Image credit: yosuke muroya | Flickr
Entrepreneurship has always been one of the great American dreams. For many people it’s about taking an idea and molding it into a business that sets you up for life. This, of course, isn’t in the cards for the vast majority of people who start small businesses.
In Silicon Valley these days, the entrepreneurial dream often looks like this: Develop technology with the secret hope of selling it to Google, Facebook or any one of dozens of other large companies. If that’s your strategy, you’re setting yourself up for failure. It’s not a strategy. It’s a fantasy.
The unicorn is just a phantom dream.
Addiction recovery entrepreneur Per Wickstrom says, “The news is filled with stories about young tech entrepreneurs who make millions from selling their Internet technology to the big tech giants. Though these stories are inspirational, they portray an image of success that few people can actually relate to.”
This quote particularly rang true for me when researching startups that have sold yet haven’t generated a single cent. Whatsapp is one of the biggest examples of this. Facebook bought it for upwards of $19 billion. The Whatsapp CEO recently sold some of his Facebook shares for another $300 million. All the while, the company hasn’t generated user revenue.
Despite Whatsapp’s lack of a successful monetization strategy, Facebook viewed the company as too good an opportunity to pass up. This is an exception that proves the rule. Forget your unicorn dreams and concentrate on making more money than you spend. That’s the only dependable way to increase your chances for success.
This is not some kind of a thesis against venture funding. In fact, it’s a reminder that the only way you’re going to actually get that funding is by showing investors that you’re reaching a viable market, developing a product that people want and building a way to bring in money from it all. You might be surprised, but many entrepreneurs don’t use lean startup methodology or attempt to discover what customers think about their product early on.
So what should entrepreneurs do?
- Consider how the business is going to make money.
- If you’ve received venture funding, you should have a firm plan in place for where to direct these funds. Many startups fail because they concentrate more on artificially inflating the value of the company than actually generating any money.
- Actually work with your investors. You might be surprised just how much inexperienced startup founders avoid transparency with their investors, who are often far more experienced and usually bring talent for strategy to the table.
A shift in mindset.
Young people are living in an age where a tiny group of their peers have made fortunes without making a single sale, and that sort of example can be a recipe for disaster.
I don’t want to be one of those people who says you have to move to Silicon Valley to get your entrepreneurial head on straight, but at the very least you should consider moving to a tech hub with a somewhat vibrant ecosystem. You need to experience the hard knocks of getting denied by prospective co-founders, investors or anyone else you want to work with. You need to strive alongside hundreds and hundreds of other entrepreneurs who are all competing with you to build products or services that truly answer the needs of real people.
The earlier you get your product straight the better. Too many entrepreneurs don’t let their product be tested by early adopters so problems can be identified and removed. You wouldn’t open a clock repair store on a block that had two other clock repair stores, so why would you try to create another social network at this point? (I meet entrepreneurs trying to create a new one every day). Inspirational stories like the Whatsapp saga may have created a false view of your idea’s potential.
Address real-world problems.
In my endless networking I meet young people who are less interested in money as its own goal but increasingly focused on helping others. To monetize, it’s often necessary to make a difference in the world. In the case of Per Wickstrom, he built a business based on helping people recover from their addictions. Following a noble cause is a strong way to get people interested. Build the right “higher purpose” into your business plans and you might attract top minds to work with you.
At the end of the day though, no one is looking to invest in a company that isn’t selling. Drop the false vision that entrepreneurship is solely about building a product for some big company to buy someday. Instead, work your butt off and address real world problems that people are facing right now.