The startup trend is at its peak, now, more than ever. More people are starting up new companies to solve a myriad of problems, and that’s great! What’s even better is that a lot of them are actually good startups, in terms of the pain point they intend to solve. Ofcourse, we have a good share of wannabe entrepreneurs coming in to taint the whole system. We all saw the noPhone in Shark Tank the other day!
Regardless of the wannabes, what’s missing is the right understanding of how a startup is, should be and what ultimately matters in a startup.
This is the general cry of every prospective entrepreneur – “I have a great idea. I have a great team. I have some money. I write code. I should succeed.”. I wish this were half as true. I wish this was at-least true enough to last me a year in the startup world.
What ALSO matters here are sales, targeted marketing, analyzing user behavior, deriving a persona from the little sales you make, and a lot of other insightful and significant aspects that will define your company.
We have a wing at our startup that is dedicated to making sales calls and convert the leads to buyers. I’m going to draw you a picture here – Everyday, we get about a thousand such leads, out of which only a hundred get converted to buyers. Maybe you don’t realize the gravity of the rejection that exists. Here, let me use an actual picture that is taken straight out of a spreadsheet that we maintain that has the status of each lead. Whether they bought our product, or they found it expensive, or if they bought another company’s product ( if so, which one? ), etc., Here are two such pictures –
These are not a list of just the rejections. This is what the list actually looks like! Now you know what a few hundred out of a few thousand actually means. It means that a couple of people in our team actually spent so much time talking to all of these people only to find out that they didn’t convert to buyers. However, here’s the secret –
It’s okay! It’s okay if that’s your conversion rate. People who start working for startups freak out when they see the numbers and they think its going to fail. Failure won’t depend on the number entirely. Now, here’s the tricky part –
If your numbers are low AND your profits outweigh the cost to acquire these prospective customers, then you essentially have a sustainable business model. NOW, what you should be thinking about is how to make this model work on a larger scale. This is what big, conglomerate companies pretty much do. ( You see Google sponsoring ads on Facebook too, right? Exactly! )
Their cost to acquire these leads is much lesser than the profits they make with the converted leads. That’s it!
Now, I’ll let you in on another secret.
Last year, the startup that I work in raised a few lakhs of rupees from two investors ( a couple million rupees ) to spend on operations and also to build the team. This year, we are raising a couple of rounds of investment to make it bigger! And the only two things that investors look at with respect to startups are these –
- Are the people in your company the right fit and confident and perseverant?
- How good are the numbers? ( sales-wise )
The first one is a no-brainer. The second though. That is tricky and you cannot go around that at any cost.
Why? Because that is proof of your startup’s validation. Do enough people want your product? It doesn’t have to be every person on the planet. It can be 500,000 people. That could be the market of your product. When you add a feature, your market can expand ( but don’t do that initially. This is for another post ).
Let’s say you’ve built a sustainable model like we discussed earlier. That is, the cost to acquire your prospective customer is way lesser than the profits you earn from the ones who do convert.
Let’s say you received 100 leads this week, and only 10 converted. We discussed this. That’s okay! a 10% conversion is okay! BUT, it is NOT okay if you tell your prospective investor that you have 10 buyers for this week. Ofcourse, you won’t tell him you had 100 prospective buyers. But, the number 10 must increase. So what do you do? You increase the number of leads you get in the first place.
You spend enough to receive about 1000 leads. A 10% conversion on this is 100 converted leads. Which is what you should tell your investor!
The magical thing here is that you won’t have to spend the same amount every year to get 1000 leads! Once your conversion rate grows, the cost to acquire the leads will come down because of the brand you’re building. That is, you won’t be spending to acquire the leads, they will come to you on their own due to word of mouth, or a recommendation or something!
There are a couple of other things that should be considered in this whole arena of building a startup. And I will be writing about it here on MindPluckd. So, subscribe. I will see you soon.