Newsletter #9: Lessons Learned from $10K to $1M MRR (X100 Growth)

My list of hard-earned insights from the challenges Belkins experienced while growing to USD 1M MRR, along with our decisions.

Last week's edition, titled "#8 Sustainable Growth," resonated with many readers. If you missed it, be sure to read it first.

We've noticed that many agencies go through similar setup challenges as they reach different revenue milestones, just as we did. For the purposes of this newsletter, I'll use revenue as a metric to guide our storytelling. These levels are:

Level 1: Up to $20K/MRR

Level 2: Up to $40K/MRR

Level 3: Between $80K-$100K

Level 4: Hitting the $250K mark

Level 5: Hitting $800K-$1M MRR

Level 6: $1.5M-$2M MRR and beyond (Honestly, I don't know what kind of challenges to expect there as I've never been, so I'll leave it to future Michael to figure out.)

Today, I'll discuss levels 1 to 5. I'll provide a guidebook on how we tackled these challenges, and you can follow in my footsteps if it helps.

Feel free to scroll down to the revenue level you're currently at to see if these challenges resonate with your experience. Then, explore the lower levels to reflect on whether you've encountered them before. Finally, look into the future to get a glimpse of what lies ahead.

Level 1: $20K/MRR - $250K/Revenue Year

Top 5 Challenges:

1. How to acquire my first clients?
2. How to ensure timely payments to my entire team (full-time + contractors)?
3. What should I do if my initial clients churn? What's the plan then?
4. How can I compete with more established companies?
5. How do I attract top talent to work with me when I can't offer top-dollar salaries?

My Solutions:

1. How to acquire my first clients?

Acquiring your first clients is not so much about "how" but "where." The key is to reach out to as many potential clients as possible, quickly. The focus should be on taking action: sending 100 messages, 200 emails, and scheduling 5 meetings. Don't expect a high conversion rate from your initial attempts; in reality, it might be quite low. However, even with a 0.1% success rate, you need to repeat these actions a thousand times to make it work. Don't get discouraged by 10 unanswered emails; keep at it.

2. How to ensure timely payments to my entire team (full-time + contractors)?

Clients may occasionally miss payment deadlines or experience delays. Here are some strategies to manage this:

• Learn how to handle accounts receivables and set up automated alerts and reminders.
• Whenever possible, negotiate upfront payments or net-7 due dates.
• Don't hesitate to send reminders for overdue payments; it's part of the business.
• Structure compensation with a 50-50 base and commission split.
• Consider paying your team twice a month or weekly to spread out your payment schedule.
• Implement a clear P&L and financial planning system. I shared a P&L template in a previous newsletter, which helps prevent overspending.
• Maintain a financial cushion of 20% to 40% of your monthly expenses in case of unexpected cash flow issues.
• If your balance is low, be transparent with your team and promise to pay within two weeks when a new client comes in. Keeping such promises builds trust.

3. What should I do if my initial clients churn?

Client churn can be challenging, but you can take steps to minimize its impact:

• Avoid depending too heavily on one or two clients for more than 60%-70% of your revenue; distribute your income sources evenly.
• Define core deliverables or KPIs and track them weekly, providing regular reports to clients.
• Schedule weekly calls to refine strategies and build relationships.
• Aim for longer-term contracts, even at a slightly reduced rate, as steady payments offer more security.
• Take a proactive approach, provide innovative ideas, and think outside the box. Don't nickel-and-dime clients for extra work; show that you genuinely care. We've had months with minimal results, but strong account management helped us retain clients.

4. How can I compete with more established companies?

Bigger companies, including Belkins, tend to be slower and more process-driven. They often struggle to innovate quickly and make risky decisions because they are entrenched in their established routines. People working for larger, more established companies may not always fully grasp the cost of failure, as they believe that if one client churns, another will replace them.

It's not that these people don't care, but rather that the perceived risks are lower for them, and their focus is often on established patterns, budgets, and planning.

In contrast, smaller companies have the agility to move swiftly. They can adapt their business models, offer unique perks, implement new services, all at lower costs. This nimbleness allows smaller companies to excel and outperform larger competitors, particularly in situations that require quick adaptation and innovation.

Here is a good example of outsmarting the bigger company.

Unlike many competitors, Belkins offers guaranteed appointments as part of our service contract. This was a departure from the traditional mindset that you cannot guarantee something that is not entirely within your control, as it was considered risky.

To differentiate ourselves and answer the question, "Why should clients choose Belkins over competitors like Cience?" we devised a guarantee-based business model. But we added a creative twist to our guarantee by offering clients a 30-day free extension of services if we failed to deliver on the guaranteed appointments instead of refunds.

This twisted business model became a fundamental part of Belkins' approach, and we continue to implement it to this day.

5. How do I attract top talent to work with me when I can't offer top-dollar salaries?

Top talent often prioritize opportunities, company culture, and personal attention over high salaries and established brands. You can hire experienced individuals at lower compensation levels by offering them a close-knit team, regular interaction, and the chance to witness your company's growth. These people typically dislike corporate bureaucracy, HR processes, and prefer a vibrant team environment, which can be lost in larger companies.

