Million-Dollar Startup Secrets

Most small businesses never reach $1 million in annual sales. Instead, they struggle just to survive. Of businesses started in 2004, barely more than half -- 56% -- were still around in 2009, a study from the Ewing Marion Kauffman Foundation found.

In fact, cracking the $1 million barrier at any point in a company's lifetime is a major achievement. U.S. Census data from 2007 shows that more than three-quarters of the country's 6 million firms with employees made less than $1 million in revenue. And most solopreneur businesses don't earn anywhere near that much: According to IRS data for 2008, the average solo business brought in less than $60,000.

Given these sobering numbers, reaching seven figures in a business's very first year -- and with a startup's often-scarce resources -- is nothing short of extraordinary.

But it can be done. We know, because we talked to four companies that ramped up their sales from zero to $1 million or more in their first full year in business, and we vetted those ideas with a pair of experts on starting up a successful business.

Then, we took their essential ideas and boiled them down into 10 secret strategies and tactics of companies that hit it big -- fast.

Company: Brad's Raw Foods Founder: Brad Gruno, 52 Headquarters: Pipersville, Pennsylvania Sales: $2.5 million projected for 2011

Million-Dollar Secret No. 1: Test your concept. After Gruno lost 40 pounds on a raw-food diet, he started making his own raw chips from kale, beets, sweet peppers, and other vegetables. He thought the chips made a great business idea, but he didn't just trust his own instincts. Instead, he did extensive market testing: In 2009, Gruno sold chips and offered samples at four different regional farmers' markets.

Customer feedback was enthusiastic -- and helpful. He adjusted recipes, introduced new flavors, and gained the confidence to pitch his product to local mom-and-pop health-food stores, and then to his local Whole Foods Market. Gruno now produces 17 different varieties of chips for 90 Whole Foods stores.

Stanford University entrepreneurship lecturer Steven Blank says Gruno's willingness to "get out of the building" and test his idea before launching his company is a rare and valuable trait.

"Instead," Blank says, "most entrepreneurs suffer from premature scaling -- they hire too many people too early, before they know anything."

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Million-Dollar Secret No. 2: Make the sale. As soon as Brad's Raw Foods started gaining traction in health-food stores, Gruno hired a production manager to free himself up to make more sales calls. Gruno knew he would be the brand's best salesperson, given his personal story of following a raw diet.

A lack of sales focus often keeps startups from quickly growing revenue, says Nick Seguin, manager of entrepreneurship programs for the Ewing Marion Kauffman Foundation.

"Some entrepreneurs are just loving their beautiful, shiny product and spending all day on social networks instead of remembering that it doesn't matter until you've closed that deal," Seguin says. "Often, entrepreneurs focus on product-market fit but don't develop a sales channel. You need to be able to manage a sales organization and have a mechanism for getting your product out there."

Million-Dollar Secret No. 3: Be persistent. The state of Pennsylvania didn't want to issue Brad's Raw Foods a commercial food-handling permit because the raw chips weren't cooked at a high, germ-killing temperature. But after six months of grilling by health authorities, Gruno prevailed: The state created a new food-handling category to accommodate his business.

"No one had ever done this in Pennsylvania," Gruno says. "But I just kept answering everything they shot at me."

Company: Shoes of Prey Founders: Jodie Fox, 29; Michael Fox, 30; Mike Knapp, 30 Headquarters: Sydney, Australia Sales: Topped $1 million in 2010

Million-Dollar Secret No. 4: Listen to customers. When Shoes of Prey, a design-your-own-women's-shoe website, launched in late 2009, the founders made some fast changes as they learned of customers' problems.

"We quickly realized two important styles were missing: ballet flats and ankle boots," says Jodie Fox. "We also hadn't named our color swatches, so people were having trouble understanding what color they were working with."

Million-Dollar Secret No. 5: Make your value proposition clear. Shoes of Prey's wares run for $200 to $300, which is a great price for custom-made shoes. But at first, the website did a poor job of explaining what a good value the shoes were for the money, Fox says. Sales picked up after the website began highlighting how each pair is unique and made to order.

Million-Dollar Secret No. 6: Use social media creatively. To create buzz about its footwear, Shoes of Prey hired popular shoe-loving video blogger Blair Fowler (aka JuicyStar07) to hold a contest giveaway. Contestants had to design a shoe on the site to enter, resulting in 200,000 site visits in a single day. Fox hoped to get 5,000 entries, but the video received more than 700,000 views, and 90,000 people entered. The next step: The team quickly added social "share" buttons so visitors could show their designs to friends on Facebook and other platforms, adding more promotional reach. Sales topped $1 million in the company's first full fiscal year.

Company: PetFlow Founders: Alex Zhardanovsky, 33; Joe Speiser, 32 Headquarters: New York City Sales: $15 million projected for 2011

Million-Dollar Secret No. 7: Learn from others' failures. Despite the famous dot-com era flameout of Pets.com, when Joe Speiser and Alex Zhardanovsky researched the online pet-goods space, they saw opportunity.

To learn how to avoid Pets.com's mistakes, Zhardanovsky spent two hours debriefing former Pets.com CEO Julie Wainwright. The takeaway: Pets.com carried 15,000 items, mostly impulse purchase-type goods and few food products. Orders were often one-off rather than recurring.

So the pair's New York City startup, PetFlow, went in a different direction: It offered 4,000 varieties of pet food for regular, monthly delivery. The recurring-purchase model helped PetFlow keep inventory down, buy smarter, and negotiate lower shipping costs. The result? Launched in June 2010, PetFlow racked up its first $1 million in sales within the company's first few months. By year's end, revenue topped $1 million a month.

"Pet owners are the best kind of recurring customer," Zhardanovsky says. "Their pets have to eat every month. This is a recession-proof business."

Million-Dollar Secret No. 8: Stand firm on price. Zhardanovsky resisted the temptation to cut prices to drive more sales volume. Getting pet food delivered is a valuable service, and he's found customers are willing to pay more for it. That's savvy thinking, says Kauffman's Seguin, who notes that underpricing endangers the survival of many startups.

"You'd be terrified by most startups' profit margins," Seguin says. "They're often around 1%."

Company: RumbaTime Founders: Joe Anto, 32; Drew Deters, 31; Jay Hartington, 32 Headquarters: New York City Sales: $2.3 million in 2010

Million-Dollar Secret No. 9: Ride the trends. Drew Deters and Jay Hartington were visiting Italy two summers back when they noticed people wearing brightly colored, affordable, silicone-banded watches. Together with cofounder Joe Anto, they created New York City-based RumbaTime to bring the style to the United States.

Sending watch samples to national fashion magazines, RumbaTime got its under-$50 watches loads of media exposure, just as the hurting economy meant more coverage of low-priced yet still-chic fashions. Celebrities including Jaime Pressly and Snoop Dogg soon sported RumbaTime watches, too. The media attention made RumbaTime an instant hit, and the company reached the $1 million sales mark in August 2010.

"Magazine editors were looking for things that were affordable, but fashionable enough that they'd be worn by somebody who has $1,000 to spend on a watch," says Anto. "We fit right into that."

Million-Dollar Secret No. 10: Don't rest on your laurels. As soon as RumbaTime saw early success, the company began creating more innovative lines. Its newest style is the VanDam GO watch, which includes an embedded near field communication payment chip and emergency medical identification.

Blank of Stanford University loves the tech-enabled watch model. "Adding the near field communication chip within a watch puts a really interesting spin on it," he says. "It'll get people to look at their other product lines, too."