A few weeks ago, we just eclipsed our four-year anniversary at my company, LendingOne.
In the beginning, we were an unprofitable, scrapping startup. We bootstrapped the company by borrowing infrastructure from my other real estate debt business, Crestar Capital, and we didn't turn profitable until about two years in.
By some people's definitions, the moment your startup crosses this major threshold of putting cash in the bank, you're no longer a "startup." But in my mind, generating a little capital is only the tip of the iceberg--and not quite what truly proves you're out of the startup phase.
Here are four milestones that prove your startup is no longer just a startup:
1. You've started making acquisitions.
It's one thing to build a profitable business. It's entirely another to start acquiring other businesses to expand your own.
I've written about this concept of knowing when to buy and when to build before. But it truly is one of those major milestones that proves you're starting to make a real "land grab" in your industry. As soon as other players start to see you as a potential acquisition target, you know you're building something big.
Of course, getting to this point is no easy feat. For one thing, I find founders struggle to sacrifice short-term bonuses in order to fuel the long-term growth of their company. They love paying themselves large salaries as soon as they're able to, forgetting that every dollar they take out of their business is one less dollar they can invest elsewhere. This is something I talk about a lot in my book, All In, because I didn't pay myself more than a modest salary for years when I was building my first company, Wilmar.
2. When your reputation starts to attract new business and talent.
When people start coming to you, you've built something solid.
Every business should have a marketing and/or sales department, but the best customers are the ones that spend their own time and energy getting in touch with you. Either they were referred by a friend, or they have been observing your work from afar, and so they felt compelled to reach out. When your business and brand starts attracting this sort of customer base, this is a clear measure you're officially out of "Hey let me tell you about my startup" land.
Second, and arguably even more difficult to accomplish, is when your company starts to attract even better talent through its reputation. It's one thing for a customer to hear about the work you do and decide to give you a shot. It's entirely another for an industry elite to say, "I really like what you're building, and I want to be part of it."
Some startups can attract incredible talent early on. But for the most part, this milestone doesn't reveal itself until you're a brand name.
3. You're paying yourself--and you've made a dozen hires.
When someone says, "I'm working on my startup idea," the average person assumes this is an after-hours project with zero employees.
And that may be true. It may not. Either way, if you're still not paying yourself a salary as a founder, you're definitely still in startup territory (if you've even started building anything at all). If you've taken on a small investment and hired one or two or three people to help you, you're still in startup territory.
But the moment you're paying yourself a full salary, and you've got a team of ten, twenty, thirty employees, by just about every measure you're out of the startup woods--and you're operating a fully functioning business. Now, that doesn't mean you'll stop experiencing growing pains. Truthfully, growing pains exist in any company that is still growing. But at least you've proven that there's a market for what it is you're looking to offer.
4. You've pivoted a few times and now have a clear trajectory.
Every young company is risky when it's first getting started.
There are any number of variables that could be determined as "risks." Investopedia refers to a "risk" as an opportunity that comes with "the possibility of losing some or all of the original investment." But risk isn't just flat out failure. It can also be the fact that you're payroll is significantly higher than the amount of cash you have stored away in the bank. Or it could be your company's uncertainty over product-market fit.
As soon as your business has expanded to the point where there is less and less immediacy to pivot, you've made it through the first high-risk stage and into more established territory.
That said, don't get too comfortable. When a business no longer needs to pivot is when it's most susceptible to disruption.