Transcript
As an entrepreneur, you are managing the profitability if you have revenue. If your company has revenue from day one because the product is ready, then you have to invest into the market with marketing, and this spending is something you can always increase or decrease, especially if you do online marketing. So that’s something where you can have control.
If you are in a B2B business then you need to have people who are maybe your sales force or whatever, then you need to pre-finance this to can generate revenue, which is then a higher requirement of funding. So profitability is something to think about, time to first revenue. How much pre-financing [do] I need for my product to be ready to market it? And there I really like this MVP, minimal viable product approach because as early as you have a kind of a smart product and you learn from your customer and you generate revenue, you see generating revenue basically means there is a value because people are willing to pay for this and you can grow from that.
Generating revenue means you’re talking to the customer, you learn to understand the needs of the customer, and then you can evolve your product or your solution from the first steps and generate more revenue, but you need to be able to invest in your products and therefore you need the funding maybe. So, revenue will help you maybe after you have [the] a first foot into the market attracting investors or talking to a bank. Getting a smaller loan, a micro fund, to invest [in] into the market, invest into your people, or invest [in] into your product.
What you have to understand is [that] even if you have profitable months or a profitable year, we make a distinction between having a profitable company and having a cash profitable company.
Even if a company is profitable, they might have cash needs because out payments for wages or for marketing and income from revenue. There is a time difference and this might generate additional cash need for the company.
So what we see with the startups is first they get profitable on a monthly basis or a yearly basis later, but to be cash-generating that you have on top cash and the company has own savings and these savings you can invest into your growth. This even takes longer. And this you need to understand. You can have a company like we say with a black 0 at the end of the year. You just have your revenue meets all the costs you have, but cash wise, the company might need additional cash to have [the] working capital to invest in the company.
This can be secured through a bank loan like a credit line. If you have an attraction in the market, but otherwise you need may be to talk with your suppliers. They are, in a way, supplier loans. When they just say, I deliver now, you pay me in three months. It’s a kind of a supplier loan, which is a financial possibility as well if they have trust in you.
So this is really something you need to have in your mind. But the growth rate if you have constant revenue is something that you can really influence, and that is what you should do.
