What Startups Get Wrong
Scenario: "Dude, we're selling our Web 2.0 online spreadsheet application software for $5/month. That's our strategy. We're focused. Yay!" Common business sense might tell you:
- Focus = Good.
- Stick to Plan = Great.
- Execute Plan = Genius.
But what if you're like most startups:
- You're burning cash like a mofo.
- You have no revenue sources aside from your "revolutionary idea" -- that isn't generating cash, "yet!"
"Stick with it. You'll succeed if you never give up!" those pseudo-experts might tell you. But when you do that, you see your cash dwindling like Britney Spears's bald head:
- Day 10: $30,000
- Day 20: $3,000
- Day 30: $30
- Day 40: $0
Unless you rob Kevin Federline, your business = done. What do you do? Our recommendation: Generate enough cash to keep the company afloat -- and ready for some sexy action. We'll explain.
Why Most Startups Fail
That dude Billy over there thinks he has a billion-dollar idea. Sally J. in the corner over there thinks she has the revolutionary product that will destroy Billy's. And of course, we can't forget about you: You think you have the idea that kicks all of their booties.
You know the typical entrepreneur's mindset:
- Yo, I have this next billion dollar idea.
- This can't lose.
- Oh, I'll make so much money.
- I can see my face on the cover of Fortune already!
- Our product is going to gain so much success, fortune, and fame. Yay. Woohoo!
The brutal realities however:
- You can't predict a product's success.
- 90% of "revolutionary" ideas fail.
And so what normally happens next?
- You build the product.
- You try selling the product.
- Nothing sells.
- So, you try to "enhance" the product.
- No luck.
- (Vicious cycle: Repeat Steps #4 and #5.)
"Oh, I just know this product will succeed! I just need to find a way. Never give up!" you tell yourself. And then the cruel reality hits you: With no sales, cash = drainage. With no cash to support your operations, you have to close your business. The humble lesson: The longer you stick with a product that's generating no cash, generating a net-negative cash, or generating viciously ugly looking cash, the likelier you'll find yourself raising the white flag.
"What's the Purpose of the Startup Phase?"
We'll be a little controversial here: Unlike the typical mindset that goes on in the Web 2.0 crowd, the purpose of the startup phase isn't to develop some "super-duper-revolutionary" product. Oh no. The purpose of the Startup Phase: To generate enough cash that keeps your company afloat, and ready for some sexy action. That means:
- Get sufficient cash sources consistently that helps you survive monthly.
- Have enough leftover cash to fund what you really want to do (i.e. sexy action).
A company without sufficient operating cash is like you living without water: You can only do it for so long, but eventually you'll croak.
"So what do I do? What do I do?!"
If you're still in startup mode, ask your badass: "How can we generate enough cash from month-to-month to keep our business alive - then have some money leftover to fund the sexy stuff?"
- If you're building a killer web application, that could mean seeking web development jobs.
- If you're building one super gourmet coffee franchise, that could mean selling wholesale coffee to businesses.
- If you're building the best choppers brand in town, that could mean repairing motorcycles.
- If you're building a mega burrito chain, that could mean catering for parties.
"So do I need to do the 'blah' stuff forever?"
Once the "sexy" stuff generates enough capital such that:
- it keeps your business alive monthly, and
- it generates more cash to fund more innovative shizzle,
then by all means: Drop the boring stuff. Just remember: Like H2-mutha-0, cash is your source for survival. Your startup needs it like a fat kid needs cake.
Seek some *&^%-!@#$%^ cash. It's delicious.
Read More Business Tips From Trizle »
15 Comments
on What Startups Get Wrong
Scott Young
2007-02-22 06:13:23 UTC
Great stuff, Andrew.
It's nice to see a more practical approach to entrepreneurship.
andhapp
2007-02-22 08:20:11 UTC
Very nice...
andhapp
2007-02-22 08:25:47 UTC
I recently read Felix Dennis's How to get rich? and he stresses on the fact that every notion needs a good execution...
Rohail
2007-02-22 09:33:02 UTC
Great post, Andrew. Cash is definitely key. I need to stop my drainage as quickly as possible.
"Like Britney Spears's bald head" haha.
John Wesley
2007-02-22 12:25:02 UTC
You totally convinced me. Now where do I find this delightful cash? Does it grow on trees?
Nik
2007-02-23 08:35:13 UTC
Brilliant post... loved it!
Danny
2007-02-23 13:05:15 UTC
Another great approach - which isn't applicable for everyones field - is to have a client fund your project... but not as a venture capitalist.
Let me explain: Let's say your a web developer, and have a killer idea and plan to build an integrated community application (the whole works! blog, forum, social networking, all in one!) that will bridge the void between most separate services.
You go out, find a client who could truly benefit from your idea. Sell them on the idea, and have their payment fund development. They will benefit by having the first ever package of its kind, and you will benefit by getting that much closer to having a product you can package up and sell to millions.
Hendy Irawan
2007-02-23 21:09:50 UTC
Wow... never thought about this.
Starting up looks scarier than I thought. :-(
The Trizle Team
2007-02-26 00:31:33 UTC
Hi Scott,
Thanks for the compliment, man. If you haven't checked out Scott's personal development blog, please check it out. He's still in his teens! Great work. Thanks, Scott!
-Andrew
The Trizle Team
2007-02-26 00:33:35 UTC
Hi andhapp,
You rock, as always. Thank you so much for your compliment, andhapp. We haven't read the book yet, but I'm trying to check out the reviews and look for some summaries on Google for his thesis. Looks like a really cool and productive book to read. Thanks for sharing! That was awesome of you.
-Andrew
The Trizle Team
2007-02-26 00:37:32 UTC
Hi Rohail,
Hope your stuff is going well! You're young, and so talented with what you do. If I had your years, I'd revel in how much time I have to try-test-and-fail -- especially if you think no one's looking at you. Eventually, I know my mom her mom will hear about your business some day. Keep us updated!
-Andrew
The Trizle Team
2007-02-26 00:40:09 UTC
Hi John,
If you're growing apples, of course. Just kidding. But, if you're looking for opportunities, you can find cash anywhere. That could come from work contracts (any good job board should list opportunities for you), or from just going up to someone cold and offering your service -- among the many plethora of things you can do. Let me know if you need specific help in something, and I'm sure I can help you out on it. Hope all is well!
-Andrew
The Trizle Team
2007-02-26 00:41:45 UTC
Hi Nik,
You rock! Thanks for your post. We totally appreciate it. You have such an aesthetically awesome blog, man. Really cool. Hope you're well!
-Andrew
The Trizle Team
2007-02-26 00:44:53 UTC
Hi Danny,
You rock. Thanks for sharing that! Really cool method!
We love the idea of selling something first before building it. That (1) saves costs, (2) saves time, and (3) ensures you have good cash to fund the product development. And, if somebody needs that product -- chances are, someone else (or 5, 10, 1000 others) needs it as well. We wrote about something similar in the past, so we have the same minds, Danny! It's such a cool method that we highly, totally adopt. Thanks for sharing that, man.
-Andrew
The Trizle Team
2007-02-26 00:46:25 UTC
Hi Hendy,
Starting a business shouldn't be too difficult. It's akin to finding a job. You go through the same process -- but the beauty in having your own business is that you set your own hours, and you get to pick and choose what you want to do. Entrepreneurship rocks. Let me know if you need help with *anything*. Hope all is well!
-Andrew
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