6 ms·

Being in a position of "makes $10k a month and spends $100k a month" is the whole problem. Not having a sustainable business model and focusing on raising money

Being in a position of "makes $10k a month and spends $100k a month" is the whole problem. Not having a sustainable business model and focusing on raising money at all cost are two reasons that got it in that unenviable position in the first place. Perhaps the art of bootstrap is not discussed enough here.

djbusby 4y ago
You may be confounding the Growth Phase for the Sustainable Phase. Many business models must pass through these phases. Profitable from the first client is... uncommon.
- freediver 4y ago
  You do not need to be profitable from the first customer, but you need to have a hope or at least a sound plan to profitability.
  - jefftk 4y ago
    I don't see where you think the article disagrees with that?
    - freediver 4y ago
      Well I do not know what else to say, other than to observe that we somehow got in a position of understanding the same article in diametrically opposite ways.
- cj 4y ago
  Often it's the desire/need for an extremely high growth rate (often imposed on founders by investors) that makes an overwise sustainable business model unviable. > Many business models must pass through these phases. I think there are very few categories of companies that ~must~ go through a "Growth Phase". Sure, there are rocket companies like SpaceX and Uber/marketplaces that only work at scale... but the majority of internet software companies cost very little to get up and running and have very, very high gross margins. Meaning for many companies, the only thing stopping them from immediately entering the "Sustainable Phase" is an incessant need to maintain extremely high growth through excessive spending.
- AussieWog93 4y ago
  >Profitable from the first client is... uncommon. Is it? Outside of Silicon Valley, I don't think there are many businesses that deliberately lose money in an unsustainable way. I know all of mine have been (at least marginally) profitable from day one, at least.
  - jefftk 4y ago
    Expenses of $100k/m with income of $10k/m can definitely happen outside SV. Often it is even more extreme, where you spend millions of dollars before you earn anything. Let's say I have an idea for a new type of air purifier. I will need to build prototypes, test them, sort out manufacturing, build large numbers, get agreements with various distributors, and all this while not bringing in much if any money yet. If all goes well, however, the investment pays off and once I'm making my new product at scale I more than make up for those initial costs.
  - edanm 4y ago
    It's not about losing money, it's about needing to invest money before you are earning your investment back. In software it's development costs. Outside silicon valley, in the non-techie world, there are many things that work the same way. Eg real estate - building a building is an upfront investment of piles of money that the building doesn't earn back for years. Or eg opening a McDonald's. The main difference in tech startups is that it's not just entrepreneurship, it's innovation too, so it's unknown whether the product will earn back the money. But sometimes McDonald's falls, builfings fail, etc. The odds there are better though.
    - Barrin92 4y ago
      if you're building real estate at the very least you have the actual building itself. This isn't comparable to the ephemeral "I'll sell you two dollars for one dollar <something something> we'll monetize the users" There is no equivalent to MoviePass in the rest of the economy aside from literal MLM. They mailed people a credit card for what was it ten bucks a month, you could watch movies worth more than that with it, and that literally was their business. And there's plenty of startups out there right now that basically work the same way. The 'business model' is gift people free stuff, so investors gift you free money and then hope you can somehow IPO and dump it on the retail investors.
- cosmodisk 4y ago
  Most businesses operate this way,where you need to be profitable on day one( or within a year). It's only the biggest, the most outrageous or boundary pushing companies that need to be super capitalised to eventually reach profitability. It's a fairly recent phenomena.
flyinglizard 4y ago
Not everything can be bootstrapped. Hardware is the obvious example.
lumost 4y ago
In enterprise software, it’s rare that you can win your first clients with a low touch strategy. This means there is a phase where you are investing a lot to win specific clients, and getting little in return. The above seed stage startup could be in the boat where they won a customer bootstrapping, but are now scaling through the use of sales engineers etc. A 100k per month burn may translate to needing to win 1-10 deals to break even.
at-fates-hands 4y ago
>> Perhaps the art of bootstrap is not discussed enough here. Twelve years ago, I bootstrapped my own company. Took a very small loan from my parents ($5,000), got a friend to work with me and we were off and running. We still worked our full time jobs, but I was taking vacation on Thursdays to cold call clients and give them my elevator pitch. Then it was setting up appointments, making the presentations and trying to get people signed up using a subscription based model we had developed while he was working on the mobile app development. We were about two months from generating enough revenue to quit our full-time jobs when my buddy died suddenly and unexpectedly. It was pretty hard to continue after that. I slowly wound down the clients I had signed up over the next year or so, and quietly closed the business after two years. I still do business under the company name, but the organization is long gone. If nothing else, it proved to me you can bootstrap your own company on your off-time, and eventually make that transition to full-time with very little to no overhead (office space, equipment, employees). Also, it showed me you don't need $10M in funding to build a niche company serving an underserved industry. But bootstrapping isn't easy. Cold calling people isn't easy, getting out there and grinding away on a consistent basis isn't easy. Having your own money invested with a "do or die" attitude isn't easy. Believing in your idea isn't easy. I'm not sure constantly having to raise money is any easier, but the difference is one one hand you're constantly working on your product and business which makes your business sustainable. On the other hand, I'm not sure constantly chasing investors and their money will really benefit your company in the long run.
- johntiger1 4y ago
  sorry to hear about your buddy
  - at-fates-hands 4y ago
    Thanks for the kinds words. Yeah it was devastating. Died of a massive heart aneurism. We were scheduled to meet that day and his wife called and told me what happened. I guess he died pretty instantly. It was so massive, it literally ripped his aorta in two. The company he was working at came out in full support of his fiancé. The entire church was standing room only. They had some 150 people just from his office who knew him which was really heart warming. He was a really great guy, gone way to soon. He was still in his 30's, I was pushing 40. When something like that happens, it really makes you think about your own mortality and if you're really living every day to the fullest, or just breathing. It really made me take stock and make a lot of changes in my life. I just don't take anything for granted anymore.
jupp0r 4y ago
This is completely normal lots of today's sustainable companies have been operating like that for a while. As long as you use those $100k/month of spending to keep growing fast, everything will be fine. This doesn't mean that you don't have a good sustainable business model, just that you need to invest a lot into growth.

