Differentiate the two Economics Founder: Viability and Sustainability. (2024)

As a first time founder, I have never thought of the economics of a startup in two perspectives. I only thought once you have a Business model which encompasses some bit of the "Revenue Generating" model then you are good to go. However, since the end of last week I was put to a different direction of how to view the business model and the general economics of a startup in terms of Viability and as well as Sustainability. Most of us, especially first time founders we only come up with the viability and never even think of the sustainability bit, which turns out to be very crucial.

Here is what I found out, making a startup economically viable means establishing a business model and strategy that allows the startup to generate sufficient revenue to cover its operating costs and sustain its operations in the short to medium term. While economic sustainability focuses on long-term viability, economic viability primarily addresses the startup's ability to survive and operate successfully in the early stages.

However, this progresses into the thoughts of making a startup economically sustainable which means establishing a business model and financial strategy that enables the startup to generate consistent revenue, cover its operating expenses, and achieve long-term viability. Economic sustainability goes beyond short-term profitability and focuses on ensuring that the startup can thrive and grow over an extended period.

From the challenge I had, an extremely crucial learning experience. A lot has changed on how I perceive the business model lately. Thinking deeply of how you'll be more sustainable helps you build a better value proposition that may open doors for better investments and partners. Thinking this way brought a huge change to the value proposition I had as well as the business model which I took really positively. Indeed, "Learning is a continuous process. Once you stop learning you start dying."

It's not just about "How will this business generate revenue?" but also about "How will this business sustain and consistently generate revenue?" This also will help you differentiate from competitors or the already existing players in the market. I saw it as an opportunity to build a disruptive business model that may give your startup an edge and as well give you an opportunity to set the rules of the game. A chance to experiment too. Who knows what it may turn out to be?

Making a startup economically viable and making it sustainable are both crucial aspects of entrepreneurial success, but they have different focuses and implications:

Economically Viable Startup:

1. Profitability: An economically viable startup focuses on achieving profitability in the short to medium term. It aims to generate revenue that exceeds its costs and investments, resulting in a positive bottom line.
2. Financial Sustainability: While profitability is the primary goal, financial sustainability may not necessarily involve long-term planning or considerations about the environmental or social impact of the business. It is mainly concerned with ensuring the startup can cover its operational expenses and generate profits.
3. Market Fit: An economically viable startup seeks to find product-market fit, where its offerings align with customer needs and generate revenue. This typically involves refining the product or service based on market feedback to maximize revenue potential.

Sustainable Startup:

1. Revenue Generation: The startup must have a reliable source of revenue, which can come from product sales, subscriptions, service fees, advertising, or other monetization strategies. Sustainable startups often diversify their revenue streams to reduce dependency on a single source.
2. Cost Management: Managing operational expenses efficiently is crucial. Startups must control costs while maintaining the quality of their products or services. This involves budgeting, optimizing processes, and prioritizing spending.
3. Profitability: Achieving profitability is a key milestone for economic sustainability. While startups may initially operate at a loss to fuel growth, the ultimate goal is to generate consistent profits that can be reinvested or distributed to stakeholders.
4. Cash Flow Management: Maintaining positive cash flow is essential for meeting short-term financial obligations, such as rent, salaries, and supplier payments. Effective cash flow management ensures the startup's ability to operate without disruptions.
5. Customer Retention: Sustaining a customer base is often more cost-effective than acquiring new customers. Startups should focus on retaining existing customers through excellent service, ongoing value delivery, and customer engagement.
6. Market Expansion: Economic sustainability may involve expanding into new markets or customer segments. This growth strategy can increase revenue potential and reduce vulnerability to market fluctuations.
7. Innovation and Adaptation: Sustainable startups continuously innovate to stay competitive and meet changing market demands. They adapt their products, services, and strategies to remain relevant and valuable to customers.
8. Investment and Financing: Securing appropriate funding through investors, loans, or other sources can support growth and sustainability. Effective fundraising and financial management are critical.
9. Risk Management: Identifying and mitigating risks is essential for economic sustainability. Startups should assess and manage financial, operational, market, and regulatory risks that could impact their business.
10. Long-Term Vision: Economic sustainability aligns with a long-term vision for the startup. Founders and stakeholders should have a clear understanding of where the startup is headed and how it will achieve sustained success.

In summary, economically viable and sustainable startups pursue success with distinct priorities and timelines. I encourage fellow founders to consider this perspective when developing business models or exploring revenue-generating ideas. My learning journey continues, and I welcome discussions and additional insights on this topic.

LET'S GO FOUNDERS!!