Actually, You Don't Want to Be the Next Uber or Snapchat
It's fine to dream big, but if your goal isn't profitability your company probably won't last.
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In February 2017, Snapchat's IPO revealed not only that it lost half a billion dollars in 2016, but that it'd likely never be profitable. Startups can raise hundreds of thousands of dollars without a product. Some great companies have begun their lives as revenue-less zombies, and some boast about running their company by playing Russian roulette with their credit cards.
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We're proudly discussing growth over profitability, celebrating Uber's losses "only" being $700 million. Dropbox is hurtling toward IPO, despite fears it may lower the value of the company, possibly in the hopes it can reach the profitability and relative stability of Box. And that's just software. Hardware companies like Navdy, Jawbone and Pebble all fell to one very true cliché: Hardware is hard, because it costs money to build physical things. It may feel great to have the media declare that you raised millions, that you're the next Steve Jobs, that you're going to change the world -- but none of that matters to creditors or your landlord.
It's time to wake up, everyone. Revenue, traction, scale, growth. Whatever you are doing, wherever you are doing it, you have to remember that whatever you're building is a business, and that means a realistic outlook.
Dream big, but stay awake.
Entrepreneur and investor Jason Lemkin wrote in a blog post that you (probably) aren't going to change the world, but you can make it a better place. His points are around what you and your company can do for the world around you -- help people buy houses, make other great companies, advance careers and so on. In my case, I'd take it a step further -- you can have a big dream (we're creating the future of web design, that's a pretty big one!), but you have to ground it not just in the how you'll build it, but how you'll keep it alive. Ironically, those who start their companies with the idea of making it rich many times force the idea of fast growth leading to fast funding leading to an exit. The missing ingredient there is that a slower-grown, cash-flow positive business survives. It may not be as sexy, but it'll be a lot more likely to reach that dream you have.
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Build a strong foundation from Day One.
Bootstrapping has become a romantic term and a mediated monster. The idea of sitting in an apartment hunched around four laptops, barely eating, not paying oneself a salary and then one day hitting it big -- that's the dream (for some).
Instead, try and break it down into a few categories. For example:
Product market fit: Make sure there's a reason for you to exist. Dropbox may have seemed like a feature not a product to Steve Jobs, but it was a company that had a clear reason people would pay for it. So should you.
Pricing: Don't give it away for free. Let them taste it, for sure, but always be prepared to say, "Well, time to pay if you want to use this any further."
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Staffing: It may hurt at first, but you may really need a great sales or marketing person to get your company off the ground. Get the money necessary to compensate whoever it is that is core to making this company scale. Equity is a wonderful thing to offer, but not without compensation and commission that gets it sold.
Software: Get what you need, not what you want. This means that you should absolutely have the means to build a company -- invoicing software, payroll software, internal communications, CRM, etc. Don't chase every shiny object that you see on TechCrunch or Producthunt.
Office space: Even if it's a little more money, get in on a coworking space or a separate location (not a coffee shop) versus your apartment to stop burnout from a poor work-life balance. Conversely, don't scale yourself to a giant office too fast.
Be ruthless and declarative, even if it's painful.
Two internal elements that can kill a company are bad staff and bad customers. These are only made worse by moving slowly toward fixing a problem. You may have a great salesperson that's really killing it and who's been there since Day One. However, it's clear that he demoralizes the rest of the sales team and generally isn't that pleasant to be around, creating a toxic culture.
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I hate to say it, but fire him. Your "best salesperson" could be slowing down your team and thus your company's ability to execute.
The same goes for clients. The value that they bring to you is important, but so is any damage they can potentially do to your business. If they're negative, if they take up way more time than other clients, if they're unreasonable, demanding or even abusive, it's tempting to keep them because they make you money. It's fair to walk away from them if it'll stop you from creating a great experience for the rest of your clients.
This goes for everything. Don't just develop a thick skin but lose emotional attachments to things that aren't important if they're stopping you from fulfilling your company's vision. It may be the wording on your website. It may be the website itself. Heck, it may be your logo. Be prepared to rip out and fix what needs to be fixed to win.
Always know why you're growing (or failing).
It's a simple point, but understand what your customers like about what you're doing. As much as possible, quantify this in data as well as sentiment. Track churn, track the bounce rate on your homepage, track your revenue month by month -- day by day if it makes sense. A/B test email newsletters. See what works (or doesn't work) and learn constantly. It's going to hurt. It's going to work.
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Focus on revenue, growth and profitability over valuation.
Let me give you two scenarios.
- You have a great investor deck (and in any scenario you should) that tells a story. You're able to constantly raise. Your company is growing gangbusters, but you're not making a profit (and "that's not your focus right now"). Your company may be worth more in two years than the one in Scenario 2, but it will have very, very strong questions about whether it will make it to year three, let alone year four or five.
- You have a great investor deck, you raise a modest round, making you a less sexy startup to work for. You will have to work twice as hard to get the best talent that could go to a huge company. You won't always win. But, you build a path to profitability -- that you need X number of clients signed to Y number of months or years of service. You execute on that plan, and you grow steadily.
There are absolutely no guarantees in tech. Customers change. Things change. That's why you should the moment you can engineer (or re-engineer) your company toward a revenue-generating, scaleable model, one that is built to grow toward profitability. It's a slower one, one that is less exciting to those who want to hear you're going to be the next Facebook.
The difference is, your company will be built to last.
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