Making way to the $100 Mn club
Success for startups cannot be guaranteed, but yes, the chances can be improved.
The article ‘The Constant: Companies that Matter’ published by the Kauffman Institute, states that only around 125 to 250 companies per year (out of roughly 552,000 new employer firms) are founded in the United States that reach $100 million in revenues.
Examples available across the globe reflect a similar or even more de-motivating trend. For every successful startup, countless others fail, sometimes mysteriously and often unnoticed.
These all lead to a million dollar question:
What does it take to become a part of the $100 million club?
In fact, some luck and a good sense of timing. However, as once said by the Roman philosopher Seneca, “Luck is what happens when preparedness meets opportunity.”
So, let us have a look at some preparedness measures that startup must have in order to improve their chances of getting in the $100 million club.
1. Market Study
A startup brings an idea to existence that can solve a particular problem that users are experiencing. However on many occasions, during the market study, entrepreneurs get too optimistic about how easy is to acquire those users. In fact, the quick acquisition may happen with the first few customers, but after that, it rapidly becomes an expensive task to attract and win customers, and in many cases the Cost of Acquiring the Customer (CAC) gets actually higher than the Lifetime Value of that Customer (LTV).
A very large number of the business plans do not give enough thoughts to this critical number-CAC. In fact, recovering CAC quickly is really very important, the sooner the better-The Capital Efficiency Principle.
2. Product Outlook
One big reason that leads to the death of a startup is because they fail to develop a product that meets the market needs. This can be either due to simple execution. Or it can be a far more strategic issue- a failure to achieve Product-Market fit or problem of their being small market potential for the product.
In the best cases, it takes a few revisions to get the product/market fit right. In the worst cases, the product makes its way off base, and a complete re-think is required
3. Accelerator Button
In the early stages of a business, while the product is being developed, and the business model refined, the pedal needs to be set very lightly to conserve cash. There is no point hiring lots of sales and marketing people if the company is still in the process of finishing the product to the point where it really meets the market need. This is a really common mistake, and results in a fast cash burn, and lots of frustration.
If data conclusively shows that the cost to acquire customers, (and that this cost can be maintained as the startup scales up), and being able to monetize them is a rate which is significantly higher CAC, the accelerator button can be pressed down hard.
4. Team Dynamics
In a startup ecosystem, the team gets driven by impact, resulting in passion and commitment. If everyone is interested in the product/service merely for profit and not because they believe in the idea, they can quickly lose traction. The team needs to overcome stubbornness and unwillingness to admit a mistake at any level while observing shocks. This motivated team with a common vision can lead to a startup out-competing all the other startups in the market with a similar offering.