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All small businesses have the same stages of growth to go through. Which are you in? Click here to download a chart of these different stages so you can follow along as Scott Martineau interviews Clate Mask about the stages of small business success.
Scott Martineau: Welcome to this episode of The Small Business Success podcast. I’m Scott Martineau –
Clate Mask: And I’m Clate Mask. We’re cofounders of Infusionsoft.
Scott Martineau: And today we have a special and we’re gonna change up the format a little bit. I am going to interview The Clate –
Clate Mask: [Laughs] Such a dork.
Scott Martineau: about a topic – about a topic that he – well that’s been one of the best, most listened to episode is what is a Clate Mask? So I’m going to interview a Clate Mask today about a topic that he’s very passionate about – the stages of small business success and we’ve got a graphic that if you’d like to download it you can follow along as we review them and you can find the link to that in the show notes. The reason I want to do it interview style is because this has really been kind of a little baby of Clate’s for a while and something that he has had the vision for and I believe is a really key important tool as we think about the small business market –
in general and how we go attack and help more small businesses be successful. So first, Clate, good to have you on the show.
Clate Mask: Great to be here. Thanks, Scott.
Scott Martineau: Why don’t you start and just give us the background on sort of the –
Clate Mask: Yeah.
Scott Martineau: What sparked the idea to create the stages of small business success?
Clate Mask: Yeah, so several years ago I was thinking about the frustrations that I’ve had over the years in Infusionsoft as we’re talking with partners or different people about what small business is and I was just so frustrated with the misunderstandings that are prevalent when we begin a conversation about small business and I found that whether I was talking to another, you know somebody in business development with a company or somebody in government or an entrepreneur that you know a business owner themselves there’s so much variation between what people understand a small business to be –
that it’s almost impossible to speak the same language. And when you don’t speak the same language you end up with a ton of waste and frustration and just a lot of time, money and energy that gets wasted because we think we’re speaking the same language and then we find out we’re not. So, for example, business development conversation – oh we hear Infusionsoft is all about small business. We would love to partner with you. And I get on a call and it takes you know by the time we’re done with an hour-long call I finally realized that they think small business is companies that have 100 to 1,000 employees and I think small business is something very, very different. So I got to a point where I finally started to just have a little spiel for about 30 seconds at the beginning of those conversations –
Scott Martineau: Be clear.
Clate Mask: Here’s – yeah, here’s what we mean by small business. How about you? And we could finish a lot of conversations in like two minutes instead of wasting an hour. But I just started to think about the multiplication of that –
How much waste occurs for business owners for politicians for corporate America and the waste is nauseating when you think about it.
Scott Martineau: So what’s the – what are the most common definitions that you’ve seen?
Clate Mask: Well I think the thing that causes a lot of the misunderstanding is that the Small Business Administration of the United States defines it as businesses under 500 employees and I’ve seen a lot of definitions under 50 employees, I’ve seen a lot of definitions under 100 employees, I’ve seen under 500 and I’ve seen some large corporations that define it anything under 1,000 employees so you know there’s just a lot of variation and obviously, I mean you and I both know how different it is to be a solopreneur. In fact, you could even talk about like a part-time solopreneur versus someone who’s self-employed.
Scott Martineau: Right.
Clate Mask: It’s their primary means of income. That’s very different than a florist running a 5-person shop from an advertising agency who’s got 75 employees and so forth and everything in-between.
Scott Martineau: It’s interesting that most of the definitions that you just went through were below. So it’s number – businesses that have below a certain amount –
Clate Mask: Yeah, so I say below 100, by the way, but you have to understand the percentages of what they look like. So yeah, it’s like you know there’s some below and for some people it might be below 10 or below 15 but I think there’s just so much variation of the definition.
Scott Martineau: Well I think what you’re gonna share with us in just a moment spoiler alert is that it’s not just below x-number of employees. There’s actually five stages of small business success below 100 and it’s actually in that granularity that we start to see some of the specific needs that the business owners have in different stages.
Clate Mask: Yeah, yeah. As much as you know I would – as much passion as I have for this and you know that you and I could just talk for a long time on the stages themselves the reason why we wanted to talk about this on The Small Business Success podcast –
is because our listeners I think when they understand where they are in the spectrum of small business and when they understand more specifically what they need to do to move to the next stage now it gets really interesting. So that’s part of what I want to share and part of the reason why I have so much passion to talk about these stages. It’s not just because of the waste that happens out there. It’s because the victim in all of this is the business owner that ends up not getting the products and services they need, not getting the help that guides the direction they need, because the person that they’re talking to who supposedly has something to help small businesses is actually thinking of somebody very different than that particular business owner. And so what ends up happening is all this waste that occurs shoot, government can absorb the waste, corporate America absorb the waste, small business cannot absorb the waste, so the small businesses are the ones that get screwed and end up not getting the products and services and help that they need to grow their company and that’s why I want to talk about it.
Scott Martineau: So what have you seen –
before we jump in and we’re gonna jump in and go through each of these stages in detail but what have you seen for those who go try to solve for small business what are the patterns you see when they don’t get this clearly? You know what –
Clate Mask: One size fits all is probably a real super common thing. Oh yeah, we’ve got a small business offering for that. Yeah, we have our enterprise solution and we’ve got our midmarket solution and we’ve got our small business solution and their small business solution is not geared for a one-person company, a five-person company, a ten-person company. It’s geared for a 100-person company or a 500-person company or maybe even a 50-person company. But when you start to understand the percentages of what small business actually looks like you realize how ridiculous it is to have a one size fits all for small business.
Scott Martineau: And you think this has impact – I think there’s kind of a reputation around servicing small businesses. It’s hard. It’s difficult, which I think –
Clate Mask: Yeah well –
Scott Martineau: It’s fair to say.
Clate Mask: Yeah, well and it’s especially hard if your solution is a one-size-fits-all for a 200-person company or a two-person company.
Yeah, guess what? It’s hard when you’re trying to force-fit a solution for 200 people and cram it down the throat of a two-person company. Yeah, it’s really hard.
Scott Martineau: Okay, so everybody at the beginning of this episode we shared the link to go find the handout or the graphic that we’re gonna be talking through so maybe just orient us to this first. What are we seeing as we look at the stages of small business success? What are kind of each of the factors?
Clate Mask: Yeah.
Scott Martineau: And then we’re gonna jump through the stages.
Clate Mask: Yeah, so let me give you some quick background on this. This graphic that you’re looking at is not something that we just kind of pulled out of the air. We’ve actually been working on this for about seven or eight years and it goes back to when Scott and I wrote Conquer the Chaos. We were at a point where we could – we had been doing what we were doing helping small businesses automate their scales of marketing for many years and we got to a point where we could start to anticipate the challenges and problems that a business owner was facing depending on where they were in their evolution. And so I start to think about –
as we were doing the research for the book I started to think about how to actually put some kind of a mental model in the minds of business owners to help them understand where they were in their evolution relative to the world of small business and I felt like when we wrote the book I just felt like okay this was time to actually buckle down and do some research because we’d spent many years of getting anecdotal evidence flying at us and our own experiences and so a lot of empirical evidence but we hadn’t really sat down and down some research on it. So when we wrote the book I spent a bunch of time, more time than I care to admit, analyzing the small business data that the U.S. Census Bureau puts out. And so admittedly what we’re sharing with you is a U.S. view of small business but I found that the global view and some of these percentages and stats play out across other economies so I don’t –
You know what we’ll share with you is – has kind of a U.S. lens on it because that was the data that I really studied and have since refreshed and studied quite a bit more but it comes from the U.S. Census Bureau data. So really it’s a common – what you’re looking at in these stages of small business it’s a combination of our own experience growing a business, our experience in a really, really cool position of working with hundreds of thousands of small businesses over the years and then our experience or our research looking at the data and some other research that we did. So we put all of this together and said okay let’s really break down what the stages of small business are and so that’s the background for it, Scott, as you well know and I just didn’t want people to think we just kind of drummed it up and said hey, let’s just throw this out there. And then over the years I’ve shared this with a lot of experts in small business and said what does this look like to you? What do you think? So what you’re seeing is like version 4 or 5 and it’s come from a lot of smart people –
whose lives are totally immersed in small business and they gave me some really good perspective and I made some revisions over time.
Scott Martineau: Great. Okay, so let’s jump in and maybe take 20-30 seconds and just describe what’s on the left column here, Clate.
Clate Mask: Yeah, so along the left side you’ve got the number of employees, the annual sales, you’ve got the number of these types of businesses in the United States, and then I have on there what the team tends to look like in leading that business and what the biggest obstacle or the biggest hurdle is that the business owner must overcome if they want to move in to the next stage and I’ll talk a little bit more about that because it’s quite simplistic to just call out one thing like this. I mean we all know the small business growth is a lot harder than just solving one problem but I’ll talk about a minute, as well, so that’s on the column down the side there. And then across the top is the five stages of –
small business with stage one being broken into two parts because it’s so massive and it has a pretty clear break and then kind of the names – our names for those five stages.
Scott Martineau: Well why don’t we jump in? Let’s talk about stage one.
Clate Mask: All right, so stage one is massive. This is – there are – first of all, you have to understand there are 27 million small businesses in the U.S. that are accounted for by the government. There’s, by the way, there’s probably another 20 or 25 million that are not accounted for by the government so you’ve got to understand that in the vast majority of those would be additional numbers to stage one. But stage one we call solopreneur and there’s two types. There’s the side-job solopreneur that’s got their day job, they’re doing their thing and they’re running something on the side for extra income and eventually it may become their primary source of income and they may quit the day job. The thing that divides the side job solopreneur from the self-employed solopreneur is that the self-employed solopreneur has quit the day job.
