One of the first questions you should ask yourself if you plan to start any business is: Who is going to hand over their hard earned money for what I'm going to create?
Passing up profitability for growth can be a challenging decision, especially when your organization is self-funded or financed by personal debt (vs. VC backed).
However, I think a willingness to assume the risk when others won't, especially when faced with enormous market potential, is one of the things that separates the good companies from the great ones.
Thanks for the insight, as always.
I solve the problem of profitability by working on things that people are already accustomed to paying for. So, I don't have to think about convincing people to pay for my product or service. All I have to do is to convince people to choose mine over my competitors'.
I had no idea that you were a South Park fan!? HA.
This article really reminds me of a book I read last semester in graduate school "The Goal". Such a great book, but for those that haven't read it basically it's the idea that there is this company that is completely going down the tube and everyone is so worried about efficiency, work flow, and producing new products that they completely forget to align their business about the main function of a business, TO MAKE MONEY! In fact they run all these overly complicated reports and have these advanced robots to do things, but they completely forget that they are trying to produce things to make money instead of just producing them as efficiently and quickly as possible even when this isn't the market demand.
I have a simple approach always continue to strive to get more out of people, customers and cash. Profitability is often talked about however I am often skeptical, because accounting figures can be manipulated to read better than any science fiction novel. Hard cash is always a great bed to build a business on. And I am sure that this is what you are intimating towards. Most people focus on the numbers turnover, volume, etc. More sales orientated. And what really matters is ... are you making any "real money".
Irrespective of wasting time on thinking too much about profitable business models.
One should just start ,its better than wasting time thinking too much.
Start acting ,build it , launch it and learn (portal ideas).
Each step we do learn a lot, that things are not shiny as we thought ,
All our Excel sheet figures where bull shit. Users are not attracted.
At this point you figure our the real problems which you face.
Filter our the troubling aspects .
1, Portal sucks , hardly any users interested .
2, Need to find a business model, Do some research
3, Figure our marketing plans
This point about profit is especially important in more challenging economic conditions. It’s easy to become fixated on turnover and overlook extra costs that erode profitability. You Survive on the Bottom Line, (not the top line)
I agree with Baiju.
I guess it makes a lot of difference if it's your first start up or second and more.
Profitability calculation won't be correct and quite frustrating when you have not real experience in doing those calculations.
So sometime it would make sense to just Start it.
Correct me please, I intend to first timer.
Is there somewhere I can nominate this for "analogy of the year"?
Brilliant, Dharmesh. And hilarious.
I agree with Baiju
We have to give the first step event though the end point is not well defined. "The perfect is enemy of the practical". And this is true regardless of the size of the company, the most important issue is to move on.
i agree with few other comments, where they have mentioned startup should be easy and smooth enough to transform idea to an executable service.
after getting into market, we shouldn't freeze our eyes on the growth alone, we should look for opportunities to reach, at least a break even point for the product's own expense, ie. server cost, maintenance cost, development cost and so on.
i used to work in a company where they had other team to earn money (working in offshore projects) to feed in development team. so company management had less concern or less pressure to commercialize their existing products. rather they had so much time to bring luxurious features on the product. surprisingly most of the features were undiscovered by users. or they dont actually ready for use.
the worst thing is when developers work for a long while in a project to get it's first release out, they feel pissed off, because at the end they see management is not focusing on commercializing the service rather focusing on developing another new service.
actually, those who work in a startup company, they always get motivated by the commercialization success, because at the end of the game all had to count how much reputation they have earned along the money.
thanks for nice writeup :)
I disagree with you somewhat.
The problem is not that startups are forgetting about solving for profitability. Rather, it is that they do not have the CONFIDENCE in their idea to charge for it from day one.
I think the primary problem is that the customer base a FREE SERVICE gathers is fundamentally different then the customer base that a PAID SERVICE would gather.
I believe that it is crucial for a startup to implement their business plan with profitability aspects included from day 1. It's ok! If your service is solving a GENUINELY IMPORTANT PROBLEM, then people will happily pay for it!
As with any type of product: The main issue is to create a product/service that solves a real problem rather than create a solution that is looking for a problem.
Great article. I believe it's always good to do your research and find out how other business made their success. But the bottom line, you're going to have to take action and be proactive. Sure, you may fall (you will fall), but it's how you pick yourself back up and carry on is what makes the difference. Don't be afraid to test the waters and if something feels right - it probably is.
Agreed on the profitability article. On attempting to launch a new start-up though, it's difficult to calculate profitability if it is to be revenues are to be garnered from ads. Any ballpark on what ads can bring in?
Here are a few more things they don't teach you in most MBA programs, and especially if you do your MBA early in your career, rather than wait about two decades as I did:
1. The Strategy and Leadership courses are really important if you want to be able to answer: a) what business are we in; b) do we really think we are that inimitable in sectors other than the business we THINK we're in; c) if you're the leader, you must accept the blame as well as the fame; d) if you are texting, sleeping, recovering from hangovers, cutting classes on a regular basis when just showing up would benefit your brain more than you can imagine, then you really are wasting a lot of money for three little letters after your name. Some of this stuff really is that important, and it will come back to bite you when you are in your 40s, if you don't learn the landmines now. McKinsey is right about a lot of things, but mostly that the big mistakes aren't made in structure and systems but in strategy, staffing, skills, style and shared values.