Rajesh, a web developer, had a really kickass start of his business. On his very first day, he received an order of Rs 25,000/- and he was hopeful of this model of growth for his startup based on his talent and hardwork. In his bundle of services, he helped people with their websites and other web technology related stuffs. One month ended pretty nicely with total order value of Rs 5,00,000/-. He was thrilled. Now was the time for evaluation.
All happy and content, Rajesh sat down to calculate how he fared this month. Cash flow was good and there were no money pending from customers. Totaling all sales & cost, he arrived at a profit of only Rs 6,000/- which was much less than what he thought he made. What happened here was beyond his understanding! He checked the figures again to be doubly sure of what exactly happened? His calculations were accurate. There were no mistake!
Confused and disheartened, he punched the wall with anger of so much sweat and under performance with no results. He promised to charge his customer more. "I will not work with less profits. I deserve more. We all do!" He said to himself.
Another month passed. This time sales reduced to Rs 3,00,000/-. "I need to get more customers. This is not acceptable" It was then he started pursuing more customers on social networking websites and instant messaging apps and suffered a setback. Sales reduced further and was mostly based on new customers. He concluded from his experience that old customers, once serviced, will not come back unless they start a new venture!
Couple of years later, he left his business and joined a job.
What really happened with Rajesh? What really went wrong? How could have he avoided it? and many other questions crops in our mind. Let's look from the scratch and analyse:
1. Rajesh lacked a vision for standardisation. Meaning same price for same effort. Most of his codes in initial days were self created and hence more quality compliant. Later on, he devoted most of his time looking for customers and handled work with less diligence and often at ad-hoc cost thereby creating misunderstandings with customers.
2. Copy paste job work increased later. Since, he spent more time soliciting work, he copy pasted most of his codes from previous assignments thereby, eliminating creativity.
3. No causal analysis. Instead of reducing expenses or avoiding cost, he focused more on revenue. Being a startup, he never realised that penny saved is penny earned!
4. No value addition either for self or for team members, in terms of knowledge & resources. Things change with time and you need to adapt to that change.
5. There is a difference between investment and expense. Financially speaking, Laptop purchased is an asset. Hence, investment. Do not adjust this investment against revenue. It gives you benefit for more than the month when it's purchased.
6. Pareto Analysis wasn't undertaken. When you provide multiple services, there will always be some that takes more time and less profits than the ones that take less time and more profits. Undertake time & motion study to measure the performance and efficiency level of each service and with Pareto analysis focus on more profitable ones.
7. Hourly rates were not available which made his client suspicious over his capability to visualise the guarantee of time he claimed he will honour. The quantum of time devoted by your team will always ensure a good service if it can be clubbed with hourly rate. Believe me, just present your quotes in different format with breakup in terms of hourly rates. In case, the customer wants it faster than your scheduled time, you can even charge premium for your overtime rates for completing it early!
These are some of many multiple tricks to be undertaken while starting a business to make a more informed decisions. The analysed data will always help you make much better decisions and always incorporate analysis in all your projects. If you are not able to analyse your data/project/startup, hire a Business Analyst so that you don't end up like Rajesh.
Note: I'll be happy to help. ;)