Author John Warrillow proposes an alternative to setting your sights on building a $200 million business: Focus on building a $2 million company instead.
Would you rather have a good shot at earning $500,000 a year for 20 years or a slim chance at a $100 million dollar pay day?
The generally-accepted dogma among entrepreneurs is "bigger is beautiful." You're nothing until you have some brand name investors on your board and 50 employees at your command. This "go big or go home" attitude leads to a lot of success stories but I wonder how many would-be entrepreneurs fail because they think the only business worth having is one that is chasing a billion-dollar opportunity.
In this article, I'd like to propose an alternative approach. What if you got into business with the goal of building a $2 million company, instead of a $200 million company? What impact would a $2 million goal have on the way you think about building your business? Here are six reasons it's sometimes better to stay small than to try to go big.
1. You can do what you love. First of all, shooting for a $2 million business widens the field of industries you can get into. There is no need to limit yourself to starting a technology company or the next consumer web business. There are plenty of successful $2 million companies in just about any industry you can think of. A friend of mine owns a bike tour company and is having the time of his life. I'm not sure he'd feel quite as excited about running a technology company ten times the size. With a broader range of sectors to choose from, you can pick an industry you truly like, not just one you think will explode in popularity.
2. You can keep all of the equity, yourself. By the time you have diluted yourself down with an angel and venture capital round of investment to build your $200 million empire, you may wake up one morning as a minority shareholder in your own company and feel more like an employee than a founder. Which is fine if you're on your way to an IPO, but that may be only slightly more probable than winning the lottery. A small, $2 million business, carefully put together over time, can often be bootstrapped with the owner keeping all of the shares for him- or herself.
3. You'll need to find just 10 wonderful people. Staffing a $200 million company probably requires more than a thousand employees and cutting a few corners along the way. A well-run $2 million business might get away with hiring just ten people. Think about how carefully you could pick your team and how much you could nurture each one if your goal was to hire the ten best people you could find.
4. You'll still be rich enough. Admittedly, a $200 million business, even if you are only a minority shareholder in the end, will probably make you richer, but there is a point of diminishing returns on being wealthy. Bill Gates is famous for admitting he'd rather not be the richest man in the world. There are only so many cars you can drive or houses you can enjoy. By contrast, a well-run, $2 million business in a sleepy little corner of the market could pump out 25 percent in earnings before tax for a long time. So not only are you earning $500,000 a year, you're probably running trips and cars through your company as legitimate business expenses. Would you rather have a good shot at earning $500,000 a year for 20 years or a slim chance at a $100 million pay day? I think most people would take door No. 1.
5. You have the choice to live wherever you'd like. Just about any place in the country—even the most beautiful villages—can support a $2 million business, but a $200 million dollar company requires infrastructure and a large workforce usually found in only big, congested, polluted cities. Would you rather measure your commute in minutes or hours?
6. You'll be able to see your kids' T-ball games. I imagine that building a $200 million a year business is a seven-day-a-week endeavor. The entrepreneurs I know who have built big companies lead a high stress life. They have hundreds or thousands of employees to lead, multiple shareholders to appease, media to manipulate, customers to win—all of which adds up to a heavy burden that often falls on founders in the prime of their lives when their kids are still relatively young. How much simpler would life be if you had a nice little $2 million business nobody much cared about, other than you and a handful of employees and customers? How many ballet recitals could you go to? How many birthday parties could you be there for?
Financiers are famous for getting entrepreneurs to give up equity by asking them if they'd rather own "a small slice of a big pie or a big slice of a small pie." As you think about what you want your business to be, don't dismiss the idea of a smaller company because it seems somehow less than what you are capable of. I, for one, think there is something to be said for owning all of a tasty little pie.