Other than the investors, you don’t want your Employees, Vendors, Landlords and everyone who you write a check, lose confidence over your startup. One needs to understand that member acquisition costs cannot exceed customer lifetime value. Conversion ratios (from users to paying customers) have to be aggressively pursued from the outset. Training, motivating and incentivizing the sales team has to be the number one priority from day one. Look at unique partnerships that would complement revenue growth. Take a leaf out of the early stage growths of Oracle, Microsoft & Apple. Though, burning cash is the buzz word, which has increased the risk appetite of startups, but it should not overshadow maintaining a healthy bottom-line. We should not look at the Valley to try and emulate their success mantra. Our consumer behavior is way different than theirs. Building a brand doesn’t happen overnight, it is a process, which entails building a great work culture, continuous customer engagement, superior customer service, continuous innovation, industry tie-ups, making payments on-time (credibility) and so forth.
We live in the world of week-on-week growth, this takes away the fact that businesses are built and endured over time. Therefore, the startup ecosystem is happy with the thumb rule that 99% startups fail. Why can’t investors look at this percentage as a challenge and reduce the failure rate? Investors need to get out of their portfolio building mindset. The yardstick for measuring startup success has been, who gets the highest paper valuation. This has to change, market shares have to be defined from the point of real revenues and not from aggregating non-paying customers (user count), unless a startup is chasing revenues from advertising.
With the growing need for targeted marketing, advertisers are keener on engagement ratios than impressions. Only the newbies would take to this service, as it would lower the brand awareness cost. Reliance on this form would lower as we move ahead.
Apart from all of the above, the timing has to be perfect. If the startup dies young because of increased cash burn, then it is not giving itself enough time to grow into a matured market, over time. Be nimble at the beginning. Think about this, if Apple introduced iPhone in the late 90s when broadband internet was still in its nascent phase, let alone mobile internet, what would have happened to them. iPhone’s success is not by its own, it is also due to the fact that telecom companies innovated as well. That’s why ecosystems are so important.
My humble request, please don’t kill the ecosystem, by going after mindless growth. Understand and implement a better revenue to cost ratio. This is the only way for success. The only way for the ecosystem to thrive. We might need your services one day, so please don’t die by going after paper valuations.