Startups and a Reality Check

I read an article about startups that just really just summarized one of the greatest struggles that they face, and how so many of them are oblivious to the problem.

Here’s some stunning, Earth-shattering news: You know all those hundreds of incredibly stupid startups that have been raising seed money in Silicon Valley despite the fact that the people running those startups have no experience doing anything, ever, and have no idea at all how to generate revenue (let alone profit) with their lousy ideas, because, in fact, there is no way to make money with their lousy ideas, because in fact their ideas are lousy?

Well, nobody wants to give those dopes any more money. So now they’re going to go out of business.

I know. Shocking.

I’d recommend reading the entire article, but the summary is this: it is hard to make a profitable business. Just because you use modern technology and call it a startup doesn’t make that fact any more different. There are really good businesses with great ideas that struggle to make a profit.

While I don’t watch South Park, there is an episode I’ve learned about that expresses these startup business plans perfectly. You see, there are these gnomes who have a great business idea of stealing underpants and then profiting from them (warning, they do swear once in the video):

You can watch the whole clip (which contains more swearing and such) to see just how ironic their idea is. The reality of the matter is that this episode right at before the big Dot Com bubble was about to burst, and soon journalists and analysts were using this example of why so many companies failed to become successful.

So a decade later, and we’re running into the same issue. Now I’ve worked for several startups in the past. In fact, the majority of them are still in business making a profit 5 years later. So since they were profitable, am I now filthy rich? Nope. Even when we made a profit, it wasn’t astronomical, nor did Google swoop in and want to buy us out. It was just more hard work to make more profit.

So many people have this idea of forming a startup, gaining a large user base, and in turn making their product “valuable.” The trick is, eventually, even if everyone in the world thinks its extremely valuable, you’re going to need to convert that value into revenue and hopefully profit. If Facebook and Twitter are struggling to do it, how do you plan on changing that? I can guarantee you it won’t just magically happen.

So right now, the majority of startups I know their plan is like this:

  • Step One – Make a Website
  • Step Two – ???
  • Step Three – Be Purchased for $$$$$$$$$$$

You know what, that is totally fine, as long as you realize that the probability that you’ll fail is extremely high. The sooner you find a way to define step two and convert value into profit, the sooner you’ll be successful.

Personally, my biggest rewards from working at a startup haven’t been the paychecks from the business. Its been the investment I’ve made in myself by growing my experience and skills. So go ahead and work for a startup, have realistic expectations of your probability of success, and go at it with everything you got. If you walk away with better skills, more experience, that’s great. If you make some money while doing it, even better. But ultimately, the likely hood of “making it big” isn’t that great.

If you’re only working at a startup to get rich, you’ll be sorely disappointed. If you’re working at a startup for the whole experience, there is a good chance you’ll walk away with a better investment in yourself, maybe some money in your pocket, and hopefully experiences and skills to take to your next job.

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