It is amazing how many businesses we have seen plateau at $5 million in revenue. Since the late 1990s, this magic number has been stubbornly consistent, even across industries. Countless entrepreneurs seem to be able to build their businesses to $5-10 million in revenue, only to then stall. We have seen it happen with value-added-resellers, branded products companies, professional services companies and in other industries. Why is it that so many business owners, so consistently cannot grow their revenue beyond this point? What is so special about the $5 million mark?
Delegate or Peak
The issues appear to be linked to the command and control structure of these businesses. At some point, in order to grow, an entrepreneur must relinquish substantial control to one or more able lieutenants. This is an uncomfortable transition and, as a result, many refuse to do it or fail to do it properly.
Our point of view is that $5 million in revenue is a proxy for the point that the entrepreneur can no longer find time to visit even one more customer or deal with one more operational snafu. It’s the point where the business must develop into something more than a personal sales support team and turn into a fully functioning (and growing) enterprise.
One of the problems business owners frequently cite is that it is costly and time consuming to train people to take over customer relationships, new account sales and other key functions in the business. It is always easier to just do it yourself than to coach a new guy how to do it. Since most entrepreneurs are already busy, it can be impossible for them to bite the bullet and slow down long enough to train someone.
Another, and potentially more important issue, has to do with expertise. We have seen many extraordinary sales people, for instance, build their companies from scratch quite skillfully. But some of these excellent sales people are not also great business builders and managers. When they try to step away from the first-hand interactions with customers, they stumble and find themselves gravitating back to the front line activities. Reinforcing this tendency is the fact that many of these business owners have developed personal relationships with their clients, and miss the daily interactions with their friends.
Time to Sell?
When businesses hit this command and control plateau, it might be time to sell the business. We see many great businesses that could thrive under new leadership that is willing to delegate control and make the investments in the senior leadership and infrastructure necessary to help the business thrive. Whether the business has plateaued at $5 million, $10 million or more revenue, these are situations where Bootstrap Capital can be a great solution.