In a country that is pushing for innovation, and an economy that seems to be a perfect incubator for new start-ups, why do so many new businesses fail? I have first-hand experience of the highs and lows of building a fast growing business in Australia, and the main thing I have learnt is to be ruthless. Ruthless with your time, ruthless with your energy and ruthless with your focus.
At the end of the day the focus of every business should be creating value. What kind of value? The kind people will pay for. Why? Not simply to make money, but having someone pay for something is a true sign of value – and something that gives a lot of clarity to you as a founder when you’re building an innovative solution to a problem.
With my current company, GiggedIn, we’re using technology to revolutionise how people interact with live music. The goal of our subscription service is to make going to gigs a regular part of the weekly routines of millions of Australians. For me to make that dream come true, I have to choose which top three (out of hundreds of things) I need to focus on this month, this week and today.
I have found the best filter in order to prioritise what’s really important, is to think – is what I am focused on right now something that will drive revenue for the business?
This is important because it forces you to adapt your product, clarifies your focus and drives your teams’ energy into creating something that’s going to be of value to your end customer. So for us, we’re always thinking about improving the experience for fans, and improving how efficiently we reach new people.
The earlier the stage your business is at, the more important focusing on revenue generating activities is. In fact, a lack of sales is the number one reason businesses fail, so I would suggest that at least 80% of your time needs to be spent on sales and marketing (with the exception of capital raising if that’s relevant to you). So if you’re early in the journey, especially if you’re in ideation of MVP (minimum viable product) stage, make sure you’re thinking about how you can quickly focus on generating your first few dollars.
Once you’ve achieved that, it’s important is to take the time to understand your metrics. Especially if you’re looking to raise capital at some point, it’s particularly important to understand the levers that will drive a sustainable business. Two really important things to consider when building any business is your CAC (Cost to Acquire a Customer) and your LTV (Lifetime Value of that customer).
Make sure that for every dollar you spend on marketing and acquiring a new customer, you will yield a lifetime value in excess of that dollar. In other words, make sure you make more from customers than you spend. In it’s simplest terms, you need to demonstrate that CAC < LTV.
The bigger the spread, the better you are. So if you wanted to improve LTV for example, how could you make more from your customers? Can you create more value so they buy more things? Can you get them to stick around for longer? Do you need to increase prices? If you wanted to reduce your CAC, have you tested all different marketing channels? Have you tried changing your copy around or playing with new offers? How about a referral program?
Ready to Scale?
Once you’ve figured out the ‘golden formula’ now think about growing quickly. A huge mistake start-ups make is premature scaling. Scaling too early before getting your CAC/LTV numbers looking healthy, or scaling before having sufficient processes in the business, can lead to short term success, but big problems later down the line.
For example, if you spend heavily on marketing but you’re acquiring at a high CAC, it’s expensive and there is lots of wastage. If you’ve figured out your marketing and acquisition strategy but you don’t have the processes in place to sustain that growth, it’s going to be expensive and energy draining to fix a broken system whilst growing quickly later on.
So overall, I would say that speed of execution is critical, but make sure you approach it in a focused way and understand what’s important for the stage your business is in now. The earlier the business, the more you need to focus on getting that first revenue in. Then think about how you can tweak your model so it will make sense in the long term. And finally, spend a bit of time cleaning up your backyard before you think about increasing your scale because once you start to grow, you don’t want anything slowing you down.
About the author
Edwin Onggo is the Founder and CEO of GiggedIn. He was profiled by Dynamic Business in Rock out with GiggedIn’s Edwin Onggo: the Sydneysider driving a live music revolution.