Building A Business Not A Hobby

Recently, there has been a flurry of startups and startup ideas that have entered the market. All great for the economy: helping create new jobs, technology, and enhancing the quality of life for their users. During your initial investigation, it is imperative to evaluate and understand the type of business model that will put into place. If you don’t, your venture will just turn into a hobby that will eat away at your time.
 

Understand the outcome:

The first order of business is to really understand if your venture is going to become your full time job or if you’re providing a service that is good for the general community. Most Entrepreneur take the time and risk of building a venture in hopes of making sufficient money so that they can quit their jobs and run their own company. So for now, we’re going to think of you as the person who is going to start a venture, grow the business, and hopefully have an exit (IPO, buyout, merger, etc…).

Who to sell to:

Understanding your customer and who they are is EXTREMELY important since you can determine how deep their pockets are, how they will pay, and the number of players within that market. Predominately there are two types of relationships between a company and customers:

B2B: Business to Business includes companies who sell to other companies. Usually they can charge a higher price, have fewer number of clients than B2C companies, and a longer sales cycle. Without going into much detail, each variable  has a specific implication on your top line figure (total revenue) so you need to properly understand and determine how you will collect money.

B2C: Business to Consumers includes companies who sell to the average consumer. Most companies that you think of run a B2C model, ie. Starbucks, Apple, JCrew, etc… Usually, their prices are depending on comparable products and substitute (ie. Starbucks vs. Dunkin), have a lot of foot traffic, and tend to have shorter sale cycles. Once again understanding who will be buying your product or service will help in sales forecasts.

How to sell:

The medium used to sell a product or service is also important in determining the amount of money coming into a company. Whether you are selling online through sign ups and payments or have field sale reps that visit clients, it is important to understand the process.

The big picture:

After you have understood the end outcome of your venture, who you are going to sell to, and how you’re going to sell now you can run simple numbers and understand if the money coming versus your total costs allows your to pay yourself and employees enough to keep the company moving forward. Albeit, a lot of this is using fabricated numbers, it will put into perspective how much the company should and needs to make in order to support its operations.

For instance, if you think you’re going to support your sales numbers through advertisement, that ship has set sail a long time ago. Only a select few companies such as Google, Facebook, etc… have the user base and the technology to support the ad-revenue model.
 

Do your homework, be creative in how you make money, and more importantly have a plan.
 

If you have any other metrics to evaluate how to make money for a venture, please share them below.

Any other questions, please contact me:

Ashkan

Ashkan [at] GreenhornConnect [dot] com