Updated: Dec 31, 2022
When we sold our first deal, we were over the moon. The Head of IT at a large enterprise signed a multi-year contract exceeding our wildest dreams. Yet, it took us years to sign a deal of a similar size again.
We experienced what many startups see in their early stages. Our co-founder was a brilliant evangelist, our demo was kick-ass, and people loved our story. We pitched anybody and everybody, spending our life on the road or in front of Zoom.
Our issue wasn’t to win fans and friends - everybody loved us. Our challenge was that our positioning was only apparent in our heads, and we had no idea how to generate leads, develop opportunities, and close deals consistently.
Your Business as a Simple Machine
Building a startup is a messy, complex project, and you can easily get lost in the details. As a founder, your job is to provide focus and simplify processes so your teammates don’t have to keep all those balls in the air.
That’s what is so intriguing about the idea of your business as a simple machine because it gives you many opportunities to replicate successful processes. In the book Levers, the authors nicely summarized this practice as the revenue formula. With the formula, you define the path to revenues with a small number of crucial inputs.
Let’s take a look at Tesla to illustrate the method. Think of the company in its early days, when you could only buy a car in its online store. Building a car based on new technology and getting people to trust you to deliver it while it is widely questioned by “experts” is a very complex challenge.
Yet, when you break it down into the core elements, it becomes manageable. The path to revenue was:
The number of visitors on the website x percentage of visitors buying a car x price of the purchase x percentage of orders delivered in a given period.
Scalable Faktors: What Drives the Simple Machine?
Once you have a good draft of your simple business machine, you want to improve it. In order to do that, you want to drive each of the factors up. In the example with Tesla, that would be: Increase web traffic, conversion, the price per purchase (or customer lifetime), and the percentage of orders you can deliver in a given time.
Web traffic might benefit from influencers talking about the latest Tesla feature, and Tweets by Elon Musk are clearly raising attention. The conversion rate depends on the customer experience when interacting with the website and service of the company. The main drivers for the price are the model and the engine used in Tesla cars. And finally, the delivery is driven by the manufacturing process.
Benefit of the revenue formula: Alignment Across the Team
Make sure to include your team in this effort. Your people know best what drives your startup machine. While it looks like a sales and marketing exercise, it leads to alignment across the organization. By working together, you are not just improving your business model; you unite the team to work together.
We have introduced the book Levers to almost all founders in the Moinland community. It has not only been a great success with them individually; it also allows for a common language with other founders. Just like the 3Ws help you define your core business, the simple machine - or revenue formula - defines your path to scalable revenues.