Burn rate (3): revenue first (better before cheaper)

Given the formula [available cash / (income – expenditure), there are two obvious ways to extend your organisation’s life: you can increase income (revenue) or reduce expenditure.

Revenue First

You need to think about revenue first because without income it doesn’t matter how efficient you are. In fact, in terms of staying alive efficiency doesn’t matter at all. As long as revenue is bigger than expenditure (give or take the nuance of cash flow) you can run forever.

In a non-profit, having users or customers pay for the services they receive is a fast way to 1) check that you’re offering something that people actually value and 2) be able to grow as needed, because your growth pays for itself.

People pay for what you’re offering not because it’s cheap, but because it’s something they want or need, and they think it’s worth it.

Tom Peters on Revenue First

Here’s Tom Peters with his INIMITABLE CAPS:

During a five-year research effort, Deloitte senior partners Michael Raynor and Mumtaz Ahmed mined a database of over twenty-five thousand companies from hundreds of industries, stretching back forty-five years. They uncovered 344 firms whose performance qualified as statistically “exceptional.” Finally, following more analytic winnowing, the set was reduced to twenty-seven firms whose long-term strategies were examined in excruciating detail. Those surviving this hyperintense scrutiny included Linear Technology, Thomas & Betts, Weis Markets, and Heartland Express.

The research became the basis for the masterful book The Three Rules: How Exceptional Companies Think. Dozens of plausible hypotheses regarding superior performance were tested, and the winners—the three (and only three) rules—that emerged were:

BETTER BEFORE CHEAPER.
REVENUE BEFORE COST.
THERE ARE NO OTHER RULES.

This may sound straightforward and obvious. It is not. Those who stick to these dictums through hell and high water are, the Three Rules research underscores, rare indeed—see above, twenty-seven out of twenty-five thousand!

Tom Peters – The Excellence Dividend

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