Term
| Why is recurring revenue so valuable? |
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Definition
| Because a startup can spend more of its energy growing the business rather than trying to require enough new or repeat business to hit previous revenue levels |
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Term
| Types of Recurring revenue streams |
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Definition
Asset Sales
Usage
Renting/Leasing
Licensing
Listing
Brokerage
Advertising
Data |
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Term
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Definition
| Ownership rights of a physical product are sold (Amazon, Tesla) |
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Term
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Definition
| A customer pays a one-time fee for a service (attorney, FedEx) |
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Term
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Definition
| A customer pays for the exclusive right to a physical asset for a period of time (concert ticket, rental car) |
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Term
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Definition
| The business retains ownership of content or software and licenses the same to third parties (Microsoft) |
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Term
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Definition
| Business charges a fee to list a product or service for sale (Craigslist) |
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Term
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Definition
| Revenue is derived by connecting two or more parties together for the purpose of consummating a transaction (Real Estate agent, Etrade) |
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Term
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Definition
| Revenue is generated by selling marketing access to large community of individuals |
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Term
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Definition
| Online or mobile businesses that collect and monetize personally identifiable information and sell the same to third parties (Acxiom) |
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Term
| 4 Revenue stream considerations |
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Definition
Product/Market fit
Customer acquisition costs
Pricing
Number of customers required |
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Term
| What is the Single largest cause of startup failure? |
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Definition
| Lack of Product/Market fit |
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Term
| What is the Single largest cause of startup failure? |
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Definition
| Lack of Product/Market fit |
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Term
| What is the second largest cause of startup failure? |
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Definition
| The cost to acquire a customer is much higher than the lifetime value of a customer |
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Term
| How should a startup begin to determine how much it will cost to acquire a customer? |
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Definition
| Conduct an exhaustive web search of what other companies are paying to acquire a customer |
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Term
| What types of methods should entrepreneurs complete to map out a plan to acquire customers? |
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Definition
| Search Engine Optimization, Search Engine Marketing, Public Relations, Social Marketing, Direct Sales, and Channel Sales |
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Term
| How are startups constrained with pricing? |
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Definition
| What competitors are charging for a similar type product or service that already exists in the marketplace |
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Term
| What is the average cost of a CPM (Cost per 1000 impressions) today? |
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Definition
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Term
| How can startups gain a pricing advantage? |
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Definition
Focus on a specific niche market
Hold proprietary advantages over competitors |
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Term
| What type of market does a successful startup usually find? |
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Definition
| A non-commoditized area of the market in which margins are not razor thin and there is an opportunity to acquire customers at reasonable margins |
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Term
| 9 Strategies to drive recurring revenue |
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Definition
Affinity
Membership
Subscription
Marketplace
Community
Experience
Upgrade
Loss Leader
Freemium |
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Term
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Definition
| A strategy in which a business offers a loyalty or rewards program to customers in order to increase the frequency and amount of purchases – commodity products (Dicks, Delta) |
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Term
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Definition
| Companies may choose to offer their products and services at a bigger discount than normal if the customer or business purchases an annual membership (Costco) |
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Term
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Definition
| The strategy of a consumer paying a monthly fee to gain access to an online product or service or to receive a certain product each month (Basecamp, Birchbox) |
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Term
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Definition
| Successful startups that have utilized brokerage as a revenue stream have successfully created a large marketplace of buyers and sellers (Craigslist) |
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Term
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Definition
| Companies that create successful advertising revenue-based businesses have aggregated a large number of loyal individuals (Facebook, Cheezburger, Red Bull) |
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Term
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Definition
| Building a loyal following around brand or product way of doing business can help drive recurring revenue. Very challenging models to execute because you need the right people to make them work (Trader Joe’s, Zappos, Nordstrom) |
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Term
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Definition
| Create recurring income of “one-time purchased products by encouraging customers to consistently upgrade to a new product or service (Microsoft Windows, Oracle) |
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Term
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Definition
| Startup offering a product or service at a price that is not profitable for the sake of offering another product/service at a greater profit to attract new customers (Gillette, AT&T iPhones) |
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Term
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Definition
| A startup gives a core product away for free to a large group of users and sells a premium version of the product to a smaller group of users |
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Term
| What do balance sheets show? |
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Definition
| What the company owns, what it owes, and what is left over |
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Term
| What does a business' equity include? |
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Definition
| Money the owners have invested and income kept in the business from the company’s profits |
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Term
| How many balance sheets should established companies come up with? |
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Definition
| 2 - one before, and one the day after the loan closes |
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Term
| What does a balance sheet not show? |
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Definition
• The quality of assets
• Market value of assets
• Income or expenses over a period of time
• Contingent liabilities
• Operating lease obligations (Capital leases are shown) |
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Term
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Definition
• Records a sale when money is collected
• Records an expense when it is paid |
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Term
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Definition
• Sales are made on credit – the amount customers owe is Accounts Receivable
• Buy items or incur expenses for the business – amount owed is Accounts Payable
• Cash Flow statement is needed to get a better sense of cash on hand
• Lenders prefer the accrual method |
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Term
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Definition
| Gross sales – costs to produce/purchase |
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Term
| What will the income statement not show? |
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Definition
• If your overall condition is strong or weak
• What’s tied up in A/R and what’s owed from A/P
• What you own and what you owe |
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Term
| What will the income statement not show? |
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Definition
• If your overall condition is strong or weak
• What’s tied up in A/R and what’s owed from A/P
• What you own and what you owe |
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Term
| What does the cash flow statement show |
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Definition
| The sources, uses, and balance of cash |
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Term
| What does the Statement of Cash Flow show the need for? |
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Definition
| Additional working capital, maximum loan payments a business can afford, the breakdown of principle and interest on a business’ loans, and weaknesses in generating cash |
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Term
| What does the Statement of Cash Flow not show you? |
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Definition
| How much is in A/R and A/P, balances in assets and liabilities, and depreciation of equipment |
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Term
| 5 rules of thumb for startup financial projections |
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Definition
1. Five-year financial projections are the norm
2. Aggressive revenue projections and growth rate
3. Gross margins greater than 50%
4. Show red ink to match your funding request
a. Don’t ask for money if your projections imply you don’t need it
5. Build a path to 10x return
a. If you don’t have an exit strategy or intend to buy out the investors, you won’t get much interest |
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