Key Resources, Key Activities and Costs (Part 1)
Pulled from a Venture School Lean LaunchPad Lecture, this article sheds some light on common mistakes, or “landmines,” around accessing key resources, activities and costs. The Lean Business Canvas looks at both the revenue and expense side of the startup. The goal is to
generate substantially more revenue than expenses. To attract talent, capital (grants, debt or equity)
people have to believe there is a growth opportunity that will deliver profits with appropriate execution.
Revenue Growth Projections ≠ Marketing Investment ≠ Staffing Plans.
A common mistake in assembling the pro forma financials is to project sales growth, without matching changes in logically connected variable expenses, especially marketing investments and staffing plans necessary to make and support the sale. Get this wrong and investors will conclude you can’t make these numbers come true. All of the building blocks of the Lean Business Canvas fit together. If you understand how the
market works you should understand what key resources it will take and what those key resources cost
to deliver on a unique value proposition to a target customer. Sales don’t happen by magic. You have to fund the process or system of sales.
High Fixed Costs for Activity vs. Variable Costs for Results.
Investors strongly prefer to pay high commissions for results (a variable cost tied to actual sales volume) over paying high fixed costs. The
rewards for owners or creators are at the end of the rainbow and not the start. Compensation should
be built on results not time or effort. This means low or no salaries until there is revenue to support it.
The marketing/sales director often makes more money in an entrepreneurial venture than the CEO or
owner, especially during the ramp up phase. Investors want you motivated and your interests aligned
with theirs. High salaries for early-stage founders are frowned on as founders taking money off the table
when other investors can’t.
Hitting a sales goal six months or a year late substantially and adversely changes the they could have earned by investing the same money in alternative investment options. Returning the
money late reduces the value of the investment.
Employee or Independent Contractor.
You can save money by contracting out some work, but be sure you know the difference between an independent contractor and an employee. If you pay someone as an independent contractor and it is later determined by the IRS that they were in fact an employee, the tax penalties can hurt. You also have less control over the “how work is performed” of an independent contractor. You have to be very specific about outcomes with independent contractors.
Daniel Pitts Winegarden, JD, Director Business Incubation and Acceleration Services John Pappajohn Entrepreneurial Center/ North Iowa Business Accelerator