djbusby 4y ago

You may be confounding the Growth Phase for the Sustainable Phase. Many business models must pass through these phases. Profitable from the first client is... uncommon.

freediver 4y ago
You do not need to be profitable from the first customer, but you need to have a hope or at least a sound plan to profitability.
- jefftk 4y ago
  I don't see where you think the article disagrees with that?
  - freediver 4y ago
    Well I do not know what else to say, other than to observe that we somehow got in a position of understanding the same article in diametrically opposite ways.
cj 4y ago
Often it's the desire/need for an extremely high growth rate (often imposed on founders by investors) that makes an overwise sustainable business model unviable. > Many business models must pass through these phases. I think there are very few categories of companies that ~must~ go through a "Growth Phase". Sure, there are rocket companies like SpaceX and Uber/marketplaces that only work at scale... but the majority of internet software companies cost very little to get up and running and have very, very high gross margins. Meaning for many companies, the only thing stopping them from immediately entering the "Sustainable Phase" is an incessant need to maintain extremely high growth through excessive spending.
AussieWog93 4y ago
>Profitable from the first client is... uncommon. Is it? Outside of Silicon Valley, I don't think there are many businesses that deliberately lose money in an unsustainable way. I know all of mine have been (at least marginally) profitable from day one, at least.
- jefftk 4y ago
  Expenses of $100k/m with income of $10k/m can definitely happen outside SV. Often it is even more extreme, where you spend millions of dollars before you earn anything. Let's say I have an idea for a new type of air purifier. I will need to build prototypes, test them, sort out manufacturing, build large numbers, get agreements with various distributors, and all this while not bringing in much if any money yet. If all goes well, however, the investment pays off and once I'm making my new product at scale I more than make up for those initial costs.
- edanm 4y ago
  It's not about losing money, it's about needing to invest money before you are earning your investment back. In software it's development costs. Outside silicon valley, in the non-techie world, there are many things that work the same way. Eg real estate - building a building is an upfront investment of piles of money that the building doesn't earn back for years. Or eg opening a McDonald's. The main difference in tech startups is that it's not just entrepreneurship, it's innovation too, so it's unknown whether the product will earn back the money. But sometimes McDonald's falls, builfings fail, etc. The odds there are better though.
  - Barrin92 4y ago
    if you're building real estate at the very least you have the actual building itself. This isn't comparable to the ephemeral "I'll sell you two dollars for one dollar <something something> we'll monetize the users" There is no equivalent to MoviePass in the rest of the economy aside from literal MLM. They mailed people a credit card for what was it ten bucks a month, you could watch movies worth more than that with it, and that literally was their business. And there's plenty of startups out there right now that basically work the same way. The 'business model' is gift people free stuff, so investors gift you free money and then hope you can somehow IPO and dump it on the retail investors.
cosmodisk 4y ago
Most businesses operate this way,where you need to be profitable on day one( or within a year). It's only the biggest, the most outrageous or boundary pushing companies that need to be super capitalised to eventually reach profitability. It's a fairly recent phenomena.

