There are several paths to revenue growth that startup founders can take, however, it can be difficult to identify which road to take. Joining us to discuss the best practices for determining the most effective revenue growth strategy for your startup is George Deeb. Deeb is the Managing Partner of Red Rock Ventures and author of three entrepreneurial handbooks with over 300 lessons for startups and business owners.
Transcription:
Jim Fitzpatrick:
George, thanks so much for joining us once again on the show.
George Deeb:
My pleasure, Jim. Good to see you again.
Jim Fitzpatrick:
Sure. I hope you’re having a nice summer. These are crazy times that we’re in, but it’s so good to see everybody’s vaccinated or at least I guess, 70% of the country and they’re getting back to their lives, right?
George Deeb:
That’s for sure. I feel like I’ve been caged for the last year and now the cage has finally been let loose and we can get back to business.
Jim Fitzpatrick:
That’s exactly right. All right. So let’s jump right in here. We do know that companies want to grow their revenue and grow their business. And I think now is probably a great time to talk about that because people are getting back to normal. How does the company typically grow its revenue?
George Deeb:
Yeah, the strategies that a company will use largely changes based on the industry they’re in and their end customer focused. So it could be a marketing driven business that’s going after consumers. It could be a sales driven business with a sales team that’s going after businesses, or if it’s an established company, they might look outside of their internal walls and look to mergers and acquisitions or some other form of growth that can help them grow their revenues to the next level.
Jim Fitzpatrick:
Sure. And companies need to focus on that right now, because as we’ve seen in businesses across the board are booming, including the restaurant, hospitality. Everybody seems to be going out and enjoying vacations and dinners out and what have you. So this is a great time for small businesses to be focused on growing their revenues, right?
George Deeb:
Yeah. For sure. The market conditions are good now. I can’t say the same in the last 12 months through the COVID turmoil everybody had to navigate through. It’s very choppy for many industries, but things feel really good right now. There’s a lot of demand in the marketplace. The markets are in a solid position. The only issue that most businesses are dealing with are somewhere on the backend where they’re having trouble recruiting or they’re having trouble with their supply chain because there’s so much pent up demand that the supply can’t keep up. But for the most part, general economic business conditions are good.
Jim Fitzpatrick:
Sure. So all the different paths that you mentioned in terms of how companies grow their revenue, how do you know which path is right for you?
George Deeb:
Well, to me, it always starts with who you’re going after, right? Who’s the target customer that you’re trying to speak to. Well, if you’re going after a consumer, well, the easiest most cost-effective way to go after consumers is typically through consumer marketing activities, right? So whether you’re doing search engine marketing with Google or social media marketing on Facebook, you define who that target customer is, what’s their persona, what do they look like, what are their interests, what are their demographics and you put a marketing campaign around going after that particular user.
George Deeb:
If you’re a business, especially if you’re selling a large ticket million-dollar piece of software business, you’re not really selling it online, right? You’re selling that through a dedicated sales person that knows your business, knows your product, can know how to strategically consult the client on what they need to know about that particular use case. And that’s driven with a sales team and you need to hire those outbound sales people to go after that market and identify that, okay, this product is a marketing product and I need to sell it into chief marketing officers of Fortune 500 companies and someone calling into those chief marketing officers and selling the product. So what dictates the strategy is largely who the customer is, whether it’s a consumer or a business, how large that customer is and making sure you use the right tactic from there.
Jim Fitzpatrick:
Sure. Where do you start with the planning process? I know you-
George Deeb:
For me, it’s all math, right? You’re building these stepping stones in terms of what the goal is and where you want to get there. So let’s say you’re a $5 million business and you want to grow to $10 million business in the next year or two. Well, you need to figure out what the drivers are that will bridge that gap. So let’s say you’re a B2C business and you’re going after consumers. Well, if you have to add another $5 million in revenue and you know your typical cost to customer acquisition is $100, you got to be prepared to invest $2 million in advertising to make sure there’s enough marketing support to fuel the growth that you need for that incremental 5 million as you grow from five to ten million.
George Deeb:
The flip side is, if this was a B2B business and you’re trying to grow from five or ten million, it’s the same kind of math, but let’s say every sales person does a million dollars in sales. Well, great. I need another five salespeople to grow that incremental $5 million in revenue and I need to recruit those people and train those people and give them the right tools they need and the right calling lists they need to be successful in going and growing that B2B business. So it all comes down to numbers. It’s really a math game and knowing what revenue target you’re shooting for and what amount of revenues come from each one of those stepping stones.
