From being a Mentor, I've three Top Tips for Founders of innovative startups (Disruptors)

‘TOP TIP’ No. 1 Hyper-focusing on revenue (cash)

 Back in the olden days during my first startup, my Bank Manager said, ‘Turnover is vanity, profit is sanity and cash is king!’ After all my business experiences, I would modify this to, - ‘Revenue drives opportunities, profit creates possibilities and cash increases your control.’ By revenue I also mean sales.

And from bitter experience, I would add that a sale is not a sale until the cash is it your bank!

 So, my No. 1 ‘Top Tip’ is to start by being hyper-focused on generating revenue or sales. As long as you are also doing ‘Top Tip’ No. 2 constantly revisiting your business model, your profit will be under continuous review and this will drive value and contribute to your exit or fundraising (‘Top Tip No. 3).

It’s hard for me to think of revenue which is just based on a one-off sale. Most of the Founders of innovative startups I have mentored, are focused on repeatedly selling products with a service or services only.

Over the last two decades, the growth of the internet as a trading platform has enabled the emergence of digital products sold on subscription. This business model is based on build a service once and sell it many times – a ‘one to many’ delivery model. Profit increases disproportionately as sales increase. The key for these startups is to scale quickly through moving from a ‘one to one’ sales model to a ‘one to many’ sales model. Easier said than done! But, the possibility of generating profit quickly is so enticing to investors

‘TOP TIP’ No. 2 Business modelling on steroids

The noun ‘business model’ is widely used to describe the relationship between actors, systems and revenue for a business idea. However, the most important skill for Founders is the art of ‘business modelling’ (verb) – the almost continuous activity that supports the constant swivelling and pivoting needed for a business model to succeed. For me, this involves expressing a business idea as simply as possible: WHAT (proposition); WHO (people); HOW (processes); WHERE (place; WHY (profit) - together with the Drivers that require adaptation. All in the context of your market (customers) and industry (competitors).

The one thing we are certain about is change. Which means the better at business modelling Founders become the more likely they are to succeed.

I would also add, that business modelling isn’t clandestine but best done in the open with members of the entrepreneurial team contributing to the debate. And finally, remember business modelling is continuous and business models are disposable.

‘TOP TIP’ No. 3 Knowing what your EXIT looks like for potential buyers

I know this must seem a strange topic for a startup! However, knowing what your potential exit looks like from the perspective of a potential buyer (or investor) is important for two reasons.

First, I have mentored several Founders who can tell me how much they would sell for or how much investment they need. This clearly is useful but the obvious next question is how would a buyer or investor justify this value? This is much more difficult to answer but if you know what are the key indicators for value and the multiples used in your industry, then it's possible to estimate this.

For example: Gross profit x 3 or Net profit x 6. So, if your turnover is £2m at a gross margin of 30% this is 600k x 3 = £1.8m or at a net profit of 5% this is 100k x 6 = £600k. Knowing this means you can focus on this as a KPI and decide how long it will take you to achieve your desired valuation. This can be very motivational! (I acknowledge that for a few startups value might be based on turnover or even number of users – but these are the exception).

Second, running a startup focused on measuring value as perceived by potential buyers, can be very rewarding. Knowing your value is important but doesn’t mean you have to sell. In fact, running a startup that generates profit gives you more control and options. What Founder wouldn’t like this! So, know your KPIs and multiples then focus and track them.

PS Don’t forget that buyer will look to discount multiples as part of due diligence. So, run a tidy business. For example: keep on top of debtors and creditors; keep an up-to-date record of all contracts and leases, and employee records and disputes.

The Dyslexic Professor