When Should You Turn on Revenue for your Startup?
The startup world is rife with valuation-obsessive news. All around the world, startups are valued at billions of dollars, only to crash and burn when they cannot provide a monetary basis to match their perceived value. The word for billion-dollar companies is “Unicorn” and is the most coveted word in business today.
There is no preset answer to when your startup should begin accruing revenue however, there are some factors to help you decide if your business is ready to turn on the revenue machine.
1. Type of Startup and Industry
Consider the niche your company is focused on. What’s the current landscape for companies in that niche? Are they revenue-funded or investor-funded? Find out how they are keeping the company running. Startups in the advertising industry typically require a wide reach of users before they can begin to sell ad space(think Facebook, Twitter) while startups in the Software as a Service space pretty much charge users from the first day.
Are you developing game-changing and groundbreaking technology that would take years before it hits the market? If yes, how would you keep your company running?
Do you intend to run a non-profit organisation? How do you intend to keep raising funds since you’re not existing revenue? These are questions you should explore and eventually, answer.
2. What are your values?
What values are important to you as a person and by extension, your company? What are the services you want to make money from and things you think are completely off limits? Would you mind if your employees are poorly paid but made you riches? You need to write your values down and steer away from values you do not believe in.
3. Know your business model and Test it
Define your business model. Write down exactly how you intend to make money and why you think you can be profitable in that industry or niche. If your industry is competitive, determine what your comparative advantage is and sell it to prospective customers. Are there multiple ways your company can make money? Make them clear and attempt to determine how much revenue share each revenue medium brings.
4. You Can’t raise money forever
Remember that your company cannot raise funding forever. At some point in the future, investors will require and ask for returns on their investment. You need to figure out early on how you intend to scale your business for profit.
You also need to figure out how much time it takes to typically close a deal or make revenue in your industry. Some businesses require years of speaking to clients before agreements are made and deals are closed.
5. What’s your Runway?
How much cash you have in the bank can determine how long you can survive without raising more cash or without revenue. Calculate your current and planned expenses each month to find out what your spending power is. Before money runs out, you should have figured out how to grow your business and turn it into a money machine. Alternatively, you could figure out how to make your business attractive to investors with a high growth rate.
6. Know Your Customer
Ensure there is demand for your service. If you’re running a marketplace service(such as Hotels.ng), ensure you can create demand and supply to drive revenue. For software as a service you might have to sell premium versions of your software and attempt to upgrade your existing free users. Find out what your users need and would be willing to pay for, find out how much they’re willing to pay and how long they can be committed to you.
7. Ensure you’re offering something people want
This is the most important factor to consider. Ensure you’re providing a service or product people actually want. Whether your customer is advertisers, publishers or consumers, you need to be sure they actually need your service. You can find out by building test versions of your service(Minimum Viable Product) or carrying out a market survey with your prospective customers.
Remember, businesses exist to make money and more importantly, they exist to produce a profit at some point in time. When you decide to begin collecting revenue could make or destroy your startup.
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