In this article, I plan to pick up where I’d left off in the series on Building a Business. As you may have guessed from the title we will be exploring the importance of generating revenue and why it should be the fundamental goal for the vast majority of businesses. This may seem obvious, but so many entrepreneurs lose sight of the revenue in the quest for building a better widget.
Revenue is the first part of the profit equation:
Profit = Revenue less Expenses
Many people look on this equation as being obvious without really understanding it in the context of a startup business. For a startup, the equation is all about runway. The less negative the profit is (ie. small the losses) the longer it will take a new business to run out of cash.
You can achieve this by hamstringing the business on the development side by reducing the expenses. This strategy often defeats the purpose of raising capital or being the first to market in a land grab. If you’re initially committed to your expense line, then the only other option is to generate revenue.
This then raises one of the largest challenges for a startup business. Short-term revenue versus long-term success. It’s often the leadership of the founder that empowers the business to achieve both.
For instance, should you go to the market with a half-baked product when you know customers won’t be enamored with the offering? If you launch into the market will competitors see what you’re doing and eventually eat your lunch? What is the PR implications of going to market now? These are just a few of the questions then plague founders.
On top of all this, focusing on revenue can be a complete distraction from the core objective. As a founder, you’ll suddenly find yourself managing a sales team (their often not that fun) who bring nasty things called clients that demand a level of quality from your half-built solution. This will then cause you to think about bringing onboard support staff. In the meantime, the core team wants to know where you are because you’ve been buried in all the noise.
So what gives first? I can tell you that it’s going to be your personal time which is quickly followed by waving good-bye to loved ones as you spend increasingly more time at work. On top of all this, the next board meeting with your investors will make you acutely aware of your shortcomings and the fact that you’re not hitting targets for what they invested in.
Does this sound like fun still? Remember the dreams you had in the bar with a few friends about building something great? Hang on to them and don’t let go as they are often the only way you’ll get through this patch.
What’s the solution to revenue? A number of years ago I watched an episode of the political drama “The West Wing” and the president of the USA was talking to one of his staff members.
President Josiah Bartlet: You got a best friend?
Staff Member: Yes, sir.
President Josiah Bartlet: Is he smarter than you?
Staff Member: Yes, sir.
President Josiah Bartlet: Would you trust him with your life?
Staff Member: Yes, sir.
President Josiah Bartlet: That's your chief of staff.
It’s a really good job interview for the conditions in building a team and most notably the crucial role of your second in command. Every successful business that I know has been built not by an individual but by a high-powered team.
As the founder of the start-up you can’t be expected to do everything. If you try to then you’ll fail. Get good people around you and delegate the revenue task as the focus of your second in charge. I’ve found that in most start-ups there is low hanging fruit that will unlock some revenue without distracting the core.
Remember, the purpose of doing this is to lower the business’s cash-burn and extend the runway so the core product/service can be released. The danger with this approach is if the founder gets distracted by the revenue and loses focus on the vision….so keep your vision firmly in sight.
In the next article I will continue the discussion on revenue.
