In my previous blog entry I spoke about ‘leveraging the wood chips’. Which is an old business maxim on how whatever we do has some kind of externality, off cut or by product which can be leveraged (very often sold) in some way to invent a new revenue stream. And while it may be obvious that many large business have such an opportunity, we also have this opportunity as individuals to realise the value of our wood chips.
Before I get into the what and how we can leverage our wood chips, let me share a couple of examples of well known brands, companies and products which are essentially ‘the wood chips’ – which incidentally comes from the obvious description of what we can do with timber off cuts from some kind of craftsmanship.
Vegemite: Australia’s largest brewers including CUB (now SAB) sell their brewers yeast (a form of woodship) to Kraft foods to make Vegemite from. All my Australian readers will now how big this brand and business is.
Paddle Pop: The Australian stick ice cream stalwart is actually what is called a ‘re-work’. The raw materials are the off cuts from other more premium ice creams in the factory.
Ruby on Rails: Is a software programming language that was developed for the building of Basecamp – a 37 Signals application. Which has now become a general programming language that was released to the public as an open source platform – as a gift.
LPG – LPG is synthesised by refining petroleum or wet natural gas. Liquid Petroleum gas can be used to run cars and heat homes. At first it was wasted, then it was captured and used.
Infact, many of the startups funds and Angel investing organsations are the wood chips of previously successful entrepreneurs.
My wood chips
In the first instance I took my Marketing skills into the web startup entrepreneurial scene when I launch rentoid.com. While I had virtually zero web and tech skills I made up for the gaps in project management, promoting my work and understanding consumer trends.
After I launch rentoid successfully as a ‘boot strapped’ business – this blog became a source of woodchips where I could further share and promote my ideas as they developed.
My Startup School, was the wood chips of rentoid and this blog – all pulled together as intense weekend where I share all my key learnings over 2 years into 2 days. Hence providing a valuable short cut to others entering the space.
Public Speaking is something that I have embarked upon more recently where I share ideas on business, the digital landscape and marketing. The real reason this is possible is due to the amount of pitching I have done in my own business endeavours. Without realising I became quite a proficient public speaker for which I am now regularly paid very well to do.
There are others, but you get the picture.
We all have some form of wood chips we can leverage and generate revenue from. Often at a higher rate in relation to the investment required to generate them – remember they are essentially an externality. We just need to stretch our imagination to see what they are, and most important let people know we have them on offer.
Happy wood chipping!
An important fact that emplyees and entrepreneurs ought remember:
You can’t sell your job.
Yes, we can build personal brand equity, but the revenue and value we create belongs to the owner of the organization we work for.
This leads me to an important factor that we must remember when we set out out on our way into startup land. We get the uncommon opportunity to get twice the benefit of everything we create. Let me explain.
Whenever we make a sale – we get to keep the gross margin. Put it in our pockets as profit. If we do this often enough, and well enough we also usually have a residual amount that we can pay ourselves as a wage. (yes, it is the opposite of what most people think, profits come before wages when we are building a business.) But the real kicker is revenue we create becomes a sale-able asset. We can sell our invented revenue stream. What this means is that for every dollar we earn, that is a dollar that we can sell. It’s a kind of entrepreneurial double dipping. And this is exactly the same thing the company anyone works for is doing by employing people.
The reason we can sell this revenue, is that the average sale price of a company is its annual revenue figure. So $1 in in real terms equals $2 generated.
Startup Blog says – get out there and generate.
For the best part of the last 10 years I haven’t been able to explain to my mum what I actually do for a living. Both with startups I have created and jobs I have had. Probably more so with the paid roles I have had. And this is an important insight into the world today and how we all fit into it.
How my mum responded to various activities I have undertaken:
My blog: Why do you do that? What is it about? Who pays you for it? Why do people want to read about startups?
Startup School: How can it be a school if they don’t get a certificate at the end of it? What curriculum do you follow?
Rentoid.com: Why would people trust strangers with their things? Why would people rent or share stuff when they can just buy it?
Director of Strategy: If you don’t write the ads or make the film at this Advertising agency, what do you actually do? I don’t get it.
