Repeat Vs New Business

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During the initial stage of your business, you will concentrate only on revenue. Later this will move to profitability. But once you reach a stage of a steady stream of revenue with profitability you will start slicing and dicing the revenue. This is when you will first concentrate on the share of revenue from repeat business.

New business gives room to your growth acceleration. But repeat business gives the stability to your business.

Take, for example, if your total revenue is 10M and if you have a track record of having 4M as your repeat business from year after year then you should never reduce your yearly target as 6M new businesses. You should again keep 10M as the target for the year from New Business.

This will give a huge growth acceleration and out of my experience, I will say that you should concentrate to have your operational cost within the repeat business revenue and should use the revenue from new business in venturing out new ideas or expansion.

Apart from the revenue part, there are also other important key factors we can get from our repeat business.

1. Strategy

Repeat business is the best contributor to design the growth strategy of your company. You can get an in-depth vision on analyzing the data of the repeat business in terms of Technology, Customer Satisfaction, and common need of these customers so that even with a very small tweak you can do magically positive changes to your business.

2. Understanding about the work culture difference

This has proved to be the most important factor in any success or failure of the relationship.

It will take time for the customer to understand your work culture and the same way for you to understand the work culture of the client. I have seen many business relationships fails during the trial project or after the first project itself.

It will take its own sweet time to understand both sides and particularly if it is offshoring then it will take much longer time than near-shoring. Once you both cross this chasm then it will save a lot of time in the execution of the project.

3. Best Practices

Even if you have a defined business practice for your company, because of the repeat customers and businesses it will be easy for you to adopt a different practice with different clients. This is initially not possible for new customers as it may sometimes hurt the relationship itself.

How can you increase your repeat business?

It is not an easy task or a quick task to be accomplished. To understand this you should understand as when you will call your business a successful one or not.

The best answer I can say is the quote of Ilya Lichtenstein “it usually takes at least 5 years to build a company to exit or profitability. They’re built piece by piece, making one user or customer at a time, getting to the next milestone and waiting for the next major opportunity to reveal itself”

What is the right percentage to have repeat customer or revenue?

It is practically true that you have to run a business for 5 years to take a call whether it is a profitable one or not. Until then you have to struggle and put in your best possible efforts to accomplish the task of running it.

There is no exact percentage to be capped for this. But the industry norm is to be between 25-50%.

If we have to take a call at the end of 5 years then you should be getting between 5-10% of your revenue from repeat business or at least at the end of the third year your repeat revenue should be above 25%.

If you are able to cross 50% in the 5th years, then you are very well placed in the market for the next 3 -5 years minimum on profitability. If this task is achieved then your concentration should be focussed on New Business with 30% growth every year.

If the above is reached in a Small and Medium Business in the IT service Industry, then you will be at the employee head count of 150 in the 3-4th year, 250 at the 5-6th year and would have crossed 500 by the end of 7th year.

So concentrate on New Business for the first 2 years then Repeat Business till the 5th year and then onwards your business will accelerate exponentially as you have already started splitting the revenue between new and repeat businesses successfully.

Business Funding?

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Vision:

I have a wonderful concept for business.

Mission:

I am going for funding.

Above is the current common scenario we can see now. No need to think of your funding at the very initial stage as long as your business is unique in nature.

To build we need fund. But to run, the product should earn at the appropriate stage. If the product is not earning enough to have a smooth run, then I am sure the product is not “unique” or didn’t impress the market as your think.

Determine the purpose of raising money. If the purpose is to build the basic model of your product then you are making a mistake.

If you are not able to nail the absolute necessity for raising the money then you are again making the mistake.

You cannot go to market if you don’t have any uniqueness in your product. The market and the VCs would have seen much products of the same nature of yours and so it may neither impress the market to buy or the VCs to fund.

If you can afford then you should bootstrap and bring the first version of the product to the market. See the impression it is creating in the market and then draw the roadmap for expansion and go for funding.

Everything comes with a “price” and so is funding too. You have to determine the price you can afford to pay by getting the fund. Else your identity will be lost in front of your product.

Bootstrapping is considered the best depending upon the nature of the product you are going to build and the span it is going to take. If these are well within your limits then better to go bootstrapping.

If the supply is getting drained then work out the best way to go to market for funding. Don’t bring funding too early. Else it will absolutely get diluted early too.