Jim Fitzpatrick:
Sure. Are there ways to grow revenues without having to invest in sales and marketing?
George Deeb:
There are. A couple of things that come to mind are you can launch a new product, right? So if you’re a one product business today, you would launch product number two or product number three and sell it to your existing customers by adding new products. You could raise your prices. Maybe your prices are under market price, and you can afford to raise your prices. Maybe your website has got some flaws and it’s not converting as well as it could be. And you get a conversion rate, optimization project going, and you improve your conversion rates from 1% to 2% of the traffic. That’s like doubling your revenues with that increase in conversion rate. And the best thing you can do is leverage positive word of mouth, right? If you’ve got happy customers that are willing to be your brand ambassador, that can tell their friends and tell their colleagues to buy your products or services, that’s like free marketing. They’re helping you spread the word without you even having to spend any advertising dollars to do that.
George Deeb:
So there’s plenty of ways to do that. It’s typically harder to do some of those activities. The immediacy of putting an ad campaign in the market and watching it payback is usually more predictable, but if you could figure out one of these other channels, that’s a good way to grow your business as well.
Jim Fitzpatrick:
Yeah, no question about it. When does M&A become a potential path for growth?
George Deeb:
It’s funny. Most people think of M&A as a growth channel for a later stage business. I’m different on that. I think M&A can play a role at any time. I mean, I run a restaurant of furniture e-commerce business. We acquired that business and it was a very small, single digit million dollar company. So, M&A can play a role at every stage of a person’s growth curve. To me, if you’re a small business and you’re creative about how you think about growing your company, and you want to go out and roll up your competitors and gain market share, or remove your competitors to have a more dominant market position, there’re ways to do that. And whether you do that with cash or do that with equity, there’re ways to fund these businesses in creative ways that most entrepreneurs don’t even know are available to them.
George Deeb:
Now, normally M&A kicks in when you’ve got a business that has, let’s say they’ve grown from zero to 20 million. They’ve done everything they know how to do internally and now they’ve run out of ideas. And now they have to think about how they grow externally. Maybe they’re acquiring a new business to add a new product, or maybe they’re acquiring a business to add new skillsets, or a new sales team, or maybe they’re acquiring a business to enter an international market. And it breaks them into a global business instead of being a domestic business. So, there’s lots of reasons to consider M&A and honestly, companies of any shape and size can consider it if they know how to get it financed.
Jim Fitzpatrick:
Yeah, absolutely. And you’re right. These are things that not a lot of small business owners think about or have exposure to. So they might need help in this area. Are all businesses created equal? Will the same playbook work for all?
George Deeb:
Conceptually the concepts are the same. The basics of marketing are the same for any size company. You got to invest a certain amount of money into advertising. You need to know what your cost of customer acquisition is. You got to make sure that that costs the customer acquisition is less than your average order value of your product sold and get a good core economic model going. That said there are nuances, right? So every business has its own rhythm. Things you will do in certain industries may vary from one to another, or even if you’re a B2B business, the playbook when you’re under $5,000 average order size is a little bit different than if your average order size is greater than $5,000. So the difference there being, if you’re over $5,000 average order size, you can typically better afford an outbound sales team, then you could otherwise.
George Deeb:
So if you’re greater than 5,000, you grow your business with an outbound sales team. You hire a bunch of salespeople. If you’re under $5,000, well, now you got to get creative with B2B marketing. And how do you get your B2B message taken out to the marketplace? Maybe you’re a software as a service company selling into businesses, and you got to get good at marketing online to software as a service to the Google audience that is looking for that product or service.
Jim Fitzpatrick:
Sure. Any other further words of wisdom on this topic?
George Deeb:
The one guidance I’d give everybody is, everybody wants to grow. Everybody’s in a race to accelerate their revenues and profits and build a successful company. The one thing I would say is don’t hit the accelerator until you are ready. I can’t tell you how many times I’ve seen a business try to grow their business before the products were fine tuned and working, before the organization was scalable and can handle that growth. You don’t want the wheels of the bus to fall off as you’re accelerating the business. So you want to make sure you’ve got the good, solid stepping stones in place, solid product, solid process to handle the extra volume that’s going to come so that when you do get that accelerator, it’ll be successful growth, easily to fulfill, and you can grow the business smartly.
