The Startup Racket(whattofix.com)
whattofix.com
The Startup Racket
http://www.whattofix.com/blog/archives/2010/04/the-startup-rac.php
11 comments
"Success is satisfying paying customers over and over again."
Providing value.
I'll be honest. I never understand why people get so excited when a company announces it's looking for funding. To me, if you are looking for funding after a product has launched, it just seems backwards. After all, if your product was good, it wouldn't need funding after it launched.
I guess the idea with this is you need to spend a lot to bring it to a point where it's profitable. Google is an example where profit really couldn't exist until it grew large enough, and it couldn't really grow large enough without money, etc. Facebook is the same way. Twitter, too (Okay, does Twitter actually make money? Is it in the black?). But all these things focus on making money via advertising.
Anyways, enough of my useless questions. It was a good read.
Providing value.
I'll be honest. I never understand why people get so excited when a company announces it's looking for funding. To me, if you are looking for funding after a product has launched, it just seems backwards. After all, if your product was good, it wouldn't need funding after it launched.
I guess the idea with this is you need to spend a lot to bring it to a point where it's profitable. Google is an example where profit really couldn't exist until it grew large enough, and it couldn't really grow large enough without money, etc. Facebook is the same way. Twitter, too (Okay, does Twitter actually make money? Is it in the black?). But all these things focus on making money via advertising.
Anyways, enough of my useless questions. It was a good read.
The idea that once you launch your product you shouldn't need funding doesn't seem intuitive to me. Sure writing code is hard, but there is a lot that goes on after your initial launch, and a lot of these things cost money (like sales, marketing, etc.).
I'm sorry if I wasn't clear. I'm not against funding. It just seems like getting fund to start up, and then additional funding after you've launched seems odd. Sales, marketing, etc, should be covered with the initial investment. Needing more money just sounds like poor planning or foresight.
Twitter is profitable: http://mashable.com/2009/12/21/twitter-is-already-profitable...
was in 2009*
I wonder what day they stop being YTD profitable...
I wonder what day they stop being YTD profitable...
if your product was good, it wouldn't need funding after it launched.
Simplified example:
You have a customer acquisition cost of $10, and lifetime customer value is roughly $50. Average customer duration is 18 months. You expect this situation to last for 5 years. Your addressable target market has a population of approximately 20m individuals.
Ignoring all other factors, would you rather have:
a) 100% equity, and a $100k marketing budget?
b) 50% equity, and a $1m marketing budget?
c) 20% equity, and a $5m marketing budget?
Simplified example:
You have a customer acquisition cost of $10, and lifetime customer value is roughly $50. Average customer duration is 18 months. You expect this situation to last for 5 years. Your addressable target market has a population of approximately 20m individuals.
Ignoring all other factors, would you rather have:
a) 100% equity, and a $100k marketing budget?
b) 50% equity, and a $1m marketing budget?
c) 20% equity, and a $5m marketing budget?
What does that have to do with getting additional funding after you've launched?
I think I worded myself poorly. It's not initial funding I find odd. It's additional funding. You go out, get funding. Yay! Funding! Pays for starting the company and making it profitable. I just naturally ASSuMEd that your initial funding would cover startup costs, including marketing.
At least, that's the way my partners and I did it. Came up with an idea, setup initial work, got funding, launched on that funding. Maybe I'm just looking at it the wrong way (which I am sure is the reason).
I think I worded myself poorly. It's not initial funding I find odd. It's additional funding. You go out, get funding. Yay! Funding! Pays for starting the company and making it profitable. I just naturally ASSuMEd that your initial funding would cover startup costs, including marketing.
At least, that's the way my partners and I did it. Came up with an idea, setup initial work, got funding, launched on that funding. Maybe I'm just looking at it the wrong way (which I am sure is the reason).
What does that have to do with getting additional funding after you've launched?
You're kidding, right? I gave an example in which you've launched, have a profitable product, have $100k in the bank, and are debating the merits additional funding.
In my example, the additional funding will put a LOT of extra money in your pockets, even though you'll dilute your equity, and even though you'd have a profitable business without it.
You're kidding, right? I gave an example in which you've launched, have a profitable product, have $100k in the bank, and are debating the merits additional funding.
In my example, the additional funding will put a LOT of extra money in your pockets, even though you'll dilute your equity, and even though you'd have a profitable business without it.
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Many of the things Daniel said resonated with me. Certainly, the online community around startups can have a low signal to noise ratio. But, there's a much bigger world outside Twitter, HN, and similar outlets.
I'm an attorney and most of my practice is IP and business litigation. But only a handful of my clients play to the broad consumer market. If you filter out the Mom-n-Pop shops and the VC-backed tech companies, there's a huge population of companies in the middle that started with Angel or F&F funding and have found really interesting business models entirely on their own.
There's a lot to learn from the mistakes of others, and the various startup "movements" can be a wonderful source of community. But at the end of the day, the founders I work with who have built successful enterprises generally have done it on their own.
At the end of the day, if you want to build a brick wall, you just have to start laying bricks.
I'm an attorney and most of my practice is IP and business litigation. But only a handful of my clients play to the broad consumer market. If you filter out the Mom-n-Pop shops and the VC-backed tech companies, there's a huge population of companies in the middle that started with Angel or F&F funding and have found really interesting business models entirely on their own.
There's a lot to learn from the mistakes of others, and the various startup "movements" can be a wonderful source of community. But at the end of the day, the founders I work with who have built successful enterprises generally have done it on their own.
At the end of the day, if you want to build a brick wall, you just have to start laying bricks.
