The 5 Growth Milestones All Small Businesses Should Aim For
Few people – apart from entrepreneurs themselves – understand what really goes into starting a small business. Before the glory of the launch day comes weeks, months, and even years of preparation. This preparation involves everything from market research to prototyping, and from idea validation to business formation.
This work is often unsung and unrecognized; as such, it can be difficult to tell whether your business is growing and meeting its milestones, or whether you’re simply treading water in an endless development cycle.
To simplify the process and help you gauge your startup’s progress, we’ve put together a list of five growth milestones all businesses should aim for, drawing on different theories of growth planning and small business development. Has your company reached these stages yet?
#1. Problem-Solution Fit
Before you can worry about making sales or seeing your product on retail shelves, you have to validate your problem-solution fit. This concept comes from Startup Commons’ Startup Development Phases model, and effectively boils down to answering the question, “Have I chosen the right solution to meet the problem my target audience is facing?”
This question is more complex than it appears. It requires understanding not just the benefits of your proposed solution, but of the specific problems affecting your audience (remember, there may be more than one) and how motivated they are to change them.
Suppose that, fed up with your inability to find good results in Google’s search listings, you decide to form your own engine – believing that, if you’re experiencing this problem, others must be too. How do you validate your solution?
- First, you’d need to isolate the problem. Your problem is the complexity of the engine’s results, but others may take larger issue with the number of ads or the way big brand names crowd out smaller competitors.
- Then, you need to consider your solution in light of these challenges. What will your new search engine do better? Will it focus on dialing down the complexity alone, or will it tackle some of the other problems you’ve identified?
- Finally, you must think through how motivated users are to change. If, realistically, these problems aren’t enough to compel users to switch away from Google – no matter how clever your new engine may be – you haven’t achieved problem-solution fit.
Unfortunately, there’s no clear goal post that says, “Yes, you’ve achieved product-solution fit, and can now move forward.” Instead, it’s up to you to decide when the research you’ve conducted and the data you’ve gathered suggest that you’ve arrived at the right solution for your audience’s problem.
#2. Market Validation
Market validation (sometimes referred to as “product-market fit”) occurs when you take your solution “to the streets,” testing it by measuring the actual response of the market to your idea. Now, you’re no longer researching. You’re asking people to put their hard-earned money where their mouths are in support of your fledgling business.
Market validation can take a number of different forms, but one of the easiest is the creation of a simple landing page that’s supplied with a stream of paid traffic in order to gauge audience response.
After building a simple page like this, you’d create a paid advertising campaign using a platform like Google AdWords or Facebook Ads. Because your landing page would include a call-to-action (in the case above, an email opt-in, though it could also be a pre-order or even a paid sale), you’d be able to gauge the number of conversions against your total ad spend.
For example, you might calculate that:
- You spend $250 in paid traffic,
- Which results in 2,500 new visitors to your site.
- If 200 of them opt-in, you’ve achieved a 0.08% conversion rate
Now, imagine that you plan to market a $500 product to your email subscribers in the future. If you assume a 1% conversion rate out of these interested subscribers, you’ll sell $1,000 worth of product against your $250 investment (and less any other product costs or overhead expenses).
Play with these numbers, but remember their limitations. Testing actual product sales will give you better product-market fit data than testing email opt-ins. However, by testing email opt-ins or pre-orders, you could potentially validate your market fit before investing in product development and/or manufacturing.
Further, remember that campaigns like these may work well for some product types, but not others. There are other strategies for product-market validation out there. Choose the one that’s right for your idea and proposed business structure, and use it until you’re confident that a paying market exists for the product you’ve designed.
#3. Your First Customer
There’s nothing sweeter for a new business owner than that first sale; that first person who is, effectively, saying, “Yes, I believe in what you’re doing enough to buy in to your vision.”
In some cases, you may have earned your first customer during your market validation testing. In others, it might be a friend or family member who’s willing to throw their support behind you during your business’s earliest days.
Whatever the case may be, remember that customers are the lifeblood of your business. Without them, you have no revenue – and without revenue, you have no business.
Struggling to get customers is a normal part of early business growth. However, if the challenge remains ongoing as your company ages, consider this a sign that you may need to return to the drawing board and rethink your problem-solution or product-market fits.
#4. Positive Cash Flow
Having paying customers is important, but revenue alone isn’t enough to keep a business sustainable. CB Insights reports that running out of cash is the second most common reason for startup failure.
Simply put, it matters when that revenue is coming in relative to your expenses.
Take the case of fashion label Issa, which received a major bump in interest after Kate Middleton was photographed wearing one of its dresses in her engagement announcement to Britain’s Prince William.
In an interview with the UK’s Daily Mail, Issa designer Daniella Helayel shares the strain what was later dubbed “the Kate effect” had on her business:
“From the day of the royal engagement our sales doubled. I didn’t have the money to finance production on that scale. The bank refused to give me credit and the factory was screaming for me to pay its bills. I needed an investor.”
Though challenges with later investor and business partner Camilla Al-Fayed would eventually contribute to Issa’s downfall, the company’s example demonstrates how even seemingly-successful businesses can experience cash flow crises that ultimately sink them.
Cash flow management is a complex practice; one that’s often learned on-the-fly by new entrepreneurs. Pay attention to your incoming revenue and your outgoing expenses, as well as to the possibility that unexpected events could throw things in one direction or the other. Reaching positive cash flow – and sustaining it for any length of time – is a major milestone that small businesses should celebrate.
#5. A Scalable Marketing Strategy
Finally, it’s important not to underestimate the importance of a scalable marketing strategy.
When you first start out, your early sales may come from people you know. Effectively, you tell a friend, and they either purchase directly or refer your business to someone else who does.
But eventually, this strategy reaches its limits. You’ve told everyone you know, they’ve told everyone they know, and everyone in these two groups that’s going to buy, has. Marketing via personal connections is, therefore, an inherently unscalable strategy.
Imagine, on the other hand, that you run a paid ads campaign like the one described above in the market validation section – except that, instead of testing the waters, you’re now asking people to purchase.
If, every time you put $250 into your campaign, you get $1,000 in revenue, you have a scalable system – one that can be worked over and over again to produce the same (or similar) results.
Susan Johnson Taylor, writing for the Freshbooks blog, defines a scalable marketing strategy like this: “Scalable means that you can amplify the effect without amplifying the costs by the same degree.”
Finding strategies that enable you to grow your business in this way may require some experimentation. It may require what feels like wasted marketing spend as you sort through the strategies that will and won’t work for your company. However, if you’re consistent in your testing and diligent about tracking the results of your tests, you’ll eventually arrive on a strategy that lets you continue to support your business’s growth through proper marketing for the long haul.
Clearly, these aren’t the only five milestones small businesses need to reach as they grow. If you have others you’d like to suggest, please leave us a note in the comments below with your thoughts: