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I am so glad Suster said this. Hell, I would have been glad if any of the most visible VCs said this. I get the sense that people really do believe that tech s

by buro9 13y ago

I am so glad Suster said this. Hell, I would have been glad if any of the most visible VCs said this. I get the sense that people really do believe that tech startups are actually a different beast, that the basic rules do not apply, and that we really are not building businesses as the rules just don't apply to tech startups... they are different. We should be calling bullshit on that. The core rule should be that revenue should be higher than costs. It seems so dumb to say, as it is obvious. So how did we end up in a place where people will tell you with a straight face not to worry about revenue, far better to grow (increase costs) and increase valuation. As soon as you are in that game it seems that the goal has shifted to the next funding round, the next inflated valuation, and not to have built a sustainable and possibly high-growth business. The exit should not be the end and your goal. It is the goal of the VC, and your paths may be the same for a while, but before the VC you need to find the right ingredients for a new business, and after VCs have exited you need to have set your company on a path of sustainable growth. Growth is important, but n times no revenue is still zero. Revenue should be our most important metric, and growth should be second to that.

mgkimsal 13y ago
"So how did we end up in a place where people will tell you with a straight face not to worry about revenue, far better to grow (increase costs) and increase valuation." Because once you start taking money, that is your valuation, more or less. You've got 10,000 users using your service, growing at, say 30% annually. Once you start charging, say, $30/month, you've put hard numbers to things, and there's a financial framework to work within. Until then, you can keep projecting $x/year, because it could be anything.
- hobs 13y ago
  I see how "playing the game" makes it seem that way, but projections are worth about the same in my hand as a fart. If you have enough VC to keep going and you want to be the next twitter, I wont say you shouldn't, but it seems common sense that you would want to start making money so that you know, you start making money.
  - mgkimsal 13y ago
    I completely agree, but 'making money' and 'increasing valuation' really aren't the same ends at all.
    - hobs 13y ago
      Yeah, and maybe I want to say something along the lines of "your valuation should be more closely tied to your actual ability to make money." I will ponder it more, thanks for your comment.
- mindcrime 13y ago
  Because once you start taking money, that is your valuation, more or less. That's certainly the perception, but I'll argue that it's a short-sighted perception. There are lots of ways companies can push the gas pedal on growth, even once their financial model is known. Launch a new brand, do a line extension, do a brand extension, make an acquisition, goose the advertising budget, etc., etc. To look at a company today, take their financial metrics, and assume they will always stay on the same trajectory, strikes me as silly.
GrinningFool 13y ago
"I get the sense that people really do believe that tech startups are actually a different beast, that the basic rules do not apply, and that we really are not building businesses as the rules just don't apply to tech startups... they are different." I understand your point - revenues should be a concern from day one. If you have neither revenue nor a plan to obtain it in the very short term, you don't really have a plan for your business beyond "get big and hope". However: Traditional brick and mortar businesses don't expect profitability in the first year, and sometimes for as many as the first three years. This is not to say that they have no revenue - only that there isn't an expectation of revenue greater than costs in the short- to medium-term. The notion that a business should be immediately profitable has always been a popular one, but seldom has it been an accurate one.
- buro9 13y ago
  I agree. The record label I once worked at wasn't profitable until year 4, but they had revenue from 4 months in and built upon that at every opportunity. My point is that you don't become profitable without revenue, and that an acquisition may work for literally a handful of startups, but it is not something anyone should bet on.

by buro9 13y ago

mgkimsal 13y ago

"So how did we end up in a place where people will tell you with a straight face not to worry about revenue, far better to grow (increase costs) and increase valuation." Because once you start taking money, that is your valuation, more or less. You've got 10,000 users using your service, growing at, say 30% annually. Once you start charging, say, $30/month, you've put hard numbers to things, and there's a financial framework to work within. Until then, you can keep projecting $x/year, because it could be anything.

hobs 13y ago
I see how "playing the game" makes it seem that way, but projections are worth about the same in my hand as a fart. If you have enough VC to keep going and you want to be the next twitter, I wont say you shouldn't, but it seems common sense that you would want to start making money so that you know, you start making money.
- mgkimsal 13y ago
  I completely agree, but 'making money' and 'increasing valuation' really aren't the same ends at all.
  - hobs 13y ago
    Yeah, and maybe I want to say something along the lines of "your valuation should be more closely tied to your actual ability to make money." I will ponder it more, thanks for your comment.
mindcrime 13y ago
Because once you start taking money, that is your valuation, more or less. That's certainly the perception, but I'll argue that it's a short-sighted perception. There are lots of ways companies can push the gas pedal on growth, even once their financial model is known. Launch a new brand, do a line extension, do a brand extension, make an acquisition, goose the advertising budget, etc., etc. To look at a company today, take their financial metrics, and assume they will always stay on the same trajectory, strikes me as silly.

GrinningFool 13y ago

"I get the sense that people really do believe that tech startups are actually a different beast, that the basic rules do not apply, and that we really are not building businesses as the rules just don't apply to tech startups... they are different." I understand your point - revenues should be a concern from day one. If you have neither revenue nor a plan to obtain it in the very short term, you don't really have a plan for your business beyond "get big and hope". However: Traditional brick and mortar businesses don't expect profitability in the first year, and sometimes for as many as the first three years. This is not to say that they have no revenue - only that there isn't an expectation of revenue greater than costs in the short- to medium-term. The notion that a business should be immediately profitable has always been a popular one, but seldom has it been an accurate one.

buro9 13y ago
I agree. The record label I once worked at wasn't profitable until year 4, but they had revenue from 4 months in and built upon that at every opportunity. My point is that you don't become profitable without revenue, and that an acquisition may work for literally a handful of startups, but it is not something anyone should bet on.