How To Build a Billion Dollar Business
As a million dollars seemed so far away to me 10 years ago, a billion dollars does today.
By Erica Douglass (Co-Founder & CEO, Whoosh Traffic)
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. 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 – t o 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 one 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.
This post was originally posted at Erica.biz.
About the guest blogger: Erica Douglass is the Co-Founder and CEO of Whoosh Traffic, an SEO tools company. Erica sold her first tech company for $1.1M at the young age of 26, and is now growing another successful tech company in Austin, Texas. She blogs at erica.biz about business. Follow her on Twitter at @ericabiz.