David Cummings on Startups

Defining a Successful Business

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David Cummings

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People constantly throw around the term “successful business” or “successful startup”, but I bet if you ask 10 entrepreneurs how they define success, you’ll get 10 different answers. I typically like to ask the following question: how do you define success? Here’s how I define a successful business:

  • $1 million+ in annual gross margin (difference between the sales and the cost of goods)
  • Sufficient redundancy and scale such that anyone in the business can go on vacation for two weeks and everything continues to run fine
  • Reasonable revenue predictability (recurring revenue is best) such that sales can be predicted out on a quarterly basis with 75% confidence
  • Profitable enough to make decisions on growth, lifestyle, etc

Notice that I didn’t say it had to be a technology business, or potential for 30% net margins (even though that would be nice), or 50% year-over-year growth. I think those are all nice, and important to me, but for most entrepreneurs I’ve talked to, they are looking for a level of scale, stability, predictability, and freedom (profits!).

How do you define success?

Comments

25 responses to “Defining a Successful Business”

  1. Jamie Bardin Avatar
    Jamie Bardin

    David —

    Good post as usual. The key is what is success for you? VC backed companies have one measure (Fred Wilson just wrote a nice piece on this here: http://www.avc.com/a_vc/2010/03/being-fat-is-not-healthy.html) while other entrepreneurs might agree with your points above. Most of the entrepreneurs I have talked to over the years, literally hundreds if not thousands, by and large think that raising large sums of capital and deploying it at break neck speed is glamorous. Maybe, but is hard work with a lot of downside risk. Your model, while maybe not the home run by some standards, certainly merits pondering. I would take a $1MM a year in margin without playing with Other People’s Money anyday…

    Thanks for the daily post…

    Reply
  2. davidcummings Avatar
    davidcummings

    Thanks Jamie. I agree that too many entrepreneurs think that raising money equals success, which is far from the truth. I encourage entrepreneurs to consider the slow and steady route, with profits, vs the “go big or go home” strategy.

    Reply
  3. Raghu Avatar
    Raghu

    I think one key aspect of success for a new business (technology based or not) is that they survive. Statistically 9 out of 10 new businesses fail within the first 5 years, and the majority of them fail within the first 2 years. Raising a lot of early money (classic way to launch a tech company) actually doesn’t seem to change those 5 year statistics much. So longevity I think is part of the definition of success. And selling your company for more than you put into it before 5 years is still successful of course – so longevity isn’t necessary, but it is indicative of success and something a entrepreneur/business owner should be able to point to as a sign of their success.

    Reply
    1. davidcummings Avatar
      davidcummings

      Thanks Raghu. That’s a great point that just surviving is an accomplishment by many measures. Most people probably don’t realize how few businesses last five years.

      Reply
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  20. Danny Avatar
    Danny

    This “definition” of a successful business presupposes that the entrepreneur’s main goal is revenue. I tend not to do business with individuals or business’s where money is the measure of success(as much as I can avoid it). I truly feel sorry for any entrepreneur or business owner that feels that they haven’t “measured up” until they gross a certain $ amount. There are many business’s that strive to offer the best to their customers/clients in their respective fields, as their main goal while still making a profit. These entrepreneurs truly love what they do and many gross over 1 million annually. Sufficient redundancy as well as revenue predictability are excellent points. Thanks for the article 🙂

    Reply
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  24. Blake Argo Avatar
    Blake Argo

    I have found that my success in the business world is due to the fact that I follow the careers of those who are more successful than myself. I have been following the career of Mark Hurd for the last few years now, since he has taken over at Oracle. I have also been impressed with this leadership and ability to turn a company around. I have closely following his statements at OpenWorld 2016 and I am excited for what he has in store. Here is a link to am article about OpenWorld 2016: http://www.businessinsider.com/oracle-ceo-mark-hurd-openworld-day-in-the-life-2016-9

    Reply

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