Hey, technology companies – how did you break through the $2 million ceiling?

I can’t tell you how many $2 million and under tech companies I’ve seen.  Web developers, consultants, custom solutions providers, SAAS, VAR, Internet whatever, portals, industry niche players… and building those companies was an accomplishment.  No mistake about it, an accomplishment.  One, two, even three founders with a great vision or great technical skills or insight got you there, to $2 million in revenue – with a sales challenge every year – and ten-fifteen employees, maybe even in nice space with a vintage video console in the break room.  Why does it seem so many tech companies plane off at or below that level and never get to the Fast 50 or Inc 500 or whatever list you can think of?  Or maybe never reached the point where the sale of the business ensured long-term financial success for the founders, or provided a decent return to investors?

Let’s explore what might have happened and what you might do about it if you are in the same situation.  And I am inviting those who have broken through that ceiling to share their stories.

One trick pony. You or your partners came up with a very cool app and rode it for all it was worth.  It’s been rewritten, looks pretty and modern now but it’s the same as it ever was – and the world has changed.  Some customers have moved up- or down-market.

Legacy purgatory. You have invested so  much in building out and adding to the original, core app – written in something powerful but dated – that the cost of rewriting from scratch is significant and you cannot support that effort with current staff.   Or maybe they won’t support it, or maybe you cannot decide what the new platform should be, or maybe you hesitate to add an entirely new group to bring in the skills needed.

Single points of failure. You were never the most technical person on the team and have relied on your right hand man – or woman – since day 1.  You were the rainmaker, he ran the tech side.  Now he stands to lose – power or prestige or influence – if you head in a different direction or scale up.  In some subtle and not so subtle ways,  he is undermining your efforts to grow the business – and, if you are honest with yourself,  you are not sure you can do it without him.

The organization has hit the ceiling. You started with a few pretty talented people, added some more who had lesser or greater talents and cobbled together a process to get things done using spreadsheets and meetings.  Now the most talented people are not necessarily the ones calling the shots.  The managers are maybe problem-solvers at heart or maybe reluctant supervisors.  Uneven and halfhearted approaches to project management make projects more challenging.  Tolerating C performers makes it harder to attract and keep A performers.

You cannot or will not let go. You know that your bandwidth has become the limiting factor.  Things don’t move forward until you approve, or require rework when others make decisions.  You are great at —————- and still handle that, while more critical leadership issues remain unaddressed.  You know you need to give your managers more authority – and also know that only one of three is up to the task.

So what should you do?  Do you need to do anything?

Those are some powerful questions, and really depend on what your goals are and where you are in life.  For example, if you are high energy and looking for the next challenge, you might tackle the issues described above – intentionally,  based on an “upgrade strategy” that included people and products.  The key would be to break it down into manageable chunks of organizational change – and to have a long enough planning horizon that you could realize the return on your investment.  If you are closer to exit, you might start looking at your business as a candidate for merger or sale, taking the steps needed to ensure it has market value without you.  You might need to address any critical weakness in your business, or accept that a buyer will discount for your weaknesses and not pay a premium for the things you could have done but never did.

Some readers might say that they are perfectly happy with a $2 million company that generates profits of $400,000 – $500,000 annually, and I get that.  The problem is that the world doesn’t stand still; new competitors, difficult economic conditions, the departure of key employees can all have a significant negative  effect on the top line.  In technology companies, much of that seems to show up rather quickly on the bottom line, just like it does with positive change.  My point – you have to build a machine with sustainable levels of profit, even if you want to stay small.  And having multiple great people and multiple great products or markets makes for a better machine, and better nights of sleep.

I am not attempting to provide solutions to all of the challenges described above – every company is different.  I have a bias – towards improving leadership performance and addressing staff weaknesses in any company.  Strong performers just get more done, and get it done better.  That’s the topic for another post.  For today, let’s just say that addressing the issues that keep you from getting to the next level – whatever that looks like – require a bias to action and a willingness to change.

What is your story?  It would be great to hear from someone who has something to share.  And if I can help, feel free to contact me.