Episode 2: The Stages Of Small Business Growth (Our First Episode!) With Clate Mask
Watch the episode here
Clate Mask loves building small businesses. He went to law school and business school, but he couldn’t get excited about going to work for a big consulting or law firm. Small business growth is what he loves. He gets to do that every day at Keap, helping his business grow by helping tens of thousands of entrepreneurs grow their businesses using their small business CRM and sales software.
What the podcast will teach you:
- The Infusionsoft/Keap origin story
- The long, difficult journey of becoming an entrepreneur and Clate’s “keep going” story
- Why there are observable growth patterns in various small businesses across industries
- The definition of “small business” and the different stages of their growth
- The biggest hurdle/key success factor to grow to the next stage
- If you want a pdf copy of the Stages of Small Business Growth, you can get it here: https://growwithelite.com/stages-of-small-business-growth/
- Website: https://keap.com/
- Instagram: https://www.instagram.com/keap/
- YouTube: https://www.youtube.com/user/infusionsoft
I am ecstatic to be able to introduce to you our very first guest of all time on this show. Not only because he’s an amazing entrepreneur who understands small business better than anybody else that I have ever met, but I had the distinct pleasure of working with them for over a decade and I consider him a really good friend. Without further ado, let me introduce you to Clate Mask CEO of Keap. Welcome to the show, Clate.
It’s great to be with you. Thanks for having me.
I’m thrilled because we worked together for so long and you are the reason that this show even exists. I may have created it, but it’s the time that I spent with you at Infusionsoft, which is now Keap doing the things that I get to share every day now with elite entrepreneurs all over the world. It’s because of the work that we did at Infusionsoft and I learned many things from you and continue to do so. Thank you for being with us in this episode.
You are welcome and I’m glad to do it. I love small business growth. I love what you do for entrepreneurs in Elite who are in the later stages of small business growth. I love talking about the stages of growth and what we have learned over the years and how we created this model that we saw and observed. I look forward to talking about it and I’m happy to jump into it or go in whatever direction you’d like to go, but let’s stay on small business growth, whatever that is.
I do want to spend a little bit of time allowing you to share some of your backgrounds because it would be interesting for people to hear, including the pain and the dark time, some of the journey for you as an entrepreneur growing your business through the stages. Let’s take a few minutes and rewind a little bit. Take a walk down memory lane together. Talk to me about the beginning of Infusionsoft, how you got started, some of the challenges and struggles, and where you are now. We will do a condensed version, but let’s go back to the beginning.
We started a small business many years ago. We were helping other small businesses with their sales and marketing by writing software. It was a custom software business at the time and it was tough. It was difficult. It took us about three years to get through the customs services stage, getting to the point where we had a product that was resonating with customers. Those first three years were as difficult as anything I could have possibly imagined. Every day was a fight for survival. Initially, there were four partners and we bought one out in that first year. We then spent the next two years eating ramen and trying to stave off the creditors, keep things alive, and the lights on.
It was a really difficult challenge of learning how to make that transition from getting paid for our services. In other words, trading hours for dollars to then getting a product in place. After about three years, we had the first version of our Infusionsoft product that was starting to make a difference for customers. It was an amazing journey. As we continued to grow that business, there were always ups and downs. You were certainly front row on many of those things, but generally, it was up until the right as we continue to build and grow the business.
We got the business up to nearly $100 million in annual sales and Infusionsoft was the clear leader in sales and marketing automation software for small businesses, but we had a much bigger vision in mind. That was to be the leader in sales and marketing software, not just sophisticated automation but the sales and marketing software that small businesses use to grow their business. We needed to create an easy version of our software.
We needed to create a growth platform for small businesses that they could come in and use whatever stage of growth they were in and then grow with us over time. That’s what we created and a couple of years ago when we set out on our bigger mission to simplify growth for five million small businesses worldwide by the year 2030, we began to in earnest, get this new product out into the world. It’s been a ton of fun. We got to a point where we said, “This new little product is ready to stand on its own,” and we decided to give it a name.
Interestingly, as we went through that, we realized, “This is the easy product where most customers will start and then graduate over time to our more sophisticated Infusionsoft product.” In doing the naming, we recognize that with this mission to serve millions and this new simplified product lineup, we needed to name the company in a simplified way. We changed the name to Keap and Infusionsoft is still our powerful product at the high-end of our product line. We have Keap Grow, Keap Pro, and Infusionsoft. It’s fun to have this product line that we can share with small businesses.
That’s the background. I can give you a little more on why we called it Keap and what that all mean. The long and short of it is we started it from scratch. We built it over many years. It was the classic 10, 15-year overnight success story that you hear about. We have seen all the stages of growth and now we were entering a new stage. We’d been having a ton of fun getting our new product out into the market.
