I was just asked, What are examples of startups that tried to monetize too early? and my gut reaction was, “all that fail.”
Before you jump all over that blunt and obtuse, and too narrow, reaction, let’s explore…
Encourage you actually ask the question in the inverse. How or why are so many dominant and successful ventures where they are WITHOUT monetizing early??
The fact is that a “startup” is technically a venture in search of a business model. Meaning, since you’re asking about “startup,” likely every failure (or most at least), tried to monetize too early.
Ok, but what is a business model?
A business model describes how your company creates, delivers and captures value.
Or in English: A business model describes how your company makes money. (Or depending on your metrics for success, get users, grow traffic, etc.)– Steve Blank
This topic caught my attention because there was just an article in the New York Times, Silicon Valley Is Trying Out a New Mantra: Make a Profit.
And I share that because it has fired off this incredible debate in startup groups that that notion is B.S.
Bear with me….
If you are starting a business that has a known model, it’s similar to others, etc. Technically, or at least arguably, that isn’t a “Startup.” Fair?
SOMETHING has to distinguish the difference between that completely NEW endeavor from a mere net new business. No? Some word has to distinguish them so even if you’re not inclined to agree that “startup” is that word, hopefully at least you can agree that SOME word has to refer to the distinction.
“That Word” doesn’t have customers (bold statement and I’m sure I just pissed off a bunch of people who want to argue that point). Startups are the stage of work where new ventures are CREATING new markets and customers.
Let’s get pragmatic.
If you start a new Accounting Firm, most wouldn’t call that a “startup.”
It’s known how to do that, the model is established, and anyone can expect that such a business all but immediately has customers and revenue.
So, “Silicon Valley is trying out a new mantra of profit”???
It doesn’t even make sense. Startups re-invest whatever revenue they have in continued development so as to compete, sustain, and figure out their model. Startup, by definition, wouldn’t focus on profit as it likely doesn’t even have revenue with which to do so (and shouldn’t focus on profit if it does!).
As an investor who has put capital into developing your startup, imagine how aggravated I’d be if I invested money but you’re blissfully taking the little money coming into the business and opting to be “profitable.”
Profit is for public companies and shareholder value.
The Times article is a sensationalist headline because the public perception of the day is how WeWork, Uber, and Facebook are screwing things up. The reality is that despite the love-affair with hating on such things, those companies effectively established, globally, the model in what they’re doing. They may be failed or faulty COMPANIES but as “startups” they were HUGE successes.
You can’t start a new battery technology, invest in the development of it, and be profitable nor even have customers soon!
Google, Facebook, Twitter… our new economy is littered with massive companies, successful startups, that didn’t have customers for YEARS. Heck, Amazon is barely profitable!
What’s an example in tech/innovation akin to our Accounting Firm example? Well, if you were to start a new Ridesharing Company, or Global Coworking Company, or even a Social Network, it would be reasonably fair to note that those are merely new businesses, not startups. TECH doesn’t make things “startup”- being in search of a new model and creating new customers does… well in those cases, the models have already been discovered and customers established, you’re simply creating a new business to do THAT (and anyone can expect that such a business all but immediately has customers and revenue).
Thus, a “startup” is in search of a business model (at least, that’s how Steve Blank coined it). Meaning, they haven’t yet figured out how to sustainably and competitively have customers. Meaning, most that fail probably “monetized too early” (in some way).
Focus on creating and being able to sustainably and competitively deliver value. THEN you can derive value from the customers you create.
“Your job as a founder is to quickly validate whether the model is correct by seeing if customers behave as your model predicts. Most of the time the darn customers don’t behave as you predicted.”What’s a Startup? First Principles. – Steve Blank