There is one piece of advice you need to keep in mind as you immerse yourself in the exciting world of entrepreneurship – focus on the right things. Things may move very quickly for you – maybe you’ll meet a lot of influential people, mingle with millionaires, and start thinking of yourself as something of a rising star. Don’t let it get to your head. If you’re really going to do start something, you need to focus every ounce of your energy on actually succeeding, not gaining popularity. True success shows in profitability and staying power, not magazine articles and guest speaking invitations. Today we discuss why all new entrepreneurs need to keep their eyes focused on what matters most – company achievement.
Motivation is transparent
Those who want to move to “The Valley” and get start-up funding simply for the entrepreneurial lifestyle and San Francisco culture need to rethink their strategy. Earning venture funding is incredibly difficult process that requires top-flight skill and a little bit of luck to achieve. In fact, you should be aware that the vast majority of new businesses do not receive venture funding. FirstSaleFirst reports that venture capital data from 2008 shows that a mere 0.02% of new companies that year earned funding, a dismal statistic for the aspiring entrepreneur to be sure, but a reality you must solemnly accept if this is the path in life you have chosen.
That being said, remember that motivation is very transparent to investors. It is their job to find only the most serious and dedicated of professionals to invest in and weed out the rest. If you are trying to get in for popularity and notoriety you will likely be denied the money you seek. Fame is an outcome of success – focus on the business and sacrifice everything you can to take it to the top. Only then will you be made of the stuff investors want to see and worthy of the media praise you may receive.
Funding does not mean success
As you venture out into the start-up world, it can be all too tempting to look at funding as the be-all-end-all accomplishment which will make or break your entire adult life. Funding is often put on an unrealistic pedestal by new entrepreneurs. They hype it up and worship their business plans and presentations so much that funding is eventually seen as the end goal of the start-up. In reality, nothing could be further from the truth. Sure, it’s hard to earn funding — damn hard even — but achieving funding is the beginning of your entrepreneurial life, not the climax of it.
In fact, a surprising number of seed funded companies end up collapsing and becoming nothing despite their investment. KikaBink reported on the success rate of companies funded by Y Combinator, arguably the most notable start-up seed fund in existence. Their research showed that a surprising 22% were “definite failures,” having gone under soon after launching or failing to launch altogether. Long story short — once you succeed in landing funding, it’s time to push harder, reach deeper, and work faster than ever before. It is time to stay at the office all night long because the deadlines simply can’t get completed fast enough. What it is certainly not times for, is hanging out at the hot-spot bars, shooting the bull with other start-up teams and believing that your new connections and pile of money will somehow bring success.
You cannot count on a buyout
Some new start-ups have the idea that getting funded is ticket to an eventual big corporate buyout. These misguided few believe that being accepted into a start-up find is like joining a club where the investors will bilk their vast business connections for all they’re worth. The fantasy dictates that through some combination of networking, wine-and-dine outings with important big-wigs, and that pesky thing known as product development, the buyout should be fast in tow. After all, every other issue of Wired Magazine is talking about prospective buyouts, yours is just still in the making — or so it may seem.
Actually only a very small number of start-ups ever receive significant buyout offers, and the majority of those only attract them after the company proves itself as a winner in the .com world. KikaBink research shows that, of the 144 companies that Y Combinator has funded to date, only 14 were ever acquired. That represents less than 10%, and Y Combinator is one of the most effective start-up funds in America — that number is likely far less for other investors. Don’t rely on a buyout the moment you receive your investment. Instead focus on building the best product your team can churn out, and if someone wants to buy it later you can celebrate then.
Cashflow is all that matters
When it comes right down to it, you have to ask yourself what really matters to you an entrepreneur. Sure, you can probably name some rising star start-up founders that make headlines every so often from sheer buzz, but are their companies profitable? A lesson you’re going to learn very quickly is that notoriety does not mean profitability. If you can’t bring yourself to believe this, consider this recent article from MediaMemo that wonders aloud if YouTube is profitable yet. Still not convinced? How about this interview from Google’s CFO that confirms the unprofitability of the media empire.
Of course, this is not to say that running a company the size of YouTube will have you starving for dinner at night, but it is important to note that the infinitesimally smaller start-ups you hear about may not have grossed a single dollar of revenue yet. This is nothing to aspire to. Media coverage is great, but if you want to expand and grow into an influential .com, thick revenue streams are better. As Teddy Roosevelt once advised, “speak softly but carry a big stick.”
Consider what happens when the money dries up
Despite the facts, there are still those who want to found a successful business for the fame it may bring them at techie conventions and San-Fran coffee shops. For them, the idea is to live on the start-up seed money for as long as it will last while seeking a buyout and/or more investment. The problem with this approach is that if and when the money dries up, you will always be seen as an unfit leader for an organization. The popularity and respect you seek in the field will forever be mired by the stain of letting a grand opportunity wither and die by your hands. This will make it infinitely harder to procure new investment for a fresh idea or rejoin the ranks of start-up professionals you enjoy mingling with. Again — focus on the business, not the fame.