Topping $50 million in revenue is a huge milestone. It’s a sort of coming-of-age story for business. Your official welcome to the junior-heavyweight division of the business world.
But it comes with serious temptations that might knock you out.
You need to prepare well before you enter the ring.
Uber’s Uber Cash Burn
Uber shot well beyond the $50 million mark in almost record time. They took a very aggressive approach and burned through literally billions in cash to become King of the Hill.
But how did they do it?
Uber prioritized expansion over profits, using investor money to offer artificially low rides and ridiculous sign-on perks for drivers. They knocked down city after city like a row of dominoes. Conquering the country before regulators could get their boots on.
While the strategy clearly worked, Uber had some serious problems!
Since the cheap rides didn’t cover the high costs, Uber had no positive cash flow from the business. They had to pump in more investor cash constantly. Taking on more and more debt and diluting equity all the while.
Eventually, Uber was able to steady the ship, but not without a lot of turmoil, investor mistrust, and rocky leadership changes.
Many famous companies achieved dominance by prioritizing growth in the early stages.
The key lesson is not to mistake growth for financial health. Your approach should center on a sound and sustainable business model. Delay profits, but make sure you have a workable plan ready for the profitability stage. People commonly refer to this as “Unit Economics”; the fundamental business model must be profitable, generating more revenue than expenses.
Blue Apron’s Rapid Hire Machine Gun
Another big challenge of growth is building the workforce.
In the beginning, you leverage a lot of your own time as a founder. This is another artificial way to reduce costs. Ultimately, the underlying business model still has to work. When you trade money for other people’s time—namely, your employees or contractors—you need enough margins to pay for it.
You might remember Blue Apron, a promising startup until it started scaling.
Founded in a chef’s kitchen in New York, Blue Apron delivers gourmet meal kits straight to your door. Launching in 2012, it took off like wildfire. Soon they were delivering millions of meal kits all across the country. In 2017 they went public with $2 Billion valuation!
But growth can be addicting.
They started hiring aggressively and opening up fulfillment centers wherever they could and scaling up their customer service department. Fixed costs, like salaries and property leases, went through the roof.
But it wasn’t just the employee headcount that grew.
With all the exciting growth, Blue Apron spent a lot of money on high-salaried top-level executives. Injecting fresh blood can be a boost for some companies, but it also brings a lot of change. Change things too fast and too often and you’ll confuse the entire organization.
The high spending and rapid hiring weren’t the worst of it.
At the core of the business was a fatal flaw. Instead of upselling those that bought a kit and getting them to subscribe, an efficient way to get more revenue, they put all their focus on winning new customers. They spent a fortune marketing to one-time customers who never returned. In addition, logistics and delivery costs were digging deep into what little margins remained.
As you probably guessed, it didn’t end well.
Stock value collapsed like a Jenga tower made of bouncy balls. By 2019, stocks were trading for less than $1 per share and the company began massive layoffs. Wonder Group bought blue Apron for a mere $100 Million, a tiny fraction of its original $2 Billion evaluation in 2017!
The lessons are clear.
The core structure must make sense. Your product or service needs to make more money than it costs. That includes marketing costs and salaries. In addition, balanced hiring is the key to sustaining growth. As you expand, be sure to invest time and money into proper training and procedures. Culture should be just as, if not more, important than making quick cash.
Lastly, leadership shouldn’t be about getting big shots with hungry wallets onto your bus, but finding the right strategic, experienced partners to help you grow thoughtfully.
Key Takeaways
There is a lot more to discuss, but here’s what I want you to walk away with.
Breaking $50 Million is an ambitious and worthy goal for your company’s next leap forward. But as you get excited and start revving your engine, be thoughtful. Nothing is stopping you from growing fast. But have a plan to end up with a profitable model that can sustain itself.
I sincerely hope you this article will help you get there.
