Startups: These 3 Key Questions Will Boost Your Profits

Posted by | November 07, 2013 | business, management, startups, strategy | One Comment

Is it me, or is there just way too much information and startup advice out there to ever get a handle on. Despite that, if you take the time to pick out the wheat from the chaff, there is some incredibly good advice out there.

They planned for this thing when they built it. The laws of physics still apply.

They planned for this thing when they built it. The laws of physics still apply.

One recurring theme I read a lot is that finding market/product fit and constantly optimizing that fit is a key driver for success.

In terms of what a startup can plan for, revenue depends largely upon how well your product fits its market opportunity, how well received it is by customers, and the value that product delivers in the space. Once  a company achieves relatively good fit, then it becomes possible to focus on improving margins and revenue, scaling the business, etc.

The KPI that is impacted most immediately by poor product/market fit and positioning is the CAC (Customer Acquisition Cost) — poor product acceptance means you need to resort to stuffing your product down your (probably few) customers’ throats, typically through hardball salesmanship and misleading ads — not cool!

The key takeaway is that no amount of sales and marketing spend can overcome a bad product.

Basically this means that if your product needs fixing, don’t try to beat market rejection into submission by spending a fortune on marketing — put the money into fixing the product. Think about how destructive the wrong decision here can be.

The more you spend on marketing a bad product the more people will know your product is bad (and will not want to buy from your company the next time you advertise.) A triple fail spending money on speeding along your own demise.

I’m betting you’ve seen this phenomena yourself… think back on some bad products that you’ve experienced in life, and how you came to purchase or otherwise come across them. Was the marketing or salesmanship good or at least aggressive? Did the packaging or marketing hide flaws or emphasize BS that did not materialize?  Was ad quality high and product execution quality low? Big companies can get away with this behavior once in a while — for example see some recent product fails from Microsoft like the Kin feature phone. Just the fact that I know about the Kin is bad for Microsoft , you can be sure they wish they had never advertised it!

But as a startup, you don’t have a huge user base yet to fritter away like Microsoft does. With that mighty CAC metric in mind, losing new customers is bad bad news — it’s imperative that all quality startups win repeat business.  So, it’s food for thought, and in essence all of this really means that positioning is a major key to sustaining and growing profitability.

But how to improve?

Well, instead of one-size fits all approaches to improving your positioning, it can be helpful to ask specific questions around the business that lead to actionable plans which then almost certainly lead to some increase in sales and success at the same time lowering the all-important Customer Acquisition Cost.

In my experience an honest and rigorous renewal of positioning statement and business re-alignment (with customers, mission, staff, yourself) are something that can be done quarterly to get and keep your revenues on track.

Question #1: Why would a customer/investor/employee/lender choose MY company over my competitor’s?

If you don’t already know the answer to this one, then you haven’t done your homework… The answer to this question is your company’s positioning. But even if you have an answer, when was the last time you revisited your positioning?  Depending upon the pace of change in your particular industry, it may not need revising. But many startups especially in tech, biotech, and other fast moving fields can benefit from quarterly review of “where things are at” and whether course correction and/or business realignment need to happen.

Question #2a: assuming your industry has a “household name” market leader…What positioning would fit like a mold around what the market leader is doing — what would be a mirror image or “opposite land” approach?

Your business needs to choose the top things your dominant competitors do brilliantly — and be sure to NOT emulate them!

For example, let’s say you choose to start a Fast Food business.  If your biggest competitor focuses on “Mediocre Screaming-Fast Food for Super Cheap”, and you decide to offer “Decent Rocket-Fast Food for Super Cheap”, then all your big competitor needs to do is slightly improve quality, and with their money and position they will crush you while benefitting from any increased consumer demand that you created with your marketing efforts.

This is a positioning disaster.

Instead, try to be different in a way that is impossible for your competitors to match without breaking their promise to their own customers. For example, your restaurant will likely do much better if you focus on providing “Great Tasting Healthy Fast Food at Reasonable Prices”.  Notice you are still offering “Fast Food” which is your category — you can’t compete at all with Fast Food companies if your Food isn’t, ummm… Fast.

In other words, as a startup, you should rarely if ever take on gigantic incumbents head-to-head on their terms and playing to the same strengths but with no differentiation. They will crush you.

Question #2b: assuming your industry does NOT yet have a “household name” market leader… Why has nobody achieved this yet?

Seriously analyze the competition here and focus on what is holding them back from total domination the answer to this question is likely a path you can take to get there.

More often than not, your competitor is overlooking something due to false assumptions, internal issues, or possibly a form of innovator’s dilemma which leads to business model lock-in.

Figure out their weakness and then focus on it with your product offering and marketing like a laser beam.

As a bonus, when your competitors are failing to succeed despite a seemingly winning hand using traditional methods, you may find that what you thought were your weaknesses are actually strengths.

Question #3:  what Can We Sell Around Here (that we’re not already selling)?

This one is only indirectly related to positioning or to even planning of any sort.

Instead, the answers to this question will simply immediately boost or create your revenue. Nice!

I cannot think of a faster way than this to almost guarantee income: successfully identify something you already have (or do now incidentally for free) that you can start charging for. Then start charging for it!

Every mature business does this over time to improve margins incrementally, but many startups are so embroiled in trying to sell what they are already selling, they fail to recognize money sitting right there on the table.

And once this “creative” money begins pumping many new ideas and opportunities usually arrive at your door— leading to further opportunities to ask What Can We Sell Around Here?

One thing to point out is that I use the words “do now incidentally for free” and what I mean here is that, obviously, if your product positioning largely depends upon XYZ feature or service being free, then of course suddenly charging money for it is NOT what I’m suggesting. I trust I didn’t really need to point that out.

So in parting, here’s a startup tip that will take 5 minutes and could totally change your life.  Go ahead and fire up your calendar and create a quarterly event with a big annoying alert on it:  What Can We Sell Around Here (that we’re not already selling)?

Ask these questions early and often it cannot hurt and it can most certainly help.

About John McMahon

John is a serial entrepreneur and full-stack developer. John is currently CEO of Starter Inc. a mobile and web development company, and is the founder of Humor Me Inc. maker of the Chukles consumer mobile humor app. John also currently serves as the CTO for MatanzasGroup, a Global Pharma Consulting Firm. John founded Extentech in 1998, growing it into a leading Web 2.0 spreadsheet tools vendor. In 2012, John sold his 100% stake of Extentech to Infoteria Corporation -- a publicly listed Japanese company. John has recognized expertise in startups, mobile and web development, open source, and cloud computing. John has been a contributor to Accounting World and has been interviewed and featured in stories on PandoDaily and Forbes.com.

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