Sustain to Scale - First Principles of building financially sustainable startups
These days startups are increasingly focused on building sustainable, long-term businesses rather than just pursuing rapid growth at all costs.
Financially sustainable startups are businesses that use innovative strategies and technologies to create products and services that have a positive cash-flow impact so that business can run without needing external funding. They aim to reduce their unnecessary expenses, create jobs, and promote societal well being while still being financially viable.
In general, Startups can have different funding needs depending on their business model, industry, growth plans, and financial goals. Here are a few types of startups in terms of their funding needs:
Bootstrapped Startups - These startups rely on their own resources to grow their business, which could include revenue generated from sales, personal savings, or loans from friends and family.
VC Funded Startups - These startups are often seen as high-risk, high-reward investments, and the success rate can be low. They rely on VC funds to grow fast and scale 5x to 10x within a short span of time.
Sustain to Scale Startups - These startups prioritise revenue growth, market share, and profitability as the key performance indicators for their success. The Sustain to Scale investors expect a return on their investment, and the startup's success is measured based on its ability to generate revenue and profits.
First Principles of building Sustain to Scale Startups
Identify a set of problems which are urgent and can be solved in exchange for money.
Do the Problem-Solution Fit (PS-Fit) and identify the Jobs to be Done (JTBD) that needs to be solved for potential customers.
Developing a value proposition and building a network of minimum 500 potential customers who are aligned with you as a “Thought Leader” and your value proposition.
Validate the business idea, product vision, and revenue model with potential customers.
Build an MVP and offer it to your aligned potential customers. Target should be a minimum of 30 MVP customers from the network of potential customers.
Focus on engaging existing customers and enabling new customer acquisition as soon as the retention cohorts show promising curves.
Build a team with complementary skills and experience to help you execute on your vision. Hire people who are passionate about your business and share your values.
When are funds required?
Typically, funds are required at various stages of a business's lifecycle, including startup, growth, expansion, acquisition, and crisis management. By understanding when funds are required and planning accordingly along with consequences for different sources of money, businesses can ensure they have the right resources they need to succeed.
In terms of categories, it can also be broken down to 4 stages…
Survival to Sustain - Bootstrapping
Raise to Sustain - FnF, Self-Funds or Small Cheques
Raise to Scale - Large Cheques focused on Scaling and increased valuation
Sustain to Scale - Medium size Cheques focused on Revenues and Profits
Planning Sustainability
Achievable Market Size - USD 10 Mn to USD 100 Mn
Affordable Ticket Size - USD 2,000 or USD 10,000
Ideal Customer Volume - 5,000 or 10,000
LTV : CAC Ratio - 3 to 5
Retention Rate > 70%
Gross Margins > 50%
4Cs approach with right mix of PR and Media Strategy can be the best scaling channels for Sustain to Scale Startups, as customers are acquired through both organic and inorganic channels, not just for selling a product or service, but to engage him/her so that he/she becomes a potential customer for all future product and services.
These days startups are increasingly focused on building sustainable, long-term businesses rather than just pursuing rapid growth at all costs. This requires a focus on profitability, scalability, and responsible business practices. Overall, startups are facing a complex and challenging environment, but there are also opportunities for innovation and growth. Successful startups will need to be agile, adaptable, and focused on providing unique value to their customers.
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