Posts tagged "business plan"

5 Essential Facts about Revenue

“A computer can tell you down to the last dime what you’ve sold. But it can never tell you how much you could have sold.” Sam Walton

An organization can have a great product and a great team, without any revenue however, they have very little. Revenue is the life blood of any enterprise; it fuels growth, motivation and success. Every organization strives to develop perfect products/services, most of the time however, they are developed with inadequate attention to revenue streams. What follows are shattered dreams and expectations, because a business without solid recurring revenue streams has nothing to stand on. Over the course of this week I have shared some basic facts with you regarding revenue streams, I have re-capped briefly below:

1. Revenue & Business Models: If you are writing a business plan or, are in a new startup venture, identify your revenue streams as clearly as possible, and understand what resources need to be put into place to realize their true potential. The future of your organizations rests upon these strategic initiatives. The business model must be based on sound revenue streams in order to succeed. To learn more about revenue and business models please click here.

2. Revenue & Market Segmentation: Once identification of a business model has been made, correct mapping of its target market is essential. Having a strategy to aim a product/service at ambiguous market segments results in spreading yourself too thin, especially when resources are tight. Market positioning of products is of paramount importance for successfully generating revenue at a quicker pace. To learn more about revenue and market segmentation please click here.

3. Revenue & Investment: Investing in correct revenue streams can be the difference between an organization that succeeds and one which does not. It is critical that metrics are put into place to ensure that all revenue streams are closely measured. This will lead to informed decisions on whether it makes financial sense to continue investing in a particular revenue or to focus energies on another stream to ensure that financial stability is maintained. To learn more about revenue and investment please click here.

4. Revenue & Change: Our world is in a constant state of flux. We are living through a time where we need to become adept at forecasting as also adapting to changes taking place. This principle applies to all aspects of our lives, in the business sense, it has far reaching implications. We have to avoid becoming rigid at all costs to maintain a competitive direction in the global market place. Failure to do so will result in an inevitable downslide of your organization. To learn more about revenue and change please click here.

5. Revenue & Metrics: Metrics are mandatory components of any successful business. Measuring your revenue streams is essential as you need to be aware of the growth rate of your streams, how quickly your pipeline is being converted, what sort of market share you hold and how the industry you operate in, is changing. Such metrics provide information that will allow you to make informed choices. To learn more about revenue and metrics please click here.

In todays day and age there are a plethora of startups which have no clear business model, some are purely developed attractive acquisitions while others wait to see how they develop. My advice is, go in with a plan on making money from day one if you want to build a strong and well founded organization. When developing your streams ensure that you cater to each level of your market segment and create opportunities for scalability and cross selling. Doing so will put you in a favorable position to succeed. 

Metrics for Revenue Streams

Every company has metrics that track performance. The key question is whether these metrics really provide visibility to performance as viewed by the customer.” Steve Matthesen

Working at a startup, there are always a host of things which need to get done. It is a constant battle with time to stay on track and achieve goals and targets. In the midst of this daily commotion, we are inundated with information from all sides. To keep abreast of all these developments, it is essential to develop a system which provides dashboard views about current standings. This is where metrics come into play. They need to be incorporated into every major business function to provide real-time statistics and keep the focus in the right direction.

The metrics for revenue streams used at some of the organizations that I work with, range from being very simple to relatively complex depending on the nature of the business. I have experienced that there are a few metrics which need more focus than others where revenue is concerned. They are:

1. Revenue Stream Growth: This metric provides data regarding development of each stream of revenue by quarter. It involves data which includes percentage growth numbers, pipeline activity and deal closures. These figures provide detail analysis on streams that are growing at a faster pace than others, the stages of revenue facing plateaus and how projected business is forecast in the coming quarters for each stream. 

2. ROI on Revenue Streams: It is one thing to have an extremely high turnover and a completely different story when that is not being converted into bottom line results. This metric provides data regarding the profitability of each segment and a break-down of investment into the stream, as well as marketing costs and cost of goods/services. Constant vigilance helps regarding which streams need to be promoted and which need to be ceased. 

