Top Startup Misconceptions: If You Build It, They Will Come (and Pay)

In my effort to provide useful information to entrepreneurs and aspiring entrepreneurs, I share helpful articles that I find around the web and think can help my followers move your businesses forward. Often, people write asking me to elaborate on those articles so I started a series that does just that. I recently posted an article from RockthePost about common misconceptions people have about launching a new company. The last of those misconceptions that I want to tackle here is the cliche that if you build it, they will come. 


Everybody’s heard the phrase “if you build it, they will come.” Unfortunately, that’s simply not true in the world of startups and it’s even less true that “if you build it, they will come and pay you for it.” This pesky assumption is the downfall of many a new business and combating it is precisely the goal of the super popular lean startup movement, which advocates the creation of a minimum viable product (or MVP) that you can quickly get feedback on to verify that customers will, in fact, come to get what you have to offer.

There are two main facets to this assumption that entrepreneurs need to be sure to overcome in their strategic planning if they want to be successful when building their new companies:

Firstly, this assumption is based around the idea that whatever product or service you’re going to offer is something that customers want enough that they are willing to pay you money for it. This is actually a HUGE assumption. Customers are simultaneously very fickle and very stuck in their routines. That means that while they may not be loyal to whatever they’re using now to deal with the problem that you intend to solve, they’re likely not going to want to put in much effort to switch. That means that it will take some work to convince them that it’s worth their time and effort to incorporate what you offer into their routine, but then don’t expect a huge ton of loyalty once you’ve won them over. They switched to you and they will be willing to switch away from you if a better option presents itself.

In order to make sure that you build something customers actually want to pay for, you should follow some guidelines:

  • When you’re first fleshing out your idea, stop thinking about what you want to sell and start thinking about what customers want to buy.
  • It’s much easier to sell something that solves an immediate problem or fills an immediate need than it is to sell something that “would be nice to have” but isn’t a necessity.
  • Start getting feedback from those in your target market as soon as possible and incorporating that feedback into your product development.
  • Make the cost – in money, time, and effort – of switching to your product or service as minimal as possible. I can’t stress this one enough. Humans are creatures of habit and we’re mostly pretty darn lazy so if it takes a lot of effort for me to start using what you have to offer, I probably won’t ever start.

Secondly, this assumption is also based around the idea that people will even know your product or service exists. Even if you have the greatest offering ever and everyone would want to buy it, if nobody is aware of the fact that you’re offering it, you still won’t see success. Drastically underestimating the time, energy, and cost involved in promoting a new business is one of the top mistakes that new entrepreneurs make. That’s why it’s so important to create a thorough marketing plan that lays out all of the ways you’ll get the word out about what you have to offer and how much time and money that will cost you. Don’t expect to shoot out a press release announcing your launch and have customers knocking down your door. You’ll need to do much more than that to get the attention your business needs to thrive. If you need to learn the basics of marketing a small business, try checking out my Curious course or picking up my book and jumping ahead to the section about developing your marketing plan. 

In the real world, the  saying “if you build it, they will come,” is false and harmful to aspiring entrepreneurs. The truth is that if you build it, you’re able to spread the word effectively, and they like what you have to offer they will come. Not so clean cut and easy, but a much more realistic way to look at building a customer base.

 

Thanks for watching another episode of New Venture Mentor! If you liked this video, please let me know by liking it on Facebook and YouTube and sharing it with anyone who would find it helpful. Also, don’t forget to subscribe to my YouTube channel and to email updates and to follow me on social media so that you never miss any info that could help your business succeed. 

Startup Misconceptions: Raising Venture Capital Means You’ve Succeeded

In my effort to provide useful information to entrepreneurs and aspiring entrepreneurs, I share tons of interesting and helpful articles that I find around the web and think can help answer questions for my followers and help you all move your businesses forward. Often, people write asking me to elaborate on those articles or pieces of those articles so I am starting a series that will do just that. I may combine a few or leave a few out here and there, but I will cover the topics that people most often asked me to elaborate on.

I recently posted an article from RockthePost about common misconceptions people have about launching a new company. The next of those misconceptions that I want to tackle here is the idea that raising funding means you’re a success.

As it’s portrayed in the media, venture capital, startups, and entrepreneurship are all about glitz, glamour, and overnight riches. Because of this, and because of the size of some of the checks that venture capitalists might turn over to entrepreneurs, many new entrepreneurs operate under the misguided idea that raising venture capital money is the goal and that doing so means you’ve succeeded.

