Failure, quick iteration and optimization is part of the formula for success of startups, but this will only work if you test critical points of your startup.
The first premise for startups is initially pure survival, before any growth or profit is targeted. This requires developing a business model that enables profitable growth. Through profiling (your customer), prototyping (your offer) and sourcing (your value chain), you have already worked out three essential building blocks for a functioning business model. The scaling is now to ensure that your earnings model has profitable unit economics. Only then you can start executing with your team and additional employees and start funding for sustainable as well as profitable growth, thus completing your business model.
»From my point of view, there are four key factors why startups fail: First, the idea and the business model do not fit the market. Second, the core team shows weaknesses in implementation and scaling and develops differences among each other. Third, the execution of a business model is not done systematically and consistently enough. Fourth, the financial means are not sufficient to fund solid growth. «
Alexander Kudlich, Rocket Internet
Criteria for growth
For growth, you need to make strategic decisions that depend on the nature of your business model and the market. In a market with a very limited number of customers, as in a B2B niche market, it may make sense to first focus on the retention of a few companies and understand those that have churned. Hence, you will increase dependency with fewer customers but also Customer (Account) Lifetime Value (C(A)LV). Having built a well-tested product with these customers, you turn the switch towards growth. Otherwise, you would entrap the “few” existing customers. However, if you are in a B2C market that has a “winner-takes-it-all” character and low entry barriers for potential competitors, you need to ignite the turbo as fast as possible.
Growth through the right yield model
If you have created an offer that is “sticky” and was accepted by the market, then it is now time to increase your own sales. After all, liquidity gained through sales is the best and cheapest form of growth financing. You do not pay interest, nor do you have to sacrifice shares for that cash flow. But how do you increase your own sales? First, you can develop your business model with different revenue models. From freemium to product-to-service, subscription and mass customization, pay-per-use and cross-selling. On the other hand, you can define customers who have the same and valuable qualities through targeted customer segmentation and cohort analysis. Are there specific customer groups that are more profitable, that last longer, and are cheaper to acquire?
Learn more about the eighteenth module “Performance” of the Startup Navigator in the handbook.