Thank you for that overview. It doesn’t quite do the service to cover eighteen years and multiple stage changes to give a brief summary like that. From $0 to $100 million, many years and several hundred employees, it’s not an insignificant thing that you have accomplished yet all that people can hear sometimes is the high marks or the accomplishments. We don’t always get to spend enough time talking about the difficulty of the journey.
If we could spend a couple of minutes to relate with our readers and if they have grown a business to $1 million-plus, any of them that have experienced some flavor of difficulty and challenge. Rewind and go all the way back to those first few years. You mentioned the struggle, but let’s make that a little more real for a couple of minutes here. Tell us about the times when you didn’t know if this was going to work.
We started off in the business with this quest for freedom and wanting to control our destiny, not have a boss, work the hours, work with the people we wanted, and have no ceiling on the money we could make. All the reasons that people start a business are to be able to go make an impact in the world and create their thing and do things their way. We started that way and it was all smiles at first. The months wear on and you are not bringing home much money at all. It starts to drag on the family. I had four kids and we had a lot of student debt from our college years. The credit cards and bills were piling up.
I was saying, “We are going to make this work. We can do it.” We are one year and a half in and my wife is an amazing supporter. She’s truly a saint. She started to say, “I don’t know if I can do this. I don’t think we can do it.” I was like, “Hang in there. We can do this. Let’s make it work.” We did. We kept at it and keep going. A couple of years in, we have had many of those types of conversations and she started to say, “I think it’s time for you to go get a job. You need to go put all of this education you have got to work. Let’s go get a real job. The couple of thousand dollars a month that you are bringing home that’s sporadic and it certainly doesn’t cover our costs. We have got nowhere else to go. Our credit cards are maxed out.”
I kept convincing her and persuading her to stick with it. Finally, we were over two years into it and one night she was crying. She pleaded with me. She is like, “Please, you have to go get a job tomorrow when you go to work. Start looking.” I reluctantly agreed to it. She said, “Promise me that when you go to the office tomorrow, you will look for a job.” I recognized that I wasn’t going to win this argument and that I needed to say okay so I did. I said, “I will do it.”
I went to work the next day with every intention of looking for a job, but as is so often the case for business owners, the business swallowed me whole that day. I got busy working leads, talking to customers, and dealing with different issues. The end of the day came and I was driving home. I realized, “I have not done what I said I would do.” I felt awful about that. I was very nervous about how Charisse was going to feel. I was downright scared, to be honest.
That was a pivotal day. I will never forget what happened. I walked into the house that day. I walked to the room and Charisse’s back was to me. She turned around and said, “Did you look for a job?” I said no. I stood there and waited. She walked up to me. She gave me a huge hug. She held onto me really tight. I realized she was crying and I started crying. I tried to pull back to figure out what was going on.
I’m thinking, “Who is this? What have you done to my wife?” I was trying to figure out what was happening. Finally, I looked at her and she said, “Just keep going. Everything’s going to be okay.” That keep-going story, as I referred to it, was such a critical thing for us. It was critical to our success. I have come to realize that every successful entrepreneur has a keep-going story and every struggling entrepreneur needs to hear them because it’s so difficult and it’s so tempting to quit. The very essence of small business success is that perseverance, that tenacity, that will, and that drive to keep going.
That’s why we named the company Keap because it’s all about keeping going, keep serving and keep growing against the pressures and forces that we face as entrepreneurs. You got to keep at it and that is the essence of our brand. It always has been. We named the company Keap because that’s the brand we will continue to build to encourage and support entrepreneurs as they grow their businesses.
I have heard that story a few times over the years and I truly don’t get sick of hearing it and not just because I like you as a person, but because it does capture well the thing and it’s not the same details as you pointed out but everybody, every business owner, every entrepreneur has some version of that. If they have any measure of success, they have faced some level of challenge, some level of difficulty that required them to dig deep or required them to get support from somebody else to keep going. I think it’s the perfect story for helping us all connect in a very visceral way as business owners on what it means to do this thing called entrepreneurship.
I’m glad to share it. I appreciate my wife and all of the spouses, and significant others that backed the entrepreneurs because of what I don’t talk about as often as the amazing experience. Once we had that coming together, I had my Rocky, “Yo, Adrian,” moment. I was like, “I can do this now.” When you have the support and the backing of your significant other, your family, or your friends, it’s amazing. The truth is most people and when I say most, I mean 99% of the population can’t do it. The uncertainty, the struggle, and the challenge of entrepreneurship are too much. Their natural tendency is to go get a real job. That’s what sane, rational, and reasonable people would do when everything is stacked against them.Every struggling entrepreneur needs to hear every successful entrepreneur's keep-going story to keep them from quitting. Click To Tweet
I honor the spouses behind entrepreneurs. I honor the entrepreneurs because that 1% that is willing to do it, go for it, and make it happen against all those odds is exactly what we need. It’s what makes economies great. It’s what makes opportunity possible for people. Especially as people have the tenacity and the drive to grow through these stages of small business growth, it is what creates strong economies. It is what creates an opportunity for people.