I recall a talented and dedicated SDR, Andrew, leaving Belkins when we had around 60-80 employees. He was disheartened by the introduction of regular all-hands meetings, adherence to processes he disliked, and a less personal atmosphere. I now understand his perspective. At 300 employees, we have equally talented SDRs who wouldn't have thrived when we were smaller, but they thrive now. At each stage of your growth, people have different needs; don’t keep them if you are no longer fit.

Level 2: Up to $40K/MRR - $500K/Revenue Year

Common Challenges:

1. I'm overwhelmed with operational tasks and have no time to focus on strategy.
2. I lack knowledge in areas like recruitment, finance, project management, and others that I'm pulled into daily.
3. I don't have enough funds to hire staff to support new clients, or I have a backlog of new clients with no onboarded team members to work with them.
4. There's a lot of manual work with clients, and I lack automation or suitable tools.
5. I need a structured sales process because I'm losing opportunities.
6. I produce valuable insights, case studies, and have satisfied clients, but I lack the resources and time to organize my marketing efforts.

Here's what I suggest:

1. It's time to start delegating. As an agency owner, you should focus on either service delivery or client acquisition. If you excel at delivery, find someone to lead client acquisition and focus on building processes, optimizing, innovating, and creating intellectual property. If you're skilled in acquisition, concentrate on lead generation, sales, marketing, strategy, and partnerships. You can't effectively do both.
2. Outsource back-office tasks and automate what you can. Fuelfinance can be good for your finance management, while Trello can aid in project management. Consider agile recruitment and utilize part-time contractors for certain functions. You still need to figure these things out, but don't repeatedly do everything manually; these processes are easy to outsource and automate.
3. Utilize contractors as much as possible; build a network and nurture relationships with them. You should always respond to clients with a "YES," then figure out the fulfillment details, rather than the other way around. Also, collaborate with your team to be willing to put in extra hours; working 10-12 hours is acceptable at this stage.
4. Structuring client work is crucial at this stage. Define the client journey, set up stages, and keep deliverables organized within each stage. There is no room for spending 300% of your time with a single client; both quality and consistency are important. Identify 1-2 core tools to help you.
5. Automate parts of the sales process. For instance, instead of asking leads to contact you through the website and then manually emailing back all inbound leads, add a "book my calendar" link directly to your website. Include qualification questions to filter out irrelevant leads. Utilize tools like HubSpot's free CRM or its basic version for $30/month, in addition to a scheduling calendar and task management with scheduled follow-ups.
6. Avoid outsourcing the core function of marketing. Instead, hire a skilled part-time marketer or someone incentivized by commissions rather than a base salary. Focus on actions and deliverables rather than KPIs and metrics. Specify goals such as posting a certain number of social media posts, collecting reviews, or publishing case studies.

Level 3: Up to $100K/MRR - $1M/Revenue Year

When it comes to Level 3, with around a $3,000 MRR/per client, which translated to roughly 20 to 30 ongoing clients or $100K/total MRR, Belkins faced a considerable challenge in breaking this mark.

We constantly grappled with balancing acquiring new clients and retaining existing ones. For a small team of around 20 people, it can feel like a bit of a mess.

If you've already started implementing the items from the previous list, keep up the good work and consider these additional steps:

• Reinvest whatever resources you have into marketing and sales to generate more leads.
• Personally handle sales and consider bringing in a dedicated sales executive to maximize your closing rate.
• Consider increasing prices or introducing setup fees. This can provide a much-needed financial boost at this stage.

Level 3 can be one of the most frustrating stages, as you're past the $1 million revenue mark, but things aren't necessarily getting easier. Hang tight and have faith in the process.

Level 4: $250K mark - $3M/Revenue Year

Challenges:

1. Inconsistent new sales, with seasonality being a significant challenge.
2. Unpredictable churn with occasional spikes.
3. External events like COVID, war, or economic recessions can impact your business significantly. At this stage, your company is more vulnerable with a larger team and payroll.
4. Some agencies experience high employee turnover, with an average tenure of just a few months, which is insufficient to build an experienced core team.
5. Key managers or heads may be leaving the company or not adequately prepared for growth.

At this stage, the focus shifts more towards people and organizational challenges. With a turnover of $3 million, you're no longer a small boutique agency with 20 people; you're a company with established values and standards. Any hiring mistakes made early on will become more apparent.

