How to Build a Billion-Dollar Business

There are lots of posts online about how to make your first dollar, or even how to grow a modest side business. But there’s precious little information on how to build a billion-dollar company.

Before we get into the how, though, there’s something I want to address–and that’s why. Why would you want to build a billion-dollar business?

Even if you have decided you don’t want to build a business that large, I encourage you to read this anyway…it may very well change your perspective on how large you want your business to be.

Pushing Through the FUD

There’s a lot of FUD (fear, uncertainty, and doubt) around building large businesses. In particular, news media loves to hate on “workaholics”–people who seem consumed by their work. Reporters dish on divorces or family fallouts stemming from overworked parents or people who just can’t seem to disconnect from their smartphones.

So, the logical choice, if building a huge business causes you to be overworked and potentially lose your family, is to start a smaller business, right? One where you can work on the side to begin with and not over-tax yourself. One where you can still see your family. One where you don’t kill yourself for your business. It seems like a utopian ideal. But is it really possible?

When you build a business on your own (no financial help, no partners, and nothing but your own time), it can cause enormous strain on your personal life. Suddenly, with no boundaries on when and where to work, you find yourself in a constant state of “I haven’t done enough” and “I should do more.” You start working more, but you still don’t seem to be accomplishing much. Without a partner or mentor to help you, you can sink pretty deeply into the trap of “busywork”–things that keep you busy, like updating Twitter or Facebook, but don’t move your business forward.

Is this the life you imagined? Is working so many extra hours a day, giving yourself backaches from sitting at the computer too long, and eating bad food–while always being on the edge about the next “beep” of your phone being an email from an unhappy customer–what you envisioned when you set out to build your business?

No? That’s what I suspected. If that’s where you find yourself right now–or it’s where you can see yourself if you continue down your current path–I have an unconventional remedy. It’s called thinking bigger.

Why Do So Many Small Businesses Fail?

There’s a gigantic disconnect in the world right now. Why, with an unprecedented amount of information on how to run a successful business online–everything from setting up websites to selecting the right shopping cart to getting traffic–are so many businesses still failing? It’s not for a lack of information on how to do it, that’s for sure.

No–the problem lies squarely with you, the business owner. This is a tough pill to swallow, but someone’s got to say it. And as someone who has also built businesses that struggled to make even enough money to pay myself, year after year, I’ve been where you are. Who better to be truthful than someone who’s been there?

One of the core problems is that you’re thinking too small.

Stuck in the trap of “A big business is too much work”, you’ve doomed yourself to running around, doing the jobs of 6 people while making the income of one person–or, truthfully, less than one person. Fear holds you back from growing your business larger, because while you’re doing the work of 6 people now, you can’t imagine growing your business larger. Growing it larger, after all, would mean you’d have to do more work. There’s no way you can put any more on your plate! It’s overflowing and bursting! Your family is already getting less time than they would otherwise. Growing the business may result in you getting a divorce!

It’s about this time that many business owners give up. “I could do better just getting a job,” they think. So they go back to working a day job, or consulting, or they scale the business down. That is, however, exactly the wrong decision.

Do You Know These Numbers?

It’s time to think strategically about growing your business. I see many new business owners who haven’t even mulled over the numbers. How many customers will it take to get you making enough money to comfortably live? What overhead do you have? Stop and think about these questions as they pertain to your business for a few minutes. If you can’t immediately snap your fingers and know how many customers you need in order to quit your day job and go into this full-time, that’s a problem.

And if you’re not sure what your overhead is (including telephone, computer, office space, etc.), you have an even larger problem. How do you expect to grow when you don’t even know what to do to get where you want to go? Your goal is to do this full-time…am I right? So what do you need to get there?

People who build successful businesses start from the outset with those numbers, and then work backwards. What’s the total market size? How many people search for those keywords every day on Google? How many people bought the best-selling book in that category? How many people can you reasonably expect to visit your website on a daily basis, and what percent of those do you expect to buy something? How much is your average order size? What percent of those orders go to overhead, and what is left over for you to take as profit?

These are the questions you have to ask yourself in order to transform your business from a side business to a profitable full-time venture.

Addressing Your Biggest Fear

I haven’t addressed your biggest fear, however. You’re already doing the jobs of at least 6 people. (Let’s count: Sales, marketing, support, admin work, tech/dev work, oh, yes, and you’re the CEO too!) If 1,000 orders suddenly came in, it’d be hard to keep up. Knowing that–consciously or subconsciously–you will predictably miss or blow opportunities to grow your business exponentially. After all, if growing your business is just going to put a bunch more work on your shoulders, why do it?

That’s why you’re better off building a structure for your business from day 1. Yes, on day 1 you’ll be wearing most or all of the hats. But what are those hats? And how many orders do you need per day (or how much revenue do you need per month) to hire someone for some of those tasks?

