The Startups Underutilized Tool
Benchmarking – Revisited
Whereas benchmarking is a tool that gathers information in order to be able to compare the analytics of companies in the same market, technology or industry, I believe in my experience in startups it is underutilized. In a new startup with not understanding the unknown, entrepreneurs can use all the help they can get.
Applicable elements to Benchmark early on include, operating margin, revenue, pricing and even employee compensation and efficiency. Information gathered before and after establishing a startup can provide vital information to help with the business marketing and operating plans and the growth.
Any start up, particularly if it's a new idea or new solution, is hard to know what the degree of completion in the market is. The business model becomes very important and that has to include customer demographics and potential partners like advisor’s coaches and directors. The whole idea of adding advisors is to find people who've “have been there, done that” and can relate their experiences to a startup.
I find one of the most difficult things in building the business plan is finding the marketing need for customer service. In my world I see numerous presentations from entrepreneur startups every month and no doubt the majority of the combination products are applications and Internet services.
I see projections with hundreds of thousands of potential customers. One company had a product dedicated to seniors over 75 years old and they had a subscription service so they had to project the level of calls they would get from customers. Being a senior I could envision many problems that required calls and help from a person forgetting plugging battery charge or getting a newsletter they didn’t understand. At the one hundred thousand level I suggested they assume it would be a one-minute call annually that needed help. This would need 50 people per 100,000 customers. It got my attention. There were ahead of me and had a number assumed, but in addition had weekly meetings analyzing the calls they were getting.
I don't know if 50 is an accurate number but is a good place to start. I believe the basis for any forecast business plan is a list of assumptions and this is a key one. As this company was going to watch it along the way I thought that was a good discipline. But finding a similar company to relate too can really help.
In the early days of computers and telecommunications Manufacturing was the king and you could almost bet money on manufacturing company revenue was $150,000 per employee. Today a leader in the social media can and have $1 million per employee. This can be misleading to a startup and I do have some concern when I see a startup plan using $1 million revenue per employee.
If they're playing a broker role where they're bringing together service on one side to the customer. I like to point out that Google is an advertising company and writes no copy. Facebook is a publishing company and provides no content. People buy into their product free. This is a lot different when you actually provide a service in particular when you charge a monthly fee. I believe Benchmarking can go a long way if a company that fits the product market or technology.
One startup team I worked with decided to develop a market for designer garments for men. We got on the subject of Benchmarking and in a short time came they up with Victoria's Secrets. One thing they learn from in particular is how long and the difficulty to reach success. It gave a different perspective.
Another example occurred when I was running a small engineering design company at the request of the founder, an engineer, who wanted growth to $25 million in revenue. We were doing less than $3 million. On line we found a public company at $200 million revenue level also doing engineering designs for their customers.
This provided lots of information. We scaled the numbers down by four to assume it was more like a $25 million company in our market. It wasn't perfect, but useful by helping us to plan our activities for manpower, how to approach the market, facilities, in cash needed to grow to the revenue level. On the way to $25 million, the founder ultimately sold his company for 8 million.
Benchmarking can help reduce the unknown and it is worth try to find a near match to the market segment, product or technology.