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.
Posted on February 21
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