LEAD YOUR BUSINESS TO A BILLION DOLLARS
By Rod Alan Richardson
Everybody’s new venture is going to be a billion dollar company. I know… I see their business plans on a weekly basis. So what differentiates an emerging billion dollar enterprise from one that only becomes a million dollar enterprise… or more likely… a thousand dollar enterprise? We took a quick look at some billion dollar enterprises to distill out their common points. For instance, two very famous consumer-product brands have reached the billion dollar mark and another is on the rise using the same strategy. How did they do it and who is coming behind them? The answer?—Martha Stewart (on the down turn); Mary-Kate and Ashley as stable stars; and Hillary Duff, who is on the rise.
First, to approach the billion dollar equation, we must realize the scope of what a billion dollars in revenue really means. Wal-Mart, for instance, is the largest company in the world with 245 billion in annual revenue. To put that in perspective, the occupant in 1 out of approximately 200 cars you see on the road is making their living at Wal-Mart. Virtually every person you see has set foot in Wal-Mart and has purchased something on a regular basis. Ten-percent of China’s exports go to Wal-Mart. You can do the comparison of the scope of your project from there. Everything else is less. Wal-Mart influences the economy. The equation for a billion dollar company is directly related to the size of your market and the number of transactions you are capable of producing. Target, for instance, is not physically capable of creating and sustaining the level of transactions that Wal-Mart does because of the limitations of its infrastructure.
Here are six points that are common among enterprises that have become billion dollar companies:
Huge exposure – Martha Stewart’s break came when Kmart pumped millions of dollars into making her a household name. Mary-Kate and Ashley leveraged the fame they had developed through their role on Full House. Hillary Duff leveraged her fame acquired through Lizy McGuire and being a Disney Kid. It takes millions and millions of dollars to become a household name. How are you planning to harness enough marketing power to put you in front of your prospect on a constant basis? Limit your exposure only to markets that you have the resource to pound heavily with consistently reoccurring messages.
Leadership – You must be a clear and decisive leader. If you don’t have the ability to communicate your vision clearly, make intelligent decisive decisions, and manage your time effectively, then get out of your own way. Also, humility is a nice feature. Arrogance destroys relationships. Most venture capital companies say 60% of their funding decision is based on the management team of a new venture. If you don’t have it, hire it. Remember that only about 4 percent of CEOs of new ventures are going to pull off a successful new company. Ironically, individuals over the age of 55 are estimated to succeed 85 percent of the time.
Line and Brand Extensions – Extensions require brand power. Don’t get line extension confused with “brand” extension. “Line” extension means that you have multiple products in the same category. “Brand” extension means that you are using the power of your name to sell products in multiple categories. A billion dollar company has the ability to do both. The real key to enormous cash flow is having multiple profit centers in your business. Massive cash flow is also generated by multiplying your locations. Multiple product lines and locations can increase cash flow; however, to be profitable, you will limit your product lines and focus only those locations that make you the most money on the bottom line. A billion dollars in profit is much more exciting than a billion dollars in revenue; however, it ultimately comes down to having enough things to sell to enough people who are spending enough money with you at enough of a profit to make a difference in your sustainable cash flow.
High Demand, Consumable and Unique Products – High demand shortens the sales cycle which increases profitability. Consumable means that the same customers repurchase the same products multiple times. Repeat purchases, or retained life-time customers as I like to call them, increase your profitability each time they purchase. Uniqueness increases profitability because it can dramatically strengthen your value proposition and reduce the points of comparison that regulate the price. Seek to incorporate beneficial, difficult-to-copy features into your products that erase the distinctions between you and your competition. The irony is, our billion dollar examples have only one real unique feature—the power of their brand names. We may not have the same opportunity to create a household name out of our brands. Look for products that are in high demand and are consumable. Hewlett-Packard, for example, sells printers for cheap, so they can sell you the ink for not so cheap. I’ve noticed that the Epson ink cartridge does not fit in the Hewlett-Packard printer… strange… I know. Additionally, a multi-national manufacturer of mechanical cutting equipment sells $100 million in high-end equipment annually and sells $1 billion a year supplying the consumables to support the use of the machines—each part is patented.
Professional Management – Most people avoid hiring professional management because they don’t feel they have the resources. People with experience can rocket you forward. Did you know that Elvis Presley’s estate was worth less than $1 million upon his death? Pricilla got the estate and hired professional management and turned the assets of the estate into nearly $500 million. Martha Stewart acquired her magazine rights from Time Warner for $70 million by going public and re-negotiating contracts with Kmart based on the direction of a professional manager she brought on as a partner. Mary-Kate and Ashley created their billion dollar enterprise because the attorney they hired convinced them to create their own production studio. Until then, not only had they not thought about the possibility, but they didn’t have the knowledge or skills to put it together. One of my own companies doubled its capital acquisition rate overnight because we brought in a skilled CEO that was formerly an executive at Microsoft. In counting the cost, one may discover that not bringing in the skill could cost you your financial freedom.
Cross Selling through Circular Promotion – Take advantage of every opportunity to promote your products. Each product in your mix should compliment the others and lead to a natural purchasing cascade. For example, Martha Stewart uses her show to promote her magazine, which in turn promotes her products, which in turn strengthens her power and exposure with Kmart, which in turn accelerates those who watch her show and read her magazine and buy her products. Mary-Kate and Ashley on the other hand, use brand extension to carry their products. They focus in on a demographic and provide complimentary products that serve the adolescent girl market by mass merchandising through Wal-Mart. It will be interesting to see how they effectively transition out of their target market as they become adults and their market is no longer able to relate to their brand. Hillary Duff is fast out pacing Britney Spears in per title record sales and is merchandising through Target. She will outgrow her market as well.
Becoming a billion dollar revenue generator is no small undertaking. Hopefully, you have the vision, the passion, the desire, and the necessary leadership skills. Aiming for the stars puts you on an upward trajectory. Hitting the moon in the process is not a bad result, even hitting the tree tops is better than the mediocrity that most experience in their entrepreneurial activities.
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