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The world has undoubtedly adopted and taken on an understanding of revenue operations (RevOps) and how to break down the walls and barriers between revenue departments, but is anyone really owning the full revenue funnel from an optimization standpoint, or do we still have department heads solely in charge of their own scorecard and their own metrics? Who is taking all of that data and ensuring that revenue is optimized from acquiring clients all the way through retaining customers? What about the answer to the most critical question:
Revenue optimization is the process of identifying and implementing new methods that make the process of attracting, acquiring, and retaining customers more efficient and cost-effective.
When I first started consulting with small businesses, I learned how to make a proforma. I learned early on to “know your numbers,” a common phrase that business coaches and consultants use with their clients. Knowing your numbers allows you to make business decisions quickly and to have confidence that those decisions will have a good outcome. The business runs off of the financial engine that you've built. The foundation for finance is critical in making any other decisions.
I once heard that companies who bootstrap are healthier financially and have optimized revenue versus companies who are funded. When you're a funded company and you get a large sum of cash injected into the business multiple times throughout the life cycle of your initial scale, you're not feeling the pressure and the weight of having pure revenue optimization and being profitable out of the gate. In fact, you're raising money because you're upside down; you can't possibly develop the product or technology without additional funds. When you finance your growth from revenue or cash flow, you sometimes can't add the headcount needed to get the right people in the right seats. This challenge is more common with companies that sell a product, technology, or app, as most professional services or service-based companies are bootstrapped, but that’s not always the case.
You're not really looking for profitability when you receive a chunk of cash while in your product-message phase. You need to report to investors. You need to prove your hypothesis with your prototype and prove you can actually gain a handful of customers in the market.
That's your product-message fit or founder-message fit. As the founder, you have identified a problem in the market, and you've built a prototype or an MVP that you're able to take to the market to prove to your investors that people will buy it. Typically, the initial early adopters are people inside the founder's network, and founders can attract those people through a relationship, but they spare no expense of getting the sale.
It's not profitable, but when you get enough people using your product or technology, you can start to transition to the early stages of product-market fit. Pure product-market fit takes a long time to achieve. But once you can get a handful of paying customers on board and they're on your product long enough, you begin to get a feedback loop, whether it’s three months, six months, 12 months, or 18 months. It's different for every company.
Then, use the feedback loop. The data will show if the problem you set out to solve is actually being solved, and the customers should agree with you. They should be using the product or technology the way you said they would, and they should be getting the results you said they would.
When you can say, “Hey, we have product-market fit now!” you have something that you can get ready for go-to-market fit, so you go back and raise capital again. Meanwhile, you're not tracking the finances like a bootstrap company. Well, let me give you some grace. You're probably tracking the dollars, but there's little revenue optimization at this point, or if there is, there's very little of it. It's not the emphasis at this stage. Your focus is on obtaining that first level of product-market fit and getting to the next level.
Once you have your product-message fit and your product-market fit aligned with your go-to-market strategy and you’ve started to track your finances, it’s time to figure out how the type of business you have can impact your revenue optimization efforts.
Join me as we explore the next topic in this series, “Revenue Optimization Part 2: The Reverse Funnel Approach.”
We know it can be challenging to commit to significant investments without a high level of cash flow. However, this kind of investment will set your business up for success and return massive results, both in the short and long run.
You can start small, but you have to invest something into infrastructure, systems, processes, and automation from an early stage if you truly want to optimize and scale revenue. The good news is that the more you invest now, the quicker you will see the results (and the less you’ll have to invest in the future)!
For more information on how our team can help optimize your revenue, reach out and chat with us today. Let’s see if we’re your perfect partner in your quest to build your House of Revenue®.