Let me start with a personal lesson: for the majority of my entrepreneurial life I’ve been focusing on “making history”. My It Things is priding itself in being the first ever user-generated fashion magazine democratizing this highly hierarchical industry, Style Coalition was created to bring together independent fashion publishers and promote better industry standards and ethics. All have large, “history making” goals.
It wasn’t until last year, when we run out of money from our seed round, I realized that our focus better be shifted from making history to making money. It was a wake-up call that made me stop repeating “I’m not a sales person” and instead finding my own way to sell (which did not include cold calls), and eventually turned my business profitable. It’s still far from making millions most startups dream about, but the revenue graph keeps showing exponential growth. And it happened only because I shifted my focus from making history to making money.
I simply had no choice, because the worst thing I could imagine happening was me quitting. When I see other people and startups quit, it makes me wonder what would happen if from day one they were focusing on making money, and not creating the next Google, Apple, or AOL, in worst case…
There is something about the startup culture that makes us dream big, and it’s definitely a positive thing, but it also has a catch, because it causes us to overlook opportunities for creating real (maybe not huge) revenue channels since the very early stage.
To make things worse, the phenomenon is definitely widely encouraged by the VCs with the following statements and rules:
“If you are not planning to be a 500M dollar company in 5 years, you can’t even seek venture capital.” How many companies you know are in that range, AND got there within 5 years?? Yet this is what we keep hearing, and that’s why we ignore small revenue opportunities early on – after all they aren’t going to help us make it to half a billion… The truth is, they do help you build a business and have clients for the days when the money runs out and your investors run away…
“You have to have a 5 year plan.” Having a plan has great advantages, and definitely ensures you get somewhere, but a 5 year plan is totally useless exercise these days, when technologies change not every decade, but every year. By focusing on a 5 year long “big dream” we are missing everyday opportunities, which might be small, but very real.
“You need to target at least a billion dollar market.” This statement alone leaves lots of niches untouched, and encourages innovation only in certain areas. This also creates trends and over saturation in the same space. Do we really need Foursquare AND Gowalla? While competition is a healthy thing in a capitalism environment, I tend to believe that if half of this innovation was channeled into “non-trendy” niche markets our lives could be improved much more.
“You have to be a leader in your space.” This world is full of successful businesses that are not brilliant or revolutionary, or talked about in press every day, but they do a great service. They make their founders happy, and generate revenues sometimes as big as those of the “leaders”. If every business was a leader in their space, we would live in a world without competition, and eventually innovation.
“You have to solve a problem.” Does Apple solve a problem? Even though not having an iPad is a real problem for some of us, the truth is most of us simply doesn’t care.
“You have to have patented or proprietary technology.” In the age of open source and the fast paced development environment it’s almost silly to think that technology alone will make your company a success. After investing lots of resources in the top technology you might find out that your vision was wrong or your business model had major flaws. Building a technology that can be monetized from day one forces you to think about what can actually sell versus what could be cool to build and make history.
I believe these are the main points that mislead many startup founders on their way. I keep seeing startups shutting doors, founders going back to old corporate jobs and dreams crushing only because the money in the bank run out before they made it BIG, made history. While in fact, if they were focusing on revenues from day one, many of them would be running today perhaps medium sized, but their very own profitable companies.
Unless you can afford to make history, maybe you should try to make money first…