To overcome these challenges:

1. Continue to invest in marketing. Regardless of your industry, digital advertising remains essential. Allocate 5%-10% of your run rate to marketing efforts.
2. Implement a client management tool like Planhat.com and set up KPIs for your client team. Link their compensation to meeting these KPIs. For example, back in the day, we tied bonuses of our AMs to churn rate. If churn exceeds 10%, commissions might drop to 75%. Your team should also have tools to retain clients, such as additional services or cross-selling opportunities to compensate for lost revenue.
3. Crisis management is crucial. In times of crisis, rely on your team, delegate responsibilities, and maintain open communication. Some agencies have faced disruption because owners didn't communicate the severity of the situation and made empty promises. Everyone should have a clear plan for addressing crises.
4. Invest in professional recruitment and HR to develop people policies. Pay special attention to onboarding and adaptation processes. Typically, if new hires stay beyond 8 months, it indicates a good fit and potential for long-term retention. High turnover may result from poor initial hiring or insufficient support during onboarding and adaptation.
5. Implement individual KPI and compensation sheets, allowing each person to take ownership of their pay. Collaborate with their direct managers to establish metrics and plans for the next month. This approach gamifies performance and helps individuals hit milestones to achieve more. Highlighting achievements with green or red flags and daily measurements can motivate progress.
6. Evaluate department heads not just based on current results but on their ability to lead your company to the next level of growth. Decisions about key managers are crucial as you aim for $10 million in revenue. It may be necessary to make tough personnel decisions to build your future C-suite.

Level 5: Hitting $800K MRR - $10M/Revenue Year

Challenges:

• Lack of strong middle management or team leaders, and leadership development isn't well-established.
• HR and people management aren't vertically integrated across the organization to support leadership development.
• Compensation and benefits may not align with the market average or aren't balanced internally.
• Misalignment between marketing, sales, and client teams.
• Your current business model may not support your growth strategy and may need to be changed.

This is the stage where your company should undergo one of the key transformations. Whether it's reaching $10M in revenue or having a 200-person team, your agency has already evolved into a mid-sized organization. With proper restructuring, you can pave the way for further growth, aiming to reach 500 people and become a $50M business.

Here are some thoughts on how we've been addressing these challenges at Belkins over the past two years:

1. Since you, as an agency executive, are no longer directly connected to your team, team leaders become essential for fostering a strong company culture and creating a comfortable work environment. Team leaders should focus on leading people, handling onboarding, adaptation, retention, and team growth.

a. Develop a team leader guidebook detailing responsibilities and areas of focus.

b. Implement team dashboards for team leaders to measure performance and benchmarks. We use Planhat.com for this purpose.

c. Collaborate with your HR and people team to build a leadership development program, with a significant focus on its implementation.

d. Make your team leaders a core focus of your people management efforts.

2. If you've pushed for rapid growth and implemented a performance compensation model (where 30-50% of payroll is bonuses or commissions for performance), you might find that some positions in your agency are overpaid, while others are underpaid due to budget constraints. This can lead to several problems:

a. Limited career growth opportunities for some positions, as they reach a salary ceiling, making their next career step financially unattractive.

b. Persistent budget shortages, resulting in overworked employees and burnout.

c. Inconsistent benefits packages that may not align with compensation levels.

The solution lies in dedicating resources and establishing processes for compensation and benefits planning. Your growth and people strategy should not only align with key client metrics and company revenue goals but also account for compensation and benefits. Consider starting this process after reaching 150 employees or $5 million in revenue.

3. At this stage, clear verticals and leadership for sales, marketing, and client teams are crucial. In many cases, these three functions can become misaligned. Marketing generates leads that the sales team fails to close, leading to deals that don't translate into high LTV. Your client team may struggle to retain accounts or fail to retain ICP accounts. To address these challenges:

a. Implement a CRO function to develop synergy programs across departments.

b. Hold regular forums and workshops for departments to align their strategies based on common ICPs and shared metrics such as LTV or Churn.

c. Provide visibility and support for everyone in these teams to understand the entire client journey.

Not that long ago, I realized that within these three functions, there will always be one out of the three that will be at a disadvantage:

1. Better quality leads generated by marketing means fewer appointments for the sales team.
2. Better ICP-fit leads for sales team means fewer new clients for the client team.
3. Fewer new clients for the client team means less potential for upsell and cross-sell opportunities.

In this formula, it's challenging to excel in all three areas simultaneously. However, what you can do is continuously cycle between them, like an ouroboros, changing your focus regularly to adapt to the evolving needs of your business.

4. The question of the business model is one of the most challenging at this stage. You have an established portfolio of clients that you don't want to lose, but to reach $20 million, you may need to repackage your offerings. Here's how I see it:

a. Increase prices for your default offerings; this is non-negotiable to fund growth.

b. Develop offerings for the upmarket segment. Evaluate your client portfolio based on company size (e.g., 11-50 employees, 50-200, 500-1,000) and move upmarket.

c. Branch out with new services that complement your core expertise. These additional services can enhance your value proposition and help you serve a broader range of client needs.

d. Invest R&D. As you deliver services, patterns emerge, and you can automate processes with technology. Early investment in development can help you shift from a pure service model to a tech+service model, improving retentio

Level 6: $1.5M-2M MRR is the next step, and we're projecting to reach that by 2025 as a holding company (including Belkins agency, spinoff projects, and key mergers).

Follow my newsletter for updates on our journey at that scale.

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