Two years ago I was trying to raise a $600,000 check from one person. I would take a train from Manhattan to Long Island about once per week to meet with him. He had sold his last business for about $10,000,000, which was a lot of money, but also meant a $600,000 check for him was a big deal.
We hadn’t been planning on raising money at the time, but I met with this guy (Let’s call him Ben) over dinner and he expressed interest in investing.
Later that day Ben texted me: “I think I could get my friends and I to invest the entire $680,000 that you need.”
It was a really cool text message.
So I naturally began meeting with him often. I got a deck together and sent it over. We scheduled another meeting and spoke for nearly two hours.
The next time we met he asked if I would review a business plan of two fitness professionals. Ben also asked if I could meet with them in person, so of course I said, “sure.”
We spoke for a while and got a long. We decided that our team would build their software for $40,000. I really wanted the cash, because we were new and I could use it.
The benefits were two-fold:
(1) Earn $40,000
(2) Impress Ben by being able to make a sale and execute on the project.
But Things Went Horribly
First-off, I oversold our abilities. One thing that’s important to note in any project is that the client still needs to be a manager of the product-build. Without the founder’s input our team doesn’t have enough direction, or know what the founder wants.
I made these two founders feel as if we’d be building the business for them, and we just couldn’t do that. We could build what they needed, but they had to tell us what they needed.
The client could only meet after work hours in Brooklyn or Long Island and often took two weeks to respond to emails. While we did our best to understand what they wanted, we got little feedback and ran into a couple of tech issues.
Video software like TokBox still wasn’t that great, and we were relying on that third-party’s software to make our own product great.
The combination of poor client expectations, communication and mediocre third-party software led to a really time-consuming and low quality product. We got fucked.
We did not end up collecting the last $20,000, spent a ton of time distracting ourselves with the product and lost money + time.
Definition of Bad Revenue
Some ways to evaluate whether or not you’re chasing the wrong path:
- Is the client going to be a pain in the ass? Are their expectations set properly?
You can often tell if a client is going to be a pain if they are nickle-and-diming you. They’ll often begin asking for more and more features, and be bad communicators. If you find yourself overselling to get the business, it’ll be even harder later on to earn any margin on the business.
- Does the revenue prove out your ultimate business model?
At Coventure we invest in founders by building their software in exchange for equity. Nothing about this project helped us prove that we could find great founders, earn equity for our work or help those companies raise venture capital. Even if it had been a successful build, we would have been no where closer to our ultimate goals.
- Is there a clear milestone this client will help you reach?
Every action should be focused on helping reach one of the core goals of the company. At CoVenture we need to prove 3 things: (1) That we can find great deals (2) That we can win great deals (3) We can help our companies exit. If we prove out those three things, we’ll be successful. Every line of code we write should be helping us pursue those three pillars.
Revenue is great unless it has a net-negative impact on your business, and often, it will.