Is it just me or are any of my fellow business-minded friends frustrated? Actually, it’s almost gotten to the point where I despise the word “entrepreneur” and use it very sparingly as a self-directed adjective.
Entrepreneurs used to be guys that not only could create an entity with awesome ideas, but also the guys that understood how money and financial differentials could be transformed into positive growth. Somewhere along the way, that transformed into some quasi-hipster “its-cool-to-struggle-and-be-broke” mentality. All the start-up magazines and material preach how vision and passion are all that matters and that if you have those you can get VC financing and be a winner too!
Now don’t get me wrong — I think vision is absolutely essential to what drives start-ups. You have to have the ‘why’ portion of the equation as the paramount core. (See this excellent talk by Simon Sinek). But if monetization isn’t part of that equation, you’ve just created the world’s most expensive hobby.
To help illustrate, let’s use TOMS as an example. Perhaps the vision was, “Every child in the world should have a great pair of shoes”. There are a couple ways you could accomplish this.
STRATEGY 1: Donate millions to purchase shoes for as many kids as possible. That’s right, just cut a check and buy a bunch of shoes and parachute them down to kids overseas.
STRATEGY 2: Start some business and donate a portion of revenue each month to someone else.
STRATEGY 3: Create an entirely new sustainable buy-one, give-one idea. Donate shoes for each shoe sold. Just the idea alone makes you say “wow how cool”. It gives consumers an idea to embrace and believe in.
Do you see the difference? TOMS had a clear vision that drove the business, but selling shoes and making money off shoes was still absolutely a key part of the equation.
But now, that isn’t what gets attention. It’s always the same story — some guys have a great idea and a VC comes and pours coin into it. Immediately the entity loses the ability to think. They get some space in a San Francisco office they don’t need, spend a mess-load of money they don’t have to — and in the end wind up looking like every other start-up in the valley. I’m expecially critical of VC funding for three reasons:
1) It absolutely kills the urgency and importance of cashflow.
Look at the TOMS example. If those guys had several million in cash, the easiest solution would have been Strategy 1. But because they didn’t have piles of money initially, they came up with a great way to generate the cash they needed to make a dream happen.
2) It doesn’t force you into scruitinizing every decision that involves spending cash.
Quite simply, it’s not your money! If you’re in college, think how easy it is spend your parents cash vs. your own. This is absolutely true in the business world too. If you have a small flow of cash coming in or are pouring your own finances into a project, you are going to question every penny. And it’s not just cost savings — it’s innovation! Almost every situation I’ve experienced where cash was a problem, we restructured some business processes to eliminate the need for cash. You accomplish the same thing, and you end up with a leaner company.
3) And finally, you become a slave to your own idea.
You’re working for someone else now just as much as holding a W2 position. Call it your own business or whatever, you’ve still given away an often big piece of YOUR idea to some other guy who will probably want to flip the company before you do.
All this run around is to say you don’t need piles of cash to start a great company to change the world. You only need a vision AND a great strategy to generate money. Andy McKelvey, one of the founders of Monster.com once told a group of young entrepreneurs, “There are a lot of dumb people in this world with a lot of money, and a lot of smart people without any.”
The key is not that those guys read start-up magazines; they figured out how to sell something for more than it costs. It’s just that simple. And it always has been.