Revenues, revenues, revenues

[nickgonios]

To all my fellow Silicon Beachers

I have been sitting on the sidelines for far too long listening to all
these great conversations on this vibrant Aussie group.

It's about time I got on share my thoughts, opinions, etc but I have
been too busy working hard (very hard) to manage 3eep's business
activities few the last few months. There have been a lot of
interesting topics and related debates about some of the more expected
items to be discussed on a group of this nature. One that has not
really been covered has been the fundamental premise around revenue
generation.

In these changing times, revenue generation (for those ventures that
are EBIT driven plays vs infrastructure) its paramount that you are
clearly focused on understanding how you are REALLY going to generate
revenues. You should not be waiting to just build a great product,
build an audience or community and then consider how revenues play a
role in your venture but should be making revenues an integral part of
how your product or service is going to add value to a small focused
group of your target market. Too many people I have seen have been
treating this area of their business on the side and believe they will
deal with it at the appropriate time. From an investors' perspective,
the sooner you can demonstrate a microcosm of audience/community usage
and some form of financial value is exchanged to both this group and
your venture as a "closed loop" the better!

In today's market and conditions, I am strongly recommending this to
all entrepreneurs that I speak with. For some this is not a natural
ability because they are either web development, designers, product
oriented and selling (or understanding how to commercialise) their
venture comes second or left to those "commercial/bus dev guys" that
they plan to hire later. Sorry but a big no no for me.

Put simply, demonstrate a "microcosm of commercial value" and your are
on the 1st step of business success!


Nick Gonios
3eep

[Mark Neely]

Nick,

Good to see you popping your head up again!

I just finished an interesting project working with a client to review +
revise their online B2B + B2C strategy. In putting together the final
documentation, I had to crystalise a lot of meetings, discussions + thinking
into (too) few pages, but that process generated some gems, which I wanted
to share here (I'll be blogging about them shortly).

Gem 1. To establish and maintain distinctive strategic positioning, a
company must start with the right goal: superior long-term return on
investment. It is not about having the best technology, or the most creative
or innovative employees, the hottest idea or the most users. These
attributes represent only part of the bigger picture of what is required to
successfully compete.

As Nick points out, generating revenue (a very uncomplicated and 'hard'
metric for demonstrating ROI) is a key requirement. But revenue is also only
part of the picture. The true measure is margin. Chasing revenue for the
sake of revenue can be extremely detrimental (I call it the 'myth of market
share'). What really matters is how much of that revenue represents profit
(i.e. nett of fixed and variable costs).

Gem 2. There are lots of different viewpoints when it comes to describing
what strategy is, and how it is developed (any day now I am waiting to see
the latest guru lob a book into the New York Times best-seller list on how
to develop strategy using chicken entrails...). But, at its simplest,
strategy boils down to this: strategy is the process of taking informed
action to achieve a specific vision or overarching objective for a business
enterprise.

Gem 3. Technology isn't strategy. Technology cannot, in and of itself,
generate sustainable competitive advantage (it is too easily imitated).
Technology is *only* an enabler of strategy. It can, however, be used to
generate unique insight into the different types (segments) of consumers for
your product/service, and what those segments want from your products or
services.

Gem 4. The value a company creates is measured by the amount purchasers are
willing to pay for a product/service. A business is profitable if the value
it creates exceeds the cost of producing the product or performing the
service. The key to extracting a premium price (i.e. higher margin) is
maximising the perceived value of its product/service in the eyes of
purchasers (i.e. implementing technology-driven customer insight around what
your customers 'value' most in your product/service).

Food for discussion, I hope.

Regards,

Mark

-----
Mark Neely
Master Strategist
Infolution Pty Ltd
'Beyond Strategy. Leading Change'

e: m...@infolution.com.au
m: +61 (0)412 0417 29
skype: mark.neely

Read my blogs --> www.infolution.com.au
www.neelyready.com
Connect on LinkedIn --> www.linkedin.com/in/markneely

[Elias Bizannes]

Great words Gents. 

A few thoughts to add

- "Technology should never drive strategy". At my firm (PwC) this was hammered into me when I rolled out a technology in my capacity as an intrapreneur. At first I questioned why these hardened innovators in management watching over me would say this. And in part, I have come to accept it because it's like building something because it's the latest, prettiest thing. (That's wrong.) 

But I think something can be said about that the other way, and that is marrying it up with the other discussion we had, about evolving your product[1]. As you will read in a post I wrote [2], I'm convinced of the power of the unexpected. You need to drop a technology onto a userbase, and let them experiment an evolve. Give them the potential to do something - things you never thought they needed - and watch them take to it. Technology can help drive innovation through (accidental) imagination, which in turn can drive strategy. 

I suppose I wish to add to the wisdom that technology should not drive strategy, that you should build technology that is flexible - as the users will evolve it and help you modify your strategy. Think of Twitters text box or a wiki's free text to add macros - the freedom for the user to write what they want enables them to create new uses of the technology. For example, users putting @ turned twitter from a presence/status type technology to a new form of communication.

- Margin. This is a great point. That's exacty how my firm operates - we monitor margin on projects, and get evaluated on that. The way to think of margin, is how much additional cash do you get to contribute to the bottom line.

So say you sell widgets for $100; they cost $49 in variable costs. Therefore, you now have $51 that you can contribute to your overheads - things that indirectly help the production of the widgets (like management costs, rent to house the engineers, etc). When you evaluate your customers and perform a Customer Profitability Analysis, you should be ranking your customers in priority on who generates the better margin. This is how we make decisions about what clients we take on - we might make $500k more on a big name client, but we might choose against it because it will mean a reduced margin, eating up our resources & talent for potentially better margin jobs. Similarly, when you are building features for your service, prioritise them to suit the customers that generate the most margin for you. For most startups, that simply means revenue, but once you get off the start-up blocks and into growth mode, you need to start getting picky because we all have finite resources...and once again, all economics is is the study about the efficient allocation of resources  :)

[1] 

http://groups.google.com/group/silicon-beach-australia/browse_thread/thread/b9d53c99ca988026

[2] 

http://liako.biz/2007/12/search-email-and-wikis-are-the-catalyst-for-innovation/

--
Elias Bizannes
http://liako.biz

[Elias Bizannes]

http://blogs.theaustralian.news.com.au/wiresandlights/index.php/australian-it/comments/technology_isnt_strategy/

Who needs a blog, when you can get trained journalists to pick the
best bits from multiple posts on this mailing list :)

On Oct 25, 12:05 pm, "Elias Bizannes" <elias.bizan...@gmail.com>
wrote:

> [1]http://groups.google.com/group/silicon-beach-australia/browse_thread/...
>
> [2] <http://liako.biz/2007/12/search-email-and-wikis-are-the-catalyst-for-...>http://liako.biz/2007/12/search-email-and-wikis-are-the-catalyst-for-...