Category Archives: Startup Culture

Entrepreneur Mindset: Lottery Players and Startup Unicorns

Startup Unicorns From The Startup Garage

Entrepreneur Mindset: Lottery Players and Startup Unicorns

4 MindSet Similarities Between Startup Unicorns and Lottery Players

As of March 17, 2016 CB Insights’s real time unicorn tracker, lists that 155 Startup Companies are valued at $1 billion or more with a total cumulative valuation of $550billion. 
A steady increase of 111 new companies since February 2014.

Although, the exclusive startup unicorn club appears to be more obtainable than previous years, the chances of winning big, like the lottery are few and far between.

In fact, the number looks to be just above 1% of all Startup companies, will obtain a billion dollar valuation.

The questions then become, has the media surrounding $billion valuations and the public hype of startup founders personal wealth and company culture, created a false hope for entrepreneurs?

Perhaps over sensationalized stories serve the same purpose as the MegaMillions billboards displaying the jackpot size, driving more players to enter the game, and encouraging people to start companies for the lure of being Megarich?

In Jan of 2016 a record breaking $1.6B Powerball jackpot, brought the North American lottery to new heights, unleashing a new breed of fortune hunters. I witnessed successful startup founders scramble to buy in, who never before considered playing the lottery.

A million dollar winning is no longer is enough, however the lure of a billion dollars cash out is the new Willy Wonka’s Golden Ticket for Startup founders and Lottery Players.

The Entrepreneur Mindset and Lottery Players Mindset

Risk-Takers

“Millennials don’t buy lottery tickets, they launch startups.”
A lotto player buys in for the mental reward of a chance of being rich.
A startup founder spends hundreds of dollars every week for the same reward: a very small chance of being rich, in order to be in charge of their own destiny.

Both Entrepreneurs and Lottery Players are natural risk-takers, 43% of entrepreneurs (compared to 34% of non-entrepreneurs) believe that risks must be taken in order to be successful. Risk-taking is almost synonymous with entrepreneurship, in order to start and support your own business, you’ll have to put your career, personal finances and even your mental health at stake.

However, with great risk comes great reward, even with the odds stacked against you.
Did you know, the odds of matching every lottery number are 1 in 175,223,510, according to Powerball.com. Are those good odds? A person has better odds of playing in the NBA (1 in 6,864,000), being a movie star (1 in 1,505,000) or becoming the president of the United States (1 in 10,000,000).

Persistent

By definition, persistence is the quality that allows someone to continue doing something or trying to do something even though it is difficult or opposed by other people.
True winners never gives up, “you gotta be in it to, win it,” strikes a cord for both entrepreneurs an lottery players.

Success takes thick skin, in order to crush the odds you can’t let anyone or anything stand in the way of reaching your goals.

Hopeful

Entrepreneurs and lottery winners, must fully committed to finding a way to beating the odds.
Both play the narrative of the “Hero’s Journey” with follows a basic pattern of stepping outside the ordinary world to embrace the call of adventure, while encountering a variety of tests, all for the big reward. Overall, an attitude of hope prevails even in the face of loosing lottery tickets, and unfunded startup businesses.

Big Dreamers

The good thing about startups and lotteries, are they give you back that ability to dream really big.
The lotto boasts:
Someone’s going to win why not you?

Dream Big. Win Big.
Your ticket to dream.
Dream Bigger.
Give your dreams a chance!
Dollar and a dream.
Give Your Dream a Chance

The Startup Garage team applauds the HopefulPersistent Risk-Takers in all of you who are willing to dream big!

If you have a question about your raising capital for your Startup or you’d like to discuss our business plan writing services, feel free to contact us for a free consultation!

Who Top Startup Founders & Entrepreneurs Follow on Instagram

Who Top Startup Founders & Entrepreneurs Follow on Instagram

We all need inspiration in our life, even successful Startup Founders & Entrepreneurs turn to visual content giant Instagram, for daily encouragement or perhaps a welcomed distraction.

The Startup Garage Team complied a list highlighting a handful of standout accounts they follow on Instagram, and what their personal photo posting style reveals.

