This blog is part of a start-up series…
Part 1 is available here, if you missed it!
This blog piece is intended for a general overview based for a broad spectrum of audience to provide awareness based on examples of many people we have spoken to over in recent years who are venturing out for the first time on their own. We are not referring to serial entrepreneurs who have been very successful in business already.
It has seems a recent observation for successful engineers or IT professionals to venture into entrepreneurship and business ownership as a start up an aspiration. Commonly in a joint business partnership or sole trader may have seasoned commercial or sales and marketing acumen in their team initially.
For some, despite initial quick success it’s still a case of a feature/benefits or referral sell with not a solid go to market plan or strategic approach considered. Are you playing the short game or long game and reverse engineering your desired outcomes over chosen timeline?
Tip: Ask for help early to build an A-team of specialist advisors around you, and be willing to invest to help you test your concept, develop your go-to-market strategy and help build your foundations so you can scale.
Capital and funding
We have seen many start-ups run out of capital very quickly as they haven’t planned out their investment and costs required. For software application development it’s a never ending sunk cost to build the platform foundation from open source platforms and constantly improvement to evolve your offering for customer experience and integrations or address functional bug fixes etc.. If you are a services business the capital requires strong cashflow, securing good resources and a solid sales & marketing strategy for short term success.
Are you releasing a feature update every month or 3 months or 6 months, or ad hoc? How much budget is required with your onshore or offshore development team? If your sales cycles are longer without the revenue incoming and tested go to market plan, how can you sustain short term investment decisions for growth?
A large portion of costs is initially to setup and progress from concept stage to prototype or beta release for testing . Is there a market for your app and where? There are so many variables to consider in this dynamic, fast moving and crowded marketplace.
Are you aware of Government funding programs such as Austrade Export Market Grant Funding (EMDG) or Department of Innovation, Industry and Science R&D Grant Funding Options?
Have you checked out your local council incentive programs for small business owners starting out?
Tip: Assess realistically and budget for your capital expenditure and cashflow to get a test platform off the ground without overcapitalising, prior to getting any customer end user feedback or usability assessment.
Strategy Go To Market plan: What is your Sales and Marketing approach for B2B or B2C?
As a brand new home owner or developer, would you build a house with a builder without going through a planning process first using an architect or draftsperson?
As a captain of your boat, would you set sail in a boat without knowing which direction and compass map or GPS settings are required first?
In business, especially during the start-up stage, it’s the same to plot or determine the course you wish to take and solidify it on a blueprint first. It may not be the perfect plan or at least it helps provide a targeted direction of what is required to get from point A to point B and purpose.
However the investment of time and seeking advice to formulate the right plan seems to be considered in reverse order – ad hoc first before structuring something of a business plan or sales or marketing strategy.
For any go to market consideration you need to understand your business customers first and what problem or solution you can help them solve. In order to monetise your product or services the value of what your offer and charge reflects the urgency or size/complexity of the problem you are solving for your customer.
Too often I have seen little analysis about the financials including realistic cashflow, profit margins and also sales planning and how to create brand awareness through targeted marketing investments – this often seems to be an afterthought.
Tip: We suggest utilising an ROI calculator such as ours or establishing your objectives first:
Sales Pipeline and Revenue model
We have found many perceived valuations of a business model untested and unproven to attract a buyer is like angel investing…
No real customers = No real dollars despite future projections. Let’s be real here.
Once a external capital round is raised, the pressure is on to deliver ROI to the stakeholders, every request and return for dollar asked is scrutinised about the real viability of the business model and financial returns to the shareholders.
When I have asked many business owners for some pricing numbers about the subscribers needed for their model to break-even in Year 1, or Year 2, many seem to be a pie in the sky guesstimate or hypothesised without some solid tested projections.
When I further question where and who is their target market, I haven’t received many solid, thoroughly thought out answers but a more whimsical ‘kind of’ or ‘generally’ description.
Without a solid business plan and sales and marketing Go To Market strategy worked through and tested first, many start-up app ideas never will get off the ground due to lack of planning or asking for help first from a business advisor or sales and marketing consultant.
There is a saying that family and business do not mix, this is true to some extent that emotions can influence some of the initial decisions from founders, especially those without some business background or sales/ marketing experience.
At the end of the day you might want to pursue a passion or great idea like many entrepreneurs, however if you are still relying on your job and/or regular income with a mortgage over your head, some of the path to exploring this can be mitigated by being strategic and planning ahead for your financial position, capital investment plan for growth and thinking about your purpose – whether it’s to scale and build a large business or just to replace your income and eventually exit by selling your business.
Make sure you think about your profitability and revenue first as well as market test your pricing strategy for how you will monetise your great software app idea.
TIP: Spending some time for an independent sanity check with a workshop or advice for your concept and business model with the right independent business professionals and also your potential customer base might save you time and sweat equity in getting your idea off the ground or determining if it is feasible.
Here is an example of one of how one of our New Market Entry Feasibility Assessment played out.
Thinking about if you hire in-house or outsource, what parts of your start-up business and investment cost are required?
The cost of hiring a team of marketing resources like a social media manager, digital strategist, copywriter, graphic designer and web designer all add to the overhead costs of the business and initial investment to build your team.
As we know, the cost of skilled labour in Australia is one of the highest in the world. However is outsourcing functionally to Asia or other parts of the world still an answer? Are you sacrificing quality over lower costs or lack of your own process and systems? Have you thought about a scalable model to access senior experienced resources that will only cost you a fraction of a FTE hire or long term contractor?
What are the must-have sunk costs, and what are the optional non-revenue generating costs?
How will you generate sales to your customers? Will it by distribution model or direct sales? Will you be paying commissions out of the sale or from your profit margin?
TIP: Consider what sales and marketing resources you need initially and budget required if you hired internally. Can you source alternative and flexible methods to deliver the same function at lower cost and higher ROI until the business model is proven.
There are many practical and commercial considerations from this blog series about when start ups look at determining funding requirements and capital raising approaches. Most importantly from our perspective we can provide experience in how to utilise this funding once secured with a solid sales & marketing go to market plan and leadership from several years within the tech sector and working with business owners to drive growth.
Feel free to contact us for an initial discussion on how we can help you and your business, from start-up to growth mode, at email@example.com or @alchemise_cons or call our office on +61392255022.