They’re done. They’ve said they’re sticking it to the man, they’re going and doing their thing and that clear line of demarcation is what divides solopreneurs into the side job or self-employed. So obviously, by definition there’s one person, it’s a solopreneur, that’s the number of employees and you have – you’ve got basically you’re looking at a business before quitting the day job that typically looks somewhere between $0 and $4,000.00 a month of monthly income. You know you kinda get to that $50.000.00 a month and it’s too much to be running on the side frequently and you’ve got to start putting – you’ve got to quit the day job to give more time to it, not always but that’s a pretty good guideline.
Scott Martineau: So I’m thinking what we ought to do is go through stages one through five and just talk about number of employees and rough revenue ranges –
Clate Mask: Yeah, yeah.
Scott Martineau: and then we come back through and hit the biggest hurdles and team so –
Clate Mask: Yeah, perfect.
Scott Martineau: that’s solopreneur and the overall percentage of U. S. small businesses at least.
Clate Mask: Yeah, about roughly 80 percent of the small businesses in the U.S. are solopreneurs and if you count those undocumented businesses it’s about 90 percent that are solopreneurs. So now you start to see how a one-size-fits-all program, government program or –
Scott Martineau: Targeted at a stage five –
Clate Mask: Yeah, targeted for small businesses, your 80-90 percent of the people listening to that are running a one-person business. They’re hearing small business solution and they go and look at it and they’re like, what the crap? It’s not even close to what I need.
Scott Martineau: Yes. All right, so stage two.
Clate Mask: All right, so stage two we call this a new employer because you’ve now hired a person. This is typically a two-three person company and this company is generally doing somewhere between $100,000.00 and $300,000.00 a year in revenue so that’s stage two. That first hire you make is the only thing that approaches how scary it is to quit the day job. You know that’s the scariest thing when you quit the day job and you’re on your own.
Now when you’ve hired a person you’re now accountable or you know responsible. You have employees that starts to get pretty crazy so we call that you know the big thing there is to be a new employer, stage two.
Scott Martineau: I don’t remember where it was. Who was it that gave the sort of shorthand guidance? Was it some SBA or was it some score guy? Anyway, I don’t know, but the point was it’s really difficult for a business to be successful with revenue for employees of less than $100,000.00 per employee, right?
Clate Mask: Yeah, mm-hmm.
Scott Martineau: Which is – which becomes kind of a quick shorthand for some of these stages. Some of you who have more employees and whose revenue for employees is lower than that you’ll understand, but that’d be a good calculation maybe for each of you to run.
Clate Mask: Well here’s an interesting thing for you to be aware of. Scott’s exactly right. $100,000.00 of annual revenue per employee is a line in small business that is a pretty self-sustaining kind of healthy line. When you can get to that point you tend to have a business that works. You’re usually not at that point at the lower stages.
The average revenue per employee of the solopreneur is $47,000.00 and by the way, the average revenue per employee of a Fortune 500 company is about ten times that. It’s about $450,000.00. So you can see how when you know inherently that small businesses are able to pay as much as big businesses, you’re right. It’s about ten times less than a solopreneur can afford to pay compared to a Fortune 500 company at $450,000.00 of revenue per employee. And by the way, the stats on this are really simple. It’s the amount of annual revenue divided by the number of employees you’ve got and at stage one solopreneurs the average is $47,000.00 and it starts to move up above $100,000.00 when you get to stage five on the average.
Scott Martineau: Okay, so stage three.
Clate Mask: All right, so stage three we call this steady operation and it’s a four-to-ten-person company. It’s not steady in the sense that everything is all figured out. It’s all smooth sailing.
I mean we all know that that’s not the case. If you’re a company that’s four or five employees, you’re dealing with chaos and trying to get things sorted out, so it’s not steady operation in the sense that everything is sorted out. It’s steady in the sense that you’re no longer in the everyday fight for survival and are we going to – are we gonna be here tomorrow? That’s what we mean. It usually looks like four-to-ten employees. By the way, you do have those days when you’re wondering if you’re gonna be there tomorrow but it’s not an everyday fight for survival with white knuckles. So that looks like four-to-ten employees and this company typically has $300,000.00 to a million in revenue. So there’s roughly about 8 percent of small businesses in the U.S. look like this stage three business.
Scott Martineau: Great. We left – did you say the percentage on stage two?
Clate Mask: Stage two is about 7 percent of small business in the U.S. So stage one is roughly 80 percent.
Again, these are the documented U.S. Census Bureau small businesses 80 percent stage one, 7 percent stage two, 8 percent stage three –
Scott Martineau: And that’s about 1.7 and 1.9 respectively million businesses in the U.S.
Clate Mask: Right.
Scott Martineau: Okay, so stage four.