It’s thrilling for me to see business owners who get through those hard times and then create great success. To be clear, I’m not trying to perpetuate a myth that is frequently out there. That you are going to get through a hard time and you never have hard times in entrepreneurship. Anybody that’s been in it for a long time, even the most successful entrepreneurs knows that they’re still ebbs and flows.
There are still ups and downs, but generally, it’s that first period of white knuckle everyday fight for survival. That’s the part that tests your will and your intestinal fortitude, “Can you do this?” That’s the question that every entrepreneur asks themselves every day as they are trying to get through those challenges. It’s a pleasure for me to share the story because it’s so real for everybody else. It’s not so much my story as it is the story of small business success.
That’s exactly why I wanted to make this the foundational episode for the show. The first one that we will be airing aside from the trailer, is the introductory episode.
I’m honored. I didn’t know that. Thank you.
You are it and again, it’s not just you, although there’s a lot of substance to you, we are going to talk about not just the story that you told that represents every entrepreneur’s struggle as they look to make this happen. We are going to get into some original work on your part to frame up the stages of small business growth. What happens at each stage of small business growth as they grow through those early periods and then on into their future?
Let’s move into that part of the conversation because everyone that reads this is going to land somewhere on this You Are Here map. There’s an actual visual, an infographic called The Stages of Small Business Growth. I’m going to let you talk about where this came from. Why does it exist in the first place? Where did this come from? What were you reaching for?
I’m so passionate about helping small businesses grow. I love small business growth and I hate small business failure. I hate seeing when companies go out of business when dreams are dashed, when financial ruin ensues or when relationships are crushed. To me, small business growth is so thrilling. It’s so fun to see the triumphs and the successes. As businesses grow, they create opportunities.
They create ripple effects for not only the entrepreneur and being able to take a trip that they want to take or buy the car they want or do some of the fun things that maybe they couldn’t do at different points in their lives. That part is cool, but you quickly start to recognize in small business growth that the ripple effects to the families, the communities, and literally to the entire economy of the small business success is amazing.
I love watching what happens as small businesses grow and the opportunity that it creates. That passion is what’s behind our company. It’s why we started off in the very early days of helping small businesses with their sales and marketing, doing custom software and that sort of thing. It’s why we created our initial product. It’s why infusion soft exists and why we built that product and why the Keap product line now exists.
What happened was as we started to serve customers and started to work belly to belly with these small businesses, helping them to grow, my co-founder Scott and I started to see very predictable patterns of growth. I remember very distinctly in 2008, we were at a particular event with Michael Gerber. We were teaching small businesses and we are doing a bunch of stuff.
Michael Gerber wrote The E-Myth. Some of you may be aware of that great book. I remember talking to Scott and saying, “It is almost eerie as we talk to these business owners. When I know where they are in terms of their revenue and their number of employees and to a certain extent, I would see years in business, but it was about their sales and their employees. Also, understanding a little bit about their industry.” I said to Scott, “I can predict what is going to happen in the next year or 2 or 3 depending on if they will do certain things. He’s like, “Yeah.”
Scott, at the time, had been doing a lot of the implementation of our software so he was seeing it at a very granular level with customers. I remember at that point, I said, “I have this appetite to dig into it and understand it a little bit better.” We were 6 or 7 years into our business at that point. We had thousands of customers and we were seeing this again and again. We would speak at events. We would talk to folks so we could see what was happening.
What we started to recognize was certain patterns of growth in the business of how businesses grow in stages but we couldn’t see it until a couple of years later, we wrote a book called Conquer the Chaos. We wanted to write this book to help small businesses understand the challenges of growing a business and what you need to do to grow a business and have a life. It’s Conquer the Chaos: How to Grow a Successful Small Business Without Going Crazy. It’s New York Times bestseller. We wrote it many years ago and in doing that work, we took the opportunity to dig in and do research around these patterns that we were seeing in small businesses.
You are using the term “we” there may be a little loosely. Talk about how much time and energy you spent researching those.
The research was a combination of practical lab experience working with small businesses. There was also working in our own business and what we had observed as we went through over the years and grew, but mostly, it was digging in and doing external research. Specifically, the richest source that we dug into was the US Census Bureau data because you could see all the 27 million small businesses in the US that filed their taxes. I put that little caveat on there because there’s a whole bunch of small businesses that aren’t on the government’s radar for one reason or another. Those 27 million small businesses of record in the United States break it down into different industries. It breaks it down into different revenue or employee.