Tony Hsieh @Downtowntony

Better know as the CEO of Delivering Happiness at Zappos.com

Follows 102 accounts on Instagram



His personal highlights include:


@Lifeisbeautifual An electric annual a music, art, food, festival in downtown Las Vegas
@Seniorstylebible An 81yr old retired Playboy bunny’s now style blogger
@Natgeo or the long tail version & legend National Geographic
@Tyrabanks professional Smizer Tyra Banks
@Ivankatrump the daughter of The Donald

Tony’s personal posting style is a fun mix of landscapes, art, dogs, with fun photo captions. That being said he hasn’t posted since 12/28/15. We hope to see more from Tony in 2016.

Biz Stone @BizStone

The american entrepreneur best know as the co-founder of Twitter.

Follows 59 accounts on Instagram

Personal Highlights include:

@therock or Dwayne Douglas Johnson outside the wrestling ring

@kevin Kevin Systrom the Ceo & Co-Founder of Instagram

@gregyaitanes Greg Yaianes emmy award winning director of the TV show Grey’s Anatomy

@Sacca Chris Sacca Silicon Valley venture investor, invested in Uber

@Zuck Mark Zuckerberg founder of Facebook

Biz’s personal posting style is family centric, he’s definitely a family man and loves using the early bird filter. He posts in the range of once a week.

Kevin Systrom @kevin

The godfather or Co-founder of Instagram
follows 619 Instagramers

Personal Highlights include:

@modernoutdoors Modern Outdoors visually storyteller thru exploration

@zachking Zach King is risen to Vine superstardom thru is fun 6 second videos

@Adele Adele chart breaking English singer and songer writer

@victoriabeckham aka Posh Spice

@Domperignonoffical Dom Perignon prestigious champagne

Kevin’s personal posting style includes almost daily posts. He loves his selfies with the interesting and the famous, plus he’s clearly a foodie & cocktail enthusiast.

Sheryl Sandberg @sherylsandberg

CEO of Facebook
follows 1670 Instagram accounts
Personal Highlights include:

@johnlegend John Legend R&B song writer and singer

@goodmorningamerica Good Morning America top headlines live from Time Square
@starwars Star Wars, May the force be with you
@sheplusplus She++ is a Stanford based community for female techies
@benparr Ben Parr author of “Captivology:The Science of Captivating People’s Attention”

Sheryl’s personal post are a mix of global humanity and feminism, with some carefully sprinkled photos of her life outside of activism and Facebook.

Elon Musk @elonmusk

Tesla Motors founder
follows 13 accounts on Instagram
Personal Highlights include:
@nasa exploring the planet and space
@norakirkpatrick an american actress seen in “The Office”
@talulahrm Talulah Riley an english actress seen in “Pride and Prejudice”
@adeo Adeo Ressi CEO of Founder Institute

Elon’s personal posts are best described as coffee, cars, and space, he’s posts are rare and he tends to go on post sprees of similar images.

Ashton Kutcher @Aplusk

TV star turned tech investor
follows 105 Instagram accounts
Personal Highlights include:
@Lauraprepon Laura Prepon better known as Alex from Orange is The New Black
@ddlovato pop singer & songwriter Demi Lovato
@Garyvee Gary Vaynerchuk digital media mastermind
@taylor swift Taylor Swift pop star singer and songwriter
@pk514 PK Creedon NFL Publicist

Aston’s personal style are inquisitive selfies, scenery, and cowboy boots.

Lori Griener @Lorigreinershark

As seen on QVC and Sharktank
follows 34 Instagram accounts
Personal Highlights include:
@kindofwild cute pet videos
@mindykaling Mindy Kaling comedian and star of “The Mindy Project”
@clean_and_delicious Dani Spies Health & Weight Loss Coach
@shanedawson Shane Dawson Youtube celebrity
@kyrenian Altug Galip travel photographer and adventurer

Lori’s personal style similar to Where’s Waldo and in this instance where’s Lori..see her here see her there, where’s Lori today? Along with some splashes of inspirational quotes.

Have your Entrepreneur Instagram questions answered, but still have questions about raising capital for your Startup, feel free to contact us for a free consultation!

How Does A Convertible Note Works For Startups?

How Does A Convertible Note Works For Startups?

A convertible note is an investment instrument intended to provide a startup company with early stage financing.

It’s a compromise of sorts, blending the downside protection associated with a loan and capturing the upside potential of selling equity shares.

Why are they used?

It can be very difficult for investors and entrepreneurs to agree on the valuation of an early stage company. Valuations are complex, and require a considerable amount of time and data that early stage startups just don’t have. A convertible note for startups allows the valuation conversation to be delayed until later down the road when a valuation can be more easily determined. Typically, this occurs at the next funding round. At which time, the note will convert from a loan to equity.

