Tuesday, 10 January 2012

4 Things to Help Keep Your Business Fit for Purpose

There are a number of things we can learn from observing the ways that VCs (Venture Capitalists) and angel investors manage the relationship with their protégés. Chris Hudson, writing in '4 Things to Put In Your Monthly Update to Investors' isolates a few gems from the world of venture capitalism.

The article itself is well worth a read, but it also offers some controls that any start-up would be advised to consider implementing.

Control #1 : Cash

Investors need to know if the fledgling business has enough cash. Not necessarily to give them more (after all, even Steve Jobs, after investing in NeXT, had to face the reality of cuts in expenses) but to find out how healthy the company is.

Cash is important - it lets you do business on a day-to-day basis, gives you a buffer for unexpected bills, and is the lifeblood of your company. Keeping a constant check on the cash position, and recognizing the danger signs of running dry will help you manage your business more effectively.

There are always options when the inevitable happens - cut costs, sell stock or other assets, ask the bank for an extension to any existing loans or overdrafts, go on a fundraising drive, offer the employees shares in return for an investment : the list is almost endless.

Of course, there may be an underlying reason for the diminishing cash position, and part of that may be that the product or service just isn't popular.

Control #2 : The Target Market

The initial strategy may no longer be appropriate to the target market. The target market may not even exist any more. It's important to always adjust and refine the strategy and approach to the target market depending on how that market evolves.

PayPal, for example, started out as a device to device payment method, but evolved into a person to person web based payments provider over time. The target market wasn't big enough to support the investment, but the new market was crying out for their services, and the technology was much the same.

Following the changes in the market will often lead to some critical decisions. Key among those its likely to be related to staffing or team membership.

Control #3 : Corporate Structure

People drive companies, and nowhere is this truer than in a start-up. Many, if not most, start-ups exist purely on the drive of the individuals to create something from nothing. Without that drive, the company ceases to perform.

That's part of the reason that Apple re-hired Steve Jobs, why Google remains at the forefront of the Internet, and, in my opinion, at least, why most companies fail. They lose the people who have the drive.

So, as much as the money and the market will affect the direction that the start-up takes, the people involved in it will also affect the products and services that are created for that market.

New people often bring new ideas. People who leave inevitably take their ideas with them. Both of these need to be monitored, and measured against the performance of the company.

Control #4 : Metrics

I don't like the term KPI (Key Performance Indicator) as it seems to indicate a lack of flexibility. My own take on KPIs is that everything must be measured, and the resulting metrics need to be analyzed in order to determine:

  • exploitation of existing opportunities
  • new and emerging opportunities
  • decline of current opportunities

Measurement needs to be easy to do, and easy to analyze. If it's hard it won't be done well, or indeed at all, in a timely fashion. Sales, leads, profits per customer, repeat sales levels, and so on, are all easy metrics to measure, track and analyze.

They show the health of the company, and whether the core business is working. Each company will also find things to measure outside the health of the company, which covers the market - trends and competitors movements being some of the easiest to track - and helps to isolate new opportunities.

So, these four areas, derived from how Chris Hudson describes communication between investors and start-ups, ought to help you keep focus, and makr your business a success.

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