I'm gobsmacked this morning.
What started with a bit of light reading (catching up from my Twitter stream), lead me to this article and startup post-mortem, which in turn linked and lead me down a no-revenue rabbit hole. In the last 10 minutes, I have now read three startup post-mortems (i.e. articles about why these startups died and the lessons learnt):
- Why Startups Fail: A Postmortem For Flud, The Social Newsreader
- Postmortem of a Venture-backed Startup
- The Uphill Battle Of Social Event Sharing: A Post-Mortem for Plancast
So why am I gobsmacked? Well, a quick scan through the articles and you'll see that the word "revenue" (such a dirty word obviously) is mentioned once across three articles.
Combined these three articles boast a total of 7200-odd words and "revenue" gets mentioned once. Compare that to the world "social", which gets a cool 27 mentions.
What's wrong with that picture?
If these post-mortems are the status quo and have mainstream media are reporting on them, then it's obvious that the average individual's perception of what a startup should and shouldn't be is broken. If young entrepreneurs are aspiring to these idols, then we're giving them the wrong blueprint.
Between the three startups mentioned above, they raised combined funding of almost $5m, but none of them could build sustainable businesses. They also boasted great traction (in terms of signups and adoption), with Flud claiming a new user every four seconds.
So you have to ask yourself why these startups didn't make it? Reading through their post-mortems the answer to that question is obviously nuanced and not due to one reason alone. But the lack of any (or any significant) revenue is an incredible failure and one which isn't spoken about even now (for whatever reason).
If I was a founder of one of these startups, I'd feel ashamed at the fact that I had so much funding and so much traction, but I wasn't able to carve out a revenue model that at the very least extended my runway.
What You Should Learn From This
I'm biased and have a strong opinion about this. Then again, I also have a fetish for building businesses that actually make money.
This isn't a rant about how venture-backed companies are bad. It is however strong critique against entrepreneurs that build businesses that (seemingly) will never make any money. What's more concerning is that this seems to be a recurring theme for startups that are aimed at doing anything social or built for the consumer.
With this in mind, here's a few things that you should (or could) learn from this:
Revenue is important. In fact, it's the most important thing in your business. If you don't have that, you will eventually die. The sooner you have revenue (ideally on Day 1), the less risky your startup becomes. Revenue models as an after-thought are almost always a compromise and a bad idea.
There's no such thing as a free lunch. Getting a million people to sign up and use your product for free means jackshit in the medium term, unless you can convert a % of those to paying customers. Always make your customers pay.
Sell to other businesses. This is not only a much easier business to build, but it probably avoids you having to write post-mortems like the one's above.
If you have the passion and ambition to build the next Facebook or Instagram, then put your money where your mouth is and fund the thing yourself. If you truly believe that you can play the long game by building an audience of millions of engaged users (with no revenue) with the view of eventually monetizing that, then take the biggest risk you can: use your own money.