In my last blog, I talked about my experience getting companies off the ground, which really translates to making sure their first product is a hit in the market (I've been active in the founding, financing, or acquisition of more than 40 companies representing more than a billion dollars of capital, and involved in the launching of at least 100 products). The conclusion I've come to, reinforced time and time again, is that getting the product right--your first one, and hopefully each subsequent one--is the key to making your company work. The technique I've termed "Market Validation" is by far the most effective way to get this done, and here let me start with the big picture view of how to do it.
Why do companies succeed? They succeed because their products sell in the market. They have built something that gets customers to open up their wallets and part with their money on a regular basis. The bottom line is they generate more revenue than expense; sure. this is an overly simplistic statement, but the key is getting your company's products to play in their markets. Any successful business person readily admits that strong revenue makes them look like a genius and covers up lots of missteps. On the flip side, these same entrepreneurs will tell you cutting expenses to meet reduced revenues is not the way to make a company work; budgeting your way to prosperity is not an effective business strategy.
The point here is that, in order to make your business successful, you should focus on your product and its viability in the market. A lot of human nature will drive us to do the small things that make us look busy and feel like we've somehow contributing to the company. These are things like focusing on the books, or the costs of goods from suppliers, and other items that matter to the company, but that are not related to generating revenue. It's hard to call up a customer and get to the bottom of why he dropped you as a supplier; but in the end you need to hear the real reason and that's a lot more important than the time it takes to save another 5 percent on office supplies.
So Rule No. 1 — Focus on revenue, the top line. Make sure this is where you're spending the majority of your time. Don't get caught up in the tangible, feel good aspects of knocking off a large to-do list of important items to make your business work unless, of course, all those items are directly related to getting your customers to buy more product and services.
Last updated: Sep 30, 2009
ROB ADAMS is on the faculty of the MBA program at The University of Texas at Austin, and is the Director of Texas Venture Labs. He’s a former software executive, entrepreneur and fund manager, and has founded or financed more than 40 companies that have launched more than 100 products with transactions exceeding one billion dollars of capital.