4 key questions leaders need to answer

My favorite part of teaching is doing question and answer sessions. On August 25, I took part in a question and answer session with two entrepreneurs who had read my book, Hungry startup strategy.

This brought to mind a fundamental question: what are the top questions from investors, customers, employees, suppliers and others that business leaders need to answer to sustain their business growth?

While I’m not comprehensive, I have four key questions to business success and how business leaders can find compelling answers.

1. How big is your addressable market and how fast is it growing?

This question is crucial because if there is no market for your product, you cannot build a business around it.

Investors and employees are interested in market size and growth because they want to bet on, or work for, a company that has the potential to go public – which means it will have $100 million in sales and must grow faster than 30 percent per year. If the company can go public, venture capitalists will see a return (ROI) and employee stock options will become valuable.

Venture capitalists expect a company to win no more than 10 percent of a market. So, to achieve this scale and growth rate, target your business to an addressable market of at least $1 billion. Of course, investors prefer much larger markets and will make sure that the market size you are offering them is truly addressable – e.g. B. Customers in this market will pay for your product.

Here are three tips to answer that question:

  • Look for credible research that quantifies the size and growth of your target market
  • If such studies don’t exist, make an estimate based on the number of potential customers, how many units of product they will buy each year, and the unit price
  • Survey potential customers so you can gauge how much of that market size your business can appeal to

2. What is your current market share and how will you increase it?

Companies often participate in a portfolio of markets. As I wrote Disciplined growth strategies (DGS), large companies often derive most of their revenue from markets that are slowing or shrinking. At the same time, they should invest in new markets that are growing very quickly.

Business leaders are trying to keep their piece of the maturing market pie while increasing their share of fast-growing new markets. This matters to investors, customers and employees because if your company doesn’t gain market share, you’ll fall behind the competition. And the longer this goes on, the greater the risk that your company will lose value, lack the funds to develop better products and have to lay off talented employees.

To answer this question, do these five things:

  • Use credible market studies to estimate your market share and its recent trends
  • If not, divide your earnings by the total market size to approximate your market share
  • As described in DGS, ask customers what factors they use to choose between your company and competitors, how well your company meets these Customer Purchase Criteria (CPCs), and whether you are improving your competitive position
  • Track customer retention and how much customers buy over time
  • Introduce new products that meet the CPC better than the competition

3. How much capital does your company need and what return can investors expect?

To keep growing, you need to raise the capital to hire employees, buy raw materials, build factories, develop new products and processes, and open sales offices.

Let potential financiers know how much money you need and what return they can expect. Employees who know that your company is making profitable investments for future growth are more motivated to work hard.

As I described in DGS, you can estimate your required capital and ROI as follows:

  • Develop growth paths for your company
  • Create implementation plans to estimate the required investments and the resulting increase in your company’s cash flow
  • Project future uses and sources of cash over the next decade and calculate the NPV of the required investment

4. How long is your company’s cash runway?

There’s a fourth crucial question these days that I don’t have space to answer here: How can your company reduce costs to expand its capital account without sacrificing long-term growth?

Here are two caveats. First, these questions may not be equally important for every industry and every company. Additionally, executives who don’t have an appetite for math should consider collaborating with a strategy and finance expert to answer them.

If you can answer the fourth question now, your company will be there by the end of the current capital winter and the first three crucial questions I described here will become even more important.

The opinions expressed here by columnists are their own and not those of

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