April 24, 2012
After the initial exhilaration of take-off, turbulence sets in and passengers can sometimes get a little queasy. It turns out the journey through a startup accelerator is no different.
On completing weeks 3-4 of Women Innovate Mobile (WIM), my mobile startup Appguppy has encountered its own form of turbulence: the first call for financials and a viable, revenue-generating business model.
In the current world of lofty valuations for startups focused solely on establishing themselves through user acquisition, identifying a recurring revenue stream no longer seems to be a prerequisite for success. What’s more, the lean startup movement has reinforced the idea that business plans should be the least of any entrepreneur’s early worries.
But talk to any investor in New York and it’s clear that you need to have a validated model for recurring revenue. Rob Delman, WIM Mentor, Managing Director at Golden Seeds and partner at the ARC Angel Fund, actually provided us with a tangible framework for avoiding typical startup mistakes. Part of his cheeky presentation to us, dubbed “No B!@#$%^T BINGO,” made us cringe in horror (at ourselves) but also provided an excellent roadmap to putting us on the path to revenue-generating success. Remember kids, stating that your revenue strategy is an exit with Google isn’t going to get any VC in New York to open his or her wallet to you any time fast.
In fact, taking the time to analyze your company’s financials and demonstrate a viable business model is one of the most important actions you can take as young organization. If you can demonstrate that your margins are high as possible and you’ve got money coming through the door, then you’re really proving that you’re a startup worth investing in.
Sounds like this would all be pretty obvious to the detached observer with a little bit of common sense, right? Wrong. After all, revenue streams coming from freemium models or advertising continue to be the rage among startups. Despite the fact that a basic set of financials proving that low conversion rates and high view thresholds for advertising revenue make these forms of revenue low margin, these models continue to attract investors.
The advantage of hatching your startup within the environment of an accelerator is that you get consistent feedback on the perils of waiting too long to think about revenue streams. Having been pressed by a few of our WIM mentors not to delay on planning on how we could appropriately monetize our business, my co-founders and I spent an entire Saturday locked in a room with a mountain of Haribo Gummy Bears, Diet Coke and the following commandments:
• Thou shalt not utter the word “advertising”
• Thou shalt not give up by saying “Google will buy it for the technology”
• Thou shalt not unlock the door until a recurring revenue source shall be found
We rejected model after model for speculative conversion rates, difficult execution potential or for not working well with our brand. Focusing on the financials requires a founding team to take a studied view of the company that is their blood, sweat and tears. For us, that meant finding a revenue source that didn’t detract from the user experience inside our apps and didn’t require us to do anything that impacted the privacy of anyone using an Appguppy app on his or her phone. Running your financials isn’t just about the numbers. It’s about figuring out the spirit of your organization and where you plan to go in the future.
As for our story, we did come up with a business model that has nothing to do with advertising or freemium. It meant that we flipped some of our functionalities upside down and quickly planned for a significant upgrade of our platform. But by the time the last Diet Coke had been drunk, we had the skeleton outline of a plan that has us and our WIM mentors excited.
The best part? Thinking hard about our business model opened up avenues to interact with an entirely different segment of our WIM network. So stay tuned for the next few weeks as I blog my way through the cast of experts who will help to get us through the new rollout!
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