What’s the “discount rate” and other terms?

Early stage investors that invest in the form of a convertible note expect to be appropriately compensated for the extra risk taken by investing at such an early stage. As such, when a valuation is determined at a subsequent round of investment, the early stage investors typically receive a “discount” on that valuation where their investment gets converted at a cheaper valuation. The discount rate is predetermined and agreed upon at the time of signing the note. 20% is a common discount, but it can range widely from around 10% on the low end to 35% on the high end.

Here’s an example of the convertible note process:

Joe Angel invests $500K in a seed round investment
Startup issues Joe Angel a convertible note for $500K that has an automatic conversion feature at the next round of financing with a conversion discount of 20%
Startup closes a $1M Series A round with a VC at a pre-money valuation of $5M
VC receives 16.67% equity
Joe Angel’s note will convert to equity at a 20% discount on the pre-money valuation for 10% equity

The above return does not account for interest on the loan, which typically ranges from 5-7%. It’s not paid out like a regular loan, but instead accumulates and then the interest is added to the conversion amount at the end of the Series A startup funding round.

Main benefits:

Convertible notes are attractive for both the startup founders and potential investors. The startup needs this type of early funding to prove their concept and build momentum, and it gives savvy investors a way to gain significant discounted equity in a potential rising star.

Other benefits include:

Relatively simple to create, especially when compared to the preparation and legal resources needed for later funding rounds. The negotiations around valuation can be deferred, so the founders can focus on initial strategy and refining their service offering
Early investors should receive discounts because they took a chance on the firm at its earliest stages and they then often remain as loyal long-term investors.

Some caveats:

With the discount, the startup does give the investor a bigger stake in the company compared to the same money received by other investors, but this early-stage investment is often required in order to reach any growth.

On the investor’s side, they need to look very closely at the startup to be sure they are not taking on outsized-risk. The risk involved is higher than what is reflected in the typical 20% discount of the convertible note. This simply boils down to the challenges facing startups to actually move forward from seed to Series A funding rounds. Less companies are able to do it as they don’t build enough momentum to warrant larger-scale VC money.

Another risk for convertible note financing can come if the convertible note is too large. The problem can come when it converts to represent a big portion of the next round, which might discourage other investors from coming on board because they’re limited in the potential equity stake.

If you have a question about pursuing a convertible note strategy for your Startup or you’d like to discuss our business plan writing services, feel free to contact us for a free consultation!

Top 8 Success Tips For First Time Founders

Top 8 Success Tips For First Time Founders

As a Startup entrepreneur it’s easy for your work to become your life, and 8 years to effortlessly slip by.

I founded what has become The Startup Garage in January of 2008 with passion for helping entrepreneurs start and launch companies of impact.

Our business, team, and services have evolved, transformed, and changed many times over. Yet, throughout the years the fears, issues, and struggles seen amongst first time founders have remained the same.

As a Startup founder, regardless of where you are geographically or financially, there appears to be common threads, and snags all of us face at one point or another along the journey.

In 8 years of service, The Startup Garage, has helped over 200 companies, non-profits, social enterprises, find success. In celebration of our 8 year anniversary, I’d like to share with you.

My Top 8 Success Tips:

Startups take time. Create a plan that avoids too much false or unnecessary urgency.

Having a false sense of urgency can keep us from putting our energy into the right things at the right time. It’s true, success doesn’t just happen, it requires careful, detailed planning and action. Be sure to enlist the help of business plans, checklists and project management platforms, to prioritize and stick with daily, weekly, monthly, and annual goals.

Don’t focus too much on the product/service. Balance your focus.

All to often entrepreneurs become so excited over their product or service, that they get lost in their own enthusiasm. The core of the business might be the problem the product solves. But, it’s imperative to give equal weight to other key comments of the business like, the team, the marketing strategy, business model and customer feedback.

There is plenty of investor money out there for companies who reach the milestones investors care about. Know what investors care about and focus on that.

Remember as an entrepreneur your perspective and mindset, often times differs from that of an investor. We’ve designed a helpful infographic here>> Achieve Investor Milestones
to keep you visually in tune with achieving the milestones investors care about, to communicate with them in a language they understand.

Founders are the biggest problem for most startups. Get out of your own way.

