While there is much discussion around the large multi-million dollar seed rounds for pre-revenue startups, the reality is that most startups, especially ones outside California, won’t be able to raise any money. For those that haven’t raised any money, or raised a small seed round, one of the first substantial revenue milestone goals should be hitting the $250,000 annual revenue run rate mark. Here are a few reasons why:
- Assuming strong gross margins (e.g. 80% or higher), the startup should be able to support 3-5 employees, making for a solid core team
- With 3-5 employees and $250,000 in revenue, the business can be cash flow breakeven, resulting in infinite financial runway and the opportunity to grow indefinitely without outside financing
- Investors are always looking to mitigate risk, and $250,000 in recurring revenue shows there is the basis of a more substantial market, making it easier to raise a larger seed round (to raise a Series A, investors often want at least a million in revenue)
- Product/market fit is likely achieved and the start of a repeatable customer acquisition process in place, making the chance of continued success high (see the 4 Stages of a B2B Startup)
Entrepreneurs would do well to make $250,000 in annual revenue run rate one of their first major financial goals as it represents a level of freedom and progress.
What else? What are some more thoughts on $250,000 in revenue run rate as an important milestone?