Why does Revenue Matter?
Published on March 24, 2015 under Latest News
Is anyone else getting a sense of de-javu? There’s a lot of commentary at the moment suggesting revenue doesn’t matter, it’s all about building a user base. There was similar commentary in 1999.
For the majority, this is not the case. If you’re intent is to disrupt an industry to create substantial value, that involves disrupting an existing business model and, come what may, revenue matters. Having a user base to monetise is an incredibly important part of that strategy – that is a topic for another time.
So what is revenue? Revenue is the cash that customers pay you for your product or service (once you take the GST out). If they don’t pay you anything, it’s not revenue (and they’re not customers, they’re users).
Why is it important? There’s a few reasons:
- Revenue is the strongest indication you’ve cracked the “product market fit”” step. If customers are prepared to pay cash for something it means they believe you’ve filled a need for them.
- Revenue doesn’t involve term sheets (equity) or money you have to pay back (debt).
- Revenue is used a lot in valuations everywhere. “Recurring revenue” is the most valuable.
- Some companies have a product known as a “cash cow”. A truly visionary CEO will use this to fund a new and disruptive product without having to capital raise.
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