Early Revenue and Profits (Even Small) are Important

by Mason Myers, general partner of Greybull Stewardship business investment fund

Big winners in technology often seemed to ignore revenue for a long time. Just focus on the product and the rest will follow is the religion of Silicon Valley. Google waited a long time before finding the auction model on search. The conventional wisdom on Facebook is that they didn’t focus on revenue forever. (Although I know an early ad sales person at Facebook, and they were trying to generate ad sales even when Zuckerberg was still in Boston.) Instagram sold for $1 billion with no revenue. Pinterest could care less about revenue, even now.

That may be fine for them, just like it is fine for Lebron James to not worry about scoring points in the first quarter. Everyone knows that Lebron and Pinterest can score points when they are ready.

For the rest of us, there is another philosophy that you should consider when starting your venture. Two excellent thinkers about business growth suggest driving to revenue, profit, and customers quickly (even if small). These are ideas from Clayton Christensen of the Harvard Business School and author and consultant Ram Charan.

In Christensen’s class at Harvard, he taught that large companies often wait for large business growth projects with large profit potential and then make large investments that take a while to prove their return. A better way, he said, is for even large companies to require business growth projects to drive quickly to profits, even if very small.  This kept the focus on creating value and proving the concept before too much money was invested in a losing proposition.

Similarly, Ram Charan in his book Profitable Growth is Everyone’s Business suggests that every business growth project have a deadline to obtain a commitment from a customer within one hundred days. As he writes, “The one-hundred-day deadline is vital, because it forces everyone to immediately confront issues that can keep the team from succeeding…You do the best you can in the time available, you take what you have, a very rough prototype, and test it with customers.”

Small business growth projects with early revenue are valuable for many reasons:

  • Revenue can be early proof of a concept.
  • Even small projects may be able to be used elsewhere in the organization to increase their impact.
  • Small revenue projects can become large revenue projects.
  • Revenue can build upon itself from year-to-year, compounding the impact.

This reminds me of the Lean Startup concepts of prototypes that are just good enough and iterating quickly. In that case, the same concept applies toward getting engaged users rather than paying customers, but both concepts are advocating the value in launching something and beginning the give and take with the marketplace sooner rather than later.

What can you launch in 100 days that will give you data on where to take your startup?  What customers can you get within 100 days? Trying to get early revenue and profit is great discipline for startups.

Greybull Stewardship Business Investment Fund provides business financing & funding sources in support of a company’s unique growth.

 Mason Myers, general partner of Greybull Stewardship business investment fund, offers expertise on business financing & funding and business management on his business financing blog.