IPO here, funding there — red numbers and dead unicorns everywhere!
This week I went for a walk with Calvin Miguel (my Co-Founder of our first startup ipaster.com, which we sold in the beginning of the year) and we talked about the “startup madness” we recognise online.
Since we’re both very interested in startups, we follow related trends we see online, and a question came to our mind.
What happened to the “entrepreneur”?
“There are plenty of famous, successful founders who:
— Raised money that made them rich on paper
— Used their disposable income and accredited status to invest in their friends’ startups
— Became multi-millionaires from those returns
— Got nothing from their own startup”
Is someone “successful” if he manages to raise money for a business, which is not profitable?
I know, in our daily, normal life “success” is something, which can’t be measured. Because what success looks to you, might be very different to someone else. In business success is only measured in numbers such as:
- and so on
So, I started to ask myself, where this “debt”-thinking / money-focused mindset all started. I went through my social network, my books, my newsletters, fav. websites etc. and realised that it has become common that a startup first must dive into “Death Valley” before it can succeed.
Since a lot of entrepreneurs are still young, they are being programmed that in order to be successful with your business you have to make a lot of debt before you make profit. That always sounded really strange to me…
I mean I understand that there are of course companies, who went to death valley and they made the turn to become “successful”. But what about those who don’t? Is it really necessary to go deep into dept for many years to eventually become successful? Please, I am not talking about companies, who found a badass niche, solve real problems and business is exploding so that they really need money/investment/loan for the growth. But that is calculated! They know how much they need, and they know for sure, when they will pay it back and they only need it to bypass the extreme growth (which is a positive investment).
I am talking about those startups, who raise millions of dollars for a market, which doesn’t even need them.
I mean even here in Switzerland most of the newly founded companies (startups) fail within the first five years. Looking to the numbers worldwide around 90% of startups fail…. Is that really healthy to our society?
Despite the fact that failing is great if you want to grow out of your comfort zone, entrepreneurs should be able to run a business successfully in an economic sense. And with that I mean generate profit for a healthy growth. Otherwise our world will be (and it looks like it already is) full of “entrepreneurs” founding one loss-generating company after the other because they didn’t have the success of an exit (IPO, Selling, etc.).
When you check their websites, all of them have a mission to change the world, help people, do something incredible and so on. But in the end, all of them generate nothing but loss and close the doors as soon as funding stops flowing — only to create another pitch to raise money and selling ideas to investors.
Talking about investors, for a long time I thought that Investors really care about your companies and ideas. But that is only the case for FFF-Investments (friends, family and fools) and angel investments from local entrepreneurs in your region / country. But as soon as you take one step further, investors only make bets. I know from personal talks with people who work for such organisations, that they “bet” on X companies and hope for one successful exit (IPO, Selling and so on) to make up for the loss and fails of all other startups/companies. Of course, you cannot generalise that for all investors, maybe you can add a comment with your experience?
The word “entrepreneur” by dictionary means:
“a person who sets up a business or businesses, taking on financial risks in the hope of profit.”
That’s exactly how all those new entrepreneurs start their businesses → in the hope of profit.” Where is the entrepreneurial mindset to change the world, solve real and existing problems?
Sure, money is oxygen to a business in private economy,
but… is it really the number one goal of an entrepreneur to raise money first?
Where are the founders and entrepreneurs building real companies with little to no investment and solving real problems and making real profit? I’m talking about such people:
Sarah Davis, Founder, FashionPhile
“We maxed out credit cards and paid them off with cash flow…over and over again. We have invested every dollar we have made back into the business. We sell a bag, make a profit, reinvest that money back into buying more inventory.
I started selling from my bedroom on eBay back in the days when there was no online payment system and no digital photography. I got checks in the mail and waited for them to clear and took pictures on film that I then had put on a disk at CVS. Now we have over 100 employees, sold almost $65 million in luxury handbags last year and are growing 50% a year!” (source)
There are hundreds and thousands of entrepreneurs building their business like in the good old days. If it was possible back then, it should be possible now, right?
So please, don’t get me wrong here. I’m not saying that it’s wrong to have an investment for your startup, but you should always ask yourself: “why am I doing this?”
If you’re only here in the “hope of profit” you’ll eventually lose to those with more money/investment or those with a badass hustler’s mentality like Sarah Davis.
Because there is also one big emotional and negative side effect to a lot of young entrepreneurs (myself included) that you start to feel like shit if you don’t hit the numbers. I’ve recently read this article of Sahil Lavingia, where he wrote about his journey of pursuit of growth, which was misguided from the start. You can read the article here. It’s really worth reading.
If you know someone struggling to raise money, wants to start a business but first needs money or any other entrepreneur, who needs to read this, please tag him or her so we can have a discussion on that topic. I’m really curious to read your feedback!