As great as your startup idea is, if you can’t fund it, you can’t build it. With that in mind, we asked three startup founders about their most groundbreaking move to increase revenue.
Whether you’re bootstrapped or looking to raise capital, you need to hit certain cash milestones to successfully grow your startup and scale it into something bigger. That means many good ideas never get off the ground.
“Like it or not, investors will judge you on that early unit economy,” said Julie Stevanja, co-founder of the cult activwear brand Stylerunner and is now expanding its SaaS platform and consumer app her black book†
“We had a BDM [business development] person very early on, knocking on doors, stocking brands and trying to monetize right away. So it can be extrapolated to those investors who think, okay, well, if you get to 100,000 users, a million users… what’s that going to look like? So now we have some data to back that up.”
Obviously, the sooner you can define your earnings strategy, the better. This was an important area explored during Startup Daily’s recent webinar, Money Milestones: Founders Making Their First $10k, $500k, and $1M in Revenue webinarin cooperation with SAP Agree†
Julie spoke on the panel alongside COO and co-founder of investment app not coveredSaskia Albers and Mike Smith, founder of the eco-friendly personal and household cleaning products brand Zero Co† Their insights into managing your model, strategy, pay increase and overheads are invaluable.
How do you devise a revenue model?
The business model for Unhedged is based on giving retail clients access to the same tools offered to a sophisticated investor. Their revenue model is therefore based on two types of percentage compensation: a basic compensation and a success compensation. That way, the fees were reasonable for both retail and larger investors, and the success fee didn’t take effect until Unhedged outperformed their benchmark.
“If you compare it with other providers, there is no retail success fee,” says Saskia. “And other robo-advisors have a fixed [base] compensation, and we didn’t want to do that… our ambition is to actually reduce the base compensation over time.”
Zero Co is also a customer-centric company who have recently expanded their revenue streams. They started as a full direct-to-consumer company to keep costs down and find out if the closed cost structure they envisioned would work.
“Our business model has a reverse logistics component,” explains Mike. “It’s a really closed model” [where we] take back packaging from customers, we clean it, refill it and send it back. [This means] our cost structure is fundamentally different from most of our competitors…that’s why we decided to launch the business online to begin with. So we can go directly to the customer, cut out the middleman and have the extra margin, which makes possible[s] to cover the costs of those cleaning processes.”
Zero Co has recently begun exploring the possibility of supplying wholesale to pharmacies, supermarkets and health food stores, something that requires daily monitoring of both their price points and cost structure.
An alternative way to maintain or increase sales margins is demonstrated by Her Black Book. They have a premium subscription level that is intentionally priced fairly low with immediate value to encourage adoption.
“Someone is going to pay” [the premium] if there is a deal in the member area they want [and] the value they will get is immediate,” says Julie. †[For example]”I’m going to get my extra 20 percent off this brand.” So we’re going to look into doing away with the seven-day free trial.”
Julie believes that if you’re going to have this kind of premium membership offer, it’s easier to introduce it from the start – rather than risk your customer thinking they now have to pay for something they used to get for free.
Manage costs and expenses
Keeping costs in check is an important area founders think about with the uncertainty of today’s market.
Mike says it’s absolutely essential to their operations to ensure that “the money we’ve invested gives us the longest runway possible to get the company in a really good position.”
Julie agrees that everyone should be aware of wasting money in today’s market. Her biggest expense is technology and investment in developing the Her Black Book app.
However, she says one area you should never cut corners on is marketing. Investors (and customers) will still be looking for growth opportunities and marketing is where you can prove the scalability of your startup model.
For a little extra insight into how founders should manage expenses, we asked Fabian Calle, director of small and medium businesses at SAP Concur Australia and New Zealand, which provides automated expense, billing and travel solutions to many startups.
“While each company will have its own individual spending areas depending on size, industry and many competitive factors, one thing is certain; every company should be in growth mode,” Fabian tells Startup Daily. “The challenges imposed on businesses during COVID forced a survival mindset, and rightly so, but we need to think differently now.
“Yes, the marketing of your company is crucial, but I also think that there should be attention to innovation. While some companies have unique offerings, failing to innovate can mean a quick loss to rivals that do.”
It is certainly the case with the innovators on our Money Milestones panel. Fabian adds that a growing area to watch, cost-wise, is something we can’t do for a while: travel.
“Travel is something that many companies haven’t really had to worry about in recent years,” he says. “What’s happening now is that travel has changed, especially the cost. So whether you’re managing more expensive travel or just being hit harder by business expenses right now, you can keep it under control with real-time data tools like the one we provide.”
Using the community to raise capital
For Zero Co, it was a good idea to go the crowdfunded route. The company was launched as a human-powered solution to the plastic problem, so it made sense to build a community from day one.
“We launched a Kickstarter campaign in late 2019, which ended up being the biggest Kickstarter campaign of the year,” said Mike. “Then we broke the Australian or set the Australian equity crowdfund record.”
Likewise, Unhedged went the crowdfunding route, using the experience to both raise capital and gauge their prospective client base. Saskia says it was a “smoke test” that showed the business idea would work.
Zero Co went one step further with crowdfunding. Once they got a grip, they offered their most loyal customers the chance to invest in the company. They had 3,000 customers who became shareholders, and they raised the maximum legal limit to $5 million in about six hours, an experience Mike describes as “pretty wild.”
It’s no wonder that when Zero Co went down the VC path to raise the rest of the capital needed, it was a relatively straightforward process. †[We were] able to bring in some high power and some big VCs, which was incredible,” Mike says.
Likewise, for Her Black Book, a major investor came about “unexpectedly” when Julia’s sister and co-founder Sally struck up a conversation with a colleague in the investment space. The candid conversation culminated in an impromptu early round after Her Black Book invited five other parties to sit down with the enthusiastic investor. It was something the company jumped on because, as Julie puts it, “it depends on your desire for full risk versus dilution. We don’t regret the decision.”
Mike is quick to point out that the days of “lots of money sloshing” to invest in startups may be coming to an end. The mindset of “growth at all costs” has shifted to a mindset of prudence and lower valuation.
His advice: “Make sure you’re working on the underlying fundamentals of the business, get the unit economy right, and make sure there’s a path to profitability.”
Crucially, Mike says if you don’t have the capital, you can still acquire customers at scale. His experience says it all: At the beginning of Zero Co’s launch, the team collected a lifelong supply of single-use plastic bottles and stuffed it into a giant fishing net. Mike managed to convince Malcolm Turnbull to kayak through Sydney Harbor with the net full of plastic in tow.
The stunt cost a few thousand dollars, but thanks to the media and social media, they reached hundreds of thousands of potential customers.
“If you get your old-fashioned hustle and come up with great ideas that get people talking and get you media you deserve, you can turn one customer into a thousand very quickly,” he concludes.
Want to hear more? Register below to watch our free Money Milestones: Founders Making Their First $10k, $500k, and $1M in Revenue webinar:
Find out how SAP Concur’s automated travel and expense management solutions can help you keep your operating costs under control here†
This article is brought to you by Startup Daily in partnership with SAP Concur.