What can Lima Sky teach us about business

“I’ve got a simplistic way of looking at success in business. I believe all major corporate problems stem from inadequate revenue.” That’s not me talking. That’s Jon Spoelstra talking in his book “Marketing Outrageously.” I highly recommend it not only because in it Jon talks about how to increase revenue through marketing, but also because he backs up his claims with many real life examples. (I wrote about Jon in my book “How Apple Turns Art into Profit.”) Why am I sharing this with you and what’s it got to do with Lima Sky?

Lima Sky is a tiny, two-people iPhone app developer. It’s essentially a small business. While there are many differences between small and large (read corporate) businesses, there are also many similarities between the two. Perhaps the most important one is this: Sales are the only reason for a business to exist. Sales drive revenue. What happens when a business has inadequate revenue? Revisit the sentence number #2 in this post.

OK, let’s go back to Lima Sky – it has no problems. As a matter of fact, Lima Sky is flying high. Very high. Why? It’s simple: one of its iPhone apps called Doodle Jump has become one of the most downloaded paid applications on iTunes (and the sixth-highest-grossing app in the store) with more than $4 million in sales. As the FastCompany magazine writes (June 2010 – issue number 146), “the wee Doodle has helped turn Igor, the artist and designer behind Lima Sky, and his brother Marko, the engineer, into gaming superstars.”

The magazine did a really good job at writing a short but rather interesting story about Lima Sky. You can learn a few things from the article, for example the magazine states that, “Lima Sky is the epitome of a lean organization, with virtually no overhead; the brothers still work from their respective homes.” (I strongly encourage you the buy this issue of the magazine since it’s truly jam-packed with good stories.)

But let me ask you this, would the fact that Lima Sky is a lean organization land it a spot in a top-tier US business magazine? Would Igor and Marko, no doubt the two extremely talented guys behind Lima Sky, end up on the list of the 100 most creative people in business in 2010 (according to the FastCompany magazine) if their app did not sell extremely well?

Lesson #1: Sales are the only reason for a business to exist.

Lesson #2: A few years ago I read a book by Harvard Business School Press about financial intelligence, which among many other goodies featured this simple income statement:

Revenues                               $100
Cost of goods sold                     50
Gross profit                                50
Expenses                                   30
Taxes                                           5
Net profit                                  $15

You see in theory, in business there are only three possible fixes for low profitability:

  1. Increase profitable sales
  2. Lower production costs and run more efficiently
  3. Cut operating expenses

For many businesses however, especially small businesses, there is really only one way to ensure long term success – by increasing profitable sales without adding costs.

Lesson #3: Sales make it possible for a business to exist. Why overlook the power of simplicity? Consider Google, as Colin Campbell pointed out in his article for Maclean’s magazine (Sept. 14, 2009), Google excels at organizing information online and linking it to advertising. You see, AdWords is still, in my opinion, Google’s flagship product. Why? Because it’s still Google’s main source of revenue (read sales). Without Google AdWords, would  Gmail, Google Voice, or Google Chrome have happened?