If your startup is running out of runway, stop trying to just push through. Take action with this contrarian view by focusing on finding revenue that is hidden in plain sight.
The day started like any other. I woke up early, did my yoga, and brewed my favorite mint tea. I made my commute across the hallway to my home office, excited for a day full of meetings. In my first Zoom, my client was in a panic. Sales orders were slow in closing, and the reality of a cash crunch was imminent. This client had a healthy pipeline of projects, but also had long sales cycle lead times, and multi-year projects. As a result, there was no sign of revenue hitting their bank any time soon. Trying to mitigate the lack of revenue, the company was considering doing a “cost down”. A cost down reduces the amount of money that they spend on wages, production, etc. to increase their bottom line. At face value, it’s a strategy that makes sense.
But because something makes sense, does not mean it’s the best option.
Look at things from a different perspective
I am a contrarian, meaning that I often look at things from different angles. This is one of my greatest strengths, especially when it comes to consulting. My job is to push back and make sure that my client’s strategy is more than the best effort; instead it is the best option, given all the information and data.
During the meeting, I asked her a series of questions to gain more insights and data. I’ve worked with enough founders to know that their initial instincts are not always the best. It is easy for startups to get focused on one solution, and not think that there are other ways to approach the same problem.
The cost down approach focuses on a simple principle; if you can cut costs, you can increase net revenues. In start-up land it extends the runway, in the short term. In my experience, it doesn’t make sense because a sustainable business model considers the long term. There is another way to increase revenues and that is to discover more revenue streams. And this is why I challenged my client to focus on revenue discovery as a solution to her problem.
Revenue discovery is what it sounds like; it’s a method to discover more revenue. Successful revenue discovery ideas share five common traits:
- A mindset that is open to new possibilities
- It keeps the customer front and center
- It uncovers the “already functioning” features of a product
- It takes being brutally honest on what can be delivered
- It takes into consideration pricing
Revenue is the lifeblood of a company. Many startup founders take a winding path to survival; keeping enough cash coming in to keep the doors open and the lights on. The problem is that if you focus too much on building the next release of the product, you might create blind spots.
15 questions to ask yourself
When I help founders discover revenue opportunities, I ask them a series of questions. Instead of jumping to cutting costs as your only way to survive, answer these questions and see how it can fuel your revenue discovery process.
- How many products/units does your customer have?
- What is the budget??
- What is the current spend?
- How does the customer consume/purchase products today?
- On a scale of 1-5 how important is each feature (5 being most important)?
- How willing is your customer to buy various features?
These initial set of questions will help you establish customer willingness to purchase. Then I ask the following questions:
- What is the cost to develop?
- What is the breakdown of costs:
- Hardware
- Software
- Development hours
- Delivery
- Cost to commission
- Cost to onboard
- Cost to maintain
- Can you partner/collaborate on above costs a,b,…..or g?
- Can you get the customer to pay for a+b and outsource e?
- Can you get the customer to pay for a proof of concept?
- Can you get another party to subsidize /co-sell?
- Can you get another party to co-develop?
- Do you have a Purchase Order?
- Will your banker consider P.O. financing?
The way I think with founders about the product market fit is I don’t talk about the product. I talk with them about the customer journey.
These questions help to establish minimum viable new products based upon the customer journey.
In my years working in corporations and startups, I’ve found that having charts to visualize concepts goes a long way in communicating ideas. For visual learners, conversations about revenue can be much better with a simple graphic. And that is why I have created an image of a chart for revenue discovery chart that I’ve used reliably in the past.
Take the answers that teased out customer purchasing power and make that the “y” axis of the graph. Then take the answers that uncover your cost of doing business as the “x” axis. This is the exact exercise I went through with my client who thought that her only option was a cost down approach. As a result of going through the questions and plotting the data, we can “peel the onion,” to identify actions to take and assign resources.
I was able to use the answers to discover seven “quick” action points for my client to discover more revenue (instead of cutting costs):
- Apply for a grant for early-stage technology in the renewable energy space
- Outreach to regulators to get support for legislation, and support for innovative technology
- Reconnect with professional service firms in the country with the highest willingness to pay that could do the turn-key installation
- Seek local partners for pre-sales and maintenance
- Advocate with a trade association to feature the product for potential new customers
- Solicit from current investors monies to bridge the period to deploy the product in early-stage development
- P.O. Financing/EXIM financing
Needless to say, my client left our Zoom with a lot more to think about and some fresh ideas to bring back to her board of directors. And the same can happen for you.
Conclusion
The path to sales in an early-stage company is lumpy, to say the least. In some cases with enterprise products, there is a long lead time in the sales cycle. Revenue is just 30-90 days away.
As a contrarian, I challenge founders to think outside of their current revenue box. I encourage them instead to get creative about discovering more cash flow. Get in the habit of having a holistic view of the revenue possibilities – short term and long term. This will help you to never lose sight of purpose the company, regardless of how close you come to running out of runway.
If you find yourself in a revenue pinch, you can use my revenue discover matrix to come up with some new ideas. If you need help, feel free to schedule an appointment and I’ll walk you through it.
Brenda A. McCabe
Founder Next Act Advisors
#revenuediscovery
#purposedrivenbusiness
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