Why is it okay to be successful and lose money? Here's why it's better to leave the money on the table than grow your business into a great big bubble.
Share this article
Apparently Twitter has lost $2 Billion. My first thought on hearing that was ‘that’s a lot of money …. how phenomenally careless’. My second thought was ‘how do I get someone to give me a couple of billion to lose?’
I’ll be reasonable about it, I’d actually settle for just a billion to flush, you can keep the other billion. I can’t promise I’ll have a widely used social media app that’s impossible to monetize at the end of it but I can promise you some amazing selfies documenting my many adventures…. I’ll send them to you from the A&E in downtown Rio.
We are living through the era of dumb money. The combination of low interest rates, the tech revolution and the example of a few ultra-successful start-ups is fueling a febrile atmosphere of lending. It’s so ‘on trend’ there are TV shows where entrepreneurs pitch their businesses and beg for someone to take a portion of them off their hands.
This is a time where doctors, lawyers and middle managers frustrated with low savings rates are dumping savings into their friend’s nephew’s internet start up believing it’s ‘the next Facebook or Uber’.
When did debt become a good thing? When did owing someone else a portion of your efforts become central to Entrepreneurship? Entrepreneurs and small businesses are regularly celebrating ‘raising funding’. When did either taking on debt or giving away a percentage of your business and your efforts be a reason for celebrating. Really, it should be a tragedy.
Often it seems like this has become an end in itself. Have an idea not that can make a ton of profit but that can be attractive to investors to raise money.
The problem with this is it’s furthering the idea that entrepreneurship needs access to huge amounts of capital and that unless you’re connected to that capital or get funding you can’t succeed.
Start-ups are all about securing large amounts of capital...or are they?
Not only does this put people off starting businesses but it’s also the wrong answer. We’re in a time where the barriers to entry for starting your own venture have never been lower. The internet and the software that makes commercial operations increasingly ‘plug in and play’ have made it easier than ever to test and start a business and then to scale it.
Six or seven years ago I’d never heard the phrase ‘bootstrapping’. I’d been doing it for a couple of years before I found out what it was. To my business partner and I we started our online training company - Transform My Poker - small because we didn’t have a lot to start with.
We got a LOT wrong in our first couple of years but one thing we got right was we got our first product out quickly and cheaply after begging favours from as many people as possible and getting our first promotion deals done without spending money upfront.
We got lucky and our first product worked. But if it hadn’t we’d have learned a lot and spent very little. It would have been easy for us to start again with a different idea.
Since our initial investment of a few hundred pounds we’ve never reinvested from outside the company, instead using profits from product sales to grow.
A softly, softly approach to money can transform your business
Our story is not even close to being unique – far more successful companies than ours have started and built this way in the same way. The current culture of raising funding is dangerously close to being a culture where the idea is king.
In business that can never be correct. Sales are king, the market is king. Discovering what your audience and market want and delivering it to them in an efficient way that over delivers value to them will always be the formula for success.
The great news is that starting a new venture has never been easier.
The tools you need are more accessible than ever and costs are lower than ever. Whether it’s manufacturing a prototype of a product or researching a market it’s quicker cheaper and easier than ever. If your business can sell and market online (hint it’s far far easier to succeed if it can) you can market to the entire planet at a tiny tiny fraction of the cost and effort it would have taken pre-internet.
This is not an argument against expansion or raising capital in a binary sense. Of course this has it’s place. But at least prove your concept first by doing that old unfashionable thing of actually making some profit….preferably a big fat pile of the stuff.
You might not have a slot on Dragon’s Den or Shark Tank or access to a couple of million in start up capital. But do you have the desire to do well and willingness to work hard? Are you willing to research your market and find out what they want then scrape together a small amount of cash and start testing ideas?
If so, your future can be of your own design and can be extremely successful.
Ask potential customers not only what they want help with at a practical level but also what they want to feel emotionally about the area of their life you’re helping with.
Use this information to give them what they want, not what you think they want, and use their desires and fears to market your product or service
Don’t focus on perfection Test your service or product as cheaply and quickly as possible
Get a version of your product or service up and running fast. It doesn’t need to be perfect it just needs to meet your audience’s main needs.
Test it in a small, low cost way.
Do not give it to your family or friends (who like you and will want to say nice things) but to people who are actually in your target market.
Ask them what they don’t like about it and what it doesn’t do that they want it to – push to get their objections. Testing isn’t about getting validation for how clever you are but about understanding what your audience wants so you can create a really successful product and scale quickly after you know you have a winner.
+ Keep your day job and re-invest your profits
Making gobs of cash takes time and business take time to get traction. It’s tempting to go ‘all-in’ and have no other source of income but you’ll end up with a huge amount of pressure for your early ideas to work. You’ll also likely cannablise your sales which will slow down how quickly you can grow.
Be prepared to work hard, early mornings or late nights around work, weekends and holidays. If you love what you’re doing and the prospect of a successful business you own is really your goal you’ll make the time.
Remember everything is a test until you’ve found a winner – it’s good if you’re your mortgage payments taken care of while you discover what works.
+ Don’t spend money up front to promote unless necessary
As much as possible avoid spending money on advertising and promotion in the early stages. As time goes on paid advertising can become the backbone of your business but early on it’s a good way to burn cash.
Instead hustle and promote what you do yourself. Provide great content for people to build your audience then pitch them your product or service.
Do joint venture deals where you approach companies that serve your ideal prospects and offer them a significant commission on sales in return for promoting your product. These deals can grow you really quickly without upfront expense.