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Revenue generated by start-ups gives them ultimate measure of confidence. It also teaches them value of money. Earning every dollar in the first year is many times more difficult than in later years. Earning it hard way you also realize its true value. The single biggest lesson by the business world from the collapse of dotcoms in the year 2000 was: Future potential may be important but it is the performance in the present that determines your survival.
Try to generate revenue from the very first quarter, however small is the only way to quickly establish your ultimate business cycle.
Startup companies must watch sales & expense lines constantly. This is the only way to quickly identify what is going wrong, before it is too late.
In startups:
- Profit is important
- Revenue is more important
- Cash flow is most important
The barometer on finance performance can be set as following. (You may fine-tune the calibration according to your business environment and situation):
- By the end of 1st Year
Cash flow must totally support regular expenses
- By the end of 2nd year
In addition to above, at least 40% of the company growth plans should be supported by internal revenue generation
- By the end of 3rd year
In addition to above, the internal revenue should support majority of the company growth plans.
In the initial stages of Cross Identity (Formerly Ilantus) we focused more on building an organizational culture, value, skills. We did not have a great sense of urgency on getting sales & creating customers. Not watching cash flows and revenue line constantly led us to trouble.
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