Startups everywhere are crashing with the economy, while others are thriving. Big changes always create opportunities, and you can use the lockdown to position yourself to raise funds when we all emerge from our homes.
There’s money out there waiting for a home. And you can always raise funds if your startup’s value is big enough based on the size of its future revenue stream, and limited by risk.
Here are five ways to increase your future revenue and reduce risk.
Increase your target market size
Find new markets for your product by looking at new countries, regions, industry sectors and segments.
Check out if there are similar market needs in other countries or whether they have different problems that can be solved by your product or offering.
Look for different problems in the same market sector or similar problems in adjacent sectors.
Can your new medical device also be used in animal health? Can your solution for the wine industry solve a similar problem for carbonated beverage manufacturers?
Have you looked at the very large emerging markets in Asia?
Increase the size of your accessible market by engaging new channel partners. If your business is focused on B2C, can you open up a B2B channel, or vice versa?
Find a better business model
Can you change from sales to a rental or subscription model? Netflix started with a mail-order DVD rental model, but then changed to unlimited online streaming for a fixed monthly subscription. In doing so, it dramatically increased the size of its accessible market.
Try reconfiguring your product to the ‘razor/razorblade model’ with a loss leader product but high recurring revenue from the consumable.
But don’t limit the ‘consumable’ to materials like printer refills. It can also be data, an online transaction cost or enabling subscription.
And by making your consumable recyclable or delivered online, you can reduce landfill and contribute to the welfare of the planet.
Map the value stream and find the hidden value in the supply and distribution chains. Can you leapfrog parts of the value stream or change your distribution model to capture a bigger margin?
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Look for players in the value chain that can use your data to make better decisions to increase their revenue or cut costs. Can you find markets for derivative products that will have higher margins?
Find a higher value market
When your dog gets tested at the vet the margin on that test is much higher than when you get a blood test. Same test, higher value market.
Did you know an RFID reader in the security sector has a higher margin than in agriculture? By finding a higher value market for your product or technology you can both increase the size of your market and the size of your revenue stream.
Quantify the size of the problem you’re solving for your customers. High-labour-cost countries such as Europe or Japan can pay a higher price for the product for the same benefit. Investigate markets and industries that have high input costs.
Search for smaller niche markets that have high margins that could form your launch target market and pitch that to investors. That way, investors will see you’re not only focusing the business on a high-value target, but you also have a sound launch strategy.
Reduce market risk
Do more market validation from the couch that can demonstrate market traction. Traction shows what the size of the revenue stream could be once it’s scaled up, and whether you’re a safe bet.
But what if you don’t have a product ready for sale to test the market? See if you can get some pre-orders for the product and consider a crowdfunding project. It may be a poor way to fund your startup, but it can be a great way to get in-depth market validation, and you can run it from home.
Right now people are sitting around looking for things to do, so call them up and ask the questions you need to find and validate new markets.
Consider borrowing traction by using the past history of other companies or products. What were the fastest and slowest sale growth rates for successful companies? Their products may have been different but the principles are timeless and transferrable.
Reduce execution risk
SpaceX’s Starhopper recently took off, moved sideways and landed again safely. Sure, it’s still got another 100 million miles to go before it gets to Mars but this small step provides both confidence to the engineers and risk reduction for investors.
Think about how you can demonstrate operation with a real user even if the product is a mock-up and you’ve got monkeys pulling strings behind the counter. Make a dummy user interface using PowerPoint that looks and feels like the real thing. Seeing, touching and feeling is a thousand times more convincing than a verbal description. Solve a technical problem or fill knowledge gaps by working in collaboration with stakeholders over the phone.
Focus on anything you can do to take away a reason for investors to say no. It could mean working on your credibility, experience, passion, and delivery. And remember that any weakness can be turned into a strength, it all depends on your perspective.
In the early days of any tech startup, you’re often starved of time to think, and to do the hard work needed to raise funds. But with the stay at home order, you can do a lot of research and market validation on the couch with Google, a phone, and time. You can still buy coffee, and contemplation is free.
When the lockdown is over and investors re-appear, pitch yourself as someone who has used the time to build a business and present a better deal than the fifty other deals they’ll see that month.