You’ve earmarked a portion of your investment portfolio to invest in vegan startups. But how can you tell if a vegan company is going to grow and give you a return on your investment? These three core success fundamentals are a great starting point.
Whether the company aims to grow fast or just serve the local community, it’s essential that the entrepreneur has done some basic business design covering these three core issues…
Accessible Market Size
Your friend wants to open and all-vegan sushi restaurant (please do it!!). The most important thing to know is if there are enough likely customers nearby to rationalize the effort.
Suppose your town has 1 million adult residents. This might be the overall market for any restaurant, but you want to narrow that way down. How many vegans are in your town? In some places, that might be 5% (50,000). But how many of those vegans have sufficient income to eat out a few times per week? And what about vegan-friendly vegetarians, and their friends?
By refining down to the most likely clients, the entrepreneur should be able to identify the accessible market.
Inside of the accessible market is an even smaller segment – the target market. That’s the easiest group of potential customers the entrepreneur can reach for testing the business premise. If the target market is big enough, there’s a chance the company can have a successful proof of concept, and then scale to profitability.
Valid Transaction Model
The entrepreneur also needs to clearly map out all the costs it will take to prove that the business can make sales to the first target market, and also the projected revenue per sale. Here are the two main things to consider.
- Is each transaction profitable when viewed individually? To know this, look at the gross revenue per transaction, and the incremental per-unit costs to complete the transaction. This gives the gross profit per unit of sales.
- Next, look at the fixed operating costs. For the restaurant example above, the monthly rent is a fixed operating cost regardless of how many meals are served per month.
The challenge of most startups is that the combination of fixed and incremental costs to reach the first proof of concept transactions can be more than the entrepreneur might have personally to fund the ramp up. This is why they are seeking outside investors. Risk tolerant outside capital is needed to help level out cash flow until the business can stand on its own two feet!
Because most startups don’t have a solid revenue stream in the beginning, a capital plan is vital for mapping out resource and monetary shortfalls far ahead of time. This is also the time to plan how to raise outside capital if required. If an entrepreneur is seeking money for a projected and expected budget hole in the future, that is good planning.
On the other hand, if an entrepreneur is seeking outside capital just to keep the lights on, that’s not always a bad thing, but it can indicate that the entrepreneur might have started off with an inadequate understanding of their longterm capital needs and fundraising strategy.
Well Planned Business Can Grow Veganism Faster
The problem with making these kinds of errors is that it can set back our dreams. The issues vegan entrepreneurs are working on today are of utmost importance to the future for animals, humans, and the planet. We don’t want them to fail!
It’s a paradox. Vegans know just how urgent the situation is. Yet, if vegan entrepreneurs follow these three common business success fundamentals, solutions can scale far faster than if their companies run out of money and fail to fulfill their vision!
When you set out to invest in early stage vegan companies, you can help assure that vegan entrepreneurs think through these three core success factors. By doing that, you can help transform our culture more quickly without exposing your portfolio to unnecessary risk.