Clate Mask: So stage four is what we call a seven-figure business. This is what we found – this is what a lot of people want to get to. They want to get to the point where they built the business that’s doing a million in revenue, a million-plus in revenue and this is typically a company that’s got 11-25 employees. What you’ll find is that they’re usually between $1 and $3 million in revenue and about 3 percent of small businesses ever – 3 percent of the small businesses in the U.S. get to this point, so it’s a pretty – you’re in pretty rare company to get to the point that you’ve got a million in sales and for us that’s I think we’ve talked to a lot of small business owners who consider that a huge badge of honor when they get to that point. So we honor them by calling it out as a –
stage 4 seven-figure business.
Scott Martineau: And this is the stage where all the problems go away, right?
Clate Mask: Oh they’re all gone by, yeah, at this point. You just have new problems, new challenges we’ll get to that in a second.
Scott Martineau: All right and then stage 5.
Clate Mask: All right. Stage 5 is a company that’s we call this a growth company so you’re typically you’re doing between $3 and $10 million a year in revenue and this is 26-100 employees and for us this is the high end of small business. This is you know a $3 to $10 million company is no – that’s you’re on your way. You’re really growing. That’s a – I shouldn’t say you’re on your way, like you’ve accomplished a lot at that point. There’s only 1 percent of all – 1 percent of businesses in the U.S. or 1 percent of small businesses, I should say, of the 27 million are at this point so 300,000 of them total in the country and, like I said, typically about 11-25 employees.
Scott Martineau: Great.
Clate Mask: Sorry, I said 26-100 employees.
Scott Martineau: Okay, so I think one of the things that we’ll start to do on future podcasts is start to use the language around stages.
Clate Mask: Yeah.
Scott Martineau: So and that’s one of the reasons I wanted to introduce it. Maybe what we can do is talk – we don’t necessarily have to go through each stage but let’s maybe call out some of the specific hurdles that you know the biggest hurdles that people have to overcome, and then maybe, Clate, we could also share some examples of how getting clear around the stages has helped us even in our business I guess we could use that as an example or you could use another but where have we seen that help when you have clarity around the target you’re going for how does it help you design solutions that meet their needs and that are effective for you as a provider?
Clate Mask: Yeah, so let’s you know when you take a step back – let’s go back to the beginning of all the confusion and the mess that occurs around small business and the definition. When you understand the percentages and you understand where you are then you’re able to have a little better sense for what’s going on in small business. You’re able to find the solutions that work for you better and –
to the extent that we could get business and government and entrepreneurs on the same page of what small business is we could really improve the success rate of small businesses. We could really facilitate the growth of small businesses from one stage to the next. We could take a lot of waste out of the system and really in the end entrepreneurs can be more effective in what they’re trying to do. So the reason – that’s the main reason why I lay this out and I hope our listeners kinda went – I think it’s I’ve done this probably – I’ve probably presented this, I don’t know, 50 or 100 times to groups of entrepreneurs and I’ve refined it a little bit over the years as I’ve done that, but it’s always interesting I think for people to know where they are relative to others. I think it’s also interesting for people to understand okay, why does my revenue look a little different with the number of employees I have or vice versa? So this is the general framework but, as I said, you know –
as I shared a business that’s in one of these stages that has a certain number of employees has revenue typically aligned to what I’ve shared here. Sometimes it’s different. So you can have – you can be in a different industry that’s very capital – very, very equipment intensive and you don’t have as much labor, you know, as many employees. Or you might be – you might have a bunch of startup capital behind you whether it’s a venture capital or an investor of some sort, so you might be spending a lot more, hiring a lot more and your revenue hasn’t caught up yet to that point. Or you might be in a business where the margins are really, really slim so you’ve got really high revenue but you don’t have as many employees. So there’s variations to this but this what I’ve found is that about 80 percent of the time, maybe more, the revenue and the employees line up here and so you sometimes have some variations and I think that’s really insightful for entrepreneurs as they realize where they are and maybe why –
they are where they are –
Scott Martineau: And they don’t fit the exact details of the –
Clate Mask: Of the revenue per employee stage, yeah.
Scott Martineau: Revenue, yeah.
Clate Mask: So I think it’s interesting to know what stage you’re in. It’s interesting to know what your revenue per employee looks like relative to others in that stage. But I think the biggest thing, and this is what you’re getting, the biggest thing is what do I need to do next to grow to the next stage and that’s why we have so much passion here. We want to help businesses understand what they need to do to go to the next stage. You’ve talked, Scott, about one of our partners, long-time friend of the company whose built a business helping small businesses grow in the fitness industry, and you’ve talked about how he has applied this thinking that we introduced to him a few years to his business and you know just talk a little bit about how that has helped his industry and the customers in the small business –
Scott Martineau: Yeah –
Clate Mask: small business customers in his world.
Scott Martineau: So for those of you here in the fitness industry this will – it’ll make maybe a little bit more sense but in general his –
the way that he’s even designed his whole marketing program is around almost the exact question you just ask people which is hey, where are you in your fitness business and he has his kind of a customized version of this, right?
Clate Mask: Yeah, yep.
