The number one goal for businesses, in general, is to generate profits. When a business fails to earn profit, then it is a failing business. Interestingly, at some startups, making money is not a priority. In fact, many startups get acquired or go public even after years of not having ever made a profit. While this might sound like a wonder, it should be noted that a grow-big approach like this might not be viable for self-funded startups, unless they are making enough money to continuously fuel growth.
Regardless of how business leaders choose to build their venture, generating a positive return on investment (ROI) in startups is a guiding metric for every business. ROI serves as a key performance indicator (KPI) that is often used by businesses to determine the profitability of an expenditure. Having ROI in place helps measure success over time and take the guesswork out of making future business decisions. Therefore, although startups do not prioritise profits, ROI remains an important metric to help the business grow.
Investing in ROI allows business leaders to plan their execution and prepare for the next stages in regards to resources available. For instance, as an entrepreneur, if you realise your funds can only help your startup run for one year under conservative assumptions such as not generating any revenue, then you know you should start fundraising as soon you go to market.
Financial executive Larry Fink once said, “Companies that fulfill their purpose and responsibilities to stakeholders reap rewards over the long-term. Companies that ignore them stumble and fail”. This is to say that for startups to grow big, they have to fulfill their responsibility to stakeholders, including their startup team, investors, and customers. And one way to serve this responsibility is by achieving efficient ROI.
See also: Business Matchmaking & Partnership in Startup
Below, Startup Jobs Asia shares on how to do just that:
Focus and balance innovation and efficiencies
Innovation refers to ideas, creativity, the use of different channels to improve user experience and/or employee experience. Innovation should be continuously improved along the growth of startups. Without innovation, the ROI of any existing campaigns might quickly level out and eventually peter out.
Meanwhile, efficiency comes from driving ROI through cost per lead, cost per visitor, cost per transaction, increased open rates, click throughs, etc. Efficiency work along with marketing strategy.
Have a team who want to constantly improve themselves
Startup pace is faster than those of big companies. In mature businesses, they can hire and provide a team for employee development and training. Meanwhile, startups might need to struggle to level up. Hence, recruiting teams who want to constantly improve is important. This does not mean you should not provide training to employees. This only means the better people want to improve from inside, the easier for your startup to manage.
In addition, to really engage your employees, you should focus on helping them improve at work, as well as offering extra development materials or advice, responsibility and increased autonomy. If anything, successful teams are those who lift each other.
Document the process
Angel investor Bill Trenchard noted, “The startup that I have seen succeed the most at scaling are the ones who have systematised their common actions and core procedures early, and made a habit of it as they grew.”
This means that if you want your businesses to succeed, you should keep track of the processes. Only then, you can learn which strategies fail and which ones succeed – in hope to not repeat the same mistake. One route of efficiency is to not do the same thing twice.
Divine your goal and do the A-B testing
Entrepreneur Abdo Riani suggested that when you set your expected ROI, it is better to divide it into three mini goals: expected return, good return, and exceptional return.
- Expected return is what your analysis shows you can accomplish with high certainty.
- Good return is when you are able to re-sell your prototype to generate enough revenue to fund the next product development.
- Exceptional return is when you are able to raise the first funding round with the same investment of your first product.
Dividing your goal helps you focus on capturing the simplest and most realistic ROI. Riani also said that this strategy phuses entrepreneurs to try to realise high returns with the same investment until making further investments to achieve higher returns.
A-B testing helps increase your efficiency. Do not rely too much on product development without knowing the true consumer’s wants. It will just likely waste your time and money. Data is a more reliable indicator of how your customers actually behave. Afterall, it is customers who will consume your products and they are also your source of profits.
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