3. Market Share & Industry Analytics: This metric keeps track of current growth trends in the industry the organization operates in. It constantly updates data regarding major changes on competition, government policies, economics climate and company position. This requires constant study to stay current with the rapid changes taking place. 

While keeping all the metrics in mind make sure that you take time out to compare them with related metrics to customers, vendors, suppliers and distributors. This will ensure a complete picture of the current situation. At an early stage startup, complicated metrics are not necessary, what is required however, is the ability to put these metrics into practice at basic levels. This will ensure that the position and development of the company is dealt with more effectively.

Change and Revenue Streams

“The key to success is often the ability to adapt” Anonymous

Our world is in a constant state of flux. We are living through a time where we need to become adept at forecasting as also adapting to changes taking place. This principle applies to all aspects of our lives, in the business sense, it has far reaching implications. This story has been heard time and time again, companies become complacent and rigid about rapid changes taking place and soon find themselves compromised. A story, very much in the news these days is, Yahoo!. This company once dominated web search. Today, it finds itself in a messy situation involving corporate raiders and hostile takeovers. What went wrong?

Yahoo! pioneers and leaders of web search throughout the 90’s became complacent about changes taking place in their domain space. A new entry startup called google started to develop traction. Before you knew it, they became a formidable player in the search market. Yahoo! failed to adapt to this change and continued diversifying their business model into new markets. They failed to defend their primary revenue stream, including a missed opportunity to buy-out google for $3b. This is an example of how the pace of change can turn positions in a matter of years, even for such a large firm. However, this is not the first story of its kind, nor the last, these mistakes take place on a daily basis.

If your organization has developed revenue streams which have potential of exponentially increasing over the years, it is your foremost responsibility to protect fiercely. This is done by continuous improvement of the processes, as well as developing complementary assets as barriers around that stream. If done diligently, you will be able to protect yourself from inevitable complacency, which could lead to an unfortunate outcome. On the flip side if you are struggling with your current revenue streams and not being able to develop them further, pay close attention to changes occurring around you. If you are promoting a product/service which has no place in the current market, you need to rethink strategy, and, as soon as possible.

Incorporating systems to account for changes in domain, industry, economics climate and external factors is critical to success. Make sure you have them in place to avoid trouble !

Investment and Revenue Streams

“Sometimes the best investments are the ones you don’t make.” Donald Trump

Multiple revenue streams are extremely valuable assets for any business. Each revenue stream has to be positioned to address certain components of the overall strategy. Every revenue stream is not created equally, some are based on low margin and fast moving products/services while others facilitate growth of higher end products/services. The key factor to be addressed here is not only the creation of renewable revenue sources positioned for the right markets, but also correct investment into these streams. 

For example, if your business currently provides you three streams of revenue, you need to have certain measures in place to gauge the level of growth of each stream. These metrics will provide you critical data to measure which streams have the potential of exploding, as compared to others whose growth is relatively stunted. Without these metrics, we could make a fatal error of investing in wrong revenue streams which could have negative impact on the overall bottom line. Concentrating your investments on the right revenue streams is a strategy used by all successful companies. 

In my personal experience, one of the most telling signs of focusing on wrong revenue streams, is near the end of the quarter when the entire team has to push itself ridiculously hard to reach set targets. If this happens in a consistent fashion, quarter after quarter, you could be backing the wrong stream and costing the organization dearly. Develop flags for each of your streams and when things seem to be going off course consistently, look into revenue streams rather than blaming the economy or your team.

Are you investing in the correct revenue streams?

Revenue and Market Segmentation

“The perfect business model must have a way to build in its own high-margin products that can be sold while processing reliable renewable revenue streams at any margin.” Mitch Thrower

 Once identification of a business model has been made, correct mapping of its target market is essential. Having a strategy to aim a product/service at ambiguous market segments results in spreading yourself too thin, especially when resources are tight. Market positioning of products is of paramount importance for successfully generating revenue at a quicker pace. For example, I was consulting with a startup organization who is launching a business in the mobile social networking area . They have specifically developed a service for the 15-21 age range, exclusively for the Chinese market. Even though the market is exploding for mobile usage in China, by selecting a niche segment they can become a much stronger adversary to competition.

