Page 139 - 6 Secrets to Startup Success

118 6 SECRETS TO STARTUP SUCCESS

per night, or the owner can streamline the processes for seating cus-
tomers, serving them, and taking their payments. The more customers
she can serve in a given space and time, the greater the velocity and,
therefore, the greater her “return on dinner.”

Any founder can use R = M × V as a framework for thinking about
how to increase profits and grow his or her business. How can you utilize
these two big levers for making money? How can you improve your margins?
Do you have any upward flexibility on price? Can you reduce your cost of sales,
your cost of delivery, or your fixed cost base? How can you increase your velocity?
How do you increase sales volume? Generate repeat purchases? Deliver your
product or service more efficiently to clear the way for new sales? How can you
“turn your tables” more quickly?

Note that margin and velocity are both tied to market realities.
They both depend on the fit between your offering and customer de-
mand for it. The price your customers will pay for your offering is a
function of how well you are solving a core problem for them. And
the world’s greatest strategy for quickly turning tables won’t matter if
enough customers don’t show up.

Also, nearly every entrepreneur encounters tradeoffs between
margin and velocity. Actions taken to increase your margins can lead
to reductions in sales volume. Alternatively, pumping up sales might
call for tactics that cut into profits. The key is to understand how the
two factors interact within your particular business model, and use this
knowledge to optimize the relationship and any tradeoffs between the
two.

BUILDING PRO FORMA FINANCIAL PROJECTIONS – At the heart of your
math story are projections that trace the expected economic path of
your startup over a specified future period. Pro forma is Latin for “ac-
cording to form,” and these forecasts lay out your trajectory if all goes
as planned. In addition to a standard profit and loss (P&L) pro forma,
showing expected revenues, expenses, and bottom line results over
the first few years, you also want to do cash flow and balance sheet
projections. For prospective investors and bankers, you typically need
to provide monthly projections for year one and annual projections
through at least three years.

American Management Association • www.amanet.org