I have seen many stupid comments, blog posts and talks come from the people employed in pure venture cases, ie. people burning venture capital with no intent of building a sustainable business, but I have to say that Richard White of uservoice’s post “Revenue could be fatal: 3 reasons your startup should consider waiting” tops them all:
… but there’s also a fundamental misunderstanding of why revenue isn’t important, and may in fact be harmful, for early-stage companies like Instagram.
All of White’s arguments rely on the same premise; startups have no other purpose in life than to get a lot of users and then get swooped off the table by a lucky lottery draw. This is made abundantly clear by his implicit definition of startups generating substantial revenue, “the walking dead,” as the worst case outcome of a startup arguing that “entrepreneurs can’t walk away from them to focus on ideas with more upside and VCs can’t write them off.” Seriously!? Building a successful company that makes money is worse than failing and dropping investors’ hard earned money on the floor so that you can move on to your next billion dollar idea!?
Let’s be clear here: the purpose of doing business is to make money. It always has been, and it always will be. We can’t just go around trading fictive goods and values forever (remember the last time we got stuck in that rut? Boom!) so revenue is every bit as relevant now as it was 100 years ago, and it will remain the same for the next 100 years, even if the currency changes. Sure, there are a lucky few who draw that winning lottery ticket and get acquired by the “big guys,” and I applaud them for having risked it all, but for every lucky guy, there’s a hundred fuckups (try looking up a list of Instagram competitors) which is simply just someone’s money down the drain.
I am at a loss trying to understand how anyone can even begin to argue that this is a sane way to run a business. I’m guessing the illusive “up side” is what drives these people’s thoughts in their hunt for their first batch of big exit capital — the Lottery Mindset as Marco Arment so well describes it in his podcast — but I just don’t see any way in which this can be justified as a grounds for doing business.
If you’re still not convinced by the merits of making money, or perhaps White’s post has scared you into thinking that you’ll never get that Facebook exit, let me round off with a few ways in which you and your business can benefit from making money:
- Making money makes you nobody’s bitch. Simple as that. Who’s going to tell you what to do, if you don’t need anything from them?
- While your user growth chart may not be shaped like a hockey stick, your users will feel far more secure about using your product, as they’re helping to support it.
- You get to not spend months on end detached from working on your actual business just to try and get that series X investment in so that you can stay afloat for a few more months.
- You are certain to walk away with something. Yep, you can always sell a business that’s making money. Maybe you won’t get an Instagram-esque valuation, but you will get money. More often than not, people doing pure venture cases get to leave with nothing but a bruised ego.