Vijay Anand | The Startup Guy.

Birthed on Stability

Posted 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.

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2 Responses to "Birthed on Stability"

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).

Vivek,

Downloads might be a good metric, but the data that you are plotting against would be quite different. Usually downloads are higher when there is, either a new release, or there was serious bug and there was a fix that was released. In either case, it is not a steady activity, but rather a burst of activity that will happen.

But instead of plotting over time, if you start analysing the amount of new downloads, and updates whenever a new release comes out, you can sort of quantify the interest that you have with the community – and the process is almost the same as tracking the hits on your website and evaluating new and returning users.

In my opinion, it is quite a restricted priviledge that few companies and business models have. But yep, it could be used as a metric.

Now, what does it all mean and when does it translate into business and money, well that’s an interesting question.. and one that would be on most folks mind.

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