You can start to put together a picture of how these businesses are lumped together. That data and research and literally, I spent dozens, if not hundreds of hours pouring over it. One summer as I was doing the research, I’m embarrassed to say, but I spent so much time. I was doing this writing project and half of my time seemed to go to doing this research around small businesses.
I started to get confirmation through the data of what Scott, me, and my team at Infusionsoft are seeing every day with small businesses. That was the research we did. It was while writing the book Conquer the Chaos and that was the foundational research that led to our first version of the stages of small business growth.
Let’s talk about the definition of small business. How widely does it ranges and how the stages are useful to understand exactly what’s going on at different stages?
Once I scratched the itch of the actual research and started to put together a picture of the stages and how businesses evolved through these stages, I started to get a real appetite to share it and get it out there so other people could see it. The reason is that anybody that’s been in the business of serving small businesses has found the very frustrating experience of trying to partner with or explain to a customer or a prospect of a partnership opportunity where the understanding of what a small business is so vast. It differs widely.
I can’t tell you how many times I have had the experience of talking to somebody. We think we are speaking the same language of small businesses, but it turns out they are talking about businesses that are 100 to 500 employees. I’m talking about businesses that are 1, 2, 5, or 10 employees. What I found was that this wasn’t something I was dealing with in conversations, but anybody in small business was missing the mark. There was a huge disconnect between vendors and partners, but even more so between the vendors serving customers.
In our experience as we worked with small businesses, I saw, again and again, the disenchanted customer that would come in and say, “I bought a small business solution from this other company,” whether it was software, a phone system, insurance, or you name it. Their three-person company sold something that was built for 100-person companies. As they could fog a mirror and had some money, the vendor sold it to them and the customer ended up wasting a bunch of money, time, and effort.You will get stuck at certain revenue stages if you don't adjust dynamics around people, processes, and systems. Click To Tweet
Frankly, when you are a small business and you buy something that wasn’t built for you, it’s life-threatening. It literally can put you out of business when you spend that money on something that wasn’t built for you. I started seeing how wasteful it was in the world of small business. The fact that there was no standard, there was no framework or paradigm for people to understand what are we talking about when we say a small business.
That’s a long way of saying the research that I wanted to do came together with my experience, which came together with the frustrations of small business that I had, that customers had partners and that we weren’t speaking the same language. Big business or mid-sized solutions were being forced down the small business shoe. I wanted to change that. I wanted to make sense of it. I wanted to get clear on what small business looks like and how that can be a benefit to the small business owner, the employees in the small business, vendors, partners, or anybody working in small business. That gave me additional fire for creating The Stages of Small Business Growth.
We have been using the term quite a bit throughout this interview. Let’s go ahead and jump in now and understand, what are the Stages of Small Business Growth that we have been talking about. It’s on a piece of paper. It’s got colors and numbers on it, but without people being able to see it, let’s at least describe the major elements of it and why it might matter to understand each of these stages.
What happens is as businesses evolve, they have to make certain changes in order to free up the next stage of growth. These fundamental changes have to do with people, processes, and systems. If you don’t make these changes, you mire yourself. You get stuck on a stage. If you want to stay in that stage, it’s totally fine. I say this all the time. I’m not prescribing that you must go through these stages of growth.
I’m trying to help you see what you need to do if you want to go through the stages of growth. I’m trying to help you understand some of the dynamics that are in play if you want to stay in the same stage, but you want to get more efficient and effective in that stage. What’s frustrating for entrepreneurs is when they are not aware of these dynamics.
They want to grow, but they can’t figure out why they are not getting there.
Even when they are in a place where they are like, “I want to settle in here,” that’s a dangerous assumption that some business owners make. Sometimes they are like, “I’m perfectly happy with my three-person company,” and yet, there are some things at play that if they don’t understand, can kill their business where they are. It can take the thrill and the joy out of the business that they have settled into.
Understanding that as businesses grow, they tend to grow in stair-step fashion. It’s not this perfectly smooth up into the right. Anybody who’s been a business owner says, “Yeah, no kidding.” It’s not perfectly smooth enough to the right. It looks more like a stock chart. It’s a little bit more stair-step and that’s true. It’s because there are these dynamics around people, processes, and systems that need to get adjusted.
What happens is if you don’t adjust these things around people, processes, and systems, you tend to get stuck at certain revenue stages. This is a fascinating thing that has played out over time. When we very first created the stages, the first version of it was very similar to what we have now, but we have refined it over several years of working and talking to people across the industry. As we did so and learned more and more about the ones and threes of revenue, which is a principle I talked about all the time.
