Tropical MBA: Entrepreneurship & Founder Lifestyle

#745 “3 Million in Revenue is a Death Zone" - Financial Strategy with Greg Crabtree

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Mar 7, 2024

Explore the challenges of surpassing the $3 million revenue mark with Greg Crabtree, focusing on profitable growth strategies. Discover the importance of market-based wages, profit truth, and effective financial management. Navigate the 'death zone' of business growth and learn essential steps for success.

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INSIGHT

The Death Zone

The "Death Zone" for businesses is between $500,000 and $3 million in revenue, where many struggle to transition.
This struggle often involves giving up ownership of operations or sales/marketing, requiring a capable, fully-paid employee.

ADVICE

Market-Based Owner Wage

Pay yourself a market-based wage, even as the owner.
This reflects the true value you bring and ensures you see accurate profit.

INSIGHT

Fully Capitalized Business

A fully capitalized business has two months of operating expenses in cash.
It also maintains zero debt, which offers crucial stability during shocks.

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Transitioning through the death zone requires careful execution and a focus on profitability. The $3 million dollar mark is a critical milestone for businesses, and many struggle to push through it.

In this episode, Dan talks to Greg Crabtree, author of Simple Numbers, Straight Talk, Big Profits! about how founders can push through the death zone (otherwise known as the messy middle) and grow their profit far beyond that $3M mark.

Some of the common mistakes made by founders include not understanding profit truth, not investing in finance and accounting, and not effectively managing labor efficiency.

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Chapters

(00:00:39) Introduction and the Death Zone
(00:05:26) The Impact of Paying a Market-Based Wage
(00:06:53) Behavioral Economics and Profit Truth
(00:10:34) The Definition of a Fully Capitalized Business
(00:12:39) Transitioning through the Death Zone
(00:13:16) The Three Steps to Business Success
(00:15:04) Remaining Profitable in the Death Zone
(00:15:50) Different Capital Profiles and Cashflow
(00:16:53) The Emotional Challenge of Spending in the Death Zone
(00:19:52) The Executional Problem of Growth
(00:20:27) Getting Through the Black Hole
(00:21:51) The $3 Million Mark
(00:23:15) The Worth of Going Through the Zone
(00:26:22) Managing a Marketing Agency Past $5 Million
(00:31:16) Common Mistakes Made by Founders
(00:33:25) Understanding Profit Truth
(00:40:23) Investing in Finance and Accounting

Links:

- Apply to win a free ticket to DC Mexico!

Simple Numbers, Straight Talk. Big Profits!

Past guests on TMBA include Cal Newport, David Heinemeier Hannson, Seth Godin, Ricardo Semler, Noah Kagan, Rob Walling, Jay Clouse, Einar Vollset, Sam Dogan, Gino Wickam, James Clear, Jodie Cook, Mark Webster, Steph Smith, Taylor Pearson, Tommy Griffith, Justin Tan, Matt Gartland, Travis Jamison, Ayman Al-Abdullah, Tynan, Lucy Bella Simkins, Brian Balfour, Nick Huber, Mike Michalowicz

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