Dreaming Big Towards The Holy Grail

Today, I met up with my ex-colleagues and they brought some of their current colleagues along. Since one of them was interested in doing a web business, they asked me for some advice. I know that I am not some wildly successful internet marketer, but I have quite a lot of experience with making money online and I do know the simple mathematics of making money: revenue - expenses = profits. This simple equation is something that startup entrepreneurs often miss out, myself included at a certain stage of my life.

Startup entrepreneurs like to dream big and that is sometimes a good thing, when you have the finances and determination to make it big. However, when revenue is not coming in anytime soon and you just buy the self-delusion that the revenue model will gradually surface itself when more people knows of your products or services, I think that may be potentially dangerous. In this increasingly competitive society, consumers are increasingly fickle, they switch from product to product, service to service, website to website.

The only way to retain customers is through constant positive experience. To achieve that, customers need to be constantly exposed. Think about how Google is built, people did not switch over to Google overnight. People just tried out the search engines, used other search engines. After constantly comparing different search engines, consumers gradually changed their surfing habits.

Assuming this general pattern is true, one thing is sure: constant exposure is necessary to grow big. Constant exposure requires a cost for advertising. Some may argue that their products/ services are so good that it will generate word of mouth which is free. I would counter argue that there is a cost involved with making the product/ service that good. If there is no cost involved, other people will just copy it in this increasingly copycat world.

Therefore, now that we establish that there is a cost to grow really big, as defined by the size of most dreams, we know we need money to grow big. Here is the pitfall of many startups, thinking of the best ideas, but not thinking of how to monetize them. A lot of startups think that once they have the users, then money will flow in gradually because there will be advertising and so on. Users will be glad to pay for their services, yada yada. I propose that having a solid revenue model is probably one of the most important things to take note of. After all, it is also a key factor that venture capitalists look at.

Additionally, if you are able to derive a solid revenue model right from the start, you may be profitable right away and those are the best businesses to invest in. For example, if you can generate 50 cents per visitor and your advertising costs 10 cents per visitor, how much would you be willing to invest on it? I would say EVERYTHING or the maximum possible advertising you can get at that price. Every dollar spent in advertising a product/ service/ website with a solid revenue model may be making money while generating goodwill at the same time, the best possible scenario.

This is just my simplified thoughts, since I’m tired and heading to bed now, feel free to add to the discussion or let us know what you think.