Each fall, Inc. Magazine publishes its annual list of the 500 fastest-growing private companies in America. Making it onto this list is no small feat and can be a precursor of future success. Consider that Pandora, Evernote, LifeLock, Zipcar, and Zappos.com are just a few of the well-known alum.
To be considered, a company’s revenue must have exceeded $2 million in the year prior to the list’s publication and its revenue growth over the previous three years had to have been substantial.
With so many industries and geographic regions represented, this year’s issue provides some valuable lessons and insights for budding entrepreneurs and start-ups. Why reinvent the wheel when you don’t have to? Here are a few ideas your start-up can steal from this year’s Inc. 500 CEOs.
Start with Nothing
Bootstrapping a start-up helps a company to stay lean. Nearly half of the companies on the list say they started with less than $5,000. Nearly as many say they turned down venture capital and forty-eight percent say they haven’t been offered VC funding at all.
“Often, [VCs] have no idea what really drives your customers and your business,” says Daniel Siegel, CEO of Safe Passage. “But they think they do or want you to think they do. So they flex their muscles, exert pressure or push for short-term profits, and [make] bad business decisions.”
For Diego Orjuela, founder of Cables and Sensor, finding customers with money for your product or service is what really matters. Orjuela remarked, “We’re led to believe we should go to a C round, spend tons of money, and get fancy offices and equipment. What worked for me was having nothing. It made me hungry.”
When it comes to paying themselves, almost one-quarter of the Inc. 500 CEOs waited three years or more to take a paycheck from their businesses. And seventy-one percent started their businesses with personal savings. Vicky Tsai, CEO of Tatcha, said, “I sold my engagement ring and anything else I had that was worth anything.”
Recognize When to Pivot
One of the biggest challenges for any business owner is what to do when your plans don’t work out as expected. According to the Small business Administration (SBA), about sixty percent of small businesses will survive their first two years and only half will reach the five-year mark. In many cases, those who go out of business simply run out of money. But oftentimes, a business owner fails to recognize when a model isn’t working, and then pivot to something else.
Jessica Mah founded inDinero, a small business accounting platform with a freemium business model. But within a year, most of their 30,000 mom-and-pop customers were still on the free version of the site rather than upgrading to the premium tools. Hemorrhaging cash, she downsized, which included moving the office into her apartment.
After some evaluation and market research, Mah and her partner discovered a niche for handling back-office tasks, like taxes, and retooled their product. In 2014, inDinero had revenue of $2.9 million with a three-year growth rate of 2,685 percent.
When Dan Barton opened a high-end, specialty pet grooming and supply store, he did so because he couldn’t find one that “lived up to his expectations.” And while initially, it was successful, he soon realized the ups and downs of retail, where your business is at the mercy of so many external forces.
Searching for a solution to his cash-flow rollercoaster, he came up with the idea of a membership model. He offered unlimited access to pet grooming for a monthly fee and within a few months, he had $20,000 a month in membership revenue. Barton eventually closed the retail location and pivoted his business model to a full-fledged franchise, Splash and Dash for Dogs International, which in 2014, had $2.4 million in revenue.
Always Be Learning
Many business owners start out as subject matter experts but know little about running a business. And while many business owners would love to just hire all the people needed to fill their knowledge gaps, it’s often not financially practical and likely why the founders of many start-ups end up learning from their mistakes.
When Jessica Mah started inDinero, she made many business assumptions before eventually scaling back and researching her market to better understand which services and products her customers wanted to purchase.
Ben Weiss, CEO of Bai Brands, who turned coffee fruit into a beverage, spent a lot of time in stores looking for criticism and insights. Then he pursued an advanced education he felt he needed to scale his business.
And then there’s the story of David Glickman, who has founded or co-owned nine telecom ventures and has dedicated his professional life to mastering his market. He notes that he was the guy teaching everyone in his first startup, yet now, with a team boasting hundreds of years of combined experience, he has become the student. His company, Ultra Mobile, is at the top of the 2015 list with $118 million in revenue and 100,849 percent growth (that’s not a typo), over the previous three years.
It’s worth noting that nearly half of the Inc. 500 CEOs have college degrees and twenty-one percent attended business school.
Entrepreneurship is not easy. Building a business is hard and often, it’s lonely. But there have been many others who have come before you. Take every opportunity to learn from them, steal ideas from them, so that you can avoid making their mistakes.
“If I have seen further than others, it is by standing upon the shoulders of giants.”
-Sir Isaac Newton
About The Author:
This post was originally written by Jonathan Clark on Startup Grind, the global entrepreneurship community. Startup Grind is a Silicon Valley-based organization that educates and mentors entrepreneurs through monthly business events and speaking series in cities across the globe