Wednesday, January 23, 2013

Revenue Needs To Be The Focus For Startups In 2013

After witnessing the early to mid 2000`s where many tech startups long believed that millions of dollars should be raised to fund operations, to grow the user base as fast as possible, and to worry about revenues later when massive scale had been reached.

I think 2013 will finally be the year that a sizable number of tech entrepreneurs first think about a revenue model, before thinking about how to `go viral` and raise as much money as possible.

Considering that Fred Wilson, one of the world`s top tech VC`s never made a single series A investment in 2012, I believe that more and more angel investors and VC`s are looking for companies that generate revenue, and are even dare I say, thinking about profitability. I understand that he felt no single company fit extremely well into his investment thesis, and he was keeping money in the bank for follow on cash infusions into his current portfolio, but if a big balance sheet really stuck out I`m sure he would have jumped at the opportunity.

If you think about the tens of thousands of seed and Series A deals over the last 10 years, you have to believe that investors are looking to either cash out of their investments, or write them off as losses. Many of these companies have folded, some have been flat for years, and for the lucky few, they are part of the Google`s and Facebook`s and have fattened the bank accounts of their investors.

Unless you are going for a grand slam and are trying to become the next Facebook or Twitter, I would advise that you not only think about revenue models from day 1, but also about how quickly they can be implemented. You often hear about startups pivoting, and that comes to be by releasing and iterating on product as quickly as possible. The same should be true about revenue also. Product and revenue for startups is one big science experiment for the first few years at minimum.  

For the entrepreneurs who have already had nice exits, I`m sure these fortunate folks will be putting all of their effort into solving the largest problems they can competently tackle. But for rest of us, picking a niche we are passionate about and working hard to be the number one player in the space is becoming more and more attractive.

Based on this article, it should be pretty clear where my focus is this year as a startup founder! 


Chris G. said...

I'm not sure if VC is quite the way because multiple VC rounds always result in going public and then the founders being shown the door. But we are really seeing a need for sales/ad people willing to sell the virtues of the web and it's creators to brands.