94% of companies never hit $1 million in revenue in a year. Those that cross the million dollar mark are doing something that the others aren't. 

Building million dollar companies from scratch 

If anyone knows how to create a million dollar company from scratch, it is Atlanta serial entrepreneur David Cummings. Before he turned 35, he co-founded six companies that not only passed the million dollar mark, many of them passed mythical million-dollars-in-recurring-revenue mark. 

They include a coworking space (the 1,000-member Atlanta Tech Village), marketing software companies like Pardot, SalesLoft, and Terminus, and business optimization firms like Rigor and Hannon Hill.

Here's his playbook for growing a company from nothing to over a million dollars in recurring annual revenue:

1.     Find a small, fast-growing market.

David hunts solutions that are "pain killers"--something that seriously saves time or cash for a customer. He says when you get into  markets like these early, "You're often the first vendor for a company. That makes it it easier to define the standards of the market." Plus, "with a lower cost of customer acquisition, the market leader will have better margins, and is likely to grow faster and more profitably," he explains.

He also finds a co-founder that's passionate about the market. Working with a co-founder allows David to scale his own entrepreneurship across several companies.

2.     Set a million dollars in annual recurring revenue as a priority.

At this magical tipping point, he  points out, "there's enough cash flowing through the startup to maintain a team of 5-10 people indefinitely to grow the business." Plus, other options are on the table--like raising money at a decent valuation, having a steady stream of customers to help co-create the product, and being able to join groups like  Entrepreneur's Organization. He says it's important to understand the value of being a market leader, and if that's a small market--so be it.

3.     Get smart about the right type of money to raise.

For software businesses that fit David's model, raising money often makes sense--but not always.  Pardot and Atlanta Tech Village were built without outside money. Hannon Hill was started on a personal check from one of his professors at Duke. Terminus and SalesLoft are backed by  venture capital and private investors. Almost all of the companies he's taken to a million in recurring annual revenue achieved that goal before seeking investors, though.

4.     Be patient.

David says it "often takes years of grinding it out before things really take off. Knowing that 99% of tech startups never hit $1 million in revenue makes success look even more daunting. The key is to continually learn and improve as fast as possible."

His advice to others on the journey to a million dollar company is, "I prefer a good management team with a great market over a great management team with a good market." That's great advice if you haven't been a manager before or are frustrated you can't "afford the best." It may not matter after all. David's million-dollar-recipe bucks the popular trend among investors to "bet on the jockey, not the horse." He is pretty much all horse--as long as the jockey hangs on for the ride. 

Published on: Apr 11, 2016