The Gray Hair Speaketh

Advice that is largely Unsolicited..

Short term vs Long term, Constant Trickle vs Big Bang, Product vs Service: It is an Attitude Choice, more than anything else!

Besides the variety of other differences that one may find in business plans and business models, one crucial difference between business plans is what I am discussing here.

I come across business plans that involve a few years of building out. Maybe it is a prototype, maybe there is R&D effort, maybe the big software piece needs to get done.

Till the point of time that this happens, there is only investment, and no revenues.

Someone needs to fund the entire effort.

Of course, the conviction in such cases usually is, that once done, the product that has been made, can be a rip-roaring success, making it worthwhile to have invested the time and the money.

But the big risk in a model of this kind is that, while one is building it out, there could be someone else also doing the exact same thing. And that they could go to market say, a few months before you are ready. And steal the thunder and the market.

OR in this period while you are building out, some fundamental inflexion point occurs, that puts the entire business model at risk. And that after, a lot of investment has already gone into building it out.

The alternative to this model of course, is something that requires lesser development time and effort, can get to market sooner, can perhaps be made in phases, so that first phase product is out, getting tested, getting validated, and perhaps earning revenues too. In a sense, there is some amount of de-risking that takes place, in the process.

The fact is that we NEED businesses with an R&D base, we need businesses that may have a long development cycle because only then, will the interesting product get born. But the validation of the model, the technology or the idea must be really strong, to justify the long time and money investment, before the product sees the light of the day.

Most importantly, the entrepreneur working on this project needs an attitude that sees such a long term vision. That sees the day-to-day progress, works with the timeline of the end delivery, keeps costs under control, and yet, is relentless in pursuit of the dream, of the big picture. Notwithstanding the fact that there are no revenues and that money is getting sunk into the project, each passing day, and the fruits will come, one day. Hopefully.

Only people with the right attitude of this kind, can nurture business models of this type.

Another scenario that this attitudinal difference can be seen is in running businesses, with a particular kind of revenue model.

There are some businesses where the revenue cycle is dependent on just a few large transactions happening in the course of the year. Say, a revenue cycle dependent on winning 3-4 large tenders in a year. In such cases, there is immense effort at the pre-sales level, often a matter of several months, in working towards a favourable closure of these revenue opportunities. And at the end of the year, getting say, 4 such deals, is a winning situation. Getting 2 deals may be break-even, getting a 3rd may mean nominal profits, and the 4th generating the large profit opportunity that the business is working towards.

For all the efforts put in the pre-sales activity, it is quite possible that ultimately, the sale does not close in your favour. WIth a binary situation of a yes or a no, in each of these large revenue opportunities, it can easily happen that there was a bad year, and one ended up with only one success.

How vulnerable is this model?!

Then again, if you are in a business of this kind, you have no choice.

Many others though might prefer, a constant trickle into their cash boxes rather than the few big-bangs.

Whether you as an entrepreneur opt for one or the other business model again depends completely on your attitude.

If you are working on the 3-4 large deals to happen in the year, can you maintain the confidence that you will get those, that you are able to fund your regular expenses even while you wait for those big deals? Can you keep investing the efforts without any sense of panic around “what if these deals don’t come in?”? That kind of attitude is required to support the business model dependent on a few large deals.

If on the other hand, you need to see the ringing of the cash box, to get comfort that ‘all is well’, you are better served doing a business model that generates regular cash, and not just the big bang large deals.

It would be a gross misfit if you were to attempt a business that gets few large deals and no cash is generated rest of the year. There is every chance that you will end up with panic very soon.

This analogy extends to the individual too. After all, the individual is akin to a proprietary business of sorts, isn’t it? Especially if you consider the professional, someone who bills for his time, on projects.

Here again, there are different kinds of professionals. Some like practising doctors or fashion designers or interior decorators, who have a “running business” and an accompanying regular inflow of revenues.

And then there could be others like film actors say (not the very top notch ones who are working three shifts, but the second notch and below ones), who work when they get a project.

Sometimes they sign on a film, which has to go to the sets in 6 months, and the earnings will really start after that. And for some reason, that start gets delayed.

Or one is just waiting for the right project. Which takes time to come in. And in the meanwhile, there is not much to do.

So again the question comes, “what if the projects do not come at all?”, “what if the project I signed up, and committed my dates to, gets delayed, and I don’t earn till it starts?”.

If one is susceptible to such insecurities, then this kind of a professional career is certainly not for that person. On the other hand, if one has adjusted to this kind of uncertainties, has prepared for the same, and has enough confidence that some or the other project WILL come by, and the incoming revenues will keep happening, that person is well suited for a career of this type.

So considering this blog is focused to startups and for startup entrepreneurs, the thought to consider is an examination of your personal attitude on these fronts.

Can you work for a big prize, wait it out for a longer duration for the same, be confident and comfortable in the waiting period, be focused to keep working towards the goal, then and only then, should you opt for a business model of that kind.

Else what you need is something that can go to market fast, start generating revenues fast, and keep funding your cash flows, as well as soothing your nerves!!

What do you say??

Advertisements

November 25, 2012 Posted by | Business Model, Startup | , , , , , | Leave a comment