Revenue is the Best Deodorant

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With all the hype and success around venture capital, high valuations (unicorns), record number of deals, unlimited angels, etc. it seems like entrepreneurs have forgotten about the power of revenue. Constantly I talk to startups that believe getting funded is as easy as taking 'candy from a baby' and a critical measure of success vs business metrics like revenue. Unfortunately they quickly realize after a few meetings that investors are concerned with traction, repeatability, talent and go to market plans. 

This reminds me of a statement used by a partner in my VC days – Revenue is the best deodorant. Not only does revenue mask the smell of many imperfections, it also has a lot of benefits too: 

  • It's non-dilutive funding. Entrepreneurs get to grow the business without selling shares for capital. Sounds like a good business deal to me.
  • It funds new and different marketing campaigns. Flexibility to try stuff or take advantage of opportunities.
  • It helps hire great people. Expand the budget needed to land the candidate or show the company has excited customers.
  • It can be used to accelerate discussions with partners. Nothing draws a crowd like a crowd, and leverage revenue paying customers to gets others to come along as well. The fear of missing out.
  • It’s a proof point that you have a product that people are willing to pay for.
  • Oh ya it attracts investors too!

Funding never closes as fast as expected. Finding great talents takes longer than needed. Things just don’t always go according to plan.  A company with revenue can often times deal with these circumstances better than ones without. When revenue is available, take it all.

The Pitch Club

One guarantee about startup pitch events is there will be excitement and passion as hopeful entrepreneurs give their elevator pitch over and over again. I got to see this first hand at the Pitch Club event held in Frankfurt recently. The contest brought selected inspiring startups from the local Rhein-Main region to 'pitch' to a crowd of investors. Entrepreneurs had 10 minutes to shine and then field questions from the audience. The quality of the presentations and business ideas were solid, on par with similar events in other regions. 

Notwithstanding the enthusiasm, a gap exists between the needs of the companies vs the investor funding and support in this region. Technology and talent are strong, but productizing to create commercial solutions is weak. In addition entrepreneurism means risk, and as Thomas Schulz wrote in his Spiegel article with Ben Horowitz - ‘Business failure is stigmatized in this country’. This is reflected in how startups are funded. They get enough capital to survive but not enough to attack opportunities. Startups become the 'living dead' by satisfying a niche as competitors gobble up the market share. As the article also points out, SAP is still the only German software company with international status. There is a reason for this, and it isn’t talent or technology.

@jogebauer drilled into the subject with a blog Why VC is Failing in Germany. His premise is that VCs "don't have the funds necessary to take risks". Seed and early stage investing is high risk, high reward and small cap VCs can't create a true portfolio to spread the risk across several startups. While there some merit to this premise, the root cause and fundamental issue is the engrained nature of not taking risks. 

The mentality needs to change. Do you agree?


 

Winning with Winners

A new post from CBInsights about the 'Recycling of VC Dollars' sparked me into action to pen a blog post I've been meeting to write..... 

Silicon Valley is a false economy. Many companies have an interesting idea, raise capital, launch product, get buzz, get early customers, and then fizzle like a flat soda that’s being sitting in the refrigerator for months. Why is this?

Because many of their customers are also startups themselves. They feed off each other. Startups as customers use their VC capital to buy the latest and greatest software packages, helping create website 'logo' noise for each other. In reality many of the products don't solve real needs, don't apply to a broad base of the market, and promote wrong business decision behaviors. Most of these companies fail with short-term winning.

It is critical from the early stages of product launch that a company finds real, linchpin customers that will be customers for a lifetime. Build your customer base with real companies. Your first customers should be your longest tenure customers in the years to come. 

This was also one of the points made in my favorite product management book called 'Inspired - How To Create Products Customers Love' by Marty Cagan. (I'm sure I'll reference it more).

Win with winners. Don't fall into the Silicon Valley trap of shift VC money from one startup to another in something called ‘revenue’. It's really a false economy. 

There is a first time for everything...

There are many first in our lives: first words, first steps, first day of school, first time driving alone in a car, first kiss, first paycheck, first presentation, and so on. But I must say that nothing has been as intimidating to me as writing my first blog. It's not because my writing skills are pedestrian at best, but the truth is that I know 'once you blog you never go back'. You get addicted to expressing yourself, even if it's for your own sanity. And a blog is a living creature that must be fed daily in order for it to grow and mature. You are committed to it. (this is the exact reason why my wife lets me look at pictures of english bulldogs but not own one). 

Well I guess this means I have officially published my first blog. I promise to feed it often.