Blog 2 of 2 (unless I can work in a Sumo Wrestling or Drone Racing analogy)
I recently had two entrepreneurs share with me that they are considering and under consideration for selling their wares at the World Games. I gave one an enthusiastic thumbs up, as it was an awesome opportunity. With the other, I was more hesitant. I wondered: is that a distraction? In retrospect, I wonder why my reaction was so different for the two.
The first company was a little smaller of a business than the second. Though it is possible that this business may scale and ramp up soon, at this point, their focus is on establishing and spreading the word about the company. The opportunity to establish a brand and develop a basic sales process that makes sense, plus – most importantly – the profits that would come from the event made this a no-brainer for that business.
The second company was a little more established. The product, which had a longevity that went beyond two weeks, had an additional service component to it. At this point in the evolution of their business, the company’s scalability was a point of emphasis. Therefore, my reaction was more muted.
I realized that this was a clear example of a common theme in entrepreneurship and business development: not all revenue is equally viewed by investors. We devoted the second episode of our Structured Start-Up Podcast to this issue. In that episode, we spoke with our special guest Zane Tarrance, who has a great perspective on this issue. Tarrance sees this conundrum time and time again in his work with SaaS companies: you have one-time revenue, project-based revenue, and recurring revenue. The question is: which is most important at this point in the evolution of your business?
The World Games produces no clearer example of one-time revenue for Birmingham businesses. The World Games are great, but guess what will never happen in our lifetime? The return of the World Games. It is not going to happen. Enjoy it in July, but say goodbye when it is gone. Any revenue, sales, or profits derived from the event are not recurring or project-based, but a one-time shot: a great example of one-time revenue.
Recurring revenue – revenue that will occur or show up again on a periodic basis — is valued higher than any other revenue from an investment perspective. Whether through subscriptions, annual contracts, or something similar, having some form of business income arriving with predictable frequency makes building and scaling a business much easier. If you do not have to hustle for every dollar, a more profitable and valuable business is created. Project-based revenue – the middle ground between recurring and one-time – has a little more frequency, but it is not quite as easy to establish (ask the executives of even the largest construction companies).
Don’t get me wrong, one-time revenue is great. The drawback is just that you get it and then the revenue goes away. That is sometimes a great thing. A one-time cash injection into a business can be exactly what the business needs. Maybe it helps the company scale production; maybe being a vendor provides the experience needed to sell at other events; maybe the cash coming in provides a much-needed cushion for company costs. It is great, but let us recognize it for what it is – one time. And while the entrepreneurial tendency is to focus on getting the cash, sometimes the best sale is no sale.
So let’s get ready to support the Games and to support the independent vendors working to build their business. But let us also work on remembering those entrepreneurs the day after the closing ceremonies. One-time attention is great, but consistency is needed as well.