Posted by: Vijay on: March 31, 2007
When a company is born, most of the time, it seems that they are judged on the basis of month to month revenues. I am not sure if that will work for long. After the company proves its business plan, by virtue of breaking even, the first thing they need to do is call for a meeting with all their senior management and hands-on board members, and discuss on a plan to stabilize the company. What do I mean by this?
Well, there are companies that make 200K one month, and 0 on the other. That is the most unstable company that you can think of. If that company was on the public market, very few people would take a look at it. In other words, when building a company, you probably need to start looking at it, as if it was in the market, and if so how would you manage its stability.
So, how does one go about it: I’d say, take a graph of revenues, partnerships, deals (enquiries and deals won, along with the percentage ratio of it), number of employees, and profits of the company and plot it on the graph. Do it month per month and make sure that they are rising. If it rises on one month drastically, figure out how to sustain that growth. The keyword here is very much on “sustained growth”. If you can manage that…. I need not say what awaits you.
April 1, 2007 at 10:57 am
Vijay,
Good post.
I agree with the overall point, but one month is not the right unit to gauge a startup companys’ revenue. This is especially true of product startups.
Not just sales figures but even downloads / website access figures are very seasonal. We are just getting to experience this first hand. You have three good months, sales and downloads show a big upwards trend. You think you are finally on autopilot and you start calling your bank to standby for a flood of cash.
The next month, for whatever reason downloads and sales come crashing down, even though your adwords spend remains the same. Some attribute it to accounting cycles, others to summers in Europe. Startups must have the ability to absorb such highs and lows during the initial stages.
Once they are over the initial hurdle and start locking down support and maintenance contracts with major clients, then you can count on some baseline monthly figures.
For a very early stage startup, I would go with tracking downloads, sales, web traffic (hits), on a quarterly basis. You can compare monthly stats on a Year-on-Year basis (eg, compare March 2007 sales with March 2006 sales).