Even though your business is just you, right now, you still need an org chart. At the beginning it’ll be a whole lot of your name and no one else’s. But you’ll now have a clear path…at $x in revenue, I’ll be able to hire someone to do support for my business. Great! I don’t want to do support, so that’s motivating for me. (Replace with whatever you hate most about your business…support, tech/dev work, website maintenance…) It’s time to get some sales so you can hire this amazing person who will make your website shine. And you’re going to hire that person with profit. (That’s a fulfilling feeling–to hire someone with the money you’re making from your business!)

Now you’re starting to see the difference between where you were a week ago and where you are right now. Last week, you did not have a plan. You drifted aimlessly. You didn’t know what to do next. That is why you were Tweeting instead of making sales. Now you know what to do: Build your org chart. Put yourself in every position. Then find the position you like least. How much revenue or how many orders will it take for you to be able to hire that out? There’s your next goal.

Overcoming Your Fears

Ah, a billion dollars. It seems almost unfathomable! How the heck do you build a billion-dollar business? Most billion-dollar companies start out strategically, like the plan I’ve outlined above. It starts with a plan–but it also starts with acknowledging that this will be an extremely personal journey.

When you commit to building a billion-dollar business, you’re committing to change the world. A billion-dollar business will have, at a minimum, thousands of customers (I’ll address exactly how many below.) To do this, you have to be ready to break through all your personal fears and inhibitions.

I started on that journey at age 18–to break through my fears. By age 24, I was determined to build and sell a business for $1 million–a sum that seemed so huge to my young eyes. To someone who had never been paid more than $49,500 a year in a salary (that’s the salary I had when I quit my job in 2001), a million dollars was a paradise.

I completed that goal in 2007. So what’s next? I want to build a billion-dollar company. Why? Because that’s the impact I want to have on the world. I love building businesses. So why not build one that will employ hundreds of deserving people and serve thousands (or tens of thousands) of customers better than any solution on the market will serve them today? Absolutely. That’s why I’m here.

I know that “what is within is without”, and vice versa. That means that I have to be clear with who I am and what I want on the inside. It means I have to stare fear in the face and go build a business anyway. For me, this also means being radically transparent, acknowledging my mistakes, and moving forward regardless (as I did when I wrote about my earlier mistake in almost throwing away this blog.)

As a million dollars seemed so far away to me 10 years ago, a billion dollars does today. But as I quashed my lingering doubts about building a $1 million dollar business in my 20s, I will quash my doubts about building a billion-dollar business in my 30s. (I’ve been focusing hard on personal development over the past five years, and as a result, have surprisingly few personal doubts left.)

What Does It Take To Get To $1 Billion?

Jason Cohen and I had a great conversation about what it takes to get to a billion-dollar valuation. Software companies, for instance, are typically valued at 5-8x their annual revenue. Assuming a conservative valuation of 5x annual revenue, I’ve created the chart below, which shows how many monthly recurring customers you need to obtain a valuation of $1 billion:

The first thing my team and I noticed when we built this is how, if you charge your customers more money per month, you need far fewer customers to hit the magic $1 billion valuation. You only need 2,000 customers paying you $10,000/month each to get to $240 million in annual revenue–and believe me when I say there are plenty of large companies paying this much for all kinds of software. (Here’s a hint: Every time they don’t have to hire 1 full-time person, and can use your solution instead, they’ll pay those rates.)

At $99/month, though, you need two hundred thousand customers paying you to hit over $200 million a year in annual revenue. 200,000 customers! Now you’re looking at a significant portion of all website owners, for instance, or a huge number of small businesses. You’re also looking at a significant amount of overhead to find, sell to, and support those customers.

What we took out of this: Raise your prices. Find out what problems huge companies need to solve and market directly to them. That’s exactly where we are heading with Whoosh Traffic. (I’ll show you how to do that in another blog post.)

Your Action Items

Let’s wrap this up with a few action items:

• Know how big you want to grow your business, and what it will take to get there. Even if you don’t want to grow your business to a billion dollars, you need a plan. Wearing all the hats is a sure path to burnout. If you don’t have a plan for generating enough revenue to start hiring and/or outsourcing, stop now and write one. Go back through the questions I asked in this post and make sure you know the answers.
• Building a billion-dollar business may be easier than (or about the same amount of work as) muddling along and trying to “just make enough money to survive.” It does require you to stare yourself in the face and get through your own fears, though. It will only kill your relationship with your family if you let it.
• If you know in your heart that growing a business is the thing you want to do–if you live and breathe growing businesses–then I encourage you to set really big goals. Build a billion-dollar business? Sure, why not? There’s nothing more fun than going all-in on the thing you love most.

How do you plan to implement this strategy? Let me know via a comment below how you are taking action.