That principle popped and here’s what it is. The stage changes occur at about the 1s and 3s of revenue, which means that from $0 to $100,000, that’s stage 1. $100,000 to $300,000 is stage 2. $300,000 to $1 million in stage 3. $1 million to $3 million in stage 4 and $3 million to $10 million in stage 5. We define small businesses as these businesses with $0 to $10 million. The vast majority of the numbers are on the low-end, as we all can imagine. The Census Bureau data makes that very clear and I can take you through some of those numbers if you want. You also see employee numbers kind of move through that. The 1s and 3s of revenue are a clear way for business owners to go, “Am I approaching a stage change here?”
What happens frequently is you see plateauing at those stages. You see a certain plateauing around $100,000 and another plateauing around $300,000, again at $1 million, $3 million, $10 million, and so on. Also, I can tell you that having grown businesses beyond that, doesn’t end at $10 million. You see the stage changes continue at $30 million, $100 million, $300 million, $1 billion, and so on but we focus on the stages of small business, which we define as 1 to 100 employees and $0 to $10 million in revenue with the vast majority of the numbers are on the low end of the scale.
That’s a very great overview of the stages model. We will dive down a little bit deeper on each of the stages, but I think it’s fascinating the 1s and 3s of revenue are so consistent. For our readers who haven’t made the connection yet, it’s roughly every time they triple in size in terms of revenue. There’s a correlating team size there that may or may not be tripling along the way, but the point is the business triples and what got them to that point is not sufficient to get them to the next place. That’s when they have to make those modifications, as you were describing.
Some combination of people, processes, and systems enables them to take the next leg of that growth journey. Let’s talk about some of the key characteristics or defining attributes of each of the stages and what is the main success factor to be able to move into the next stage. Let’s start with stage one. Let’s talk about it.
Stage one is the solopreneur stage. As I said, you have one employee and you are between $0 and $10,000 a month in sales. We look at this in terms of monthly sales because at that stage, that’s the way you’re thinking about it. You’re not thinking about annual sales. It’s about, “How did I do this month?” Solopreneur is one employee, $0 to $10,000 a month.
There are 22 million of the 27 million small businesses in the US that are solopreneurs and who knows how many more drivers, hobbyists, and different things that people are doing. Freelancers and side hustles and different stuff that they have that make it a little bit of money, but they are not reporting that as an entity on their taxes so they are not on record.
It’s important for people to realize so stop and think about it. If 22 million of the 27 million businesses on record in the United States are solopreneurs, no wonder why there’s so much frustration when big businesses are running commercials about their small business solutions whether you are talking about a bank or a phone system, you name it. It’s because most of those solutions are not built for solopreneurs.
I found this same frustration inside our company. As you know, it’s one of the things that drove us to create Keap because the Infusionsoft product was not great for solopreneurs, unless they were very marketing savvy. It’s a very common frustration that vendors have solutions that they want to provide to small businesses and yet, if 22 million of the 27 million in the US and that’s the US and on record alone, that’s why we see such a disconnect in services and products for small businesses.
Again, 22 million of the 27 million, I like to talk about these stages in terms of the revenue, employees, the number of them in the US that and what does the team look like? People are such an important part of the adjustment that you need to make as you move through the stages, it’s important to understand how the team evolves. We also talk about the biggest hurdle. What’s this big system thing that you have got to do? If we’re talking about people, processes, and systems, what are those processes and systems that you have got to adjust in order to grow through to the next stage?
If we do have any solopreneurs reading this who are dying to know how to get out of stage one, what’s the key success factor for stage one?
Let me break stage one of the solopreneur into two parts. We call this division right down in the middle of stage one the quit the day job. You have got a bunch of side jobs solopreneurs. You can think of them as freelancers or whatever, but they have got their day job and then they do this other stuff on the side. Those side jobs solopreneurs are the biggest numbers. It’s 16 million of the 22 million in stage one are these side jobs solopreneurs.
For these folks, the biggest issue is finding enough time to work on their business. They don’t have the time. They are burning the midnight oil. They are trying to do all sorts of stuff. As their side job is starting to pick up momentum, every day they go to work they are feeling like, “I wish I could spend more time working on my business.” They get to a point where the income or the opportunity or frequently, it’s the frustration they are feeling in their day job that pushes them out the door more than anything.
Some combination of the frustration in the day job, the income they are starting to make, and the opportunity they see, they say, “It’s time to jump. It’s time to quit the day job and become a self-employed solopreneur.” They are still in stage one as a solopreneur, but now they have quit their day job. The hurdle that they had to overcome to move from a side job to the self-employed is they only needed the time. That’s the big hurdle for the side job solopreneur.For a business to cross over a million, its marketing and services must be systematized so its people can serve the customers well. Click To Tweet
Once they become self-employed and by the way, they are about six million of these folks. They tend to be in the $4,000 to $10,000 a month range. At this point, a lot of times you start to see the more successful self-employed solopreneur beginning to use a contractor or two to help them do some of their work, but they are still taking home most of the business income that is available after expenses. Their big hurdle is they need some leads. They don’t need a big lead generation machine. They only need a handful of folks that they can talk to.
