A Roadmap to Profitability

By Kerie KerstetterMarch 10, 2015UncategorizedNo Comments

In our last post, we discussed the fundamental questions that define your business idea:

How to differentiate your concept from the marketplace
How to keep it on track once things start to heat up

Now, let’s talk about where we go from there. You’ve defined your vision in terms of solving a problem. Now it’s time to define your business. That means mapping your path to profitability and assembling the right team to make your business successful.

The Path to Profit

Let’s be honest. A great idea isn’t really a great idea if it’s not profitable. Before you make any significant time or monetary investment, you need to do the math. Where will your profit come from? Consider any upfront costs, as well as an on-going path to profitability.

For a high-level example, let’s consider the aforementioned Uber—an on-demand, mobile transaction model that most people are familiar with. Where does their profit come from? In Uber’s case, their product is scalable. The company had to incur a lot of upfront costs to build their platform, yet once the infrastructure has been developed, the number transactions is virtually limitless. Their growth strategy has focused on steadily conquering emerging markets around the world.

Now compare Uber to Hot Watch, a company that sells smartwatches. At the outset, Hot Watch founders had to determine (1) how much it costs to manufacture each smartwatch, and (2) how much they can sell it for. Once you can project your margins, you can begin to assess profitability. Entrepreneurs must also consider future market trends and opportunities: How is the market going to evolve in the next couple years? How will that affect smartwatch pricing?

These questions are high-level, of course, yet they are basic and essential considerations when you’re trying to grow your idea into a profitable business. If you can’t answer the question, “How are you going make money?” then your idea may need some tweaking. Do the math. Define your margins. Plot your growth.

Who’s your team?

To bring your business to market, it’s best to start by defining, clearly and up-front, what roles are necessary to fill. Every member of a team contributes to your business’s final shape, so it’s important to choose wisely.

Start with your vision and your profitability model: what are the areas your team will need to take possession of? If it’s a social app, user-experience is of prime importance. If you’re creating a new financial process, then you’ll have to consider the scope of your legal and software development needs. All of these are roles that should be defined at the outset, as you are drawing up your basic model and business plan.

Take an honest inventory of your strengths and weaknesses to determine your best partnership, looking at the connections you have or can make that balance out your weaker spots. While we dream of starting companies with our best friends, and often our closest allies are the ones that know how to get us the most excited, it’s good to be wary of working relationships that exist purely on that imaginative level. It’s easy to get lost in the clouds when all we do is encourage one another, especially if we’re in agreement about the very same blind spots. After all, we’re on the road to profitability.