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Option 3: Start a business with a business model that allows you to generate revenue in month 1. It sounds like you're using the funding as a cushion to protect

by swombat 13y ago

Option 3: Start a business with a business model that allows you to generate revenue in month 1. It sounds like you're using the funding as a cushion to protect you from having to build a profitable business RIGHT NOW. See this article http://swombat.com/2011/12/8/investment-cushion-springboard http://swombat.com/2011/12/8/investment-cushion-springboard With option 1, you're still going to be broke, but in a year's time, or whenever your money runs out and you realise you still don't have a business that makes money. Nothing focuses the mind on finding revenues like being broke and needing to make the rent. (I've been there. I was broke when I started my second business. We raised funding. Three years later when we ran out, I was still broke. I am fairly convinced that if we had raised no money we would have been much more likely to succeed, since it would have forced us into tangible, serious discussions with our potential clients immediately, and forced us to learn to sell right away)

dsirijus 13y ago
Nothing focuses the mind on finding revenues like being broke and needing to make the rent. True. That's why I found an angel. It's easier than build a business. One step at a time.
soneca 13y ago
I completely disagree about "Nothing focuses the mind on finding revenues like being broke and needing to make the rent." I know that a lot of people out there believe in this "desperation leads to solution" mantra. But I don't. I work much better and I am much more focused when I don't have to worry about bills. I started to sell my product from month 1, but wasn't able to generate revenue from month 1. I have a SaaS for restaurants, the sales cycle is longer than a month, no restaurant (around here) close deals at the end of the year - this I learned from experience, but also from successfull and experienced entrepreneurs from the same market; also advised by these successful founders I am offering a 3-month free trial for the first clients. The advice actually was "you will only charge after the 10th client, you need social proof first of all, so give your product for free and then charge after the 10th early-adopter." So, there is no way I can be profitable before March or April. Ok, maybe I am no sales wizard, maybe I am not good enough on this founder thing. But the point for me is, I am broke, and I already started my company, and I can't make it profitable. As I can't choose option 3 "go back in time and found another business" and I am not ready to quit this business, I will take funding.
- swombat 13y ago
  So, there is no way I can be profitable before March or April. Not with this business, for sure. If you have a business idea that requires many months or years to get off the ground, and you don't have the resources to sustain yourself during that period, though, I'd argue the idea is out of your reach: http://swombat.com/2012/1/19/idea-reach-cofounder-myth http://swombat.com/2012/1/19/idea-reach-cofounder-myth In your position, I would pick a different business idea.
  - gxespino 13y ago
    In his current position you would advise towards starting over with different business idea from scratch. One that would generate money from day one and need zero money to start. Yeah.. I'd say take the funding.
    - MDS100 13y ago
      Or Consulting/Freelancing. It's very much possible.
      - mswen 13y ago
        That is what I am doing currently to support my start-up. One steady client that pays well and is willing to work with a somewhat flexible commitment from me at about 10 to 20 hour per week. And with careful spending that will pay bills for my family.
      - soneca 13y ago
        I did some freelancing. A two-week job paid my November bills. It was a good emergency revenue, but it is a palliative solution. It is hard to find such jobs, it is unpredictable and also distracting. I still prefer the angel investment.
- dsirijus 13y ago
  From my experience, being desparate pushes you extra, true. But you hit a wall, since you've just spent a lot of your time chasing urgent and important instead of not urgent and important, which is preferable long-term strategy. I could make a house building analogy here probably.
delinka 13y ago
"Nothing focuses the mind on finding revenues..." So I spent months attempting to chase revenue (i.e. looking for the next thing that might make money now ...) instead of building the business I wanted.
ChristianMarks 13y ago
"Nothing focuses the mind on finding revenues like being broke and needing to make the rent." Research shows that the cognitive load associated with being broke amounts to a loss of one standard deviation in IQ. The mind is focused all right: only on making the rent and on nothing else, and under no circumstances on anything like starting a business.
- mooreds 13y ago
  I've heard the same thing, but do you have a reference for this?
  - ChristianMarks 13y ago
    LMGTFY: Anandi Mani1, Sendhil Mullainathan2, Eldar Shafir3, Jiaying Zhao4. Poverty Impedes Cognitive Function. Science 30 August 2013: Vol. 341 no. 6149 pp. 976-980 http://www.sciencemag.org/content/341/6149/976 http://www.sciencemag.org/content/341/6149/976 http://www.theguardian.com/science/2013/aug/29/poverty-mental-capacity-complex-tasks http://www.theguardian.com/science/2013/aug/29/poverty-menta...
tgflynn 13y ago
"Start a business with a business model that allows you to generate revenue in month 1" It doesn't seem to me this is very realistic. My impression is that building any kind of serious SaaS is going to be at least a 6-12 month project for a single developer. Even ideas like blogs with affiliate marketing revenues probably take about a year to generate enough users to make sufficient money to support oneself and simple pure ad supported sites seem to require at least 100K+ users to make money (ie with RPM's around $1). Is it really possible to start a software/online business that will earn significant revenue in 2-3 months ? EDIT: Excluding consulting/freelance work of course.
- swombat 13y ago
  SaaS is not the only business model out there...
- Shpigford 13y ago
  It's entirely possible and very realistic. I built a SaaS product in the equivalent of about a 7-8 working days that 4 weeks in had $1000 in MRR and 8 weeks later is double that. http://joshpigford.com/baremetrics-stripe-analytics http://joshpigford.com/baremetrics-stripe-analytics It's about solving problems that businesses are willing to pay for. Doesn't matter how good the idea sounds. Only matters if businesses will fork over real, tangible money for the problem you're solving.
webwright 13y ago
"Start a business with a business model that allows you to generate revenue in month 1." Funding is for companies who want to be big/great. Most big/great opportunities have a cash-intensive front-end that scares away most entrepreneurs. It's not a "cushion" - it's a MOAT. Funding is the boat that gets you across it. There are certainly exceptions, but I don't think it's fair to assume he's "using funding as a cushion".