Scott Martineau: So you’re a solopreneur and you’re still working in the job that you’re doing part-time fitness, personal coaching or whatever that is and you’re contemplating whether it’s this. Well if that’s the situation you’re in here are the specific offerings that I have that’ll help you understand exactly what to do.
Clate Mask: Right.
Scott Martineau: And all of those products are designed essentially to move people to the next step –
Clate Mask: Yes.
Scott Martineau: and the next stage of success and so you kind of have the benefit on both sides of the equation. The benefit for me as a new potential customer is I can see exactly where I can find myself in it.
Clate Mask: Yep.
Scott Martineau: And then I know that the solutions that have been created by Shawn in this case are built for me.
Clate Mask: And then for Shawn it’s way better because he’s able to target and direct his marketing to the right folks who where he’s got a –
solution that really helps them. It just takes all the waste and the mess out of the equation and like to me that’s nirvana. That’s what we want to get to. That’s what we want to do better at Infusionsoft, that’s what we want our customers to do for their small business customers in the case where they’re serving small business and it’s what you know in my utopian world of serving small business I would love to see business, government, entrepreneurs really align to this because I know how much it would – how much more effective small business growth would be if we could do that.
Scott Martineau: So why don’t we just quickly walk through maybe those bottom sections with –
Clate Mask: Yeah.
Scott Martineau: both team and biggest hurdle and maybe let – we just kinda take the natural evolution and not every business will fit kind of similar to what you just said a minute ago perfectly but maybe just kinda walk us through what do you see as you experience businesses evolving from one stage to the next?
Clate Mask: Yeah okay, so the key – what I’ll – I’ll preface this by saying the –
primary hurdle that needs to be covered, this biggest – that needs to be cleared, this biggest hurdle it’s certainly not the only thing and it doesn’t go away as a hurdle but it’s the gating factor. It’s the thing that holds people back. It’s like the constraint that you’ve got to solve and until you solve it you can’t move to the next challenge that you need to overcome. So when you look at the initial stage the biggest issue is time and you know this if you think back to when you started your business and you’re burning midnight oil trying to find enough hours in the day to work around your normal job, your regular job, and so the only thing you can do is just stay up late at night or not eat or you do all these different kind of sacrifices, find a little time during the day to work on something, but you just don’t have enough hours in the day period and you get to a point and I don’t know how – Scott, you and I both know how many entrepreneurs we’ve talked to and they’ll say – when they say like when do I know it’s time to quit the day job, you know?
Well the answer is when you’re pulling your hair out going crazy because you know that the time you’re spending at work versus spending time on your business or vice versa, whatever that is, is just killing you. Because the business is – the side business is starting to pick up and you just can’t feed it enough, and so you get to a point where you’re like, okay I could see that if I spend just a little more time on the side business I could break through to the point where it’s satisfactory replacement income for me. So everybody wants to get to a place where they’ve got the side business so built up that it just they don’t need the day job anymore. Well that’s crap. It’s never gonna happen. [Laughs] You have to actually take the plunge at some point but you don’t want to take it too early where you’re gonna starve and it’s not going to work. So –
Scott Martineau: Yeah, you want to see evidence of success and –
Clate Mask: Right.
Scott Martineau: see that things are taking root.
Clate Mask: Yeah, but the primary constraint there is the hours in your day, so time is the biggest hurdle.
You’ve got to figure out how do you create enough time to work on your business to get it to a point that it’s ready to move to the next stage.
Scott Martineau: The skill you need is performance whilst experiencing sleep deprivation.
Clate Mask: [Laughs] And that is the skill, yes. So that’s the first one. Then when you’ve been able to put enough time into that initial stage you move and you say okay you quit the day job. You take the plunge. Now you’re a self-employed solopreneur. It is your primary source of income and what you’ll find is that you don’t have the leads that you need to grow sales and bring an income to help you get to that $100,000.00 level. So think of this gating factor of leads as being you’ve got to get to that point where you’ve got enough leads that you can sell so you can get to $100,000.00 in sales and that’s really when you clear from stage 1 into stage 2 you’ve got – you’re at kind of $100,000.00, you’re ready to hire another person. Those are you know now –
you’re gonna become a new employer. But you can see when I just talk about stage one and the two sides of the solopreneur you can see that the challenge of enough time is never going to go away and the challenge of enough leads is never going to go away. So the bad news of this biggest hurdle to clear is that it never actually fully goes away. It just becomes not the biggest hurdle anymore. It’s not the gating factor that’s holding you back from moving into the next stage; the key thing that you’ve got to master in order to get to the next stage. So hopefully that’s helpful. The one – you know one – sometimes I get some well you know I see that stage. I’m at stage four and I still have a leads problem. Yeah, you and me both, Buddy. [Laughs] That never goes away but it’s not the thing that’s like preventing you from moving into the next stage.
Scott Martineau: Yeah, I’d say leads becomes a persistent opportunity for you to tackle in your business.
Clate Mask: Right.
