Create customer gains. Avoid Profit pains.
Launching a new product into the world is a mighty challenge. But things have just got real at this point. The ultimate judge of your business is its ability to find a product market fit.
Here are some crucial profit questions as part of the Moonshots Checklist (download).
Are we exceeding the call of customer pains with gains?
All too often new products are not answering the problems of customers. They might be solving the problems a creator perceives to be significant. But in the hands of customers, the product isn’t worth-while.
Companies like Instagram spent enormous amounts of time to uncover the most prominent problems users had with mobile photography. Solving this meant they could create a product that delighted customers and led to a valuation of 1B dollars.
The most exceptional profit tool you have is the Value Proposition Canvas. You can directly capture the pains and gains of the customer. By synchronizing your product features and benefits to the customer needs you can validate the balance between them. And this practice will be the essential first steps towards profit.
Do you have a healthy profit per employee and customer?
Taking time to dig into your profits can yield some powerful insights and practical predictions of future cash flow. Your gross profit might look fine, but you want to dig a little deeper and understand how efficiently you generate that profit.
Looking at the profit per employee and customer becomes a meaningful benchmark over time. Understanding your profit per customer provides a crucial constraint to your customer acquisition budget. Acquiring customers for a cost higher than their financial gain is a death trap.
Profit per employee is a powerful way to benchmark your internal efficiency compared to peers. This measure might lead to some opportunities to improve processes and tools that result in a higher yield per employee.
Does your P&L have a balance of fixed and variable costs?
You never know whats ahead. Small and big companies alike can be tripped up by poor cash flow management. In fact, it’s one of the main reasons startups die. And the bigger the company gets, the higher the dependency on increasing cash reserves.
Take office space as an example. Co-working is a smart cost option for small early-stage companies. You reduce the operational load of managing an office, but most importantly you don’t sign up for a long-term multi-year lease. This choice gives you significant flexibility as the company grows through its twists and turns.
Can we collect cash faster and pay slower?
If cash is king, then you want to discover any opportunity to collect your cash faster. A simple tactic to improve the intake of money is to invoice bi-weekly. This approach helps you avoid waiting a month before you can next invoice the customer.
If you’re a regular customer for a service provider, maybe you can negotiate an extra 15 days for your payment terms. Extend your payment terms on a few key costs, and you’ll create a meaningful amount of extra cash.
If you do both of the above, you create a significant cash stockpile to protect your P&L for a rainy day.
In the next post, I'll deconstruct the last part of the checklist - “Promotion”. Here's the full Moonshots Checklist (download).