Hey Founder, Are You Taking the Simplest (and Least Expensive) Path to Growth?
Whenever I hold strategic retreats with my client companies, I’m a huge fan of having them take a couple of days, once a quarter, to collect themselves and assess how things are going with operating strategy, financial targets and so on. One of the key questions I put to them involves the minimum monthly sales we need to get to the next phase of growth.
At ScalePassion, we have developed a three-phase growth model that is proving itself as a viable stepping stone to fast growth. Here’s how it works.
The companies we work with typically are at around $100,000 a month in sales. Our goal in phase one is to get the company to $300,000 a month, at which time it will be able to attract a new round of financing. At a retreat we held with an amazing young company, one of the things we did was hyper focus on the minimum number of brick and mortar stores we needed to be in to reach the next phase. We had a proposal from a national sales brokerage firm to roll out nationally into 10 sales territories in the United States. After doing the math, however, we decided to focus on only four of them and picked out those retailers where we felt the brand would most likely find success.
Initially, we defined our ideal retailer as a small chain of 50 or more premium, natural stores in the Mid-Atlantic and Midwest regions and determined the velocity required to go from $100,000 to $300,000 a month in sales in those stores alone. The answer was a velocity of “five” (or moving 5 SKUs/store/week). But we felt two was a more realistic number for this particular brand given the marketplace data we had, so we added two more sales territories and several more ideal retailers until we got our velocity down to this more reasonable number.
This math enabled us to create the simplest and least expensive path to delivering our goal of hitting $300,000/month in sales and was based on hard data around our velocity goals, target stores, and a more realistic approach to expansion. Instead of launching nationally, we were able to focus on saving costs on the sales brokerage and providing focus for the brand in the form of a regional rollout versus a national one.
By understanding our limitations and acknowledging that $100,000 a month in sales would not support a national rollout, we could hire brokers in the right way and “prove” our model regionally. Once we have accomplished this — let’s call it phase one — and reached $300,000 a month in sales, we believe it will be exponentially easier to raise more money to support phase two, a full-blown, national rollout into premium stores.
We will have proof that our brand has traction in four regions, the next investor will easily see the path to national expansion and we will have a ton of learnings that will support our cost estimates for the national launch as well.
The next phase will put us on the road to doing $1,000,000 a month in sales. When we reach that point, we will be able to raise private equity and enter phase three, a national large-chain rollout into places like Kroger and Walmart. Again, the phase two rollout into premium retailers nationally will support our raise with investors as the next step will be logical and easy to support.
The beauty of this approach is that it also works with different growth models, like direct-to-consumer. With D2C, you will focus on different variables. Rather than velocity and “doors” entered, your key math will center on customer acquisition cost and long-term value, for example. As with the regional rollout model above, the goal is to use the math to plot the easiest path toward that initial hurdle of $300,000/month. At that point you will have proven your model and set yourself up for the next raise that will put fuel in your tank to support new product launches, cross-over into brick and mortar retail, etc.
I urge you to check out more about the Findaway Growth Model here and my cautionary tales against unchecked growth here and here. And let me know what you’re doing to manage your company’s growth.
Sincerely,
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All credit to my ghostwriting partner, Dave Moore, who is instrumental in getting my thoughts out in a coherent manner & into these blogs. Thanks Dave!