After startups have done a deep dive in evaluating the business on the attractiveness of opportunity, ability to compete, evaluated the risk and synergies, and have a strategy to execute the plan, it is important to focus on the business principles and operating framework.
I have tried to put together some business principles that may be considered in business building. I have consciously excluded the issues of capability, culture, community building, purpose, and values.
Here are some of my thoughts:
A. Product and Business Model:
- Continuously move up the ladder of excellence, eventually becoming globally competitive
- Continuously evolve product features to align with new use cases
- Continuously evolve business models in line with the congruence of different digital technologies
- Understand technology trends (both physical and digital including AI and ML)
- Become an IP factory (whether patented or not)
B. Monetization, Revenue Streams, and Market Share:
- Be careful about choosing the market/geography or customer cohorts to create early successes before engaging in expansion activities
- Run pilots for different use cases before burning a large pool of cash
- Measure customer experience and drive virality
- Innovate and optimize Return on Ad Spend (ROAS)
- Think of monetization through PaaS and SaaS
- Continue to explore different options to diversify distribution channels
C. Operating Principles:
- Business Principles
- Asset Light
- Variabalization (reduce fixed costs) and optimization of resources
- Outcome-based pricing both for revenues and cost
- Leverage Crowd Sourcing model in most functions
- Growth through Partnerships and Alliances
- Build and leverage the ecosystem
- Linear vs exponential thinking
2. Financial Prudence
- Capital Structure (Debt and Equity) based on the risk profile of the business
- Runway of 9 months when one goes out to raise capital
- Create a safety pot for the worst-case scenario
- Trade-Offs between unit economics (profitability) vs scale
- Scale vs credit risk and extended credit
In this article, I have tried to share a framework to initiate a discussion amongst the founders, management teams as well as investors. In order to get the best outcomes from this framework, one may do a quarterly review and track the movement (up, sideways, or down).
Oct 2020
