How to Build a $1M Small Business

In a 2014 blog post, Christoph Janz, SaaS investor and co-founder of Point Nine Capital, wrote that there are five ways to build a $100 million business. You need either:

  • 1,000 customers that pay $100,000 per year (These are called elephants.)
  • 10,000 customers that pay $10,000 per year (called deer)
  • 100,000 customers that pay $1,000 per year (called rabbits)
  • 1,000,000 customers that pay $100 per year (called mice) OR
  • 10 million customers that pay $10 per year (called flies)

Janz builds on a popular hunting analogy used by salespeople, as a creative way to describe how businesses need to lure each of the five types of animal. The point is that you wouldn’t try to lure an elephant the same way you would a trap a fly.

Elephants are difficult to capture, it’s a lot of hard work, and you probably won’t end up getting many of them. Deer are fast moving and difficult to catch, but once you land them they make good customers. Rabbits are plentiful, but they can be tricky to catch and are fickle.

If you know your target customer and how much they are able pay, Janz asserts, you can align your marketing and sales and marketing effort to reflect attracting kinds of customers. And while he was writing about SaaS (software as a service) businesses, this applies just as well to service-based small businesses like yours. 

How many animals does your business need?

Small service-based businesses rarely serve 100 clients simultaneously, but we can apply the same theory of understanding and targeting your clients.

Let’s look at a small business who is striving to build a $1 million business, which might break down like this:

40 elephants at $25,000/year = $1M
100 deer at $10,000/year =  $1M
200 rabbits at $5,000/year = $1M

1M Business Chart

The idea is that to build a $1M small business, you need to understand the average price point for different kind of customers, and then you need to set specific goals as to how many of each type you need.

To grow to 50-100 customers you will need to understand the cost involved to scale to this level and how you will serve them all simultaneously.

This approach also requires a steady revenue stream on an ongoing basis. So these are not one-off contracts but recurring revenue streams that are set up as recurring contracts, rather than one-time fees (otherwise you will have to find a new set of 50-100 customers every year!) This tiered recurring revenue model can be very successful for small businesses, as long as you understand what sort of infrastructure and resources you need to attract more of these types of clients.  

The hunt for small business customers

Prospective customers who will spend $10,000 or $1,000 per year need a much different sales and marketing approach than customers who will spend $100 or $10.  

How do you diversify your offerings, attract each type of client, and market effectively to them? One way is to build strong partnerships with the vendors you work with. That way you can cross-promote each other’s businesses and services, and provide trusted referrals to each other.

Hunting mice and flies to purchase lower-priced items means attracting large volumes of prospective or trial clients through social media and viral marketing campaigns.

Rabbit-hansbenn-pixabay-1581187_640

Hunting rabbits requires solid inbound marketing techniques, where you’re providing solutions that people with a specific problem are searching to solve. Here’s where you write amazing content about the right topics, and present at meetings, conferences and other events. This is the majority of the marketing we do in our business at NewPath Consulting, and we find it’s really been the only way to get rabbits.

Deer-Unsplash-pixabay-731343_640

Hunting deer on the other hand, who will pay a much larger amount of $10,000 per year, requires salespeople reaching out to customers who are capable of paying that much. The owner has to either
be a salesperson, or hire salespeople who specialize in the types of customers who pay $10,000 per year. Still, it’s unlikely you’ll close most of these as cold calls. Getting deer really depends on those vendor relationships we spoke of earlier: partnership programs, referrals, or the added value of having someone who can provide service and support for a product.

Elephant-Amandad-pixabay-402517_640
Hunting elephants requires the strongest relationships, along with recognition in the marketplace. And this happens after you land a lot of deer and rabbits. That’s why very small service businesses should focus mostly on attracting rabbits and deer. When you land an elephant, a lot of attention has to go towards a small number of clients, and you cannot pay as much attention to landing more deer and rabbits.

Hunting clients for a small business takes a clear understanding of the specific types of clients you want to attract to your business, and what it takes to land them. You can’t use the same tools to attract an elephant as you would to attract a fly.

About the author

Alex is a pioneer in using the cloud to meet the needs of small and medium sized business (SMBs) and membership-based organizations. He has a BSc in computer science from the University of Michigan and has worked as a product manager at two Internet startups. Alex is a father of 2 and plays the trumpet for fun. He is the founder and the president of the University of Michigan Alumni Club of Toronto.