My understanding and passion for entrepreneurship were cultivated throughout my 25 year experience as a serial entrepreneur. In the recent years, I founded the Entrepreneurship center at Kennesaw State University, which deals with event dedicated to entrepreneurs community, competitions for start-ups , as well as a Think Tank Institute.
Christopher C. Hanks
I have owned multiple businesses, as well as Innovations Publishing which published the largest collection of data on emerging, high growth ventures in the southeast. This along with my ownership of e-commerce businesses gave me deep insight on what other successful technology entrepreneurs do that others don’t. Also, I advise and mentor some of most successful business leaders in Atlanta, Georgia. This exposes me to the most difficult challenges of aggressively growing a technology business and the strategies and tactics deployed to outperform competition.
What makes the most successful entrepreneurs of technology companies outperform their competition? Does their success leave clues that can help other growing businesses?
Since our founding, the Robin and Doug Shore Entrepreneurship Center at Kennesaw State University has been collecting the best practices of the most successful entrepreneurs in the southeastern United States. One of the most popular topics with technology companies during 2016 has been focused around developing the optimum business model. Therefore, this article will respond to one of our favorite best practices in this practice area.
Simply put, a business model is how the company will make money. Business models for technology businesses look very different depending on the goals of the business. For example, a popular tactic is the freemium business model, allowing customers to adapt to new technology with no risk and eventually pay for a premium version as the new technology becomes an added value to the customer’s life. The optimum business model may depend on market potential, competitive landscape, target customer, value proposition, distribution channels, revenue streams, and strategic relationships. Either way, selecting the optimum business model for your specific technology business is key.
A best practice in technology startups is a subscription based business model. Subscription based business models generate consistent cash flow, which is the reason this is attractive. Other reasons include developing price in support of your business model, acquiring customers across any channel, bill with intuitive invoices, collect cash faster, nurture deeper customer relationships, close books faster, gain visibility into the right customer metrics, and deploy new pricing and scale infrastructure.
Investors also love subscription based business models. To investors, its primary appeal is the value of predictable recurring revenue, in contrast to selling a customer a product or service one time. For example, a $100 million dollar company with 70% recurring revenue can count on 70 million dollars at the beginning of every year. The predictability and consistency of cash flows allow leadership to manage growth and plan accordingly, and thus are rarely surprised by substantial earning fluctuations. Companies with no recurring revenue start the year at zero and financial predictions become much more difficult and erratic.
Revenue forecasts will be at least 68% more reliable when companies initiate a recurring revenue business model. Many software-as-a-service (SaaS) companies that are offering monthly or annual service subscriptions are valued much higher than their competitors. Some even have multi-billion valuations such as DropBox and Salesforce.com. Companies like Workday, Adobe, Box and Zendesk have proven that a subscription-based platform can disrupt some of the most established industries across the globe. While all companies are vulnerable to disruption, this should be especially interesting in the highly unpredictable technology industry, where most of the top 25 enterprise companies are not predicted to even exist in the next two decades. In contrast, the median growth for SaaS subscription companies is over three times that of traditional enterprise software companies.
This is only one of the hundreds of best practices that the Robin and Doug Shore Entrepreneurship Center at Kennesaw State University has been collecting since its founding. The center is surrounded by the best business owners in the southeast Georgia (USA) who represent diverse business models, stages of growth and industries in order to be the best resource for entrepreneurs who are seeking to build leading businesses.
Christopher C. Hanks is Founder and Executive Director Robin and Doug Shore Entrepreneurship Center, Kennesaw State University/ASEBUSS Partner University
This article is taken over from the 11th number of Business Days Magazine.