There are many popular ways to decide on the future of your business. Among those are the idea that you should run it so that you and your people ar
There are many popular ways to decide on the future of your business. Among those are the idea that you should run it so that you and your people are passionate about what you do every day or that your company serves a vital cause that will change the world and improve the lives of its customers, employees, and communities.
Since people find these ideas emotionally engaging, they can help attract others to help your business succeed. But if they are like most people, they have bills to pay and they are taking a risk by investing their money and time in your company. And that’s why you need to recognize that they want you to manage it as an investment which will give them a good return.
What does that mean? As a startup investor, I’ve given the question considerable thought — I went so far as to interview about 180 founders and dozens of venture capitalists to get their perspective on this question, publishing the results in a book, Hungry Startup Strategy. In a nutshell, managing your company as an investment means doing things that boost its odds of growth while steering clear of risks that could shut it down.
Here are the five key things you should do to manage your business as an investment.
1. Identify key things must go right for the investment to pay off.
First of all, you must convince yourself and others that your company is likely to pass five specific tests:
- Its product solves a problem that customers find painful
- There are no successful companies already relieving this pain
- The market for such products is large — at least $1 billion
- Your team has the skills needed to build, sell and service the product
- You can scale from idea to at least $100 million in revenue at a 30 percent or faster annual clip (numbers you need to go public).
Simply saying those things are true about your company is not going to convince people. To do that, you have to do a considerable amount of research to create a compelling case.
For example, talk to 100 potential customers to find out whether your product would be seen as something they can’t live without; there are no competing products; and the market potential for your product tops $1 billion.
Not only that, but you must take a hard look at yourself and your team and make sure everyone on it has a track record of success in the skills needed to win customers, create a profitable business, and expand it rapidly.
2. Imagine what it would take to make those key things go wrong.
It’s hard enough to come up with a compelling case that your business is a good investment. But to win over talented employees, loyal customers, and skilled investors, you need to realize that they may not instinctively share your sunny optimism about your company’s future.
Therefore, you must be able to consider objectively the most important things that could go wrong with your plans. For example, consider questions such as these:
- Could potential customers change their mind about whether your product is truly a ‘pain-killing drug’?
- Could a rival suddenly introduce a product that competes with the one you’re developing?
- Could the market for your product be smaller than you hoped or take longer to develop?
- Could you misunderstand the skills needed to scale your idea or struggle to hire and manage such talent?
3. Estimate the odds that these things could go wrong.
Once you brainstorm all the things that could go wrong, estimate which of these risks would most damage your company’s prospects as a great investment. From there, make an informed guess — with help from industry experts — about which of these damaging risks are most likely to occur.
4. Identify how you would counteract these risks.
The next big challenge you ought to tackle is to think hard about what you’ll do to keep your company growing in spite of the most damaging risks.
Let’s say a big risk is a surprise competitive product launch. If so, do something to minimize the damage. I suggest making sure your product offers 10 times more value — e.g., customer benefits for the money — than competing products.
5. If you can’t manage the key risks, change your business.
If any of the most damaging risks would tank your company, you ought to change your business strategy to get around them.
If you do these five things well, your venture will be a good investment — making you, your employees, your customers, and your financial backers better off.
The opinions expressed here by Inc.com columnists are their own, not those of Inc.com.
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