Scott Martineau: I’ll phrase it that way but the nature of it changes. For example, when you – if you have a direct sales business and you have –
sales people, the way you think about leads to feed five sales people is very different than the leads that you’re trying to scrape together to get the initial sales to deliver so that you can get this thing off the ground, right?
Clate Mask: That’s right. That’s right. So when you’re in stage two and you’re somewhere between $100,000.00 and $300,000.00 in revenue and there’s two or three people in the business the thing that I see and I see this – Scott, you and I, we see this all the time. The thing that holds people back is there’s nobody in the business that is taking the full responsibility to sell and everybody wants to believe that I’ll just build a better mousetrap, deliver a better service and customers will beat a path to my door and I’ve got some – a handful of leads that I’ve been able to sell or I kinda have my sphere of influence. You’ve got to get to the point where when you’ve got a lead in front of you and it’s the right kind of prospect one of those two or three people in the business has to take on the responsibility of selling and has to get to a point –
where they recognize that selling isn’t just a low-level grunt job or even a necessary evil for you to be successful but it’s something that is to be embraced that you should be proud of because you get to put your product or service in front of a customer who’s gonna be benefited and blessed by that product or service that they get. Somebody’s got to look at sales as a noble job to get the company moving forward and until someone takes on that responsibility fully, not shared between two or three people and we each kind of do something, but somebody takes the responsibility to sell. That is the gating factor that prevents companies from moving over that $300,000.00 per sales and getting into a steady operation with 4 to 10 employees.
Scott Martineau: And the practical reality here is you’ve got payroll to make, as well.
Clate Mask: Yeah.
Scott Martineau: So consistency in sales becomes really critical.
Clate Mask: Yep and what happens, the pain and the problem that happens in this stage is you’ve got a business owner and one or two other people. Sometimes it’s a partnership, sometimes it’s an assistant or –
but you’ve got a business owner and one or two other people and there are nearly two million of these businesses out there and they have an up-and-down selling – they have an up-and-down sales performance record in their company and so they tend to only sell when their backs are up against the wall and they absolutely have to do it in order to make payroll or in order to whatever you fill in the blank and that is a symptom of a company that has not embraced the need to sell. So that’s what usually gets people stuck in stage two.
Scott Martineau: Okay, let’s go to stage three.
Clate Mask: All right, so stage three to me is where this is a really fun place. You’ve got 1.9 million businesses in stage three. There are four to ten employees. Again, this is just in the U.S. and it’s somewhere –
You know these businesses are somewhere between $300,000.00 and $1 million and there are a lot of businesses in this space as I said, nearly two million, and what happens here is in order to move past – in order to get to that seven-figure mark and move past a million and get into stage four the business has to develop the capability of effective marketing and service and specifically taking somebody that they haven’t known from – you know they don’t know at all and having a process whereby they can bring that person into the business, effectively serve and fulfill on the brand promise to that customer and have that customer either bring more customers or more repeat business but add more fuel to the marketing process. So I would describe this challenge and the gating factor that prevents businesses to get to a million dollars I would describe it as the lack of a marketing process and once that gets created, once a marketing process gets created and you execute that a million-dollar business is right around the corner.
Scott Martineau: Great. So going on to stage four we have some of the – some of our podcast guests have been through the Elite Forum program, the Elite program that we’ve created.
Clate Mask: Yep.
Scott Martineau: So it’s interesting because this is an example where we’ve created a very specific product for that stage and the most fascinating thing for me is to be in that room when people come in and just to hear they are –
Clate Mask: [Laughs]
Scott Martineau: I mean it is almost comical how common the sets of problems are –
Clate Mask: Yes.
Scott Martineau: So now you’ve gone from four to ten employees and on almost every case you have this business owner that kinda like they got the bearing on the business –
Clate Mask: Yep.
Scott Martineau: and they’re trying to manage all these things and their fingers are starting separate because they can’t quite get around it but yet they don’t know how to let go yet, you know?
Clate Mask: Yep, yep.
Scott Martineau: So it’s a really it’s also a fun stage.
Clate Mask: Well and it’s also a stage that’s got a lot of satisfaction because –
you’re a seven-figure business. You’re feeling like, man I’ve been working toward that for a long time, and so you’ve got sales and marketing figured out to a certain extent. You know you’ve got your marketing process, as I said. You’ve got somebody in the business if not more than one person who sell and know how to do that well, but this is the classic case of what got you hear won’t get you there. And so we – Scott’s exactly right. We do these Elite forums, we have people come in and they are so – I think the most common thing is they’re so excited to see other successful small businesses that are dealing with the same challenges and the big challenge here, the big challenge in stage four, the thing that prevents businesses from moving past the $3 million stage or past $3 million in annual revenue and into stage five really comes down to people and systems and we like to focus on the people aspect of it more than anything else because it’s a lack of leadership and as Scott said what happens is the business owner, the entrepreneur that gets –
that business up to ten employees and a million in revenue now finds themselves – you know I say this all the time. They feel like congratulations. You’re a seven-figure business. You know they feel like they just won a pie-eating contest and the prize is more pie. [Laughter] It’s like, oh crap. Now I’ve got all these people challenges I’m dealing with and all these people are reporting to me and I’m supposed to have all the answers and I’m just figuring this out as I go. I don’t know but everybody thinks it’s all figured out and you begin to have a lot of self-doubt, you begin to have a lot of challenges because things are bottlenecking at you, and the real issue is you’re not creating a team and you’re not delegating the responsibility. And so the people challenges and the systems that can be run by the people on the teams that you bring on board are really the gating factor here, and so you see a lot of businesses you know there are 700,000 businesses in this stage and many of them kind of are stagnant between that $1 and $3 million and they just they really have a hard time moving.
