for a lot of businesses. Cash is king and without it you are “stuck” as a friend of mine likes to say.
It will be an interesting journey to $1 million or as close as we can get to this number. As always it is fun finding the multiplier or business edge to get there.