We call this the founder’s dilemma, and it’s a big one. Founders don’t let go easy, surrendering control, delegating tasks, and learning to be a leader rather than a micro-manager can take time. Recognize the dilemma and start delegating tasks even if it feels uncomfortable.

Healthy founders leads to healthy startups.

Founders are the core of a business inspiration, motivation, and success starts with you, then ripples out to the organization at large. Your business is your responsibility, treat it with care by caring for your health and well-being. To be efficient and firing at a high caliber it’s essential to embrace a healthy physical routine, and check in with your mental state. Moderation is key, working non-stop leads to startup burnout, and doesn’t help anyone within your startup.

Know your exit strategy.

Knowing your end game, makes every decision easier. Having clarity on on your exit plan, whether it’s not exiting, Merger & Acquisition, or IPO affects how you run your business day to day.

Planning is critical

The lifecycle of you startup depends upon planning, documenting, and communicating even the most mundane tasks.

Take on the student role and always be learning.

The smartest founders, are the ones that don’t know all the answers. Being a lifetime learner, evokes greater innovation and creativity. Knowledge is power and will help increase awareness of the world around you.

If you have a question about your raising capital for your Startup or you’d like to discuss our business plan writing services, feel free to contact us for a free consultation!

14 Key Insights From The Lean Entrepreneur Author Brant Cooper

14 Key Insights From The Lean Entrepreneur Author Brant Cooper

The Startup Grind San Diego hosts monthly fireside chats, featuring successful local founders, innovators, educators and investors.

The Startup Garage Team had the pleasure of attending Dec 10th event featuring San Diego Startup pioneer Brant Cooper.

Brant is the author of The Lean Entrepreneur, which supports organizations in jump-starting their innovation practices. He travels the globe helping to teach and educate entrepreneurs and intraprenuers,
through the simple objective of empowering individuals to make the change they want to see in the world.

We found Brant to be humble, entertaining, and very inspiring.

The TSG team couldn’t help but share 14 Key Insights we picked up from his talk.

San Diego Startup Community Verse Silicon Valley

The comparison needs to stop. We’re not Silicon Valley, we’re never going to be Silicon Valley. We don’t want to be Silicon Valley or we would be living in Silicon Valley.

Women Entrepreneurs

We’re one generation away worldwide from woman dominating entrepreneurship.

Women Entrepreneurs
are now economically empowered to start their own businesses.

Large Enterprise & Startups

Help Larger Enterprise by teaching entrepreneur skills. Make large enterprises value creation machines, so that they can give back new value to customers, as opposed to just being focused on wealth.

The Transformation to Value Creation Machines

It’s fun to be in a startup, but you can start being this way in a large organization too by being more entrepreneurial, closer to their customer, faster, and more agile.

College and Entrepreneurship

The real unicorn is someone who drops out of high school and hits it big.

Incubators and Accelerators – Mentorship

The biggest difficulty around the world aside from Silicon Valley and maybe NYC is the mentors, finding quality mentors that really know how to do startup mentoring is really hard.

Most Eco-systems are pulling people from large businesses, their heart is in the right place, and they can give great advice on a particular industry, but when it comes to founders issues, entrepreneurism, specific technologies, a lot of mentors don’t know what a startup is all about.

Entrepreneurship Best Practices

Top Ten Things Entrepreneurs Don’t Do…Read a Top Ten List.
The thing that’s overlooked the most is hustle.
It is the relentlessly pursue part that is actually going to make your idea a success.

We’re in a Customer Centric World

The rise of UX & Design.
The productivity gains we’re going to find are on the end user side.
You’ve build a satisfied customer experience, now you need to surpass the threshold and build passion, not with your product.

Crowdfunding a Book

It’s a great way to get a marketing budget, while helping build a community around the value proposition of the book. Be cautious, taking money from people that aren’t in your market segment is always a big no no, and actually dangerous.

Lean Principles

The idea around lean is the elimination of waste. Don’t waste your time, money, resources, creativity, inspiration in building products nobody wants.

Emerging Industries in SD

There’s a lot of people that think an eco-system can choose what industry to develop. Rather An eco-systems gets chosen, industries are chosen based upon who exits.

Entrepreneur Complaints

Entrepreneurs no matter where they are alway complain over a lack of money.
You can build your startup here (SD) and not have to move if you build out your business model.
You can complain about a lack of seed money, but if you build a successful business model you can raise money, bottom line.