The reality, however, is that venture capital investment is not the end goal. By its very definition, it is an investment in the future success of the business. That means that when a VC writes you a check, she’s is saying that she sees success in your company’s future, not that you’re a success right now. If you’d already arrived, how would the investor make money by realizing gains on the increased value of your company?

When viewed in this light, it’s clear that raising venture investment is just one stepping stone on the road to success, and it’s a stepping stone that costs the entrepreneur power, ownership, and control.

Clearly, successfully raising venture capital is an accomplishment and I am not saying that it’s not. It’s great to get the validation of seasoned investors, to know that others believe in your vision and in your ability to achieve it, and to have enough money in the bank to keep the lights on for another month. If you’ve just recently gotten funding, congratulations! You absolutely deserve to celebrate. However, the party shouldn’t last too long because you haven’t succeeded yet. You have to get back to work. Your investors are going to hold you accountable for hitting your milestones and you’ve given up ownership, so you need to increase the value of your company by at least as much as the value of that cash infusion before running through that cash just to get back to where you were. The VC’s check being deposited into your business account does not mean it’s time to kick up your feet.

If you haven’t yet raised venture capital, take the time to step back and honestly evaluate why you’re pursuing the investment and whether or not it’s the best course of action for your business. This isn’t rocket science but BAD reasons to pursue venture capital funding are:

  • You think it will make you look cool
  • You want to be able to pay yourself a 6-figure salary for the same work you’re doing right now
  • You think all startups are supposed to raise VC money

On the other hand, GOOD reasons to raise venture capital funding might include:

  • You’re building your business in an industry with high startup costs and venture funding is the only way to get the necessary amount of money
  • You’re experiencing very rapid growth and in order to maintain that momentum, you will need a quick infusion of a lot of cash

If you’re not sure what type of funding is best for your business, don’t chase venture capital just because it’s the most talked about. Less than 1% of all new businesses in the U.S. are funded by angel investors or venture capitalists and if it’s not the right type of investment for your company you’re going to regret chasing it. For a quick overview of the different types of funding available to new businesses, check out my previous post on just that.

The right type of funding is critical to the success of your business, so make sure you’re making a strategic decision about whether to pursue outside investment and what type of investment to pursue as opposed to making a vanity decision based on the perceived “street cred” of a venture investment. And, if you do raise venture capital, be sure to remember that raising that money means you just won a battle, not that you’ve already won the war. Congratulate yourself and then get back to work!

 

Once you’ve assessed what type of investment would be best for your business, let me know in the comments section below what your strategy is for attaining it.

If you like this video, please let me know by giving it a thumbs up on YouTube and Facebook and, if you think others would find it helpful, remember to share it on social media. Thanks for watching and we’ll see you next week on New Venture Mentor.

Startup Misconceptions: Defining a Business Model Isn’t Important

In my effort to provide useful information to entrepreneurs and aspiring entrepreneurs, I share interesting and helpful articles that I find around the web and think can help answer questions for my followers and help you all move your businesses forward. Often, people write asking me to elaborate on those articles (or pieces of those articles) so I’ve started a series that will do just that. I may combine a few or leave a few out here and there, but I will cover the topics that people most often asked me to elaborate on.

I recently posted an article from RockthePost about common misconceptions people have about launching a new company. The next of those misconceptions that I want to tackle here is the idea that it’s not important to define a business model and figure out how you’ll monetize your product. 

One of the side-effects of some of the notoriety and sky-high valuations that big name startups like Twitter and Snapchat have generated in recent years is that many new entrepreneurs have begun to underestimate the importance of clearly defining a business model and knowing how you will monetize whatever product or service you offer. Their belief is that building a popular product or service and rapidly increasing their userbase will result in a quick and lucrative sale of their new business.

This is baffling to me because, essentially, they think that they can ignore the basic building block of what makes a company a company, generate buzz but not profit, and become a millionaire or a billionaire by having done nothing but lose money with their company. Has it ever happened? Yup. Should you bet the farm that it will happen to you? Nope.

The trouble with this view is that the odds are ridiculously long that your company will be the next Twitter or Snapchat. You need to be able to build a profitable business eventually and you need to be able to sustain your business until it is profitable. In order to do that, you need to either get the necessary funding to carry the company or start making money from it almost immediately. Assuming you’re not already independently wealthy with the ability to support yourself and your new company for a long period of time, you’re going to need a solid business model in place.

