1. Profit Margin It’s easy to work out whether or not your business has profit margin, or to at least estimate it early on. Imagine not being involved in your business at all—everything the customer experiences gets handled by a team of people or systems. How much does it cost you to keep that customer and how much revenue do they generate?
The actual, acceptable percentage will depend on a lot of things, but obviously you have to be making more than it’s costing you to service each customer. For our services startup I decided a reasonable figure was double. That is: half of our revenue is costs, half is profit, so I’d have a 50% margin. If it costs $50 / month to service a customer, I would price the service at $100.
I solved this problem by cutting out 99% of what I offered and only offering a service that I knew affordable contractors could excel at it. This enabled me to have an acceptable margin in the business of around 50%.
2. Large Market I’m not into niches. I want to make sure whatever I start could be a $1,000,000 business in a few years, ideally more. I hope you are the same. If you want something that grows, it has to have something to grow into, and the last thing you want is to kill your momentum by hitting a ceiling. I’ve mentioned serving a large market previously, but since it’s such a big growth inhibitor, it bears repeating here.
3. Asset Building When I sold my business, I learned that project clients were worth very little. The website and the recurring clients were transferable assets. The historical revenue from project work wasn’t worth much at all.
4. Simple Business Model Having a simple product and a simple value proposition makes everything else easier. From elevator pitches to growth tracking to hiring—the more complex a model, the harder it is to know when things are going well. If you can’t measure it, you can’t manage it.
5. Recurring or Predictable Revenue Having a simple MRR model makes everything easier. There are other benefits like predictable revenue, simple metrics, simple goals, easy-to-see growth/growth sources, easy resourcing/scaling, and constant sources of motivation. A year in and I am still manually updating the MRR on a daily basis and giving my team members virtual high-fives.
The 7 Day Startup: You Don't Learn Until You Launch