Government and Startups

There’s a lot of mythology around the government money and innovation. The government even in the US has funded in some way almost all innovation we have ever done.

Startup Marketing

You should be able to see some organic growth that shows that there’s some buzz around the product, without spending any money on marketing.
Too quickly we’re into building the product and all the features, then now I need a marketing budget, and I need to spend a bunch of money on marketing in order to create a buzz.
Rather, the product better start the buzz, marketing is for amplifying the buzz the product creates, not for creating it’s own buzz.

Watch the complete interview here>>
Brant Cooper at Startup Grind San Diego

If you have a question about your raising capital for your Startup or you’d like to discuss our business plan writing services, feel free to contact us for a free consultation!

Why To Take Caution With Investor “Finders”

Why To Take Caution With Investor “Finders”

There are many service providers that offer to help startups with attracting investors, colloquially referred to as “finders.”

While they prefer to be called business brokers or consultants, most finders are either CPAs, insurance brokers, retired executives, or former entrepreneurs. They mostly operate in the Angel landscape, targeting deals between $100K to $2M.

Typically, they will either require a large retainer, an upfront fee, a percentage of capital raised, or some combination of all three.

The service they provide ranges from screening investors and setup meetings to developing a list of high-net-worth prospects for entrepreneurs to call on.

Unfortunately, there is a lot of controversy when working with finders. First, a sizeable majority of finders are not actually licensed as a securities broker by FINRA and are therefore in violation of federal and state security laws, whether they know it or not. Second, many finders are not capable of delivering on their promises or simply disappear as soon as you hand them a retainer check.

How This Affects You:

The issue that Startups face when working with unlicensed finders is that their legal problems can quickly spread to the startup as well. Payments to an unlawful finders can cause an entire transaction to violate securities law, giving investors a right to undo the deal as well as sue the Startup for damages.

Even if an investor does not undo the deal, these unlawful transactions can come back to haunt the company if and when the company decides to sell or go public as it may be forced to disclose the violations, thereby jeopardizing the pending deal. On the other hand, working with less than honest finders will clearly be a waste of time and money.

Advice:

Retain a good corporate securities attorney before you engage with a finder. Your securities attorney should be able to:

A) help you understand the full scope of risk of using finders in financing transactions.

B) help you verify that your potential finder is licensed with FINRA and your local state’s regulators.

C) ensure that your finder does not have any substantial complaints against them.

If you have a question about raising capital for your Startup or you’d like to discuss our business plan writing services, feel free to contact us for a free consultation!

How To “Winterize” Your Business For Success in 2016

How To “Winterize” Your Business For Success in 2016

Businesses, just like homes, require winterization in order to save money, increase efficiency, and keep things running smoothly in the cold months ahead.

Every business from app development to accounting needs to be prepared for when business is slow.

Here are 4 tips to prepare your business for the big freeze, and have you thriving in 2016.

Furnace | The Heater of The Business

Behind every business, there’s a heating system, a powerhouse of a team, supplying a warmth of knowledge and resources. It’s true, teams are like furnaces; they need to be reliable, dependable, and have the ability to start and deliver “heat” regardless of season or circumstance.

Winter is the perfect opportunity to check in with team members to review how energy/time are being “spent,” to ensure each team member is heating up to their full potential, while in alignment for the common good of the business.

The fate of your company depends largely on your team. Evaluate and examine what inspires, motivates, and increases the heat for your team members. Perhaps it’s a weekly yoga session on-site? A monthly education talk? Working remotely once per month?

Flip on the power switch, and get your team fired up for success.

Storm Windows & Doors | The Protector Of The Business

It’s fair to say that outside “temperatures” like the stock market, banking institutions, and technology, influence the internal temperature of a business.

Is your business protected and adjusting to the current and future market temperatures, or is your business frozen in time?

In times of “freezing” temperatures (whether in funding, manufacturing, or building a team) add an increased layer of insulation to your business by researching, documenting, and analyzing the following:

Profitability
Revenue
Active Customers
Registered users
Engagement
Partnerships/clients
Traffic

The best protection for your business is knowing and understanding your business model from the inside out.

Ceiling Fans | The Reverse Engineer of The Business

Most people think of ceiling fans only on hot summer nights when they want to be cool.
However, ceiling fans also come with a handy reverse switch that changes the direction of the blades into clockwise rotation. A clockwise rotation reverses those cool breezes into warm circulation air.

Smart entrepreneurs know the power in reverse engineering success.