Also, make sure that you are aware of the following when you are going to pitch to a potential VC.

* Understand the complete weakness of your product along with its uniqueness.

* Don’t bloat your projected revenue to an unrealistic number

* Understand your big competitors and compare yourself with them in all form and shape rather than hiding them or extrapolating yourself.

* Don’t approach every known VCs. This will dilute your business identity.

* As how the VCs evaluate the businesses to be funded the same way you should do a thorough evaluation of the VC firms too.

* Make sure that you are not pausing or using too many fillers during your prime pitching.

* Don’t do the routine presentation. Do it in a very innovative way. Your pitch and the presentation should impress the VCs at the very first instance. Else even if you go to them for many levels of discussion you will not succeed.

* The bio of your team should get sold first before your product gets. So bring in the right people with you. Else it will become the worst reason for your failure.

Two types of people who are bane of the core team!!!

IT-Boon-Bane

One good idea out of 1000s will give birth to startup. It is the fiduciary responsibility of any Founder to evaluate all the 1000s and chose the best.

Never start a business if you don’t have some knowledge about the new business you are starting. After choosing the right idea out of the 1000s, spending enough time in gathering sufficient knowledge and history about that concept should be the first stage before doing market research about the new idea or concept.

After spending all these and investing the first chunk of money, we will make our concept take off and start showing the growth.

Here is where we will form our core team to take the business further. Each member of the core team should not only work as an employee but should also consider themselves as the founding member of the company/team.

If we are able to get a core team of this virtue, I bet, there won’t be a stage of closing down the business.

This applies and plays a vital role not only in Founding any company but also on starting a new business unit on an ongoing company.

There will be differences of opinion among these core team members on concept wise along with work nature too. The duty of the person who balances these and run the show are called as “leaders”.

Two types of people

In spite of being a leader, there will be two types of people who will become the real bane of the core team by playing a spoiling game.

They are:

1. People who believe, responsibilities are to be given rather than taken, and

2. People who believe they should be the key member on all initiatives.

Both of them are the real bane of the core team. They not only spoil their roles but also spoil the morale and binding of the entire core team. Both of them will knowingly or unknowingly inject negative thoughts into the mind of everyone around them.

How to identify them?

It is one of the tough jobs of any leader of a team or a company to identify these people. Becuase they would have already deep rooted their thoughts into the team and if any action taken against them for any genuine reason, will be seen as they are vindicated.

1. Both of these characters would have been the outstanding performers but started showing slowdown now.

2. They would have the best knowledge of their respective roles but started playing silent spectator role in recent days

3. They would have been the most flexible during the starting days but become very rigid now

4. The first one would have started to whine out with the current responsibilities and will not show any interest in taking any new responsibilities.

5. The second one would not have completed the earlier given role but would assume he is smart enough and started expecting to be made as the key player of all new initiatives.

How to eradicate them?

Even after many personal discussion, their ego would not allow them to accept the reality and change. We will tolerate them for months just because they were the most wonderful people we had earlier.

But the need of the hour would not be allowing us to give more room to tolerate them. So rather than tolerating them, it is better to let them go so that at least we can maintain the friendship with them.

With the new company and new environment, they will automatically revert to their original capability and flexibility.

So it is good for both the company and the individuals to shake hands and “call it a day”.

Make Money and Sell else Sell and Make money!!!

Consolidation

Flipkart cannot be a yardstick or trendsetter to be worried. Flipkart is one such operational failure and not idea failure. So don’t take Flipkart “alone” as a yardstick and worry.

As I mentioned in my earlier blog, goo.gl/EPF6vQ there are many reasons for a startup to fail. Also, it is not true that every startup will fail because of nonavailability of funds.

It’s been almost 5 years the funding fever has started and it was in real peak during 2012-14. After 2014, the slowness in funding has started and now it is taking a different course from the concept of ‘funding”

Before taking any further step, just sit back and evaluate whatever you have done to your startup till date and take the correct course correction. But you should try to do this exercise only if you are ready to accept your mistakes and more than that ready to correct yourself.

Else this exercise will not yield any expected result. The foremost action to be taken is to cut down the unwanted salary paid to people who are really not required for your company.

They may be very good in their respective subject. But they may not be required at this stage in your company. So do the evaluation properly. Don’t send out any required resource from your organization.