by swombat 13y ago

dsirijus 13y ago

Nothing focuses the mind on finding revenues like being broke and needing to make the rent. True. That's why I found an angel. It's easier than build a business. One step at a time.

soneca 13y ago

I completely disagree about "Nothing focuses the mind on finding revenues like being broke and needing to make the rent." I know that a lot of people out there believe in this "desperation leads to solution" mantra. But I don't. I work much better and I am much more focused when I don't have to worry about bills. I started to sell my product from month 1, but wasn't able to generate revenue from month 1. I have a SaaS for restaurants, the sales cycle is longer than a month, no restaurant (around here) close deals at the end of the year - this I learned from experience, but also from successfull and experienced entrepreneurs from the same market; also advised by these successful founders I am offering a 3-month free trial for the first clients. The advice actually was "you will only charge after the 10th client, you need social proof first of all, so give your product for free and then charge after the 10th early-adopter." So, there is no way I can be profitable before March or April. Ok, maybe I am no sales wizard, maybe I am not good enough on this founder thing. But the point for me is, I am broke, and I already started my company, and I can't make it profitable. As I can't choose option 3 "go back in time and found another business" and I am not ready to quit this business, I will take funding.

swombat 13y ago
So, there is no way I can be profitable before March or April. Not with this business, for sure. If you have a business idea that requires many months or years to get off the ground, and you don't have the resources to sustain yourself during that period, though, I'd argue the idea is out of your reach: http://swombat.com/2012/1/19/idea-reach-cofounder-myth http://swombat.com/2012/1/19/idea-reach-cofounder-myth In your position, I would pick a different business idea.
- gxespino 13y ago
  In his current position you would advise towards starting over with different business idea from scratch. One that would generate money from day one and need zero money to start. Yeah.. I'd say take the funding.
  - MDS100 13y ago
    Or Consulting/Freelancing. It's very much possible.
    - mswen 13y ago
      That is what I am doing currently to support my start-up. One steady client that pays well and is willing to work with a somewhat flexible commitment from me at about 10 to 20 hour per week. And with careful spending that will pay bills for my family.
    - soneca 13y ago
      I did some freelancing. A two-week job paid my November bills. It was a good emergency revenue, but it is a palliative solution. It is hard to find such jobs, it is unpredictable and also distracting. I still prefer the angel investment.
dsirijus 13y ago
From my experience, being desparate pushes you extra, true. But you hit a wall, since you've just spent a lot of your time chasing urgent and important instead of not urgent and important, which is preferable long-term strategy. I could make a house building analogy here probably.

delinka 13y ago

"Nothing focuses the mind on finding revenues..." So I spent months attempting to chase revenue (i.e. looking for the next thing that might make money now ...) instead of building the business I wanted.

ChristianMarks 13y ago

"Nothing focuses the mind on finding revenues like being broke and needing to make the rent." Research shows that the cognitive load associated with being broke amounts to a loss of one standard deviation in IQ. The mind is focused all right: only on making the rent and on nothing else, and under no circumstances on anything like starting a business.

mooreds 13y ago
I've heard the same thing, but do you have a reference for this?
- ChristianMarks 13y ago
  LMGTFY: Anandi Mani1, Sendhil Mullainathan2, Eldar Shafir3, Jiaying Zhao4. Poverty Impedes Cognitive Function. Science 30 August 2013: Vol. 341 no. 6149 pp. 976-980 http://www.sciencemag.org/content/341/6149/976 http://www.sciencemag.org/content/341/6149/976 http://www.theguardian.com/science/2013/aug/29/poverty-mental-capacity-complex-tasks http://www.theguardian.com/science/2013/aug/29/poverty-menta...

tgflynn 13y ago

"Start a business with a business model that allows you to generate revenue in month 1" It doesn't seem to me this is very realistic. My impression is that building any kind of serious SaaS is going to be at least a 6-12 month project for a single developer. Even ideas like blogs with affiliate marketing revenues probably take about a year to generate enough users to make sufficient money to support oneself and simple pure ad supported sites seem to require at least 100K+ users to make money (ie with RPM's around $1). Is it really possible to start a software/online business that will earn significant revenue in 2-3 months ? EDIT: Excluding consulting/freelance work of course.

swombat 13y ago
SaaS is not the only business model out there...
Shpigford 13y ago
It's entirely possible and very realistic. I built a SaaS product in the equivalent of about a 7-8 working days that 4 weeks in had $1000 in MRR and 8 weeks later is double that. http://joshpigford.com/baremetrics-stripe-analytics http://joshpigford.com/baremetrics-stripe-analytics It's about solving problems that businesses are willing to pay for. Doesn't matter how good the idea sounds. Only matters if businesses will fork over real, tangible money for the problem you're solving.

webwright 13y ago

"Start a business with a business model that allows you to generate revenue in month 1." Funding is for companies who want to be big/great. Most big/great opportunities have a cash-intensive front-end that scares away most entrepreneurs. It's not a "cushion" - it's a MOAT. Funding is the boat that gets you across it. There are certainly exceptions, but I don't think it's fair to assume he's "using funding as a cushion".