See what patio11 writes on his blog. If you manage to bring your interesting stuff to half of the level his Bingo Cards business is, you'll have your traction, proven bussiness or whatever you feel you don't have.
Thanks, that means a lot to me.
On the subject of the article: Somebody please give me a sharp rap with a wooden spoon if I ever sound like being a pundit is my job and writing and selling software that solves problems for people is my quirky hobby. It should be the other way around.
On the subject of the article: Somebody please give me a sharp rap with a wooden spoon if I ever sound like being a pundit is my job and writing and selling software that solves problems for people is my quirky hobby. It should be the other way around.
"Somebody please give me a sharp rap with a wooden spoon if I ever sound like being a pundit is my job and writing and selling software that solves problems for people is my quirky hobby."
Unfortunately, this is exactly what has happened to some people who are pushing the "lean startup" meme as consultantware. You (patio11) are an inspiration and role model. Thanks for your candour, humility and wisdom. I doubt we'll ever need that wooden spoon!
Unfortunately, this is exactly what has happened to some people who are pushing the "lean startup" meme as consultantware. You (patio11) are an inspiration and role model. Thanks for your candour, humility and wisdom. I doubt we'll ever need that wooden spoon!
Great post. Thank you.
There are a lot of people in the business of selling information to would-be entrepreneurs. Their rallying cry is "never give up!" Sometimes I wonder if they are only saying "never give up!" because giving up means losing customers. Not everyone is capable of being an entrepreneur, and some should give up.
There are some great resources out there on startups, but most of the information out there reminds me of late night infomercials about how to make money from home.
There are a lot of people in the business of selling information to would-be entrepreneurs. Their rallying cry is "never give up!" Sometimes I wonder if they are only saying "never give up!" because giving up means losing customers. Not everyone is capable of being an entrepreneur, and some should give up.
There are some great resources out there on startups, but most of the information out there reminds me of late night infomercials about how to make money from home.
Good stuff. It seems that every field of endeavor that's difficult to make headway in and has no clear pathway to success has this kind of industry grow up around it.
As a self-funded startup looking to raise a small angel round without much traction yet, I am fairly sympathetic to this article. However, I still wouldn't go as far as calling investments in startups with traction, cash-flow, and coming from a good personal recommendation "low risk". Most of these startups will still fail.
I also don't think it's unreasonable for VCs and Angels to use these markers in determining whether or not to invest. There are still lots of deals available to VCs and Angels and these are some of the better filters to find the best ones. If there weren't enough deals available where startups could provide these metrics, the market would correct itself.
Lastly, while I do agree that the "pay" industry around how to run a startup doesn't provide much value, I don't see it as too much of a problem. There is a plethora of really valuable information available for free from successful entrepreneurs who give back to the community through their blog posts and talks. You'd have to be a fool to pay to learn how to run a startup when you can learn all the best advice (from people who have succeeded at it) for free.
I also don't think it's unreasonable for VCs and Angels to use these markers in determining whether or not to invest. There are still lots of deals available to VCs and Angels and these are some of the better filters to find the best ones. If there weren't enough deals available where startups could provide these metrics, the market would correct itself.
Lastly, while I do agree that the "pay" industry around how to run a startup doesn't provide much value, I don't see it as too much of a problem. There is a plethora of really valuable information available for free from successful entrepreneurs who give back to the community through their blog posts and talks. You'd have to be a fool to pay to learn how to run a startup when you can learn all the best advice (from people who have succeeded at it) for free.
I like the article.
I think a dominant pattern is to try and put forth gospels from the experiences of successful startups. All worthwhile to explore, however, sometimes it starts to feel a bit mechanical. Each context is so unique. I tend to think that there are so many potential paths, and agility is in part being creative with carving your own.
I think a dominant pattern is to try and put forth gospels from the experiences of successful startups. All worthwhile to explore, however, sometimes it starts to feel a bit mechanical. Each context is so unique. I tend to think that there are so many potential paths, and agility is in part being creative with carving your own.
Good post. I have had similar thoughts lately, but have never taken the time to articulate them. The analogy to the writing industry is a very good one.
I once heard that the people who did best during the gold rushes of previous centuries were those who sold picks, shovels and gold pans to all those with the big dreams of striking it rich…
I once heard that the people who did best during the gold rushes of previous centuries were those who sold picks, shovels and gold pans to all those with the big dreams of striking it rich…
Yeah I love the annecdote. When there's a gold rush, don't be the guy digging for gold, be the guy selling shovels.
Also a good analogy.
You choose how much you want to consume from the community. I think that in a startup, there's a learner's schedule in addition to a maker's and manager's schedule. It would encompass going to meetups, reading blogs, attending conferences, listening to podcasts, following Twitter, etc. It can easily take over your whole day if you let it but it's ultimately up to you how much time you want to invest and on what schedule.
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Sometimes I think I'm living in two worlds, the customer world, where everyone is scrambling to get stuff done, and the startup world, where everyone is talking about what the customer world should be like.
Don't misunderstand me, though. I love the startup world. There is an underlying current of optimism that I rarely see in the customer world, where people are just too busy to see the possibilities if they hit them in the nose. Sometimes I have to grab my customers and yell, "Let's slow down for 5 minutes and think about a better way to do this!"
In the startup world, it's often too easy to lose sight of the definition of success. Success is not starting a business, getting into an incubator, or securing funding. Success is satisfying paying customers over and over again.
In the past 6 months, I've had 5 different customers ask me for the same thing. I described my approach to satisfying them to a startup investor acquaintance. He told me that no one would ever pay for it. Now I know I'm on to something.
I like living in 2 worlds. It helps me maintain perspective. Sounds like it works that way for you too.