Jun
2
Financial projections in a startup are a bit of a catch 22. You can’t really make accurate estimations until you have interacted with customers and know what they are willing to pay, but you need investment (and therefore valid projections) before you can build the product and interact with those customers.
Working on our revenue model today has led me to the essential conundrum underlying a tech-based startup: (Please note, this assumes you aren’t a self funded millionaire)
- Product development is expensive and requires significant expense. This expense usually comes from investment.
- Customers tend to buy a dream, but want you to deliver a product. Therefore without a product, you cannot have customers.
- Investors want to fund your company and help you succeed, but after the bubble, they are much more hesitant to invest in an early stage company. Investors want to see a product and usually customers before they are willing to invest.
- See point one.
I often liken starting a company to playing with dominos. Not actually playing dominoes, but playing with them - little kid style. Remember when you used to set a whole bunch of dominos in a row and knock over the first one to watch the chain reaction? Starting a company is a lot like sitting in a room full of dominos. With the right flick, you will start a chain reaction that will unleash the most amazing and exciting spectacle you’ve ever seen.
However, unlike real dominos, our metaphorical dominos require significant effort to knock over. You could easily invest months of effort and pain into trying to knock over one domino. Then, there is the other problem - the room may be full of dominos, but it is also full of holes. Knocking over one domino does not ensure the chain reaction. You may even need to knock over multiple dominos before you can reach the one that will start the reaction. In a room full of real dominos, this wouldn’t be that difficult - you would study the situation from above and decide where to unleash your catastrophic flick. However, the metaphorical dominos span many floors making it impossible to know which one is the critical lynchpin.
What is an entrepreneur to do? Weigh his options, decide which dominos he thinks will be the most effective, and make strides towards knocking down many of them. If you’re good and really lucky, you might just be part of an incredible display of force.
And remember, no matter how hard you try, you can’t see above the dominos. Just in case you’re thinking about blowing off that meeting, remember this: that contact you don’t think is very important, just might be the best friend of your next big investor.
Posted by: Connor Fee
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