We need an inverse of this too "How to proceed when you're flush with cash, but don't believe"
How to proceed when you run out of cash, but you still believe?
121–130 of 209 posts
Re: How to proceed when you run out of cash, but you still believe?
#122Earlier quoted context omitted.
Zero marginal cost in theory. In reality, you often find enormous cloud costs combined with huge marketing spend.
As long as your product is perfectly scalable and generates a profit for money spent that way, it makes perfect sense to take a loan, spend a fortune, make a fortune, then pay off the loan and take in profits. Then turn around and do it again. It isn't the absolute size of the numbers that matters. It is the ability to rapidly scale the business once you have the right business model and product.
And in particular, if you sell low churn saas (like we do), you can comfortably spend the first year's annual contract value on customer acquisition and have an extremely profitable business. Just huge initial marketing costs.
And quite possibly huge ongoing marketing costs! But if churn is low, or even negative, you can assume something like 10 year customer lifetimes, with a comfortable 5-ish percent cost increase per year, on sale for the first year's contract value. If you have cheap-ish money available, you should buy as many of those as the world is willing to sell.
Re: How to proceed when you run out of cash, but you still believe?
#123> "We are a team of 8. We are 2 full-stack, 1 iOS, 1 Android and 4 product people." And that leaves 0 for business + marketing + sales. Maybe you didn't find the right business model during 5.5 years because you had nobody working on finding the right business model?
"Product people" is a very generic term, which likely includes some of what you mentioned.
Fair point. But if after 2 years you haven't found a business model, it might be better to fire couple of the product people and get dedicated biz people, as opposed to waiting 5.5 years and then go belly up.
Re: How to proceed when you run out of cash, but you still believe?
#124Earlier quoted context omitted.
"Maybe I'm being naïve here, but isn't it kind of crazy to raise 3.5M in funds for a business that has no plan but to be acquired by someone else?" That's a sane question. IMO it's the current financial environment that encourages such "leap without looking" strategies. Fear of missing out is huge right now. I know of a startup that received a multi-million valuation and many more million in funding. They don't even…
Indeed. The flip-side to this is that speculative investment on unprofitable moonshots seems to be where ALL the equity-finance money is. My company reliably earns low-7-figures on high-7-figures revenue, with respectable but not amazing growth, but the only capital "market" open to us is bank loans and merchant financing. Nobody cares about boring profitability.
Why is that a bad thing? If you are profitable, why would you want to give up equity and control?
Re: How to proceed when you run out of cash, but you still believe?
#125Earlier quoted context omitted.
"Maybe I'm being naïve here, but isn't it kind of crazy to raise 3.5M in funds for a business that has no plan but to be acquired by someone else?" That's a sane question. IMO it's the current financial environment that encourages such "leap without looking" strategies. Fear of missing out is huge right now. I know of a startup that received a multi-million valuation and many more million in funding. They don't even…
Indeed. The flip-side to this is that speculative investment on unprofitable moonshots seems to be where ALL the equity-finance money is. My company reliably earns low-7-figures on high-7-figures revenue, with respectable but not amazing growth, but the only capital "market" open to us is bank loans and merchant financing. Nobody cares about boring profitability.
Serious question -- why would you want something besides a bank loan? Because a loan at a couple of percent is way cheaper than VC, who will typically want at least 20% of your company?
Re: How to proceed when you run out of cash, but you still believe?
#126Earlier quoted context omitted.
Google didn't have a business model when they started but they were sure they were building something useful. I don't know much about fashion and I don't know if what they have is truly useful, but I respect them a lot and will see if I have contacts I could introduce them to.
Google's initial funding, when they did not have a business model, was around 1 million dollars. By the time they got a significant chunk they had decided to use ads to try to monetize. Not all useful things make sense as income generating businesses.
Not according to In the Plex. They had raised money from Sequoia and Kleiner Perkins and John Doerr was almost losing his mind on how much cash they were burning through with no business model. Finally, in an act of desperation, they copied Overture's model. The rest is history!
Re: How to proceed when you run out of cash, but you still believe?
#127Earlier quoted context omitted.
Not even. I'm seeing seed and series As/Bs on unproven teams of recent graduates with no experience in the field where the "start up" operates. No business plan, no prototype, huge regulatory walls to climb. It is worst than tulip mania.
Funds make money on failed investments too. I'd be happy to throw away someone else's money, if I got to keep 20% as a management fee - and a slice of the profits in case one of my lottery tickets is a winner.
Typically they'd get 2% of assets under management, not 20%.
Re: How to proceed when you run out of cash, but you still believe?
#128As someone who is interested in one day starting my own business, I have nothing but respect for someone who has the guts to follow through with that and pursue their vision. That being said... why did you (or if anyone else can chip in) decide to chase funding when you didn't have a business model? Maybe I'm being naïve here, but isn't it kind of crazy to raise 3.5M in funds for a business that has no plan but to be…
"Maybe I'm being naïve here, but isn't it kind of crazy to raise 3.5M in funds for a business that has no plan but to be acquired by someone else?" That's a sane question. IMO it's the current financial environment that encourages such "leap without looking" strategies. Fear of missing out is huge right now. I know of a startup that received a multi-million valuation and many more million in funding. They don't even…
Well, not everyone does that. I applied to YC with my side project [1] and got rejected. I didn't expect to get in, but if I would have, then I would be full-time on it.
Now I can't, which is a shame. So in that sense, I wish someone would fund me. I have a lot of "doodling the internet" type of ideas. I use digital note taking extensively myself, so I know what's missing.
[1] doodledocs.com
Re: How to proceed when you run out of cash, but you still believe?
#129Earlier quoted context omitted.
Yah, but re:wework, throw in a dry cleaning app that schedules a dirty laundry pickup and suddenly the valuation goes from marginal to billions. Especially if you get some machine learning in there to detect spots (or something).
The economics of on-demand are totally different: First, there's a delivery part. Delivery companies often become very big and make a lot of money. Second, centralizing many small dry cleaning places into one has Significant economic advantages. Third, they probably use an asset-lite model like Uber. Fourth, all those make them somewhat similar to some sucsesfull, high growth companies , so it's possible they'll grow…
Does centralizing many small dry cleaning places have significant economic advantages assuming that each location has to negotiate independently for it's space and (to parallel wework) items like cleaning supplies and staff management necessarily vary from location to location due to local regulations?
WeWork is sort of the golden example of a business being sold as something that works at scale... except the business doesn't actually work at scale.
Re: How to proceed when you run out of cash, but you still believe?
#130Earlier quoted context omitted.
"Product people" is a very generic term, which likely includes some of what you mentioned.
Fair point. But if after 2 years you haven't found a business model, it might be better to fire couple of the product people and get dedicated biz people, as opposed to waiting 5.5 years and then go belly up.
Out of curiosity, do you have direct experience with entrepreneurship? This is extremely easy to say from a distance, and so naturally everyone does, only to bite their tongue once they've gone through it.