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Whether you’re an established company or a start-up, the consequences of a weak business model are the same. For an incumbent company, it is the inability to recognize that the company’s business model is no longer appropriate, and subsequent failure to pivot will ultimately doom the company. Convince potential investors that you have a business model that will ignite or disrupt the industry, but with no early returns, it may be doomed.
The startup graveyard is full of companies that didn’t turn a profit early on. Failory lists 67 failed startups, perhaps due to a poor business model and lack of early earnings. For a startup, the difference between surviving and running out the runway always comes down to keeping an eye on cash flow. why? Because when you’re in the middle of a startup, it’s easy to fall into the trap of wasting time on pleasant tasks that feel like you’re making progress but don’t pay for it. Perhaps you’re focused on building partnerships, or good PR. Maybe you’re focusing on “wins” that look good but don’t translate into real revenue, like 40,000 website downloads.
If you believe that a startup’s chances of survival depend on how quickly it can make money, then there’s nothing to do to make money fast but look for it. Here are some things to consider to get to your bottom line fast.
Do not raise investor money early. Raising money is not the same as generating income. Look for ways to generate early customers and real revenue to test your products and services, not just your business model. No one pays for the business model. Test the benefits of your product or service to make sure early customers are happy to pay and adjust according to customer feedback. Plus, you can keep your valuable stock in case you really need it.
Build a product, not a company. Don’t waste your early time and effort building a company with expensive websites, office space, cool t-shirts, and many other unnecessary things. Work from home, a co-working space, or a friend’s office (for free) and focus all your energy on building your product or service. Test it with a paying customer. Remember, no matter how cool your brand is, how advanced your mission or business plan is, you’re not an entrepreneur until someone pays you for what you sell. Please do not
go to work. In the early stages, you are a product developer, marketer, and project leader. Don’t go ahead and hire a few employees before you have your income. Bring in friends and freelancers if necessary, but don’t build a team until you can afford it. Get your first paying customers with SaaS tools, simple financial software, and salespeople. Seek advice from a mentor or advisor if you have them.
The first version should be ugly. Don’t try to create a perfect product or service. I will start with that way of thinking. Ensure sufficient quality and test with early customers. LinkedIn co-founder Reid Hoffman once said that if you’re not dazzled by the first version of your product or service, you’re launching too late. We need early feedback from our first customers to create the next refinement or possible pivot. Refine and reach the feature set that is important to your first customer segment. Then raise money, find your next priority based on what works and what doesn’t, and move on to building the next feature.
Execution before innovation. When you think about successful startups, they started by simply doing and testing something. In the early days, execution may have been more important than innovation. Airbnb co-founders rented their own rooms in San Francisco for a busy weekend to test if someone would actually pay for them. They didn’t have flashy websites, sophisticated algorithms, or other cross-selling services. They were just testing the concept of people paying to rent a room for the weekend.
Focus on your first 10 customersIn the early days, focusing on the TAM (Total Addressable Market), SAM (Service Addressable Market), or SOM (Service Observable Market) may look fine on the pitch deck, but it’s a quick way to generate early revenue. You have to really focus to get to. His first 10 customers. Who are they, where are they and how do you close them?You may be in a multi-billion market but you need customers who pay early.Learn from your first 10 customers and Next he goes to 20 customers. Learn from them, then hit 30, and so on until you have a definitive, repeatable, and scalable revenue stream.