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The 3 issues you’ll need to overcome if you want your start-up to reach £1m turnover

April 9, 2015

According to research, around 7% of working age adults in the UK expect to start a business in the next three years.

Many of these aspiring new business owners will be envisaging a multi-million pound business, or even a multi-billion pound business. But, statistically, only 4% of business owners ever reach the £1million turnover mark.

So, what’s holding back more than 2.5 million UK businesses from breaking that £1million barrier?

It turns out that there are some striking differences between the ‘micro’ business owner and the owner of a £1million enterprise, and it all begins at the start-up stage:

1. Birth

The first year of any business is the most critical. And how businesses start often sets the foundation for future problems.

Here’s a sobering fact: two thirds of people attempting to start their own business will delay or give up before they get started. For the remaining third—in addition to passion, skills and the value of the core product/service—pure perseverance is key to survival.

But the start-up year not only defines whether a business has any survival potential, it also points to that business’s prospects of reaching the £1million mark. This is because, as important as passion, skills, the value of the core product/service and perseverance are, they’re not enough.

It’s what an entrepreneur doesn’t know, and how they go about identifying and filling that knowledge hole that separates the £1million-plus turnover business from the also-ran.

Starting a business requires no formal education or qualification. It takes more than a trained chimp to complete the process of going online and registering a new company, but not a great deal more.

The bar to entry is low. And that leads many people to assume that what they already know is enough to guarantee a runaway success. Then they spend their first year ‘learning to walk’. Crucially, they’ve failed to focus on and develop fundamental skills that will allow them to break through the £1million mark in the future.

A perfect example of this was one of my first clients. He had never run a business before his current venture. He had been an employee beforehand in the same industry for just over a decade, so he obviously was well versed in what his customers wanted from him.

This meant he easily set up his business, got it running and got to a level of reasonable success. However, once he got to the £270,000 revenue mark, he found he was struggling to scale beyond that point. He had tried everything he could and just couldn’t figure out how to make his business bigger.

The fact was, there were a few simple levers we could adjust – there were a few strategies we employed to increase his margin and his leads which were easy to implement – and this had dramatic effects on his revenue and his gross profit.

If he had known how to set up these leveraged methods from the beginning, he could have easily reached the £1.2 million revenue he’s sitting at now much faster.

2. Growth

There’s something called the Hindu Rate of Growth. Coined by the Indian economist Raj Krishna, it refers to India’s pre-1990s low annual growth rate: an average of around 3% each year. It’s just enough to keep pace with inflation.

But how many years does it take a £500,000-size business to cross the £1million mark if it grows at 3% every year? Despite the magic of compounding, the answer is 24 years!

That’s a lifetime for most business owners—about the time many would be starting to think about retirement—but many businesses fail to breach that 3% ceiling. Why? It’s because their initial steps as a start-up led them to occupy a position where further improvement and growth is too complex for them to handle and pursue.

This is exactly what happened to my client – he got stuck at a point where he didn’t know how to expand anymore because he was relying on his basic knowledge of the industry, rather than knowing the tools that would allow him to really launch his business into fast growth.

In order to break through this ceiling, new systems need to be employed to allow for growth to happen while at the same time managing the increasing complexity of the business.

Put bluntly, the methods employed by many entrepreneurs to run a successful small business start-up simply cannot support larger, more complex teams and issues.

A business on the path to the £1million mark needs to find an outside party to shine fresh light on its processes. By bringing in someone who isn’t so close to the company, issues can be identified and solutions provided, thereby decreasing complexity and increasing leverage.

3. Language

Whatever the product, whatever the market, every business needs to master communication.

But many entrepreneurs forget (or never learn) that businesses all over the world speak the same language: numbers.

Profit, Sales, Cash Flow, Receivables, Assets, Equity, ROI, Average Value Sale, Conversion Rate—these are all numbers that a successful business person must understand and be able to leverage for every decision made in their business.

In marketing, sales, team management and leadership there are key metrics to measure, estimate and average in order to evaluate the probability of effects and justify decisions and calculated risks that will lead to sustainable growth.

This is the language every successful owner must be fluent in to break through the £1million mark. Understanding this language is essential at every stage of business – from day one onwards. But it becomes vital as the business starts growing in size and complexity.

And among the most important things for an entrepreneur to grasp is that understanding numbers helps keep track of growth systematically, without having to do everything themselves, and that the relative importance of running their business as a ‘business’ increases as they lose the ability to be personally involved in every activity the business undertakes.

With the client that I was talking about earlier, I helped him by teaching him what numbers he really needed to be tracking – and how to calculate those numbers. We then set up dashboards in the business so he could quickly and easily get an understanding of what was working, what wasn’t and where attention was needed.

The process worked beautifully for him, and he was amazed at what insight could come from just understanding the numbers that his business was spitting out.

If you are a start-up and your goal is to create a million pound business then you need to get the foundations in place from day one – otherwise you could find yourself hitting the complexity ceiling within a few years.

If you’ve already reached that phase then now is the time to review the techniques you have been using since you were a start-up and consider making some major changes to your decision-making process.

The good news is that reinvesting in personal growth and learning can help you reach this benchmark; perhaps within the year.

About the author

This guide has been written for ByteStart by Shweta Jhajharia, Principal Coach and founder of The London Coaching Group. She is a multi award-winning business coach, recognised both by external bodies and the industry awards panels as the top coach in the UK.

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