flyinglizard 4y ago

Not everything can be bootstrapped. Hardware is the obvious example.

lumost 4y ago

In enterprise software, it’s rare that you can win your first clients with a low touch strategy. This means there is a phase where you are investing a lot to win specific clients, and getting little in return. The above seed stage startup could be in the boat where they won a customer bootstrapping, but are now scaling through the use of sales engineers etc. A 100k per month burn may translate to needing to win 1-10 deals to break even.

at-fates-hands 4y ago

>> Perhaps the art of bootstrap is not discussed enough here. Twelve years ago, I bootstrapped my own company. Took a very small loan from my parents ($5,000), got a friend to work with me and we were off and running. We still worked our full time jobs, but I was taking vacation on Thursdays to cold call clients and give them my elevator pitch. Then it was setting up appointments, making the presentations and trying to get people signed up using a subscription based model we had developed while he was working on the mobile app development. We were about two months from generating enough revenue to quit our full-time jobs when my buddy died suddenly and unexpectedly. It was pretty hard to continue after that. I slowly wound down the clients I had signed up over the next year or so, and quietly closed the business after two years. I still do business under the company name, but the organization is long gone. If nothing else, it proved to me you can bootstrap your own company on your off-time, and eventually make that transition to full-time with very little to no overhead (office space, equipment, employees). Also, it showed me you don't need $10M in funding to build a niche company serving an underserved industry. But bootstrapping isn't easy. Cold calling people isn't easy, getting out there and grinding away on a consistent basis isn't easy. Having your own money invested with a "do or die" attitude isn't easy. Believing in your idea isn't easy. I'm not sure constantly having to raise money is any easier, but the difference is one one hand you're constantly working on your product and business which makes your business sustainable. On the other hand, I'm not sure constantly chasing investors and their money will really benefit your company in the long run.

johntiger1 4y ago
sorry to hear about your buddy
- at-fates-hands 4y ago
  Thanks for the kinds words. Yeah it was devastating. Died of a massive heart aneurism. We were scheduled to meet that day and his wife called and told me what happened. I guess he died pretty instantly. It was so massive, it literally ripped his aorta in two. The company he was working at came out in full support of his fiancé. The entire church was standing room only. They had some 150 people just from his office who knew him which was really heart warming. He was a really great guy, gone way to soon. He was still in his 30's, I was pushing 40. When something like that happens, it really makes you think about your own mortality and if you're really living every day to the fullest, or just breathing. It really made me take stock and make a lot of changes in my life. I just don't take anything for granted anymore.

jupp0r 4y ago

This is completely normal lots of today's sustainable companies have been operating like that for a while. As long as you use those $100k/month of spending to keep growing fast, everything will be fine. This doesn't mean that you don't have a good sustainable business model, just that you need to invest a lot into growth.