The four keys are:
Determine the most basic level of the goal.
Ensure that you are committed.
Identify as many steps as possible that are required to reach the goal.

Take action.

Emergency Kit | Tools for Business Survival

The road to success for your business is full of unexpected twists, turns, and various terrains.
No one enjoys getting stranded in a cold or dark home, but when you have a well-equipped emergency kit prepared, the situation becomes more bearable.

A business survival kit should include the following 3 items:
A strong Entrepreneurial network
An air-tight business plan
A strategic financial plan

Cheers to the continued success of your business in 2016 regardless of the season!

If you have a question about your Startup business idea or you’d like to discuss our business plan writing services, feel free to contact us for a free consultation!

Want to Join The Startup Garage For FREE at Launch Festival in San Francisco?

Want to Join The Startup Garage For FREE at Launch Festival in San Francisco?

The Launch Festival in San Francisco is March 2-4th 2016.

The Event promises to be the greatest startup conference in the world, with 15,000 attendees, 4 stages, and 250 top notch speakers.

All with the mission to help founders build, scale, and secure funding.

“This whole festival is a celebration of entrepreneurship,” said angel investor Jason Calacanis, who has organized Launch Festival events for eight years now.

The Startup Garage loves what Launch Festival is doing and have heard countless success stories of previous attendees. “This is very good for us start-ups to meet both potential customers, potential partners and potential investors. And it’s also getting the media exposure, being on stage,” said Dr. Alexander Borve, co-founder and CEO of First Derm

We excited to offer you our friends and founders FREE passes to the event, as a way to support and inspire innovation. Simple Go to launchfestival.com/thestartupgarage to claim your free pass.

Ready to not just attend but also take the stage?
If you’d like to debut your Startup Idea on stage in front of their 15,000 founders, entrepreneurs, investors, and tech enthusiasts?
Go to launchfestival.com/competition to apply for the LAUNCH competition.

The winner receives a $200k investment from Jason Calacanis and a slot in the LAUNCH Incubator.

They will also be holding the LAUNCH Hackathon (with 15K hackers and $1M+ in prizes) on February 26-28. You can apply HERE. 250 teams of four will spend 48 hours creating a company, with the top seven making it to the main stage of the LAUNCH Festival on Friday where they will be given two minutes to show their creations before a grilling from our judges!

San Francisco, the city by the bay, is an entrepreneurial hotspot, this monumental 3 day event is sure to put some stretch marks on your brain and business.

If you’ll be attending please connect with us @Startup_garage on Twitter!

Tweet “See you at #LaunchFestival SF @Startup_garage”

We’d love to say hello in person.

How To Understand Customer Lifetime Value and Customer Acquisition Costs?

How To Understand Customer Lifetime Value and Customer Acquisition Costs?

The Key to Profitability for your business

Understanding customer lifetime value and customer acquisition costs.

It comes as no surprise that a company must earn more revenue over the lifetime of any given customer (referred to as Customer Lifetime Value or CLTV) than it costs to acquire the customer (referred to as Customer Acquisition Cost or CAC).

While there are additional overhead and operating expenses that affect profitability, the first step in building a profitable business is to implement a scalable business model where your Customer Acquisition Cost is lower than your Customer Lifetime Value.

In theory, this seems rather obvious. However, putting this concept into practice can be difficult as your CLTV and CAC aren’t always extremely apparent. Additionally, it takes seasoned marketers and business leaders who understand how retention rates, sales & marketing channels, and business models affect

CLTV and CAC.

In this blog I’ll be discussing the factors that affect CLTV and CAC as well as strategies for increasing CLTV and reducing CAC. While much of what’s presented below is generally true across most industries, there are certainly caveats for every industry and business model.

Customer Lifetime Value

Before we discuss strategies for increasing CLTV, let’s wrap our heads around what CLTV is and how it is calculated. In its simplest form, CLTV is a prediction of the net profit attributed to the entire future relationship with a customer. CLTV is calculated by forecasting the average customer lifetime (the number of months the customer purchases your product), the average monthly spend of your customers, and the average monthly cost of distributing your products.

As a result, you can increase your CLTV by:

1) increasing the average monthly spend
2) increasing the average customer lifetime
3) decreasing the cost of distributing your product.

Increasing Average Monthly Spend Per Customer

The most immediate way to increase your average monthly spend is to increase your price. However, an increase in price will often lead to either a reduction in conversion rates (the number of total customers) or a reduction in retention rates (the number of repeat purchases from a given customer).