Typically, what happens is they have got a few clients or a little bit of side business, but they don’t have leads yet. The biggest hurdle is to get out of stage one and cross that $100,000 a year mark and move into stage two, you need to be spending enough time on the business so it’s a full-time thing. You also need to have some leads that you know how to work.
You need enough customers coming in to support your self-employment status. “Now, I’m self-employed. I got to make sure I got enough income.” Now, that we have got a better handle on how the stages to document are set up, even though we can’t visually see it, let’s touch on some of the key elements of stage two, and then we can move on to 3, 4 and 5.
Stage two is the new employer stage. The only thing scarier than starting off on your own is the day that you hire somebody and now you got to make payroll. This is a very significant stage where you are now an employer. The new employer stage has 2 or 3 people in it and the annual sales are $100,000 to $300,000. There are 1.7 million of them in the US and the team structure usually looks like a partnership that you have created sometimes or it might be an assistant or two that help you where you are the main event, but you have got a person or two to help you run it. Whether it’s a partnership or some kind of assistant or two, that’s what the team structure looks like.
The biggest hurdle here is that one of those people, their primary responsibility must be sales. What happens is businesses get stuck between $100,000 and $300,000 because they are getting a job and serving the client but nobody’s focused on selling and bringing in customers. Frankly, the sales job at this stage is viewed as a necessary evil. It’s like, “I hate doing that. It’s not what I like, but I got to pay the bills so I got to sell.”
They are super passionate about their product or service but selling it’s the nasty part of the job.
Therefore, it’s the thing that it’s always last on the list. They find all kinds of other things to do besides selling those leads that they have. It’s important to understand that the biggest hurdle that we talk about, these are additives. Once you get to sales in stage two and you need to overcome that hurdle in order to get into stage three, it’s not like leads don’t matter anymore. They still matter.
Also, it’s not like spending enough time on the business doesn’t matter anymore. It still does. These things are additives, but we highlight and we have learned over the years what is that key thing that needs to occur in order to clear that hurdle and get to the next stage. Also, for the new employer that’s trying to get past the $300,000 in sales mark, they need to have someone whose primary responsibility is to sell.
They manage their time or they are spending enough time on their business. They have got enough lead flow to sustain the current operation. Now, with a dedicated salesperson, they can grow past $300,000. Let’s talk about the next stage.
You start to get to a point at this next stage where it’s no longer every day you are wondering if you are going to be around tomorrow. You have started to have a little bit of success. Don’t get me wrong. It’s not that things are all perfect and clear and everything’s going great. It’s more that you have got a way to sell. You know how to do that effectively when you have got leads. You have got some leads coming in and you have got a business. You no longer have a job or a situation where you are trying to keep this new employer thing together.
You have a steady operation and that’s what we call stage three. You have got between 4 to 10 employees and your sales are between $300,000 and $1 million. There are about 1.9 million of these in the US and the team is characterized generally here as one team and you are the leader of it. The business owner is the leader or sometimes the business owner has a person that is the office manager or the manager leading the team and works closely with the business owner.
The distinction is you have got one team and the big hurdle here is now you need to have a system for marketing and delivering on what you sell so you have got a market and service more effectively. The challenge is in this or a lot of times you start to bring in customers that your team doesn’t serve well and people start dropping the ball with service. You then find yourself as a business owner getting pulled back into the issues constantly.
You find yourself in an on-and-off-again marketing mode where sometimes you are doing things to drum up leads for your sales, but it’s like, “We don’t do it consistently.” It hasn’t been turned into a marketing system. The system and process change here is around your marketing and your fulfillment of what you sell. That’s the key thing that needs to occur here and if you want to get over the million dollar mark, you need to systematize marketing and a fulfillment process in your business.
You can’t just rely on great people who are one-off making all this stuff happen. Now, you have got to start moving into a systemized consistent customer acquisition and fulfillment machine where you are taking a little bit more coordinated action with this group of people.
This stage is one where the old, “What got you here won’t get you there,” applies to the business owner more than anything else. It’s amazing because what happens here in stage three, between $300,000 and $1 million, some things have occurred. Your friends and family are no longer worried for you. Instead, they are patting you on the back and saying, “We believed in you all along.” You are like, “Yeah, right. You were the one telling me to go get a job.”
You start to have some success here. Your mom’s proud of you now. The dreams that your parents had for you to be a doctor or a lawyer, they are starting to brag about you as a business owner and the things you are doing. The hero mentality for the business owners starts to be fed. The business owners are constantly pulled back in to solve problems and frankly, the ego is fed a little bit by solving those problems.