Whereas in the other stages you have a lot of entering and exiting. You’ve got businesses that kinda get to that point and then they go back or they don’t quite make it through. You know stage four you’ve got a business that’s a seven-figure business but I can’t tell you how many business owners we talk to who just they plateau there and they don’t know how to move past it and it’s because the skills of sales and marketing and understanding their industry that got them to where they are at a seven-figure business are very different than the kind of leadership skills they need to display in order to move the company to $3 million beyond.
Scott Martineau: I really appreciated one of your comments at one of the Elite forums you were at where you said leadership is an exercise in relinquishing control.
Clate Mask: Yep.
Scott Martineau: And that’s really what it’s all about.
Clate Mask: Yeah.
Scott Martineau: And the other point that’s called out here in that cell right there is you’ve got – you’re going from essentially one team to now multiple – you know kind of a natural manager-to-employer ratio –
Clate Mask: Right.
Scott Martineau: is around – you know one to ten the wheels start coming off.
Clate Mask: That’s right.
Scott Martineau: Now you’re – which makes this idea of systems and delegation and effective delegation even more critical, right?
Clate Mask: That’s right.
Scott Martineau: You’ve got –
Clate Mask: You can’t have – if you’ve got more than ten people reporting to you it starts to get really tough as an entrepreneur. Now if you’re a manager and you’ve got 10 people that have the exact same role and you’re all leading you know you’re leading ten service reps or ten sales reps and they all do the same thing that’s one thing.
Scott Martineau: Yeah.
Clate Mask: If you’re the business owner and you’ve got a customer service person and you know two customer service people and two sales people and a marketing person and three people in production, I mean you’ve got challenges there in a variety of ways in the business and I remember talking one time to an entrepreneur that had 24 – all 24 of his employees reporting to him and I looked at him and I said –
Scott Martineau: Dude.
Clate Mask: My friend, I am so sorry. [Laughs] How are you not going crazy? And he got kind of a pained look on his face. He was like yeah, this – that’s why I’m here ‘cause like I’m going crazy.
And you know it really does come down to what you said, Scott. It’s about relinquishing control in the right way and it’s a terrifying experience for an entrepreneur to relinquish control because their ego, their image, their finances –
Scott Martineau: How could anybody do it?
Clate Mask: Everything – yeah, everything is wrapped up in it – everything and so to relinquish control is like saying you know I’ll just cut off my right arm here. You know you just you can’t bring yourself to do that. It’s very counter to the entrepreneurial zeal that got the company to a million in the first place. That’s why it’s a very unnatural thing and most business owners don’t get through that but when they do it’s amazing and it’s awesome to see business owners who can lead and create a team and get everybody bought into the vision and then relinquish control appropriately and watch that business take off.
Scott Martineau: Great. All right, so we’re taking off. We’re above 25.
We’re now in our 26 to 100.
Clate Mask: Yeah, now you’re a growth company. There – you know only 1 percent of small businesses are in this rarified year, so you’re over $3 million in revenue, you’ve got a team in place and you’re really growing the business in effective ways. Your sales and marketing skills that you had before are coming back into play in the business in a big way but you’re getting over the people problems but the real issue now becomes you’ve got to get everybody aligned to that culture because if you’re going from – here’s the key thing. If you go – when you go from – when you’ve got 26 to 100 employees what happens is now you have people you don’t know hiring people you don’t know and when you have that a dynamic going on in your business if you don’t have everybody aligned to the same vision, then you as the leader and the business owner have a panic attack, and you walk into your business one day and there are 40 people and you have no idea what they’re doing and you’re wondering what the heck is going on.
So there aren’t a lot of, like I said, only 1 percent of small businesses are in this place, but the key thing here that prevents a business from breaking out or getting over 100 employees for those who want to do that is really getting the leadership and culture right where you’ve got leaders hiring to that culture.
Scott Martineau: So, hopefully, as we’ve gone through this you’ve number one, found yourself in the stages. Number two, I think even though you may feel like you’re in a particular stage maybe you’ve been there for a long time, maybe you’ve just arrived there, but I think being able to look ahead and understand the areas where the business owner you may need to be developing is great. You know I think of a lot of people in the Elite programs where they say man, if I had just understood these concepts two years ago –
Clate Mask: Yeah.
