Startup and small business operations and efficiency
“Startup” is this weird phrase that means lots of different things. For me, one of the things that it means is really internalizing a couple of different concepts.
One is the Lean Startup, which has lots of baggage associated with it today, but at its core there is the Build - Measure - Learn loop.
You start with a hypothesis (another key concept), like “adding an ecommerce channel will lead to more sales”, and then you build the minimal version of that that you can, measure the results, and learn from that.
Did you make a Return on Investment (ROI) of your time / money / interest? Does it look promising, but you need to build a more complete store or have a person dedicated to running it? Did you learn that you don’t enjoy the process of figuring out an ecommerce app and online marketing, but want to have someone else do it as part of your business?
I also associate efficiency with my version of startup. This efficiency can come from:
- “operationalizing” or “productizing” parts of your business so that you understand what runs your business, what the steps are, and how you might apply the next two concepts
- using digital workflows and automation
- outsourcing parts of your business / workflows so people can focus on what they like to do, are good at, or simply make more money by working on their core
Types of Startups
I’m going to write down some thoughts and definitions on kinds of businesses below.
A venture startup is a business that can grow (or “scale”) to a very large revenue over time. The classic number is, can your business get to $100M in annual revenue in 5 years?
The other line you’ll hear a lot at the beginning of a venture startup is “do things that don’t scale”.
You don’t know what the most valuable parts of the business will be, so you are optimizing for learning and insights from your customers rather than efficiency.
The term “bootstrapping” refers to not taking outside investment to get started. This usually means the person starting the company has personal savings to cover cost of living for themselves, and the ability to invest in what is needed to start a business.
There is a certain amount of antagonism and disdain from “bootstrappers” for those companies that take investment. But, at a certain point, if you know that $1 into the business can make $1.25, then taking investment can be one way to really grow the business.
There are a number of emerging forms of capital investment now available, such as IndieVC style investments or revenue financing, that can really work for “bootstrap” businesses.
This category has grown a lot larger lately, because many forms of Software-as-a-Service (SaaS) businesses can be run by a much smaller number of people – eg a single founder, or a small 2-3 person team – and thus don’t need outside investment to grow to be quite profitable.
SaaS is called out particularly, as a “scalable” business model where you can sell recurring software subscriptions on a monthly or yearly basis, rather than constantly finding new customers.
Simple SaaS Example
Let’s say you have a team of 3 people, and you initially want to make $80K each in annual salary, which would be $240K. We’ll add a healthy buffer of operations, expenses, and overhead of $60K annually, so that’s $300K in Annual Recurring Revenue (ARR)
That would mean you’re aiming for $25K Monthly Recurring Revenue (MRR):
- With $100 monthly plans, you need 250 paying customers
- With $25 monthly plans, you need 1000 paying customers
Of course, you could start by earning half as much, cut your expenses in half, and with $100 plans you’d only need 125 paying customers, which seems achievable.
As well, growing this business to add more paying customers doesn’t incur dramatically more costs, so we say it’s “scalable”.
The small business we usually think of is usually a physical store with only one location, in a local area.
Mostly, it also means that the business can’t grow without adding more people. It uses a lot of people time, so can’t grow without adding more people, and each person needs to get paid.
So, it doesn’t “scale” as well as businesses that can have form of non-people-hour-based revenue, especially if it is recurring.
Consulting companies of all kinds, whether a software development shop or an accountant, are usually small businesses. They can still look to “productize” their business, to not just sell hours, but to sell value, and to optimize how they build what they sell.
A software development shop might have a flat rate prototype that they get better and building and following the same process, so over time it takes them less hours to deliver a higher quality output.
A software development shop might sell hosting, maintenance, or support hours on retainer over time, meaning steady, recurring cash flow that can be delivered in a more standard way, often with more junior staff, so it’s less expensive for them to provide the service.
An accountant might sell a monthly or annual package that includes everything that you need, again using efficiency and optimization to deliver accounting and book-keeping services at scale.
Outside of more digital or knowledge based areas, subscription boxes or memberships can work for all kinds of businesses.
- Angel vs VC
- IndieVC-style investment
- Revenue Financing
- Future of Venture
All businesses, companies, and ideas get started somewhere, and over time have various setup and improvement needs.
I say over time as well, because changes in the business – either a growth in the size of the business, adding more people, or trying out new ideas – will need new things to get started.
These are a set of recommendations of tools, generally aimed at the “just getting started”.
TODO: write up “spend $0 or $5K on a website”
General Workflow / Data Tools
Email, Support, & Shared Communications
LINK: Email is a team sport
- TODO: Using Discourse Forum & Discord Chat for Company and Community
- Outline Wiki
- Dropbox Paper
TODO: write down a couple of different options, esp. venture startup vs. small business
- Stripe Atlas
- Startup Lawyers
- Small Business Lawyers
- Founder Vesting aka “Reverse Vesting”
Banking, Finance, and Accounting
SMB / consulting finance vs. Startup finance
Budget / Cash Flow / Use of Proceeds Worksheet template
User Model / Business Model Worksheet template
International Payments and Transfers
TransferWise will give you the best foreign exchange rates and also will give you USD, GBP, EUR bank accounts (amongst others) that you can accept money into from others.
Plooto can make or request payments through direct withdrawal / deposit. Useful for larger dollar amounts inside of Canada and internationally. Will connect directly into Xero for paying bills and sending invoices.
Neither of those two can support sending funds to Brazil. Payoneer can make personal and business accounts that can send and receive Brazilian Real (BRL).
Having a Paypal business account is generally useful, as you can then link it to your bank account and pay some recurring or one-time bills through there. Especially useful if you have a low limit on your business credit card, as is often the case with startups in Canada (e.g. I currently have $5000CAD limit shared across two founder cards).