How to Build a How to Build a Company to $1 Company to $1 Million in SalesMillion in Sales

Presented ByPresented ByRyan P. M. Allis, CEO Broadwick Ryan P. M. Allis, CEO Broadwick

Corp.Corp.Author of Author of Zero to One MillionZero to One Million

October 4, 2005October 4, 2005Carolina Entrepreneurship ClubCarolina Entrepreneurship Club

Speech Introduction

• What I’m Going to Talk About• Quick Personal Background• Business Background

• How to Build a Company to $1 Million in Sales

• Email Marketing Software

• 19 Employees, 2900 Clients

• $1.6M in Annual Sales

• Web Marketing Consulting & SEO

• 7 Employees

• $350,0000 in Annual Sales

How to Build a Company to $1 Million in Sales

1. Decide what to sell2. Evaluate your Idea/product 3. Decide which type of company to form?4. Raise funding, or…5. Bootstrap and grow organically6. Determine your market positioning strategy7. Develop your marketing & sales strategy8. Build your team9. Become a good manager10.Build strong systems11.Scale the Model

Deciding What to SellFour methods for coming up with business ideas:

1. Continuously be aware of the products you use everyday. How can they be better? What need or pain do you have that could be fulfilled by a product or service that is not currently being provided?

2. Go to local networking events, seminars, conferences, etc. You may find someone with a good product or a good idea that is looking for partners.

3. Read magazines and publications that cover the industry you are interested in.

4. Intern or get a job at a company in the industry you are interested in. Work there to get experience and build contacts. Many times you will see product ideas in the course of your work that your company will choose not to pursue.

Product/Idea EvaluationThe key questions:

1. Does this product or service fulfill a real need?

2. Is the need that this product fulfills worth the price you plan to charge?

Other Questions to Ask:1. Does the product increase pleasure, increase utility, or reduce pain?

2. How valuable are the benefits the product gives to the customer?

3. Must the product be reordered?

4. Can a back-end for the product easily be developed?

5. Can it be obtained or produced for a low cost so as to support a high margin?

6. What is the current demand for the product?

7. Is this demand expanding?

8. How many other competitors are selling the same or similar product?

9. How many serious competitors are there?

10. What are the sales figures of these competitors?

11. How can the product be differentiated from competing products?

Product/Idea Evaluation

Product/Idea Evaluation

MAR Model for Opportunity Evaluation

MARKET ADVANTAGES RETURNNeed Barriers to Entry Investment Needed

Pricing Cost Structure Time to Breakeven

Market Structure Intellectual Property Expected Profitability

Market Size The Team Exit Strategy

Timing Business Strategy Expected Investment Return

Which Type of Company?

Three Key Questions to Ask Yourself:

1. Do I want to start a lifestyle business or high potential business?

2. Should I incorporate the business?

3. If so, which type of entity should I choose?

Lifestyle or High Potential?Category Lifestyle Company High-Potential Venture

Exit Strategy None Acquisition or IPO

Ownership Founder is majority owner No majority owner, CEO owns 5-30% of company

Financing Bootstrapped, organic growth, or self-financed

Angel investors or venture capitalists for seed round. Additional rounds until cash flow positive or sold

What is Sold Services or products with low differentiation Products with proprietary intellectual property or based on recent changes or new technology or high margin and value add services.

Family Members Often part of business Infrequently part of business

Entity Type Sole proprietorship, partnership, LLC, or S Corporation

C Corporation, usually incorporated in Delaware

Market Local or regional National or international

Failure Rate High Very High

Founders Makes Money From

Net profit disbursements Liquidity event and sale of equity

Board of Directors Composed of company members Composed of investors, industry leaders, and one or two company insiders

Systems Fewer processes or systems. Often only make money while open.

Many processes and systems. Make money even while owners are sleeping or operated around the clock.

International sales Few Many. May be international offices and/or manufacturing operations.

Should You Incorporate?

Incorporation has many benefits. The three most important are:

1. Reduction in personal liability

2. Tax advantages (pay taxes on net profits not net income)

3. Prospects, suppliers, and investors will think you’re for real

If you intend to take your business seriously, get incorporated.

What type of entity?Ask an attorney for advice on whether you should form an LLC, S corporation, or C corporation and what state to form it in.

Some rules of thumb based on my experience:

An S corporation is good for a smaller business and has some tax advantages, especially if you intend to be a lifestyle business.