It is only after a market segment has been selected , a niche market to operate in identified, that you have to develop revenue strategies. These strategies can be aimed at capturing multiple subsets within your market segment. For example many online service providers give you multiple options to sign up for their service. At one my companies we use Highrise(CRM tool) which allows you to sign up either as a single user, small medium enterprise (SME) or a full fledged enterprise implementation. This strategy gives them the capability to develop revenue streams faster, at multiple levels. Ultimately this provides the company with growth, stability and flexibility to adapt itself to changes in economic situations.

The example mentioned above shows a company which has not selected any clear market segment to promote its products in. Many SMEs find them a more cost effective alternative to other such CRM tools. Positioning a product for mass market appeal is a strategy which I have not used extensively in any of my ventures. It is a harder process and one, I think, you could grow into rather than jumping into the deep end for it. For every facebook, google or amazon there are thousands of similar services which never got similar traction. Correct market segmentation provides you with structured direction and enables you to develop specific competencies. These can result in major competitive advantages in the long run. 

When developing your Go To Market strategy, paying attention to niche markets and building multiple level revenue streams around it, could become your winning strategy. 

 

Revenue and Business Models

“The first layer of the perfect business model is to build a business with reliable revenue.” Mitch Thrower

When developing business plans, identification of potential revenue streams is a mandatory section. There are several different kinds of revenue models that can be used depending on the nature of business. Having developed several business plans which drew revenue models from product based sales, service fees, memberships and advertising I have been exposed to different types of revenue models. What I have learnt is that when developing these models great care has to be taken in understanding the assumptions these streams are based upon.

Many a time we find ourselves in the middle of an execution strategy and the assumptions we had used breaks down during the actual run. Over time as I have begun starting ventures with personal funding, I have started to use the ready, fire, aim approach. This has given me the ability to take multiple approaches to the market and build revenue streams based on feedback we get from the market place. This approach may however, not be totally feasible for cash strapped startups, in this case I would build stronger assumptions based on market data collated through research. 

A business must develop multiple streams of revenue and each stream much play a strategic part in the overall strategy. Points which must be taken care of during this development phase, will be the synergy between your long term goals and your revenue streams. Do they grow exponentially?, Do they help you achieve the targets you want ? Is the revenue model an optimal fit with the business model, etc. Many web entrepreneurs put a lot of faith in the advertising revenue stream. I have heard countless pitches where entire revenue strategies are based on this one factor. Sometimes they have not even thought a couple of steps ahead about new revenue streams, optimizing current streams, competition, margins. Some have not even accounted for market change. 

If you are writing a business plan or, are in a new startup venture, identify your revenue streams as clearly as possible, and understand what resources need to be put into place to realize their true potential. The future of your organizations rests upon these strategic initiatives. Make sure you think them through in thorough detail before moving forward. 

Business Plan Development

“Without goals, and plans to reach them, you are like a ship that has set sail with no destination.” Fitzhugh Dodson

Everyone talks about it and knows about them, yet I know so many businesses among friends, which just started over a cup of coffee when they thought they had that ‘Aha’ moment. Don’t get me wrong I am all for the level of enthusiasm which is so infectious at the beginning that it lifts the spirits of the team to stratospheric levels. However, you need to harness all that energy in a focused manner. That focus is best brought about when you actually sit down and identify the idea in a structured manner through a business plan. A good business plan helps you plan your product/service in great detail . The key sections that you need to pay attention to when developing one are:

