Revenue Compression
When chasing new business in startup land or any business for that matter, the time to revenue is more important than the amount or revenue.
It’s easy to believe that a big $500,000 project is better than a little $5000 project. Maybe the big one takes a year. Maybe the small one takes a week or two.
I say the small projects rule! But before I choose, the questions I usually ask myself include:
- How long will it take to get the revenue?
- What is the potential for expensive mistakes?
- What is the probability that the project will go over the time estimate?
- Are we paid in time put in or final completion of said project?
- What level of resources need to go into pitching & winning the project?
- Will we get more smaller projects after successful completion of the first?
When we answer these we usually find that the $5000 project that takes a week is a far better option than the $500K project that takes a year. And the reason that they are better is that the revenue is compressed.
If money didn’t exist
If money didn’t exist what would we do differently? Let me first remind us what this would mean.
In this imaginary moneyless it would mean: That we all had enough to eat. That we all had a place to live. That we all have equal access to healthcare and education. That we wouldn’t get paid for our work. That no-one gets paid for the work they do, in dollars at least.
It means that we do in during the day has an entirely different perspective. In this imaginary world it make sense that we choose our line of work carefully. The work itself, becomes the thing that matters.
It turns out that this is also the best approach for a world that does actually have money.
Bees can’t fly
A popular story in science folklore is that the aerodynamics of bees suggest that they should not be able to fly. It was hotly debated in at a time when human flight via aircraft was being mastered (around the 1930′s). Because physicists and aerodynamic specialists had started to develop theory of ‘predictable flight’ with machinery, they believed their knowledge applied to all forms of flight.
(Hand drawn by Sarah Cameron)
Of course bees do fly. A bee is very small. And, at that size, air acts as a much more viscous fluid than it does for airplanes and helicopters. So the laws of aerodynamics are quite different for bees and other insects. But it took some time before this was understood and that new theoretical models were developed relative to the size of the thing of flight.
The point for entrepreneurs is important, especially at a time when technology is challenging existing business models. So the next time someone tries to put the kybosh on your new idea or startup remember that based on yesterdays knowledge, bees can’t fly.
10 years in Tech
A short review of some of the changes in technology in the past 10 years. Who has arrived on the seen, what’s different and new and how Moore’s law is still rapidly changing the world. Enjoy!
Top 10 financial hacks
There is no point being a successful entrepreneur, or selling a startup if we have no idea how to handle the money we get. So here is my top 10 financial life hacks.
- Spend less than you earn, no matter what that amount is. The net result is happiness.
- Allocate cash to savings & investments before anything the day you get your profits, pay or dividends.
- Never go into debt for anything which does not appreciate in value.
- The real definition of an Asset: Anything that puts money in your pocket. The accounting definition of an asset is flawed.
- Do not trade stocks. Trading makes the broker and tax man rich and you poor.
- The greatest financial instrument is ‘compounding’. It only happens when we hold assets, not by trading them.
- If you can’t afford a consumer product in cash, you can’t afford it.
- There is no such thing as ‘financial engineering’. It was invented by Wall street to trick you.
- The best type of share investment is an Index Fund. They are investments in civilization. If that fails, we have bigger worries than our money.
- Invest more in education than entertainment & ‘things’ and you will outdo society financially.
The wealth misconception
People so often begin their adult life (teenage?) chasing financial wealth without even thinking about it. They believe the benefits of money automatically outweigh the costs of its accumulation. That there is no downside, and that all problems in a world of endless cash flow can be bought out.
It is certain that too much money is a better problem than not enough money. But the overriding misconceptions of wealth are simple:
We only ever have 24 hours a day.
We can only ever eat 3 meals a day.
We can only sleep in 1 bed each night.
No amount of money can change these things, or improve the relationships with those around us. It’s worth remembering this in 2011 before we embark upon a new program of attempting to garner things we might not actually want.
Have a great year, Steve.
I don’t…
I don’t have a rich Father
I wasn’t left a sum of money from my Grandma
I didn’t go to Harvard
I don’t live in Silicon valley
I wasn’t funded at Techcrunch 50 or Y combinator
I’m not technical genius
I can’t code the latest killer app
I guess I’ll just have to build my startup the old fashioned way. Work my ass off, invent my own revenue, build a team and improve what I have to offer as I learn from the mistakes I’m bound to make. If you’re still around in 10 years, look me up.
Wasting money
As we embark on new projects we hope will be the one, a lot of money gets invested. Hard earned money we’ve saved from busting out a living on week days. The left over money after we’ve paid the mortgage and paid the bills. Sadly, much of it never returns. It’s easy to feel cheated when our projects don’t pay off.
But let’s for a few moments consider the alternatives:
A flat screen TV
Dinner at fancy restaurants
A better car
A new gadget for the kitchen
Other stuff which will eventually gather dust
…….
Turns out the money we lost in startup projects was never really wasted. In fact, it wasn’t lost at all. It’s the investment we have to make to get that elusive win. The alternatives are very poor substitutes with zero chance of a return. Which means we should never be afraid of investing in our projects. What we should really be afraid of is succumbing to pointless consumption.
Reasons for running a startup
There are many reasons people wan to run a startup.
Fame
Fortune
Social justice
Sleeping in
Pioneering
Redefining work hours
Creating something
Answering to no-one
…… we must really think hard about our motivators. Then….
Choose wisely.
Why spreadsheets are the enemy
Spreadsheets cause far more problems in business than they solve. When we sue spreadsheets too much we start to believe our business is the numbers we make up to fill in the columns. Turns out the numbers on the tidy little sheets have very little to do with our business. Our business is about people, emotions and serving needs. It’s about human movement and insight, not predictions and forecasts.
In recent times brand managers and entrepreneurs have become spreadsheet managers. Busy forecasting, doing profit and loss statements for upcoming launches and estimating sales revenue and market share for the upcoming quarter. The problem with most of these activities is simple, they are predictions. They rarely turn out to be correct, and they suck time we should be investing in getting our products to the market, talking with our customers and promoting what we do.
In startup land there are only two colums we need. Expenses and revenue. Once we have these we just need to make sure the revenue side is greater than the expense side. After that we ought leave the spreadsheets to our accountants.
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