Entrepreneurs are perpetually optimistic about
their ideas & projects, and willing to sacrifice a lot-- time, income, etc. to make it happen. So much so, that founders often forget or neglect to understand that unless-- and until-- the project is generating enough revenue to pay the bills, including their market value salary, the idea is NOT financially viable, and is in fact a currently failing business concept.
This is compounded by the
reality that most founders are great at innovation, and terrible at sales & financial forecasting. This is often a result of either not having a clear understanding of how to create an economically viable project that perpetually generates revenue to support its needs, or having insufficient experience or skills at sales/finance. This workout addresses the basics of how revenue generation works. We'll post others that address basics of sales & finance soon.
Revenue Generation Cycle Creating revenue
is not the result of having a great product. It's bigger than that. It's having a framework of business processes that tie in together and deliver value to someone who needs what you can make or do, and will pay you for it. Everything has to line up in a way that makes sense, or bottlenecks will prevent revenue from flowing at the quantity and timeframe needed to support operations. Marketing Sales Payment Engineering Innovation Financial Accounting
B: Find Out What Your
User Needs Itemize 5-10 specific things this client will pay you for. If you can’t list them specifically, you don’t have a clear view of your clients’ needs.
C: Create a Matching Product/Service
Brainstorm 5 products/services that would NOT work. Then brainstorm 5 products/ services that would. Ask target clients to tell you which they would buy.
D: Define the Value You
Deliver Spell out in detail what the client is receiving. Go back to the clients’ needs, and check if the benefits match what the client asked for. Double check with the client.
E: Construct The Financial Transaction
Where/how does your client find the prices of the product/service? Is there a payment mechanism clearly established so they can purchase without confusion?
F: Itemize Your P&L Cycle
Break out the financial transaction for the product/service into a detailed list of expenses. What quantity of products/services do you need to sell to make a profit?
The Revenue Generation Cycle of
Your Business In your current project, is anything missing, not clearly defined, not having adequate effort or resources being applied, or unaligned with the needs of a clearly identified client with a purchasing budget? Marketing Sales Payment Engineering Innovation Financial Accounting
The bad news is that
many founders feel they must do everything themselves until they can afford to hire outside talent, or are so enamored by the potential of their own idea and project, that they do not look at and act on the obvious warning signs of failure, and make changes in time to prevent crisis or major $$$ loss. If your business is failing to generate revenue, you are probably missing the mark on at least one, if not several, of the following areas. The question is-- which ones, and how soon will you identify and correct that? The best way to know which, is to gather data from clients to identify why they are or are not purchasing. Alternative options are to get an unbiased 3rd party perspective on the current state of your business, or simply start addressing the items you are aware need to be fixed or changed, and do more of what gets positive results in the form of revenue.
Ten Tips 1. Which describes
you? Not generating revenue at all, or not generating enough? 2. Get *a* revenue model. Then iterate from there. 3. If you don’t have a way to collect payment (merchant account, payment button on the site, etc.), how can your client/user/customer pay you? 4. Even homeless shelters charge a nightly fee for the beds. Don't think you can't charge clients for your product/service. 5. Even nonprofits have income streams and budgets to manage. You're a for-profit, so you're not exempt from actively managing financial concerns. 6. You are directly able to impact the revenue flow of your startup by applying thought, effort, and action to building a revenue model that works. 7. No revenue after thought, effort, and action means there’s something broken— usually the product. 8. Spend at least as much effort building out your commercialization/revenue flow as you do your product development. 9. R&D or product development alone does not create revenue. 10. Bootstrapping is good; having a revenue model is better. These are two usually mutually exclusive skill sets; which are you good at instinctively?
Startup Workouts provide Portland entrepreneurs
the opportunity to engage and strengthen their founder "muscles" through a 10-session series of 75 minute problem-solving-style "workouts". Topics include critical areas many founders struggle with, including revenue generation, sales, work/life balance, market validation, and more. Our summer session of Startup Workouts is posted here: http://www.portlandten.com/startup-workouts. You can also follow updates on Twitter at http://www.twitter.com/portlandten