However, if you want to raise investment capital, be taken seriously by venture capitalists, or ever sell your company, it will likely benefit you to be a C corporation.

As far as location goes, Delaware is the most common state to incorporate a business in if you plan on starting a business that will be seeking investment or ever plans to go public or be acquired. If you plan on starting something smaller, your home state is usually fine.

If you are starting a company with just yourself and money is an issue, you may wish to use an online service like incorporate.com. The cost is about $250.

If you are starting a company with multiple founders or one in which you plan to raise investment for, use a law firm. The cost is around $2500 but it will be worth it.

Raising Funding: Debt vs. Equity

The first step is to determine if you will need outside money to get your business going. If you do, you have to determine how much is needed and decide whether to seek debt financing or equity financing.

With debt financing, your company is loaned money that it will have to pay back over time with interest. Main sources are family and friends, your own contacts, and the bank. If you qualify, the SBA can be a big help with loans.

With equity financing, your company is given money it will not have to pay back in exchange for percentage ownership in your company.

Current value of company (Pre-Money Valuation) : $40,000

Investment Amount: $10,000

% You Own After Investment: 80%

% Investor Owns After Investment: 20%

Calculating ownership percentages:

Where to Get the Money

Usual sources of funds at different levels…

If you’re looking for You’ll most likely get it from

$1,000 to $25,000 Friends, family, your contacts, bank

$25,000 to $250,000 Angel investors, bank in some cases

$250,000 to $1.5 Million Group of angel investors

$1.5 Million+ Venture capital firms

Sections of a Business PlanIf you’re looking for any substantial amount of money, you’ll need a business plan. Here are the sections that are in a usual business plan:

• EXECUTIVE SUMMARY

• THE PRODUCT OR SERVICE

• BUSINESS STRATEGY

• USE OF FUNDS

• MARKET OVERVIEW

• MARKETING PLAN

• CHALLENGES & RISKS

• THE TEAM

• COMPANY PERFORMANCE TO DATE

• APPENDIX A – REVENUE, PROFIT, & BREAKEVEN PROJECTIONS

• APPENDIX B - MONTHLY BUDGET FOR NEXT 12 MONTHS

• APPENDIX C – QUARTERLY BUDGET 3 YEARS OUT

Bootstrapping & Growing Organically

It is certainly possible to create a successful company without any initial investment other than time and energy. This is often the only option available to young entrepreneurs. Here’s what you can expect if you go this route.

1. Be prepared to work 60+ hour weeks for a year or more without any salary.

2. Be prepared to wear multiple hats including CEO, CFO, COO, VP Marketing, VP Business Development, and Chief Executive Janitor

3. Be prepared to offer ownership in your company (equity) to purchase the intellectual property rights to the product you want to sell if needed.

4. Be prepared to offer ownership in your company to other team members until you can pay them a market salary

5. Be able to look at creative ways at getting legal and accounting advisors to provided discounted help including offering them a small piece of the pie.

Market PositioningTo develop you marketing positioning strategy, ask the following questions:

1. What is my unique selling proposition? What will make my product so different that customers will buy it rather than competing products?

2. What do I want my brand to stand for?

3. Do I want to have a low cost, competitive cost, or high cost strategy?

Common methods of differentiation include a lower price, better service, easier to use, a new feature, a new technology, or a better business model.

Marketing & Sales Strategy

It doesn’t matter how good your product or service is if no one knows about it.

To get started on your marketing and sales plan, ask yourself these questions:

1. How will the product be sold? In a retail store, online, by direct mail, by catalogs, by infomercials, through distributors, or by a combination?

2. Will you sell your product at wholesale, at retail, or both?

3. Is your main market businesses or consumers?

4. Where do customers go to look for the product?

5. How can we be positioned so that we’re in these places?

6. Could the price point support a telesales force?

7. Could the price point support a direct sales force?

Building a Web Positioning Strategy

Selling a product online can be a great way to reduce costs and have your product exposed to a large market. Start by building your web site, getting a merchant account, and getting a shopping cart or order form running. In terms of positioning your company and product online, there are four areas to look at

1. Search engine marketing

2. Email marketing

3. Affiliate marketing

4. CPC/CPM advertising

Building Your TeamInitially, it might just be you or you and a partner. As your company grows, you’ll need to hire staff to help you. If you never hire anyone you’ll be doing all the work yourself and be creating a job rather than a business.