While the business owner says, “I’d sure like to be able to have more freedom, be able to go do other stuff and leave it to my people to do these things,” they are undermining that in some ways because they are constantly rushing back in and fixing the problems. They are dealing with clients and having that happy client hang up and say, “I sure like to talk to you. I wish all your employees could be like that.”
That type of stuff that’s going on as you are growing from $300,000 to $1 million is seductive. It causes business owners who are at the stage where frequently they want to grow at this point because they have been feeling success. They are excited about it and they want to do more. They love seeing the way their product and service are making an impact on customers but there are some real changes that to occur as you cross over that million mark. In order to cross over the million, you got to systematize your marketing and service so that your people can do a good job for you in serving your customers.
What we find often is that that $1 million business owner becomes the bottleneck to being able to keep growing because they have a hard time relinquishing control.
We have great empathy for that business owner because frequently they are feeling the weight of the world on their shoulders. On the one hand, they are feeling more successful. On the other hand, they are going nuts. They are running hard. They got all these people reporting to them. They do feel like the bottleneck and they are like, “The business is making more money, but I don’t feel like I can go on vacation. I don’t feel like I can walk away from the business for a day because I feel like it will implode.”
You have success, but you are not yet having the freedom as a business owner that you set out for. It’s an interesting stage to be in during stage three and it’s the stage where entrepreneurs decide, “I want to grow. I want to get through this and grow past a million and move forward.” They need to look in the mirror and start to do some things a little differently.
Tell us on a percentage basis, how many of the businesses that ever start make it to this million dollar mark? We are moving to stage four. Tell us how many make it into stage four.People will become frustrated if a company doesn't articulate its vision, mission, purpose, and values. Click To Tweet
About 7% of businesses in the US are in $1 million and less than 1% of them are above $10 million. You have got about 6% that are between $1 million and $10 million. When you think about this, think about how many businesses are started that aren’t in business anymore. It’s far more than double or triple. You start to realize that it’s only 2% or 3% of businesses that start ever make it to the $1 million mark. That’s why we call them elite. That’s why you talk about them as these elite businesses because it is an amazing accomplishment to get to that point that your business is doing seven figures.
What are the unique challenges or unique dynamics happening in stage four when they are in that $1 to $3 million range?
This business has 11 to 25 employees. They are $1 to $3 million in revenue. There are about 700,000 of them in the US. What starts to happen is you have multiple teams. You got eleven people in the company. It’s hard for everybody to be reporting to one person. If they are, that person’s going nuts. You start to have teams that break up in responsibilities and you start to have leaders over those teams.
This is where things get challenging for the entrepreneur because now the entrepreneur has to lead people. The entrepreneur, he or she, is no longer just leading this function or business. Now, you are leading people. You are creating systems around leading people that become critical for the ongoing growth of the business. You and I see this all the time. We see businesses that plateau at or around the $1 million mark. They grow up a little bit, $1.5 million to $2 million and then they slide back down.
They grow up a little bit and they come back. The business owner is saying, “I like a better when everybody’s reporting to me. I’m making and taking home more money. I hate having all this payroll. I didn’t get into business for all these people’s problems. I don’t want to hear about this and this.” You start to hear all of the frustrations that the entrepreneur has. That entrepreneur through her moxie, drive, and charisma was able to get the business over to seven figures, but now the challenges are different. This hurdle around leading people is where it starts to show up and more than ever at this stage, what got you here won’t get you there.
In the introduction for this show, we pushed hard the fact that we are going to talk about proven practical methods for growing your seven-figure business. We are teeing it up. There’s a lot of concept in this first foundational episode, but what I want the readers to know and be reassured of is the guests going forward are going to be and there will be some people who come and share some of their expertise, but many of the guests will come and share their experience growing from $1 million to $3 million or $3 million to $10 million. Growing through these stages and the things that they did to make that happen. I want to throw that out there that all of this foundational content is super important for us to understand. It frames up this whole show as it moves forward.
In the end, I can give a quick succinct snippet on what you need to do on each of the hurdles as you go through it and that will tee it up. As you interview other folks, they can dive deep into some of these specifics.
To be able to move past stage four into the $3 million plus range, what is that key hurdle or that biggest obstacle?
This is about getting your people systems right. You need to get things in place where you are attracting the right people that fit your company. It’s because what happens is when you get over ten people and you are in this 11 to 25, you start hiring misfits and have people that don’t get what you do and understand how you do it. It gets challenging. What happened when you were 4 to 10 employees is your people got it by osmosis. “They can’t read your mind, but they do get the way that you are and what you value. How things work and how we do it around here.” That is understandable when you are 1 to 10 employees, when you get to 11 to 25 employees, how we do it around here starts to fade into the background.
