We seem to be in a startup boom. Not a bubble, since the vast majority of startups are not VC funded.
But one of the lessons from the last boom and bust cycle was that you don’t win by getting funded, you win by profitably serving customers.
Fast forward 10 years, and the focus seems to be back on funding, now by angels, superangels, and even crowd-sourced funding (which is actually more like selling before you build, which is a good thing).
As the news keeps coming about a few high priced funding events for new startups, even some strange ones, it gets more and more tempting for would-be entrepreneurs to focus on how to get someone to give them funding, versus focusing on building something that people want, and are willing to pay for.
But that’s what a business actually is - providing value to customers at a profit.
If you’re not doing that, you’re not really in business, you’re just entertaining yourself and maybe some other people.
Let’s break that down a little more:
Value - you create a product or offer a service that benefits someone. It benefits them by making more money, saving them money or time, or entertaining them. Hint: it’s much easier to sell something to businesses if it makes them money.
Customers - the people who pay you because they see the value you’re providing. This might be advertisers if you have a content site, direct end users of your product, or a business owner whose staff will be more productive with your product or service. If they’re not paying you, then they’re not customers.
Profit - selling products at a loss is called deficit spending. Selling products for more than you pay for them is called gross profit. Making a viable business after you’ve covered overhead, taxes, salaries, etc. is called net profit. You’re going for net profit. Without that, you’re not viable, you’re just living on borrowed time (or money if you’re funded). Selling at a loss and then trying to make it up in volume is called insanity.
Now, none of this means that getting funded is bad or wrong - many business models require funding to have time and space to bring their offering to market, or capture market share quickly. But since only about 1 out of 200 entrepreneurs seeking funding get it, it’s probably not going to be your business. Sorry.
So if you’re not in the lucky 0.5% of funded startups, what will you do? Become a business instead of a startup. Find some customers who want what you’ve got, or better yet, build something based on what customers actually need.
Customer development and lean startup ideas can help you get there, but at the end of the day, without making a net profit on something people want to pay you for, you should probably just print some business cards for $20 and stop there.
You’ll save a lot of time and energy, you can still tell people that you’ve got a startup, and you’ll have some nice souvenirs with rounded corners and a matte finish.Like this blog? Subscribe by Email