Web Apps and Software-as-a-Service that comes from consulting companies or other service businesses can be lucrative but can be held back by non-scalable revenue streams.
Do you have a less-scalable revenue stream that you rely on even though it is holding your business back? We’ll call this a Revenue Crutch. It is something you keep turning to because it is “easier money” even though it is negatively affecting the growth of your business. While I thought I coined the term “revenue crutch,” Google says otherwise. So, I will be the one to popularize it!
What if you drew a line in the sand today and said “no more revenue from that crutch revenue stream!” what would your primary revenue stream be instead?
For SaaS and Web App companies, quite often we see “crutch revenue” as Professional Services, On-boarding, Consulting, Custom Programming, Installation, etc. These are things that are often human-powered; that is, they don’t scale efficiently since humans don’t scale well. If you need to do more of any of these services, you have to add humans and therefore significant cost. It makes it difficult to reach those “economies of scale” that makes true SaaS so attractive as a Business Architecture. For SaaS companies, these “revenue crutches” might not kill your business, but they could keep the business from growing.
“But wait, aren’t these under the ‘Services’ category of the 7 SaaS Revenue Streams?” you might ask if you have read the revenue modeling report. Yes, by the way, they are. And there are ways to leverage each of those services listed above in more scalable ways – mostly by moving as much of the “repeatable” processes into the app. But for SaaS companies, those should likely not be the primary revenue streams. For many early-stage – especially bootstrapped – startups, the crutch revenue is often the primary revenue stream!
Rather than focusing on more scalable revenue streams – even if recurring revenue from subscriptions is what they want to be the primary revenue stream – they often go back to their comfort zone. This often comes from many founders having regular jobs or being consultants before they founded their new company. They aren’t used to generating revenue in ways that don’t include trading hours for dollars and have a hard time separating themselves from the service they are building
Think of Crutch Revenue as “easier money” – sometimes it is actually full-on “easy money” – but it holds back your overall growth as a company. Instead of “crutch” maybe it could be considered “comfort zone revenue” – that is, you always go back to what you know, what is comfortable, etc. For many businesses these crutch or comfort zone revenue streams are really the “go to” revenue streams – or legacy revenue streams – that keep us from moving forward.
You know how comfort food – at least in the United States – is full of sugar, cholesterol, fat and other things that are terrible for us but we still gravitate to that when we get down and need a food hug? Think of comfort-zone revenue in the same way… every once in a while its okay, but if you eat it all the time you’ll probably feel really bad until you finally die an early death. Get it?
Consider also that for many entrepreneurs, their day job is their crutch – or comfort zone – revenue… easy money, but it could be holding them back in life. When I said that on Twitter, I received a comment that said “or how to pay the bills while creating next new thing” – but that, to me, is the wrong attitude. I tweeted back to him that the ideas around the Lean Startup movement can really help here – especially in boostrapped startups.
Here’s the plan: Do Customer Development, run some smoke tests, then build a Minimum Viable Product (MVP) that meets a real business need, sell it – for money – to the customers who have already told you they’d pay for it (or ideally have ALREADY paid you), get to profitable revenue quickly then quit your day job!
Staying in your comfort zone while you “build the next big thing” is a recipe for a lot of wasted time “moonlighting” as a “startup guy” rather than building a business.
So, regardless of your stage, funding, etc. what if you took a chance & pulled the plug on that crutch revenue stream – you know the one I’m talking about – and put your effort elsewhere; what would happen? How would your business change? Would it be good or bad? What if your primary revenue stream is your crutch revenue stream? What will you do?
So, are you ready to say screw it and rip out your reliance on “crutch revenue” to grow your business or are you going to continue to hedge your bets?
If you think you’ll raise external money from professional or sophisticated investors for your SaaS idea while continuing to hedge your bets… think again. Rich Uncle Joe might give you some money, but real investors won’t!
So call it a pivot, a shift, whatever… are you ready to take your business to the next level or are you going to stay in your comfort zone?
If you’re curious how we could help you move beyond your comfort zone, contact me and we’ll setup a time to chat about it…
– Lincoln
(972) 200-9317