How to Build a Million Dollar Business

Last Updated Aug 17, 2010 8:34 PM EDT

Approximately 80% of all U.S. firms with employees have less than $1 million in sales, according to U.S. Census Bureau data. It's a goal that most entrepreneurs would love to achieve, and one that frequently remains as elusive as it is attractive. But it's a brass ring well worth reaching for. "If they can get to $1 million, they reach a level of sustainability and have a much higher chance of survival," says Sramana Mitra, consultant and author of the Entrepreneur Journeys series of books. We recently spoke about the three biggest mistakes that entrepreneurs make when they're starting and growing companies:

Failure to validate an idea. "They will spend a month in the lab or the garage and try to build a product in isolation without validating the idea with the customer," says Mitra. Instead, she says, you need to develop your products along with the customer, know what the pain points are and what problem you're solving. "Cold call as many customers as possible before developing anything so that you get a visceral feel for what your customers are looking for." What happens if, in that process, you inadvertently tip you hand to the competition? "If your idea is that easy to copy, then don't bother," advises Mitra. "If you're not in a position to share ideas with potential customers, you really have a problem."

Lack of capital. Once you've validated your idea and sales are gaining momentum, you'll almost certainly find yourself in need of capital to grow your company. "A lot of entrepreneurs don't understand what their options are," says Mitra. For the most part, you can forget venture capital, which goes to the minuscule number of companies that clearly have the ability to scale quickly (think Google). The most common type of financing comes from friends and family, but you might also seek out angel financing. But be sure you fully understand the structure of the investment and are comfortable with having an equity partner who may also want to give advice. "Receivables financing is another option that entrepreneurs should look into very seriously," says Mitra. "Interest can be high, but even if it's expensive, you can mitigate cash crunch." She also recommends SBA financing, particularly for women and minority entrepreneurs.

Reckless hiring. "Entrepreneurs sometimes hire expensive employees when they shouldn't and they manage to burn through though a lot of cash," says Mitra. To fill in skill gaps, find a co-founder who is willing to work in exchange for equity - a business soul mate. The best place to look for a partner is within your existing network. Don't be tempted to hire "mini me"; look for a partner who not only has skills that complement your own, but who will also hold your feet to the fire and who has the confidence to tell you when you're wrong. Mitra also highly recommends outsourcing services like Elance and Odesk, where you can find networks of suppliers, many of them offshore, who will work for you on an as-needed basis.

Has your company reached $1 million in revenue? If so, share your growth tips with us.

Resource: Sramana Mitra offers a free weekly online strategy roundtable, called 1M/1M, designed to help one million entrepreneurs reach $1 million in revenue.

Money image by Flickr user aresauburnâ„¢, CC 2.0