Generally speaking, when you want to start something new it’s usually because you’re trying to solve some pain you’ve personally felt or some void you’ve come across. While this is typical, it’s rarely the path to big revenue. Why? Because one is so focused on solving their personal pain they get trapped into one of the generally accepted four value drivers. What’s a value driver? It’s a basic framework for the value you deliver in exchange for your economic gain.
Here are the four basic frameworks:
1. Save You Money (reduce cost); this could be a total cost of ownership (TCO) or recurring cost like human labor. This one is bread and butter for most software companies and is the most common as the “save money” proposition is everywhere in our daily interactions. At a low price point, back of the napkin math with suffice to justify the spend but at a high price point, a Business Case with complex calculations is usually required to rationalize the investment.
2. Make You Money (tied to revenue); this is where if you spend $1 you will make $4 or some type of return on investment (ROI) that increases top-line revenue. Generally, this is tied to one source of revenue but it can, and ideally is, tied to multiple streams of revenue. This is where one can really move the needle and where the justification for the investment is much lighter as any tie to increase revenue generally warrants a business to at least give it a try. If you’re successful, you’re rewarded with increased business. If not, you learned a lot and can take those learnings to the next client.
3. Meet a Regulatory Requirement to Reduce Risk; this one is more transactional in nature but typically has a very strong compelling event which helps to drive pipeline accuracy and sales. It can be a bit of a “strong-arm” sale which is why they’re more transactional in nature but almost tends to come with a lot more competition in the space.
4. Time to Market Speed; the approach will get a customer into the market faster and their overall revenue may increase but subject to the customers business model; this one is a little weaker compared to the others but works as well when you’re in a “rising tide” market, where it’s a land grab, any spend that justifies shipping sooner will get attention. The challenge with this one is you have to be in the right space, at the right time, and you have a much narrower pool of potential customers.
So which value driver do you want to offer in your new startup? Of course, the answer is all four if you can but that is rarely the case. The irony there is typically only large corporations can satisfy all value drivers; they just tend to do a poor job which then circles back to startups focusing on one value driver and doing it much better than the typical corporation. So which driver gets you into orbit the fastest? I’d argue #2 Make You Money for several reasons.
First, your Go To Market efforts are met with wider open arms and acceptance as talk tracks centered around increasing revenue are generally more inviting. This results in more meetings, more demos, more proof of concepts, overall, etc. The name of the game in startup land is velocity; it’s about action, movement, and keeping the energy high and if possible, intense. This is what gets people excited, get’s internal and external stakeholders motivated, and gets deals rolling in.
Second, your sales process is typically quicker and more streamlined. There tend to be fewer value calculations model exercises, justification for the investment (although there can be some), and the proof is in the pudding by actually testing out your offering in production.
Lastly, there is simply more money in this value driver - budgets tend to be larger and unlocked easier once revenue growth is agreed to be the value proposition. While all four drivers result in a fair economic exchange, when you’re product can directly drive revenue you can command a higher price, negotiate a revenue sharing option to participate in the gains, and just generally have more leverage in the value exchange.
If you’re reading this post it means you understand how much time, effort, and risk is included in launching a new business venture. If you’re going to trade personal time, make sacrifices, and put your money at risk (hopefully that’s the only thing you’re putting at risk) then you better make darn sure it’s worth it and you’re going to get a return on investment output that is orders of magnitude greater than your input!