We have done this exercise and we were able to increase the efficiency by 23% in the last 2 quarters. This has given a ray of hope for us. We have started seeing a direct increase in our profitability.

So before running behind “funding” just look back, evaluate, and redo your math and see what exactly is your financial situation now and if it really matters then go for funding. Else increase your sale by deploying good sales professionals and sales methodologies.

In spite of this, funding is not going to happen as how it was earlier. So I close my company then? No. After every trend change in the business Industry, there will be a new trend taking birth. Take the track record from 1986 if you have the data. There was a paradigm shift in the global business line happening after every slowdown.

If you don’t do the course correction within that time, you will end up in failure. If you evaluate 1M as your requirement and compromise with 250K you are already screwed. You cannot hold your breath and sail until next set of funding.

What is the new trend then?

It is called Consolidation. Yes, don’t just go for the funding. You could have seen the real scenario by this time going behind the funding.

The new trend is, take Flipkart and Snapdeal as an example. They are now in a real bad shape on their revenue. But do you think that they will wait for another round of funding or just go ahead and shut the business? Neither, they will go for strategic purchases.

In the year end 31 March 2015, there was 69 technology M&A happened in India and this fiscal year ending 31 March 2016 it has doubled to 146. That means 146 startups had already taken a wise decision to make the required profit by taking the course of M&A rather than waiting for funding or next level of funding.

Of course, those large giants are not going to give premium value for the forthcoming acquisitions. They will make you settle for much lesser price.

End of the day, the trend is, nobody is ready to spend much cash as transaction and wants to take the path of stock transactions only.

Make Money and Sell else Sell and Make money!!!

Secret of Hiring a Sales Guy

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Sales are the Face and Marketing are the head of any organization. It is very true and if we don’t understand the difference then we will end up hiring a wrong person for the right job.

Sales Vs Marketing

To get into that we should know the difference between Sales and Marketing. Whenever I get a chance to interview sales guys I ask this question to them for sure.

Most of them will fail to explain. Some will explain in a very professional way. I will then ask them to summarize the same in a single line. I have seen 99% fail to explain it.

Maybe I am expecting them to tell what I wish to hear could be the reason. The answer I always wish to hear is “Sales is an art and Marketing is a science”

This is the reason we have Discipline as Marketing even in Business Administration courses and there is no specific degree for Sales. You can treat marketing to any person. But you can only train and bring the naturally having sales capabilities from a sales guy. If you force sales to a person who doesn’t have the flair for sales then he will surely fail.

Who should I hire?

International Cold Calling sales team is something which is there only for the last 13 years maximum and in that too very few companies has that capability in house for more than 5 years. Remaining all companies are having the conventional face to face meeting with the sales guys selling or inside sales team fixing the meeting and seniors go and do the real sales face to face.

So if a company wants to set up the new sales team, they will eventually look into those companies which are specialised in selling through cold calling and hire.

Typical Interview with those sales guys

Interviewer: Hi, How are you?

Sales guy: I am good.

I: Can you explain about yourself

SG: I am so and so, working with so and so company and have closed nearly 500K out of two deals in this year both F2000 clients

I: (in his mind voice) WOW

I: Where you able to reach your target?

S: Yes, even I got adjudged as the best sales guy for reaching my target last year.

I: What are your salary expectations and notice period?

Typically it will go and they will hire that guy.

End of the sixth month this guy would be the worst performing guy and either we would have fired him or he would have left the organisation.

I have seen this in many companies out of my experience.

What could be the reason for the best performer of the earlier company not able to perform here?

The reason is us. Yes, it is us!!!

He said he closed 500K with two F2000 clients. We typically took that as “he closed” . The real scenario could not be the same.

He would have reached the right person with his cold calling skills and the brand of his earlier company would have taken the remaining steps to get that 500K deal.

Here, we have seen 500K, F2000, One year target, etc and failed to see the real fact that he was not the reason for any of the above and he was reaching the right person through his cold calling skills and only his company was able to do the remaining.

Conclusion

He is not just the nonperformer we are also the partial reason for the total failure. We have overrated his capabilities with whatever he bloated and told during the interview and failed to judge his capabilities.

So whenever you are interviewing from a most successful company into your sales team try to evaluate his personal capabilities rather than what the company was able to achieve with his cold calling.

Typically, if you are a company size of fewer than 150 employees, then avoid hiring sales guys from company size of more than 200 employees.