Here is the handout from this morning’s Bootstrapper Breakfast® in Walnut Creek.
Mapping the Path to Your First Dollar of Revenue
Sean Murphy, SKMurphy, Inc.
Bootstrapper Breakfast Walnut Creek Jan 25, 2011
Entrepreneurs tend to focus on having a good idea, or on the challenges of developing a new product, or on finding co-founders to form a company. While all of these are important the most significant early milestone for a bootstrapper is making the first dollar of revenue from a customer willing to act as a reference. SKMurphy has a five-stage model for startup evolution, this morning we are going to focus on the first three, and in detail on the early customer stage when money actually starts to flow into your firm.
Starting a business is a long hard path with many twist and turns, dead ends. You will try many things: some will work; many will fail; some it can be hard to tell whether they have succeeded or failed–do you need to give them time or not? We have found that understanding where you are and focusing on the next risk reducing milestones can help shorten the path you travel to revenue. We have mapped out the early stages of a startup to help you avoid worrying about the less important issues and challenges you should defer to a later stage.
Let’s look at the first couple stages with a particular focus on the early customer stage, where money starts to flow into your startup for the first time.
- The Idea / Formation stage starts with one or more ideas and may end with a team formed around a working consensus on how to evaluate the technical and market feasibility of the idea(s). Customer Development Risks:
- Make Your Assumptions Explicit & Testable
- Don’t Stop at “Anyone Will Want This Product.” Who Needs & Will Pay For It?
- Confuse The User With The Customer: Customer Pays You
- Believe That Your Product Will Sell Itself: Pre-Viral Customer Acquisition Cost (Hours/$)
- In the Open for Business stage you have a business ownership structure, and you have the necessary documents and tools in place to transact business: e.g. business license, Federal Tax ID, software license, etc. The Best is the Enemy of Good Enough:
- Spec the Full Product But Focus on Minimum Feature Set Needed to Sell
- Clearly Define and Focus on Break-even and Profit
- Don’t Expect Perfection or Too Much Too Soon
- Need Planning & “Target Practice”
- Iteration & Improvement: Nothing New Ever Works
- Early Customer stage is where you develop your first customers. First sales are generally to friends who know and trust you. These customers can act as a reference for future customers. Typical Sales Cycle:
- Suspect: Target of Messaging
- Prospect: Initial Conversation, Understand Their Problems and Needs
- Qualified Prospect: You Offer Clear Value & They Can Pay For It
- Demo/Presentation: show results based on representative data
- Champion: Who is your internal salesperson. May be different from ultimate decision maker.
- Champion can map the process that will be followed for the purchase decision.
- Champion has a track record of introducing innovation into the organization and getting it adopted.
- Proposal: May be verbal initially, but most firms won’t invest time in a detailed evaluation without budgetary pricing at least.
- Evaluation: show results based on their data and workflow
- Purchase: purchase order & relevant ancillary agreements (e.g. license agreements)
- Payment: note that this may be 60-90 days in today’s economy
- Reference/Testimonial: as important as payment for early sales, negotiate for this as hard or harder than price.