You have got all kinds of different things you are doing and there’s so much going on. You have got people in different teams. If the leader of the company doesn’t set very clearly the, “how we do this around here,” which we talk about as the vision. It’s the purpose, the mission, and the values of what we are up to. If that doesn’t get articulated and followed, what happens is people are frustrated. You bring in the wrong folks. They don’t fit. There are people that are at odds with leaders and you get all kinds of churn. That’s why business owners slide back to $1 million and back to a small group of people who get them and understand where osmosis works. Learning how we do it around here by osmosis doesn’t work anymore when you are 11 to 25 people.
for anybody reading, I’m going to do a whole episode on what we call setting the vision, that works that Clate talked about. You will have to tune in for that. We will wrap up with this last stage and you said earlier, that the stages go beyond this, but for purposes of our conversation for the show, we are going to cap it out at 3$ to $10 million. Talk to us about stage five for just a couple of minutes and we will try to wrap up.
In stage four, what happens with this 11 to 25 is you are hiring a lot of people you don’t know. When you are smaller than this, you know them or the people you know, knew them, in most cases. You start to get the business bigger and you are hiring people you don’t know the stage four. In stage five, this is 26 to 100 employees and $3 to 10 million in sales. There are only $300,000 of them in the US. You have got people you don’t know who are hiring people you don’t know.
What happens in stage five is you start going around the business and you are like, “I don’t know what’s going on here. We got people doing all kinds of crazy stuff there. They are so far off the foundation of this company that we have created.” Stage five is called a growth company. This run from 26 to 100 employees, $3 to $10 million. It’s pretty rarefied air in small businesses. There are only 300,000 of them in the US. When you think 27 million, we are talking about a percent.
This is quite an accomplishment to get there, but the team changes here. Now, you have a management team and the leader of the company is a leader, of a management team. It’s not just 2 or 3 people, but usually, at this point, you have got a team of 3 to 7 direct reports that you work with and you are the CEO now. You are the chief executive officer where you have other executives and those leaders are driving the growth of the company and you are doing that together with them.
The biggest hurdle here is to have the leadership executing this vision that you have. That the culture is your purpose, your values, or your mission that you established to get past that $3 million mark. Now the job is to hire it, coach it, put fire to it, and build a real culture around your purpose, values, and mission to where the spirit of your business means something and people get it. They come in and they feel it when they come into your company.
The customers, when they talk to you understand, “I get it.” They feel like your company. When you create this leadership and culture around your vision, it enables you to get to $10 million and beyond. That’s the big hurdle to getting past $10 million. You have got to build a team that lives, eats, drinks, sleeps, and breathes the purpose, values, and mission of the company. As you do that, you grow the business and yes, you still have to put in the time. You have to have leads and you still have to do the sales and the marketing service. The people who are setting the vision work, but it starts to become much more about leading a team to execute that and that’s stage five.
You have been super generous with your time walking through all of those stages. It’s phenomenal original work that you did to describe what happens at each of those distinct stages to help people see this very uncanny law of revenue on the ones and threes of revenue as businesses grow. As they’re tripling, the changes they have to make to continue to grow. It’s fascinating stuff and this is going to be the foundational episode. In all of our future episodes, we will build off of the framework that you’ve laid out here so thank you for that.
Thank you. I’m glad to do it. It’s fun for me to do it. It’s especially fun, as Infusionsoft has now evolved into Keap and we’re working on this big mission. We now have a product line to serve small businesses across the stages and it’s so fun. We are having a blast now as we’re able to serve small businesses across the different stages more effectively.
I have loved doing this work over the past decade and it’s something I look forward to doing over the next decade-plus. I love helping small businesses grow. I love the work that you do at Elite to help stage 4 and stage 5, even stage 3 businesses as they are getting to that point where they are approaching a million. Thanks for the work you do to help small businesses grow. Let us all never forget the ripple effects of small business success and how we can help entrepreneurs be more successful in a way that impacts everybody around them.
If people want to connect with you or learn more about Keap, where would you direct them?
The best thing is to go to Keap.com. We spell it with an A so we can own it, brand it, and trademark it and all those fun things. Keap.com is the best place to go. They can learn more about our software and there’s a bunch of educational stuff there. That’s probably the best way to do it. They can get a trial of our software and a lot of different ways to learn more there.
Thanks again, Clate. For the readers and I know you have got a sense of it hearing Clate not just tell his journey as he grew Infusionsoft and now Keap, but to hear his passion for and expertise in the small business growth landscape and entrepreneurship. There isn’t a better advocate, champion, and expert out there on small business growth and so I’m honored that we could have Clate in this episode. I hope that you will join us in the future for more episodes of the show.
- The Stages of Small Business Growth
- The E-Myth
- Conquer the Chaos
- US Census Bureau
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