Ways To Prioritize What Matters: Exaggerate Scenarios
When I asked Bill, my old coworker and a new startup founder, where he wanted to be in five years, he said he wanted one million active users and $5 million in revenue with positive cash flow. As we reviewed his plan to get there, it became clear that these two goals weren’t necessarily connected. The number of active users was related to revenue, but not necessarily to profitability. As a Software-as-a-Service (SaaS) business, growth would likely hurt his short term profitability. Since SaaS businesses incur most of the cost of acquiring and setting up customers upfront and recoup them over time through smaller subscription fees, Bill’s goal’s weren’t lining up.
One helpful exercise to ensure that you’re effectively prioritizing the right goals is to analyze different outcomes. For Bill, would he be more successful with 2 million active users and $2.5M in revenue or with 500k active users and $10M in revenue? The answer helps a founder understand if they should prioritize user growth or revenue growth. Would he rather earn $1M in profit while growing to $5 million in revenue or incur $1M in losses while growing the business to $10 million in revenue? In other words, does he value profitability or growth?
These exaggerated scenarios make it really easy to understand your priorities, and they often uncover some hidden truths. In Bill’s case, profitable revenue was his top priority, and it would actually be better if he could get there with less users. Bill’s business plan to grow a profitable company proved to be much different than one that hoped to have 1 million users.
After working through this exercise, Bill could rest easy knowing that the goals he was working towards were the right ones. Now, instead of wasting effort trying to achieve a long list of goals, Bill could focus on what mattered most.