Scott Martineau: I could’ve saved myself a whole –
Clate Mask: Yeah.
Scott Martineau: You know so I think this gives a great framework for getting out ahead in terms of your own personal development and maybe understanding the types of people you want to bring on so that they have the skills that you’re going to need.
You know because I think otherwise you get there and you kinda have to learn it in real time.
Clate Mask: Yeah.
Scott Martineau: Which is a little bit more painful.
Clate Mask: Yeah and we like, as you know Scott, we like to tell people look, if you’re not meant – you know a person that’s in stage one or stage two they’re probably like I don’t ever want to have 100 employees. Are you kidding, Clate? Like what are you talking about? Well if you’re a business owner that’s got 25 or 30 employees you might be having that vision of what you want it to look like and what I’ve found and what I know you know, Scott, we’ve talked to entrepreneurs and we see this all the time. You can kind of only see the next peak in front of you as an entrepreneur. It’s a lot like hiking or mountain climbing and you really can’t see much further out in front than that one peak but when you get there and you enjoy it and you’re realizing that was pretty awesome many entrepreneurs want – now they can see a new peak and they want to go to that next peak. So I hope listeners don’t say you fools. I don’t want to be a 50-person company or a 20-person company.
I just – I’m perfectly happy as a one-person company. I hope that you would say well, take a look at what that next goal is, ‘cause I’m pretty sure you want to make some more money and I’m pretty sure you’d like to have a little more time on your hands and I’m pretty sure you’d like – you’ve got some things in life you’d like to do to have a greater impact and it’s hard to do that when it’s just you all by your lonesome trying to make it happen. And I hope that instead you would say what do I need to do to grow to the next stage? And then if that’s all you want to do when you get to that stage, fine, but I’m gonna bet that once you get to that next stage and once you’ve enjoyed it and once you realize your kids really need braces and you’ve got a vacation you want to go on and there’s some things you want to do you just might start looking at the next stage and you won’t have so much judgment in it about people that are going for stage four or stage five or so on.
Scott Martineau: Great. Well fantastic. I think this is an exciting sort of kickoff to the stages of small business success –
and we’ll, like I said, we’ll be working these into future podcasts and maybe trying to share some more specifics around how to get from stage to stage. But hopefully, to all of you listeners do you feel our desire to both understand who you are and to help organize the world to help create solutions that work for you and this is one of the tools, right, in helping others to understand there’s a lot more than just businesses below 500 employees and your needs are specific. And so there are things you can do and things that we hope to organize in the world to help you be more successful.
Clate Mask: Yeah, in fact, there are 80 to 90 percent that are below, too. [Laughs]
Scott Martineau: Right, yeah.
Clate Mask: So when you understand these numbers you realize just how – you start to realize oh, that’s why it feels so strange when big corporate company talks about such-and-such small business program. I’m gonna leave out some of my favorite names just because. [Laughs] But yeah, it’s a very big world out there in small business and understanding –
where people fit and how we serve those people those businesses makes all the difference.
Scott Martineau: Okay, fantastic. Any final thoughts?
Clate Mask: No, I just I love talking about the stages of small business success and I love talking about the growth the desire to grow through the stages. As you know, Scott, I’ve got some specialized –
Scott Martineau: Fire –
Clate Mask: Yes, I have a lot of passion about this because I’ve heard people at time say well I don’t want to move to this next stage or that stage. You know and to that I say that’s because you’ve got things on your mind that you’re not wanting to get past. You want to grow and we want you to grow and for sure Scott and I are all about small business growth as we – you know sometimes I say this. I say you know people think yeah, you guys love small business. I’ll be totally honest. I don’t love small business. I love small business growth. That’s what I love. It’s amazing ‘cause the individual grows, people grow, the product grows, the company grows, the opportunity grows. I love growth. I love small business growth and I love, love the entrepreneurs who will do the hard work to grow. There’s nothing better than that.
That’s who I want to serve. I want to serve small business growers. That’s the best. That’s what I love.
Scott Martineau: If you’re interested in learning more about the stages of small business success, we’ve created an e-book and we’ll put a link to that e-book in the show notes so click on it and feel free to download it. We’ll give you more helpful information around some of the key challenges in each of the stages and some suggestions on how to plow through those problems and get to the next stage.
Clate Mask: Earlier this year I blogged about the stages of small business success and I talked specifically about the seven deadly sins in each stage and I think that’s probably a good way – I think people can understand okay, I see where I am in the stages but I, you know what are some of the challenges and problems and why should I care? Well go check out those seven deadly sins. We’ll put that in the show notes so that you can see some of the blog posts I did earlier this year about it.
Scott Martineau: Fantastic. Well let’s end on that. To all of you we want to help you grow whatever stage you’re at. Let’s get you to that stage plus one. That’s what this whole podcast is all about. That’s why we exist and we’re gonna call that a wrap for this episode of The Small Business Success podcast. Thanks, everybody.
Clate Mask: Thanks.