It’s important that new entrepreneurs recognize that there is a difference between a pre-revenue company and a company that has no plan for revenue generation. A pre-revenue company has revenue on the horizon and a clear plan for getting there. A company that doesn’t have a plan for revenue generation but continues to spend money anyway has worse odds than a degenerate gambler of coming out on top.

Let’s be real: if your company doesn’t generate revenue and you have no idea how it ever will generate revenue, is it really a company or is it a really well-structured hobby? Now, I don’t mean to diminish anyone who’s starting out and hasn’t been able to bring in much cash yet. That’s often a very normal part of building a business. You’re not going to have customers beating down your door the second you go into business. However, you do need to have a plan for who those customers are, where you’ll find them, and what they’ll pay you for. What I mean to point out here is that there are lots of activities that might suck up time and money that are not businesses. Businesses are built to generate profits and your job as a new entrepreneur is to do just that, whether for yourself or for any investors or potential investors. If what you do doesn’t have the promise of generating revenue, it’s not a for-profit business.

I’ve successfully raise angel investment twice and I’ve been on the investors’ side of the table when I was working at a VC firm and other entrepreneurs were seeking funds. I’ve never seen a pitch meeting in which the investors didn’t want the details of the business model nailed down.

So how do you define a business model so that you know exactly what you’re building as you work on your company?

At the most basic level, your business model is just a description of how your company brings in money. That should be a simple enough question to answer so take 5 minutes and write out your business model now. What do you sell? Who do you sell it to? How do you get paid? What is the structure of that payment – i.e. do customers pay by hour or project or subscription for a service? Even if you haven’t started to actually make money from the business model yet, you should know what it is and how you will implement it.

Instead of asking you to tell me what you think, this week, I’m going to ask you to share your homework with us: In the comments section below, let us know what your business model is.

If you liked this video, please like it; if you think someone you know could benefit from the discussion, please share it with them; and don’t forget to subscribe to my YouTube channel and my email list so that you never miss any tips or advice that will help you succeed as you build your new business.

Startup Misconceptions: The Question of Competition

In my effort to always provide a steady stream of useful information to entrepreneurs and aspiring entrepreneurs, I post tons of interesting and helpful articles that I find around the web that I think can help answer questions for my followers and help you all move your businesses forward. Oftentimes, people write me asking to elaborate on those articles or pieces of those articles so I am starting a series that will do just that. I may combine a few or leave a few out here and there, but I will cover the topics that people most often asked me to elaborate on.

I recently posted an article from RockthePost about common misconceptions people have about launching a new company. The next of those misconceptions that I want to tackle here is a two-sided confusion about competition. 

There are two damaging misconceptions about competition that I see new entrepreneurs believing all of the time, either of which could tank the company (or prevent it from even getting off the ground in the first place). Those two misconceptions are that unless you have a completely new idea, you cannot start a new company and that if you have a completely new idea, you will never have any competition. Both misconceptions are patently false.

Let’s start with the idea that you can’t start a company unless you have an idea that nobody else is working on. Firstly, that’s never going to happen. As I mentioned in a post about why entrepreneurs shouldn’t be scared to share their ideas, you’re not special, so thinking that you’re the only one working on a particular idea at a particular time is delusional. If you’re in the United States, even if your idea is truly “one in a million,” there are still about 312 other people working on that same idea right now. Have you ever wondered why most VCs refuse to sign non-disclosure agreements? It’s because they’ll probably be pitched basically the same idea by a number of different entrepreneurs and don’t want to open themselves up to getting sued. Have you wondered why you often here people talking about investing in the team more so than in the idea? It’s because good ideas really are a dime a dozen. It’s the execution that makes success stories.

With that said, you don’t have to abandon a great idea just because you see others out there with the same or similar idea. There is still an opportunity for you to find success by somehow setting your company apart and offering the same or similar products or services but doing it better, or faster, or more accurately. You absolutely need to have a value proposition that will set you apart from other companies in order to succeed. That doesn’t mean your idea has to be so original that nobody else has ever thought of it. Google was not the first search engine; Facebook was not the first social network; BMW was not the first car brand. If you want to build a business, focus on how you can add more value for the customer than anyone else out there, not on how you can come up with an idea so off the wall that nobody else is working on it.

