Post-mortem analysis of building a self-generating internet business
Right after graduating and while founding my first start-up Squeek, I started a second business in the media industry. This business was supposed to generate a significant stream of income to support me financially, until our first fund raise. The idea of self-generating businesses slowly made its way through following the advent of authors like Tim Ferris and its best-selling 4-Hour Workweek book. Put simply, a self-generating business allows you to earn a relatively big amount of money without being too time-consuming. While I won’t disclose precisely how our model worked, I’ll explain what lessons this experience taught me, what went wrong and how I could have made it better.
Identifying an opportunity
Ideas rarely fall from the sky and identifying a true market opportunity often involve a deep knowledge of a particular industry, allowing you to spot gaps in the market or reveal anomalies. Having a thorough understanding of the digital advertising world was the only reason we were able to identify this market anomaly, and eventually turn it into a business…
Lesson n°1: Don’t wait for an idea to fall in your lap, go find it!
It is often acknowledged that setting up a business requires significant amount of money (opening bank accounts, filing paper and all sorts of legal recommendations, etc.). With very limited resources and my other business already raking off a significant amount of money I had no choice but to go in a bootstrap mode. From the logo design to the domain name or servers, we managed to find the cheapest option, with astonishing results! In total, setting up my business cost me nothing. I even made money out of it with the usual new bank account promotions!
Lesson n°2: Assess carefully every expense and think twice: is this crucial to the success of my business? If not, leave it for later… You’ll have plenty of time to design fancy logos or upgrade to premium services once you’re profitable!
Outsourcing can either make you or break you. Remember, going bootstrap meant we couldn’t afford an army of employees and often had to work hands-on on a variety of tasks. However, some of these were immensely time-consuming and not directly generating revenue for the business, although these were mandatory to operate our business. From accounting to cash management or even content creation we managed to outsource most of these tasks for a relatively low price. We acknowledged that outsourcing side duties, with us being purely dedicated to operating the business, was generating more revenue than doing it by ourselves.
Lesson n°3: Outsource any tasks which are not directly related to generating revenue for the company. Don’t believe you’re the only one able to do the job correctly otherwise, you’ll never scale!
Lesson n°: time is the only thing you can’t buy, make sure you spend it wisely!
It turned out we were right but this induced one key requirement…
Not processing for the sake of processing, but processing to systemise recurring/time-consuming tasks while ensuring a best in class value proposition. For every outsourced business units, we developed clear guidelines and found reliable subcontractor. Processing allowed us to gain a competitive advantage towards our less organised competitors. Shortly after, results came in: we were one of the fastest growing media website in France in terms of audience.
We knew we were entering a relatively new market but the competition was fierce and the bargaining power of buyers unquestionable… As its willingness to shut down any troublemaker willing to take advantage of their business model. We scaled incredibly rapidly the first 3 months but our expansion was limited by our cash flow as well as the time we could allocate to it. This quickly became a serious obstacle to growing the business. Knowing the business model was short-lived, it was clear I need to focus all of my time and energy on maximising our revenue. Instead, I was growing two businesses at the same time and found myself short of both resources. As predicted, our business model collapsed a few months later following an update in some of our suppliers’ algorithm.
Lesson n°4: Get a good understanding of your market, assess its degree of maturity and its durability, before you make decisions.
Our arbitrage model forced us to rely heavily on a small number of suppliers with an increased bargaining power. Once again, the limited time and energy we could allocate to the business didn’t allow us to look for potential ways to diversify our business and found ourselves short of idea when the market reacted.
Lesson n°5: Diversification drives growth
Although building this self-generating business allowed me to live off for a couple months, I believe I reached the limits of its model. Cumulating 2 jobs certainly made my business more vulnerable to market fluctuation and made it difficult to move forward with limited time and energy resources.
However, it allowed me to further my understanding of an entire industry, which might as well enable me to identify new opportunities in the future… Let’s find out!