I look for five things when evaluating candidates:

• Experience in the needed areas

• Communication skills

• Ability to take initiative

• Aligned goals

• Fit with company culture

Becoming a Manager

Once you have employees, you will have to learn how to manage them. Here are some tips.

1. Have a Vision and Communicate It. 2. Show Respect. 3. Share Your Success. 4. Don’t Be Too Serious. 5. Work With Your Employees. 6. Have Your Door Open. 7. Listen.8. Build Relationships. 9. Commend More Than You Criticize.10. Reward With Praise as Well as Salary.

Building SystemsInvestors invest in systems. Just as a human body is made up of a number of different systems, so is a healthy business. You will need to put in place systems in the following areas:

• Human Resources

• Billing

• Marketing

• Product Development

• Employee Training

• Accounting

But what are systems? They are just formalized rules, policies, and procedures that trained individuals are able to repeat time and time again as your company expands.

Key Question: Will your business be able to make money while you sleep? All highly successful businesses do.

Scaling the ModelOnce you’ve found a business and sales model that works, think about how you can scale it. If you’ve been able to build your company to this point without outside capital, now may be a good time to get some outside capital and put your foot on the accelerator.

Ways to Scale:

1. Set up sales offices in other areas and expand the business in those locations.

2. Either find partners or set up new offices overseas.

3. Considering franchising your business if applicable.

4. Bring on better talent that may have additional knowledge on how to open up new routes to market.

5. Expand spending on advertising efforts that have shown to be effective.

Where’s the Exit?

A company can exit in just three ways:

• Get bought by or merge with another company

• Get bought by the general public by having an initial public offering

• Go bankrupt

If you’ve been able to create a successful company with paying customers, an in-demand product, an experienced team, and solid systems you’ll be well on the road to reaching the $1 million mark in sales. Although this is a worthy goal, the end goal for many is an exit event which may take quite a few years longer to reach.

For many entrepreneurs with high potential businesses, being acquired or going public is the end goal. It generally takes at least five years to reach this point, although the time can be less in certain situations.

Avoiding Failure

• Have a poor concept;• Are not good at marketing or sales;• Fail to plan;• Start the company without enough money to get to breakeven;• Have an inability to differentiate;• Lack control of their finances and books; or• Don’t build systems and processes.

While getting acquired or going public is often the goal, the outcome of a business is more often bankruptcy.

According to a longitudinal study conducted by the United States Small Business Administration, approximately 60% of small businesses shut down within the first six years. Small businesses fail for numerous reasons. The most common reasons are because they:

Spending the time in the beginning making sure you’re selling something the market wants and making sure that as you grow you bring on a good team and a good set of advisors can greatly increase your chance of success.

Principles for Entrepreneurial Success

1. Have a Bias Toward Action

2. Don’t Be Afraid of Failure or Mistakes

3. Work Your Butt Off, But Keep a Balance

4. Write Goals Down & Follow Up Monthly

Some Final Words of Advice

1. Being an entrepreneur is not for everybody. But if you find it for you, and you can find a way to succeed, it is extremely rewarding.

2. If you presently do not have the financial resources, the experience, or a good business idea, intern at or get a job at a company in an industry you are interested in and start building your network and gaining experience.

3. Always focus on building relationships and expanding your network. Remember that it’s half what you know and half who you know.

4. Don’t be afraid of failure or mistakes.

5. Get out there and do it. Take the initiative and have a bias toward action. Get experience however you can, have confidence, and be in it to win.

6. Write down your goals and frame them. Aim high. Follow-up monthly.

7. Get started today.

Recommended Books• The Lexus and the Olive Tree by Thomas Freidman• Reinventing the Bazaar by John McMillan • The Commanding Heights by Daniel Yergin• New Venture Creation by Jeffrey Timmons• Zero to IPO by David Smith• Rich Dad Poor Dad by Robert Kiyosaki• Rich Dad’s Guide to Investing by Robert Kiyosaki• The Tipping Point by Malcolm Gladwell• The Idea Virus by Seth Godin• The Anatomy of Buzz by Emanuel Rosen• Think and Grow Rich by Napoleon Hill• The Seven Habits of Highly Effective People by Stephen Covey• How to Win Friends & Influence People by Dale Carnegie

For More Information

• Visit www.zeromillion.com, my web site on entrepreneurship

• Visit www.ryanallis.com, my personal web site• Check out my book Zero to One Million,

available on amazon.com

My company sites:• Broadwick – www.intellicontact.com • Virante – www.virante.com

Q & A

Questions?