I’ve got a new favorite question to ask entrepreneurs during their pitches. The question is:
“How do you get to $100,000,000 in revenue per year?”
After they go through their entire pitch, I zing them with this question. I hear their plans, their projections, and what they want from me; then I take all that they just said and ask them if they were to take everything they were doing, how can they get to $100MM/year?
More than anything else, this is an interesting thought exercise.
Let’s say nothing substantially changes from their plans, which is highly unlikely given what we know about startups, but just for now let’s hold it all somewhat constant. We take that and generate some revenue assumptions per customer. Then we take $100MM and divide it by that number to figure out how many customers we need in a year.
This is where the interesting part begins.
Sometimes we’ll look at the number of customers per year and melt at the impossibility (ie. “We need every person on the internet to be on our service to get to $100MM/year”). Then we have to adjust something. It may even point to potential inevitable pivots.
Or we may adjust that number to some realistic number of customers per year (ie. “Well, we can’t the number of users that visit Facebook every year, so let’s say that it’s some percentage of that, and then we’ll take a percentage of that which we can monetize.”) Then we adjust upward the amount of money we need to generate per customer. We take a look at that number and see if that is achievable.
We continue to adjust a bunch of variables and see if somewhere there is some believable outcome from our fiddling.
With one entrepreneur I recently met, he had never done this thought exercise before. And the result actually surprised us; we came up with a number that didn’t look insurmountable at all! Wow!
Most of the time, though, we come up with some maximum potential revenue number that is less than $100MM. Sometimes it’s not bad, like above $10MM but less than $100MM. Sometimes, we just are struggling, trying to get to even $5-$10MM.
I think more entrepreneurs should go through this thought exercise with their projects. I believe that this is essential to creating a fundable startup and eventually a world dominating business. While there are many investors who are OK with someone working on experimental or feature level projects, or those that aim for smaller outcomes, I just don’t have the right resources to support a whole bunch of them, knowing that a ton of them will fail for me as an investor (by failure here, I mean that it will not give me a substantial return on my money; certainly success of the startup can mean a ton of other outcomes, like even a talent acquisition). So I must work with those startups which can get to some large size, like targeting $100MM/year in revenue.
So adding another item to my post, If We Meet, I Will Ask You…, I will begin asking each entrepreneur to go through the thought exercise with me on how they can take their projects and build a $100MM/year business.
If you go through the thought exercise, you maycome up with some seemingly impossible looking outcomes which can be discouraging. But sometimes, you may even surprise yourself in that it may even be in the realm of the achievable.