How to Pick a Business That Grows by Default

0:00You say the fastest way to make 100K is different to a million and fastest way to 7 million is different than 1 million. How can you explain on that? >> Yeah, so it's actually the example that we just had with Ian is a perfect example. Like it's it's not that difficult to make an agency that does a million dollars a year. And the main reason for that is because you just need to sell a certain amount of customers in order to do that. Um and you and there's a lot of SMBs who will pay $2,500 to $3,500 a month or $1,500 to $3,500 a month um to get lead gen services. Um the problem is that churn in that business is very high. And when you have high churn at scale, it does not work.

0:36And so basically the the potential of a business is almost is is directly correlated with revenue retention. All right, which means how much does last year's revenue affect this year's revenue? And so the common scenario, which is the worst scenario, is everything that I sold last year, I have almost no credit for it this year, which means that every year if you want to grow, you basically just have to increase acquisition. I mean, you have to sell more people to grow.

1:02The second scenario is that and this is a much better scenario, right? Is that you keep the revenue from last year. Now that's an amazing scenario, way better. So you sold $100,000 last year and then this year you already have $100,000 as your base day one and then you can sell $100,000 this year and now you have $200,000, right? So it keeps stacking. The best scenario is something called net negative churn, which is where the revenue that you have is over 100% retention. Now, to be clear, you cannot have over 100% logo retention. Meaning you can't keep more than 100% of customers. If you sell 100 customers, at the end of the year the most you can have is 100 customers. So logo retention is always going to be 100% or less, right? But revenue retention can go up, which means that you need to have a model that allows for customers who are good to spend more money with you. So that means that if I started with 100 and I end with 90, but the 90 that are there have let's say in total uh spent 50% more than they did before, I might now be at 145.

1:58No, that'd be Yeah, 135 uh on my revenue compared to the 100 that I had at the beginning even though I have fewer people. And so there's a kind of like three different scenarios in terms of what you get credit for in the future. And so what happens is once you find a vehicle that has high revenue retention, then it's just a matter of time because you literally grow by default. And so as long as you keep selling customers, you will keep growing. And this is the state where you want to be in. I spent a very long part of my career pursuing businesses that did not have high revenue retention.

2:27Now, typically high revenue retention businesses have high revenue retention because they are slower on the front end. It is harder to get people in, which is why it is harder for them to leave. And so it is actually a a function of patience, which is why patience is more of a a personality trait than it is um that it is a tactic in business, but is absolutely required based on the opportunity vehicle selection that you do day one. And so at some point you decide uh that you want to get into a stickier vehicle. And then when you do that, you get you can unlock the level.

2:56If you wanted to make a million dollars a year, the fastest way to do it is just go sell something to a lot of people and you can do it one time. But the difficulty is that you're going to have to keep selling people. And when you want to make a hundred million dollars a year, building the sales infrastructure to sell a hundred million dollars of revenue every single year when you have zero from the year before is incredibly risky because it means that every single month you basically are only as good as your last month, which means payroll, rent, all the bets you want to make.

3:22Like you can't forecast out any horizon. If you know that in the future this money that you just sold last year is still going to come in, you can take bigger bets, you can make a bigger investments, you can do a brand move. These are all things that having revenue retention affords you. And that is the difference between building a a one million dollar business versus a ten or a hundred million dollar business. If you like this video and you're a business owner who wants to break through your current revenue ceiling, I distilled every lesson from scaling ten businesses past ten million and three businesses past a hundred million into a completely free scaling road map that I've used to go from zero to one, zero to 10, and zero to 100 plus. And so you can click here and you can check it out.

3:56Again, absolutely free, and since you're a business owner, appreciate you, and enjoy.