Revenue growth is the lifeblood of a startup. Growth can get your business out of (most) problems, and gives leaders the runway to figure out the rest.
However, growth won’t always come from your existing revenue streams: they could dry up due to unforeseen circumstances (see: COVID-19) or hit a natural ceiling in the market. Maybe growth ambitions simply require multiple revenue streams. Regardless of the motivation, it’s important to look for new revenue streams strategically to maximize resources.
Speaking with BetaKit, Xero Canada Country Manager Faye Pang shared her advice for how startups can find new revenue streams.
1. New revenue from existing customers
Pang said the first place entrepreneurs should look for new revenue opportunities is within their existing customer base. People you’ve already sold to already trust you and are more likely to be willing to spend money with you, so your costs of acquisition can be significantly lower. Further, existing customers are more likely to provide feedback on what they want since you already have a relationship with them.
The most common way to earn more from current customers is to have them move up a tier in your subscription pricing or order more of your product or service. However, Pang noted three other opportunities that startup leaders can pursue:
- 1. Cross-selling into other products or services you have that solve adjacent problems.
- 2. Building new solutions with your existing capabilities in order to serve customers more.
- 3. Creating a referral or affiliate community where you get a commission for helping customers find other products or solutions to solve problems that you can’t.
In times of change, you might also find a new revenue stream with current customers by accelerating the change. For example, Pang shared a story about a tech company that modified its product roadmap during the early days of the COVID-19 pandemic to prioritize virtual conferencing software that had previously been shelved. This shift meant they could sell a new product to current customers and acquire more by riding the wave of remote collaboration brought on by the pandemic.
2. New revenue from existing products
Customer-led product development is great because you already have a relationship. However, this isn’t always feasible – sometimes you need to get more value from your existing products because you don’t have the time or resources to build something new.
When looking for new revenue from existing products, Pang offered three approaches:
- 1. New markets: Look for a different community with a similar need. For example, many CPG products are “for women” or “for men” even though the ingredients for both are basically identical. If you’ve been producing products for only one community, there might be an opportunity in a “new” but similar market.
- 2. New distribution channels: A common example of new distribution channels during the COVID-19 pandemic was brick-and-mortar small businesses selling online and direct-to-consumer (DTC). Pang said other examples here include resellers or affiliate networks that can introduce your product to new people.
- 3. New use cases: Many products – especially technology products – can be used in different ways. Talk to your customers and ask them the ways they are using your product. You might uncover additional use cases that can draw in new customers.
It’s important to note that when using existing products to fuel growth, you will have to focus resources on sales and marketing. So while it can be very lucrative to earn new revenue without new product development, this isn’t a “free” growth strategy.
If existing products and markets aren’t cutting it anymore, you may need to pivot to find new revenue streams. Pang said there are two main types of pivots: reorganizing your business, and entering a new business line entirely.
Reorganizing is when you stick to the same business fundamentals, but change your approach. Pang shared the example of a high-end Mexican restaurant with two locations, both shut down due to COVID-19 restrictions. The founder turned one location into a ghost kitchen prepping meal kits of menu favourites, sold via pickup, delivery, and ecommerce DTC. He then pivoted the ultra-high-end location from a sit-down restaurant to a gourmet thin crust pizza kitchen that operated on pickup and delivery. Despite staying firmly in food service, the company dramatically changed how it operated. This not only opened up new revenue streams – meal kits and pizza – but streamlined food and labour expenses, which increased profitability.
Entering a new market is another path to consider, but Pang doesn’t recommend moving into a new business entirely unless you have strong financials because it’s a bigger risk. She also cautioned companies to make sure they have “permission” from customers to enter a new market – otherwise, it could fail miserably.
For example, it wouldn’t make sense for a low-end pizza joint to get into producing high-end sustainable running shoes, no matter how much demand there was for a sustainable shoe. Not only are the business models wildly different, but customers would not expect the transition and might abandon the brand. Instead, companies should think about new business lines in the context of their current brand, vision, and what customers expect of them.
New revenue requires creativity (and data)
Entrepreneurs bring passion and creativity to their work every day, and finding new revenue streams requires nothing less. But Pang added that when it comes to new revenue, founders should take a data-driven approach. She recommended that founders start by analyzing their business as-is to gather insights about current revenues, current customer segments, and any customer feedback that might suggest a new opportunity to chase. With the right data to start, entrepreneurial creativity can take off and identify unique opportunities for the business.
“Run the numbers to see what opportunities might work for you,” said Pang.
Image courtesy of Unsplash.