Twitter: Who cares about what you have to write? Why can’t you write more than 140 characters? What do you mean people follow you?
In fact, without being disparaging, we need to ensure our mums don’t understand what we do. It’s the best indication that we are a scarce resource in a rapidly changing landscape.
When everyone understands what we do, it almost certainly means there are plenty of people who can do it. And if there are lots of people who do what we can do, then there is less chance we can extract significant value in the marketplace.
As far as I can tell their are 4 main reasons that a company will buy your startup. Particular in the web / tech fields:
- Talent buy out
- Technology buy out
- User buy out
- Revenue buy out
What’s interesting is that these buyouts happen in that order as well.
The reality is that it’s rare to be the focus of a talent buyout unless you and your team have an incredibly unique set of skills. The tech buy is less difficult and is the savior of many tech startups who have cool stuff with no revenue or customers. In fact, it’s rare enough that we should ignore it as a possibility.
The reality for you and me is that buy out 3 and 4 is where we are likely end up. So the question we must ask ourselves are these:
* If we are aiming for a user buyout, how long can we survive without revenue?
* If we are aiming for a revenue buyout, why don’t we just keep what we’ve built?
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.
Local Australia firm fosters brewing has a popular brewery tour at their Melbourne plant (you get a free beer at the end of it) as does Media conglomerate NBC in the Rockerfella Centre in New York. None of this is free, and they are all fully booked pretty much every day. The thing that is almost as powerful as the cash such Industrial Tourism generates, is the relationship it builds with the brand.
It is pretty cool to be taken into the ‘secret back room’, even though we can all be pretty sure that Boeing or any large conglomerate are not about to give away any secrets on said tours. But this is where startups and SME’s can do it even better. We can let our early adopters into our Factory, Alpha testing, Retail back room, Warehouse, New Product Development session. We can let them expose our secret goodness to the market for us. Especially if we do something awesome like make great software, use recycled materials or anything creative.
So the question for startups is this: How can we let our early adopters and brand evangalists into our secret world to spread our world?
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Today I had a discussion with a fellow entrepreneur who was wondering whether to reduce his pricing on a new business. His point was related to the fact that his very new business hadn’t achieved a great deal of sales volume just yet.
Then I asked him if he had implemented any of the sales generating activities we had discussed last week – to which the answer was no. My response was straight and simple:
If you haven’t been out knocking on doors selling your product to the potential target market, then how is it possible to know if the marketing mix is wrong?
It was at that time he knew he had some boot strapping work to do and get out there and sell.
The point for entrepreneurs is that it is easy to get tempted to constantly revisit the strategy. To go back to the plans when things are not automatically falling into place. Instead of doing the really hard stuff – we look for a simple revision of ideas, the plan and all that shiny stuff. The thing we often avoid is the hard effort of selling and facing rejection. But until we go out into the market and try to generate revenue, it’s impossible to have real market feedback of what needs revised.
So before we re-design our plans and process, we have to test the current one in market. We do this by trying to sell what we already have at every possible distribution point. Until we have done that, strategy revision is just an excuse for not putting in the effort required.
When starting out in business the first thing we often do is set up the relevant legal structures:
- Partnership agreement
- Logo design
- Business name registration
- Operating company
- Holding company
- Non disclosure agreement
- Holding company trust
- Member terms & conditions of product / web usage
- Specific bank account
- Small business book keeping software
- insert other legalese business recommendation here
Startup blog advice is this: Don’t waste your time or money. Get revenue first, register later.
With the only possible exception being a .com registration – which if you’re in the on line world may be an actual requirement to simply operate. No doubt this is contrary to all you’ve read in business guides. Sure, keep accurate cash flow books, run things professionally and stick to project deadlines. The reason for the recommendation is pretty simple. Most startups never get to revenue. If you’re like me you have a hard drive full of business ideas, half written business plans, and a spare room full of product prototypes. Until we have revenue (which doesn’t mean a couple of orders, it means thousands of dollars) we have nothing to protect. It also adds a strong reporting and administration burden which startups could well do without.
So why waste time and money building a fence around nothing? Build the castle first, or at least get the foundations in place. If we follow the lawyers advice, they may be the only people who ever make money from the venture.