As 2013 approaches I know many startup founders will sit down to set milestones and goals for the upcoming year. Its easy to want to shoot for the sky, after all the bigger the goal the bigger the reward right? Wrong. I’ve seen too many businesses over the past couple of years that have aimed high but in the nascent stages of their company have really struggled, and ultimately had to shut down this year. The fundamental problem was that the founders believed that the goals for the year were accomplishable. But they didn’t take stock of what it would take to accomplish the goals they had set and the time involved with the following:
- Closing a round of funding.
- Building relationships that turn into profitable partnerships.
- Shipping product enhancements.
- Recruiting additional staff.
Not to mention gauging their own ability to stomach each setback, and stay focused in a recessionary market.
Having experienced a number of these issues myself this year, and being pretty resourceful I’ve built up an arsenal of contingency plans A-Z!
A number of people call upon my expertise to help them weather this market. So for the number of startups I consult for I do the following. The first thing I do is take stock of ALL activity this past year, because worse case I want the founder to be able to maintain stability if 2013 continues to be recessionary year. I sit down with each founder and analyze the following:
- Costs incurred for every area of business: staff, production, distribution
- Monthly sales figures
- ROI of marketing channels
The second thing I do is ask the following 3 questions:
- What contributed to the monthly sales figures, and how much of it was new v. repeat business?
- What is the consistent feedback on the product or service from customers?
- What are your goals for 2013?
Based on the numbers for #1 I’ll know if there is potential for more growth in 2013. I can suggest strategies to get repeat business, because it costs 6X as much to get a new customer as it does to sell to an existing one!
To get new customers I look at conversion metrics. By this I mean how many potential customers or impressions (in the case of online businesses) did you see each month, and how many customers did you actually sell to? I don’t get too nuanced into the lifetime value of each customer just yet. Instead I want to see if there is a monthly pattern in the number of leads and if that translates to a consistent sales figures.
For example, one of the startups I consult for had been keeping good metrics of both in-store sales, and online sales. The founder knew that her conversion rate for in-store sales was 50%, she was able to show this for about 4 to 5 months. Her metrics for online sales was not nearly as high, but there was some consistency in the number of visitors to closed sales for a period of time that helped us arrive at a percentage for it.
Knowing the conversion rate I was able to suggest a realistic goal for what revenue figures she could achieve for in-store sales each month, what each sales persons monthly quota should be, and suggest ways for attracting more customers. Note: I did not come up with schemes or experiments to increase her conversion rate! I let past performance numbers create a structure to set realistic goals for 2013. This way she will know what being on-track means, which is critical for a startup.
For #2 if there are any obvious product issues then those will need to be resolved before we can move forward. I do not mean requests for enhancements, I just mean something faulty with the product itself that would cause would-be customers to become disinterested or want a refund on purchased items.
#3 is a little more nuanced, however, I do encourage founders who might have more than 3 goals to pare down. They key is to start by throwing out goals you know rely on too many X-factors such as ones listed in the above bullets (basically, any resource you don’t have today, and would require a number of different steps to procure). For example, one founder wanted to expand her product line, but she didn’t have the capital to make this happen. The additional capital would mean lining up investors, and pitching her business. She didn’t want to focus on fundraising because it would take time away from building her business, and one of her goals was to control her own destiny. So I encouraged her to hold off on expanding her product line until 2014, demonstrating how it would increase costs, and instead have her focus more on building up cash reserves in 2013 to then be able to fund the product line expansion the following year.
Finally, I do factor in room for experiments. But the key is to come up with the list of activities ahead of time, pin point who and how they will be executed, and also set criteria to judge the success or failure based on numbers! This prevents people from changing course mid-year, or taking on too much and achieving nothing.
As you are getting ready to set goals for your startup in 2013 you can run through these exercises yourself. The key takeaways are:
- Look at patterns of past success to forecast what will happen in the following year.
- Make sure you have a solid product or service that customers derive value from.
- Isolate goals to what you know is well within your control and you have the resources to accomplish them.
- Leave room for experimentation, but make sure all the experiments are accounted for as much as possible.
Finally, if you are interested in working with me I do have room to take on 2 additional startups. Feel free to contact me or sign up for an office hours slot so we can chat more to see if I can help.
Wishing you a prosperous 2013!