Along similar lines, you have to understand that there will always be competition so, even if you think that you’re the only working on something, you can’t rely on being the only company in the space for your success. Firstly, as I mentioned before, you’re probably not actually the only one working on that idea. The other companies may be in stealth mode or may simply not have gotten enough traction yet for you to hear about them, but they’re probably out there. Secondly, even if by odd circumstance you are the only company working on something, you can bet your booty that competitors will start coming out of the woodwork if you find success. You must have something that sets you apart from the competition in the eyes of the customer or you’ll be in trouble.

In order to find success you need to understand that your obsession with competitors cannot be about whether or not they exist – they always will. It has to be about how you’re different than those competitors; how you offer more to the customers you’re fighting over; how you operate more efficiently than those competitors; and how you will continue to stay relevant, even if the space gets crowded. For more info about how to set yourself apart, spend some time poking around this site for tips.

 

Now I want to hear from you: Have you found yourself falling into one of these competition misconception traps? Please let me know in the comments section below and, if you haven’t already, sign up for my newsletter so you’ll never miss any info that could help you successfully grow your business. 

If you liked this video, please spread the love by liking it and sharing with anyone whom you think would find it valuable. Thanks for watching and we’ll see you next time on New Venture Mentor. 

The Basics of Cash Flow Analysis for Startups and Small Businesses

Everyone’s heard the refrain “cash is king” when it comes to running a small business and it certainly can be true. There are many new or small companies that are profitable but are still forced to close their doors because they didn’t manage their cash flow appropriately. That’s why careful cashflow analysis is incredibly important when you’re running a business.

Cash flow analysis is basically keeping track of when and how cash flows into or out of your business. This is different than just tracking your revenues and expenses because revenues and expenses should be tracked based on when money is earned or spent, not when it’s actually received or paid out. Depending on your business, your clients may not pay you for up to a couple of months after you’ve already delivered a service or product, so you have technically earned the revenue, but you don’t have that cash in the bank to pay your bills.

 There are 3 types of cash flow in any business: cash flow from operating activities, cash flow from financing activities, and cash flow from investing activities.

Cash flow from operating activities is that related to the core business and you’ll be able to use the income statement to figure out the cashflow from operating activities by taking the net income and adding back in expenses like depreciation that are not actual cash outflows and adjusting for accounts receivable and payable – cash that has been earned or spent but hasn’t actually been received or paid.

Cash flow from financing activities is that which is related to – surprise – financing activities – things like loan payments you make or payments you receive from loans made to others.

Cash flow from investing activities is that associated with any investments the company has made like the purchase or sale of land or equipment.

A statement of cash flows is one of the three basic financial statements but somehow still gets overlooked by many entrepreneurs. If you’re not familiar with it, you should speak with your financial officer or accountant to get an understanding of what your business’ cash flow looks like. You can also buy my business planning book and review the section on creating financial projections to develop your understanding of the importance of cash flow and how to determine and analyze it. You can get the Kindle version here and other ebook formats here.

Basically, cash flow will give you an idea of the financial health and liquidity of your business by showing you what you actually have available to use to meet the company’s obligations. $1 million dollars in profits isn’t as awesome as it sounds if your cash flow is such that you can’t pay your rent and will be evicted before you can ever collect that $1 million. You need to make a point of regularly reviewing your cash flow and making any adjustments where necessary to improve the health of your business. If you spot some problems, try taking a look at my old video for some tips on how to improve small business cash flow.

Tools for Nomadic Entrepreneurship

Last week I talked about how to manage your business from anywhere so that you can take full advantage of the freedom that entrepreneurship gives you and travel the world if you’d like. This week, as promised, I want to share some of the tools I use to help me while I manage my businesses remotely. Some of them may be familiar to you while some may be brand new but they’re all incredibly useful so check out the video below and then let me know in the comments what tools you use to help you manage your business(es) as you travel.

How to Manage Your Business from Anywhere

As you’ll know if you’ve explored the other pages on my website, I’m a full-time nomad and I’ve spent this year traveling through Latin America to explore the entrepreneurial ecosystems in the region. The fact that I have no real home base hasn’t stopped me from running my businesses, so I was recently asked to write a guest post for Under30CEO about how to live life as an entrepreneurial nomad. I got such a great response from that piece that I figured I should adapt it for video and share it here, in case some of you would love the freedom of being a nomad.