That’s the question I often received right after my pitch.
It’s a good wake up call as I didn’t think about the money in the beginning. I just want to create products that are useful for others. Now I realise that my passion should be sustainable as well.
It’s good to create something, but it’s not going to end up well if I can’t feed myself and the team. And how will my ideas spread if the business does not even scale? How can my products be useful to others if they don’t even know it?
So I spent the past few weeks researching and talking to people to help me with the business model of my company.
Research, research, research
Since my company is not making any revenue yet, I need to do a lot of research on how other companies, the ones similar to mine, generate their revenue.
Do they get money from grant? Do they raise money from investors? Bootstrapping?
What is their growth rate? What is their Customer Lifetime Value? How much is their Cost per Customer Acquisition?
It’s amazing how much data from other companies that I can find online. It helps to provides foundation for my business model. As Gina Greenlee perfectly sums up:
Experience is a master teacher, even when it’s not our own.
My former boss used to tell me, “When you ASSUME, you will make an ASS of U and ME”. Unfortunately, this is not applicable in this case.
I need to make a lot of assumptions as they are going to be the building blocks of my business model. My financial projections are basically well-educated guesses.
Some of the assumptions that I need to make:
- Source of revenue: How will I generate revenue?
- Revenue projections: How much money will i generate the next 5 years? How high is the growth rate?
- Cost assumptions ( fixed and variable ): How much money will be spent on product development? Will I hire a team? How much is their salary?
- Other assumptions: Will seasonality effect my cash flow? Do people spend less on my product during Christmas?
After I create my assumptions, then I can build my Income Statement, Balance Sheet, and Cash Flow based on it.
Well, this could be the correct mantra then: “When you ASSUME and you don’t TEST it, you will make an ASS of U and ME”.
This is the stage where I am at now: I need to do a lot of testings to prove if my assumptions are correct.
Are brands interested to put their advertisement on my product? Is my company eligible to get some grants from NGOs? Can I get a game developer for x amount of salary?
Initially I dreaded to do this, that’s why it took me so long to get this post out. Having a grasp of my financial model gives me a better understanding of how my business actually works and how to improve it. It’s no longer up in the clouds as i thought it was, everything is measurable and hopefully achievable. 🙂