8. Start-Ups: Revenues and Economic Sustainability
Revenues. It is the most hated but also the most loved word for newly started startups. Probably from the start you will be selling products your company produces, or providing the service you specialize in against a fee. And this handicraft way of operating your business will work, until you grow too big. Once you start generating considerable revenues, automation will be the trend within the company. And if it’s all bumblebees and butterflies, soon enough you’ll reach your breakeven point.
Revenues. They lead to the breakeven of your company. And once you’ve reached that milestone, your revenues support the sustainability of your mastermind’s business idea. Economic sustainability can be defined as the point where the revenues exceed the costs. To get there, you must make sure your team supports you, in turn motivate your team to fly high and most of all: listen to the feedback you receive from the market. Once you’ve reached the point of economic sustainability, it is time to think where you want the business to be at in a few years time. Will your idea still be innovative enough? Is your company ready to face the obstacles that will block your way to long-term goals? Once your company has built a strong culture, and the business seems enduring, investors will not hesitate to listen to your story.
Your revenues don’t only depend on the investments made by venture capitalists, as mentioned in Start-Up post 6, traction is what keeps your company rolling. It generates revenues from customers, which in the long term are more sustainable and suitable income. So take a look at your numbers. Look at revenues, net promoter scores, number of customers, profitability rates and net margin. Are they increasing positively? Very good, then you are on your way to building a sustainable company. If not, then you know where to lay your focus. One way to keep constant growth is by always analyzing the market. One way to grow is to see your customer growth as a normal function curve (see figure 1). You and your idea are part of the first 2.5%. You belong to the lucky few who can call themselves innovators. The next 16% are the crucial first followers. They are the ones trying the reliability and functionality of what you provide them with. These early adopters will be the example for the big majority, the next 34% to follow. Leading to the next 34%, the late majority and the final 16%, the laggards. If you want to build up sustainability for your company, then focus on those first followers, they can make or break your company. (TED*Talk by Simon Sinek, september 2009)
So how can we get these first followers to generate our first revenues? Public Relations is the key principle here. What the purpose is of PR, is that potential customers see how you are different from the competition and you show your absolute authority in your specific market. During the How to Start a Start-Up lectures at Reykjavik University, we had the company of Paula Gould, who is head of Marketing at a Public Relations company and came to give some advise. First of all, we were to think about the choices that consumers have, how you differentiate yourself. Why is your idea different, how is it better, is it a need or want, how will consumers know you are better than your competitors? You need to know your idea and it’s market thoroughly before any sorts of Public Relations can be implemented. And then comes the question, can you do it yourself or will you need a specialized firm to do the PR for you? Can you get these first followers by telling your story, or do you needs someone outside your company with the appropriate knowledge how to bring your uniqueness to the attention of these “hipster” customers? Even if you can’t afford a proper PR team, everyone around you can be your influencers. Your employees, your friends, your connections, anyone who knows the story of the company can spread the word.
Revenues and your first followers, they go hand in hand, they can make or break you but most of all they produce your sustainability. And once you do go into the positive rates, then things start to get fun.
This article is part of the series on How to Start a Startup, based on the lectures taught at Reykjavik University, Iceland. For more information on the course, check The Startup Iceland website