I hope this becomes a trend.
I still think Clayton Christensen's "Be patient for growth, not for profit" quote is the sanest way to build a business.
I understand the idea of giving startups money to explore business models but I also think it can lead companies astray and into some very problematic business models like Ubers where subsidizing is disguised as a business model.
It's not that it doesn't work (it works remarkably well) it's just that it's creating a lot of companies taking in a lot of talent who aren't creating anything and I personally do not think the few that do end up being successful makes up for it.
If you are forced to look at your finances you are foced to look at where you can create value that people want to pay for.
I'd recommend Peter Drucker's book from 1985, "Innovation And Entrepreneurship".
Drucker points out that the output of a small startup is radically different from a large, mature organization. From a large organization, investors might want growth of 15% and final profits of 20%. But he also points out, this is both too little and too much for a small startup. From an early stage organization, it is important to see triple digit growth, and no profits at all. The sign of a successful startup is that it finds a business model that allows it to grow rapidly. Drucker also describes the failure mode where the small startup gets enough growth to survive, but not enough to become a mature, independent organization. It then limps along in a crippled state.
For my money, Drucker has a better density of insight-per-page than any other business writer. I strongly recommend him.
Agree. Focussing on financials pushes a sales first attitude over a raise money attitude which I feel more early-stage startups need.
Doing sales before you have a product is uncomfortable and frustrating at times, but it is the best way to know what to build and for whom you are building.
I didn't read the article that closely, so please correct me if I'm wrong.
Are finances not entirely dependent on the business plan and or idea?
Applying a one size fits all approach is extremely dangerous.
In my opinion, it is all dependent on which space you are in. Margins speak volumes.(They tell the story of most businesses) For software, the issue of money is not as important as it would be for a hardware business because it's much easier to scale.
The fact that "now" incubators are focusing on ideas that make financial sense may be one of the silliest things that I have ever heard. What that shows is that these venture capitalists/investors are starting to realize that "free money"( super low interest rate environment) will end eventually and it will be more crucial for these companies to be catious on how they spend their money.
Frankly, hearing this is scary, because they are somewhat admitting that the funded people lavishly and asked questions later.
It always makes me wonder how they benchmark vc's who invest in startups. Considering their returns are not public, it is hard to say.
What is even harder to realize and gauge is how they measure "successful investing."
So much of this is luck, especially in a crowded space/market.
Usually the best ideas(the paradigm shift) will always have access to infinite capital, but the ideas that may not be articulated fully, will be severely constrained until proven. That is not a bad thing, but may add some reality to what creating a company is actually about. Who knows whether is good or not, but in a few years we shall find out.
Startups certainly die because their shoelaces are untied, which is what getting tripped up on financial accounting is like. But you don’t see champion marathoners going to shoelace-tying workshops with the hope it will help them win races.
Finance is important but product, engineering, and marketing are far more essential to making something people want, and that is why YC and the best incubators spend most of their time on that.
IMO this is highly dependent on certainty. If there is a low uncertainty around the product, technology, and/or market then this is a very useful exercise. However, as uncertainty grows so does the futility of trying to articulate a coherent business model.
> The first time Bitsbox co-founder Aidan Chopra had to create a forward-looking income statement, he “didn’t know where to get those numbers from.”
Many founders are out to solve a problem which they think requires solving at a large level. The issue being not knowing - where to get the numbers. What is your market size? What is the income strategy? etc.
Sure, there are some companies which succeed massively despite this but majority go down under because they don't understand it completely.