You don’t want to increase your average monthly spend only to decrease the total number of customers or the average customer lifetime.

You can also increase the average monthly spend through upselling and cross-selling techniques. Think of Amazon suggesting additional products and services bought by other customers looking at the same item. Additionally, you can implement increase average monthly spend by implementing loyalty programs, improving conversion rates through website optimization, and streamlining the sales process.

Increasing Average Customer Lifetime

CLTV can also be increased by improving retention rates, or the percentage of customers that remain customers over time. Companies with low retention rates are required to draw the majority of their profits from just one purchase per customer while companies with high retention rates benefit from spreading their CLTV over numerous purchases.

Retention rates can be increased by improving customer satisfaction through strategies such as customer service and support centers, sending periodic discounts and promotions, offering loyalty programs, and enhancing the overall customer experience.

Decreasing the Cost of Distribution and Fulfillment

Every business’ cost structure will vary but some of the more common ways to decrease the cost of distribution and fulfillment include: purchasing inventory in larger amounts, utilizing cheaper vendors and suppliers, substituting lower cost materials, decreasing base salaries and increasing commissions, utilizing independent reps over in-house reps, and reducing waste.

Customer Acquisition Cost

Developing a business model that results in a low CAC and that is scalable is difficult and where many startup businesses fail. In a world of data overload, it is challenging to attract and successfully sell products and services to people that have never heard of you. Every product and service is different, but for most companies the customer goes through several stages before making a purchase.

First, they have to become aware of your product or service through PR, advertisements, word of mouth, social media, reviews and blogs, etc. Next, they often need to be courted by sales reps and go through some sort of on boarding process.

This process from start to finish can be costly. Naturally, you have options as to how you allocate your marketing and customer acquisition dollars. Strategies such as SEO are typically low cost but usually don’t offer a strong degree of control, targeting, and results. Unlike strategies such as direct sales which are typically very costly but come with a strong degree of control, targeting, and results.

It is important for businesses to research standards in their industry and then benchmark themselves against those standards in order to pick the appropriate channel mix for their business. Additionally, companies can get creative with low cost channels that will help to reduce the average CAC across all channels.

For example, referral and word of mouth programs (such as business that offer one month free for every 10 friends referred) are a great way to acquire new customers at very low costs. While you cannot rely on these strategies exclusively, they will help reduce the average CAC across all strategies.

Optimizing the CAC and CLTV ratio is crucial to the success of any business. The earlier the business can figure out the right mix the sooner they can begin scaling in a profitable way.

Here at The Startup Garage, we help entrepreneurs devise the appropriate business models and sales and marketing strategies that will enable them to scale a profitable business. Contact us to learn more.

Ready to win over $10,000 in Prizes for your Brilliant Business Idea?

Ready to win over $10,000 in Prizes for your Brilliant Business Idea?

The Startup Garage is excited to co-sponsor in “The Ideator December Challenge.”
A challenge designed to bring your business idea into conception.

Submissions currently open now until Dec 13, 2015 at 5pm (PST) entering is easy and done completely virtually.

Enter here today >>>December Challenge Idea Competition

The winner will be walking with $10,00 plus advisor board access, key mentorships, investor relationships, and specialized tools and resources from challenge sponsors:

SalesForce.Org
box.Org
Google
Pledge 1%
Crunchbase
Nasdaq Entrepreneurial Center
BandofAngels
LegalZoom
Perkinscoie
Listhunt
SplashU

All ideas at any stage are welcome, this challenge is designed to bring your idea to life!
Judges are looking for the biggest idea with the best-defined roadmap to success.

The Top 5 idea will be notified on December 14th and selected to pitch in the finals on December 15th at 5pm PST.

5 questions to answer when entering to optimize your pitch are:

How big of a problem does the product solve?
How well does the product solve the problem?
How well do the docs, if any, support the idea?
How has collaboration helped the idea?
Do the goals and tasks adequately outline a roadmap to success?

Remember to structure your pitch in a colorful story with a beginning, middle, and end.
Let your personality shine through without being too salesy, vague, or abstract.

Ideator was created to foster global innovation and entrepreneurship, while also making them easier.
The Startup Garage Team, know’s it’s ideas like yours that continue to shift the landscape of business innovation.

We look forward to hearing your ideas and helping launch them to the world!