When you suddenly realize that all your money was wasted on expensive furniture and renting a luxury work space, the feeling won’t be nice.
Let me tell you how to avoid this feeling, as an investor and what best practices entrepreneur should follow to make their startup attractive for investors.
My journey started not as an entrepreneur, but as a investor and my first deal was bad one, which forced me to go deep in businesses psychology and systems.
I save time so that I can waste it, I am lazy and love doing only the minimum that can bring me best results qualitatively and quantitatively.
So I came to this simple business term.
Business = selling something for more than you have paid for it. (simple plus minus)
Yes, if you will ask me what is a business I will simply answer that, but if this is so simple then why every business is not a success.
The big reason is ignorance of business education, in the urge of starting a company we don’t want to even learn the basics of business. I am guilty of this myself.
If you decide to learning about business, then do learn about human psychology too.
In 99.99% problems of this earth you will find a human desire at it’s source, sometimes customers won’t like what you provide or employees will leave you hanging in the middle.
But that is the topic for another day.
I want to share very raw basic, concrete concepts to consider and don’t worry they are more than plus minus.
Most investor and employees have this question when to join a startup? Here is a break down.
As a investor you should consider these 5 things to evaluate startup. Ask question related to these 5 things.
If you want to start a strong business, these 5 things will help you check and judge your actions. All your effort should be spent on these 5 things for first 2-3 years.
When you see these 5 things implemented right, its time to join the start up and when you see these five things messing up its time to leave the start up.
Five essentials of a startup
Your business needs to create or provide something of value. The more value you provide the more you charge.
When you fulfill a desire or a need, you are creating value, but which type of value to create.
Either create something which you customer really need, but I think all those markets must have been already taken.
Other than that you can create something which then latter becomes people’s need (social sites is great example)
But if you want to still enter into a competitive market, then you and your competitor will keep reducing prices till one goes out of business.
Reducing prices is not the way to go, So what you do?
Rather than reducing prices try to add value, add something more which doesn’t add up cost to your production.
If you have to add cost, then increase prices and justify your prices with values you provide to your customer.
A guy was fishing, he added a cookie (because he liked cookies) to it’s fishing hook, He waited a long time but had no fish in the end of the day.
Now a guy like me (ego boosted yeah) suggested that you should put something that fishes in that pond might like, so he grabbed few insect and got much better results, but not what he desired.
He move to new pond but things got worst, no fish at all.
He went to the same guy.
He suggested that you should try three four different types of insects and use the one which is most preferred by the fishes in that pond because fishes in that pond are different.
In the end the guy found a magical insect which was rich in protein and fishes of that pond loved it, hence he was able to catch so many fishes then he ever could with his beloved cookie.
The moral of the story is that you should make sure that your audience is good for the product and your product is what they need.
Cookie is not a bad option if you want to catch squirrels or ants.
Understand which type of customer you want based on the product or understand the need of the customer and build a product.
So let’s stay on the same story as it will help us understand this point too.
Now suppose you are selling the insects and you set the price for the insect which is liked by fishes to $1000000 will it be worth while for fisherman to buy this insect?
At that price the man can import fishes from some other place, so you have to set the highest price which your customers are happily willing to pay.
You have to understand how much value you are adding to their life and what is the highest amount they can pay for it, so that they feel satisfied.
If you want to sell a software to a company which will help them earn 1 million for 5 years then pricing your software at 75 thousand dollar can be justified.
Pricing is a very complex topic as it has a direct impact on the psychology of your customer. So I will discuss it, On how to price for product and service post.
For now just understand if you want to increase price make sure you have value to justify price increase.
After this you need to take care of
All the above factors and their experience with you will effect customer’s rate of return.
All the interacting points will be an experience and the more senses you please the better the experience. (just don’t be noughty)
If you have a shop, then it’s looks, color, aroma, feeling and your behavior will affect the customer rate of return.
So, find all the steps which a customer has to make to buy your product and remove the ones which are unnecessary and start improving the ones that they have to follow.
Even small things can become your competitive advantage.
Me and my friend went to buy clothes, so this guy was showing all the cool t-shirts and my friend asked “show me that one” the other guy replied that won’t fit you sir.
Later we ended up buying nothing and I asked my friend what happened. He said I wanted to see the design of that shirt, I don’t give a damm if it fits me or not.
I was standing confused, like he could have said that right there, but what I know everyone has it’s own way.
But yeah my friend is a rich one and love buying clothes and that shop just missed an opportunity.
You did all that I mentioned above but in the end made a loss on the deal, then all of the above is worthless. You won’t be able to continue to provide value to your customers because your operations will be closed.
Make sure to keep your organisation above the break even point, the further you are from the break even point, the more flexibility you will have in terms of testing new strategy, hiring new employees, machinery and testing new systems.
Profits are the only thing which keeps an organisation going.
Now you have learned something new to help you make better decisions.
Bonus tip: Don’t try to make business complicated, choose your key metrics to track and keep improving them.