Jim Fitzpatrick:
That is actually great advice and I’ve been on both sides of that, right? As an entrepreneur myself, and you think as a small business owner and entrepreneur, your only problem right now is sales. If we could just get people in here or we can sell our product online, whatever the case might be, sales will just cover a multitude of sins. And that’s just not the case. I mean, to your point, you’ve got to make sure that those processes are in place and you’ve got the manpower already on board to take care of that, those new orders coming in, because man, there’s nothing worse than people out there that are upset with you as new customers, because you cannot deliver the product or you’re not doing it right. And it has a reverse effect on your business, right? A negative effect, in fact.
George Deeb:
Yeah, for sure. You don’t want to do anything that’s going to put your business in a bad position. And another piece of that is, not all revenues are created equal. And what I mean by that is, you got to make sure that’s a good customer for you, that it’s going to help support your business and move into the right direction. If it puts your business at risk it’s more important you walk away from that transaction and you don’t hurt your business in the process of taking it and I’ll use this example. In my restaurant furniture business, we had a chance to double our revenues in a single order.
George Deeb:
It was a huge national chain and it would have been a fantastic thing for the revenue line. But when you read the fine print of the contract and the warranties that were required and the investment that was required and their lack of financial commitment upfront, put a tremendous financial stress on us on the hopes of this great financial product happening on the backend. I wasn’t willing to take the risk and yeah, I would have liked to double revenues, but it would have capsized the business if it didn’t work.
Jim Fitzpatrick:
Boy, that is so true. I’ve been in that situation as well, where you look at something where you say, “Okay, I’m going to buy the widget for $15 and I’m going to sell it for 30. And this big, huge user or provider comes in and says, ‘Hey, we want them, but we’re just going to give you $16 for it. Right?'” And you’re making a buck a piece and the huge order sounds great. And you’d love to use this huge client as a calling card for other clients that you’re going to go after to say, “Hey, guess what? We got Walmart,” or “We got Costco,” or whatever the big brands are, thinking that’s just going to pave the way into new business and then thinking, “That’s where we’re going to make our money is on the new people.”
Jim Fitzpatrick:
It never… I shouldn’t say never, but not always does it work out that way. And now you’re stuck with this huge order that you’re not making any money on. In fact, you might be losing money on every widget that you’re selling. Again, great advice, George. I totally support that in the sense that, make sure you’re looking at this to say, “Does it make good financial sense? And does it make good sense for your business to jump in?” Because as an entrepreneur, it’s all you want to do. You’re like, “Oh my gosh, if we can ever get one of these big box retailers or even just a big user of our product, and those are the companies that will grind you on price, right, because they know that it’s going to be a big order. They know that you want them as a client.
Jim Fitzpatrick:
So to your point, the devil was in the details. But in so many cases, I’ve spoken to so many other business owners that said, “We signed up with one of these big box retailers. Could not wait to get out of the contract and we’re never doing that again because we lost money.” In some cases you even lose people because they’re like, “I don’t know what you expect from us. We can’t work 24 hours a day to fulfill this order.”
Jim Fitzpatrick:
So for entrepreneurs and small business owners out there, make sure… My father used to say, “Be careful what you wish for,” and that’s so true here.
George Deeb:
Yeah. A hundred percent I agree with everything you said, Jim. The grind is not only on the price. The grind is also on the organization. Your staff will get worn out, your culture, your morale will get impacted. There’s so many negative things that could come from a bad sale.
Jim Fitzpatrick:
No question about it. And it seems like they hire the people to just… they’ll never tell you, “Wow, great job. We love this relationship.” They always look at the negative side of, “Well, you shipped us a table and it had a broken leg on it,” and that’s what they focus on. What about the other thousand tables we sent you with no broken legs? So it’s crazy. Well, George Deeb, managing partner at Red Rocket Ventures, an incredible author and just all around good guy. Thank you so much for joining us once again on The Atlanta Small Business Show.
George Deeb:
My pleasure. Great seeing you as usual.
Jim Fitzpatrick:
Great. It’s great to be back again, but maybe next time it’ll be in person in the studio. So that’d be great.
George Deeb:
I’m looking forward to that.
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