  • Market Need & Potential: What is the need that you are wanting to fill? How big is the market that you are going to operate in? Are there a lot of players currently in the space that you are about to enter? At what rate is your target market growing? Are you limited geographically? Use this section to identify the market need that you are wanting to cater to and the size of the market.
  • Product/Service: In this section you break down the product/service that you are going to be offering into components if possible. You have to identify the key benefits that it is going to provide to the market. What are it’s features or unique components? How is it going to be rolled out? What are future developments that you want to incorporate into the product/service. Does your product have any sustainable competitive advantages? Is it protected by any patents or copyrights? By clearly defining your offering you will get a better idea of just how scalable it is and what its unique functionalities or features are.
  • Marketing Strategy: In this section you will break down how you are going to market your product/service. Outlining specific strategies and mediums will enable you to gauge how long and how much it is going to cost to get your product to market. This is a section where a lot of brainstorming needs to be done to make sure your approach will be unique if there are current competitors in the market. It should also focus on your value proposition and the most effective way of getting it across to your target market.
  • Operational Strategy: Product development, marketing, logistics, human resources, technology all need to be managed. Use this section to outline how you are going to go about achieving your objectives. All partners should look at this section to see how and where they can contribute. Once decided, a process flow can be developed to ensure that things work out in a smooth and efficient manner.
  • Financial: If you are pitching your plan to a VC or an angel this is the section where you will need to add detailed financial forecasts for the next 5 years. This will help you gauge facts like your pre-money valuation, ROI, IRR and other key indicators which investors are looking for. However if you are using this as a guide for yourself I would stick to simpler financial documents where you identify your expenses, forecasted revenues and a simple balance sheet so you get a clearer picture of how much it is actually going to cost you to setup and run the business.

Once done you will have a document which puts on paper what was just another ‘idea’. The whole process of putting it on paper helps to look at the idea from all angles and forces you to look deeper into it than the initial concept. It is also the initial project in which to see how your partners work, discuss concepts and contribute.

So next time you think you have the next big idea, put it down on paper before going full steam ahead into the unknown.

*I will have a dedicated week to business plan development in the coming weeks to provide greater insights on all the aspects of a good business plan.

5 ways to fund your startup

“If you experience great difficulty in raising money, it’s not because VCs are idiots and cannot comprehend your curve-jumping, paradigm shifting, revolutionary product. It’s because you either have a piece of crap or you are not effectively communicating what you have. Both of these are your fault. End of discussion.” Guy Kawasaki

Over the last week we talked about 5 ways on how to fund your startup. This list was limited to traditional funding options. For a list of a 101 creative ways to raise money for your startup please click here. Keeping in mind that funding is an important aspect of any startup, your belief and faith in your idea or concept is far more important. Before you go searching for funding make sure that you have your value proposition clearly in mind. Position yourself correctly and leverage on a good team to propel you to the highest of heights.

  1. Friends and family: This source represents a large portion of how startups get off the ground. It is however not as straight forward as it looks and you have to take into account the lenders financial status, bring professionalism into presenting your idea and have a properly structured legal agreement. To read more about this source please click here.
  2. DIY: A tough route where you develop a consulting model to facilitate the development of your end goal.This method provides entrepreneurs with a safety net before taking the deep dive. Care needs to be taken to ensure that you work towards specific and realistic goals in mind to progress to the next level. To read more about this source please click here.
  3. Angel Investors: Represent a group of high net individuals who are well  connected. They bring with them specific expertise and a valuable network to kick start your business. They provide a more flexible environment to the founders as compared to venture capitalists. Care must be taken when taking on an angel investor. Your interests must be aligned and a comprehensive legal agreement outlining each others responsibilities is critical. To read more about this source please click here.
  4. Incubators: Provide entrepreneurs with initial seed capital and resources in exchange for a minimal equity swap to get your idea off the ground. They help you in creating powerful networks which act as catalysts to get your product/service moving in the right direction. Incubators are quite scarce making them extremely difficult to get into. To read more about this source please click here.
  5. Venture Capitalists: Represent the end goal of most entrepreneurs. Venture backing provides you with the funds, mentorship and networks to take your startup global. Care has to be taken when presenting to VC’s, you have to ensure that you get referred to the firm, have a comprehensive business plan, a working prototype and a well made presentation to stand a chance. To read more about this source please click here.

The life blood of any startup company is its available cash line. Without it, startups witness stunted growth where their full potential is not realized. Establishing a reliable and stable cash line therefore becomes very important if you want to see your company become the next Google. If you happen to be among the fortunate few who get venture funded please use your allocated funds wisely. The art of bootstrapping by Guy Kawasaki is something that every entrepreneur should read very carefully. I have personally seen how venture funded companies squander their money without realizing. Spending money is the easy bit, especially so at a startup when we all strive for the best. Controlling your spending is much more of an uphill battle, so tread carefully. Best of luck in raising funding for your startup!