by tomnora | Jul 27, 2011 | early stage, founder, Revenue Growth, Scalability, startup, startup CEO
Aurum Rex. Nummus Rex. Emptor Rex.
I.e. Cash Is King. An old sayings, but so true in the startup growth equation. Where does revenue fall here? Is it more or less important? What about Strategy? Revenue? Growth? Buzz? Profit? A “Right On” product?. Smart People? Ambition? Your position on the Bell Curve?
When a startup has none, cash seems like liquid gold that can flow over the business and cure all – salaries, resources, exposure, growth, success, new offices, marketing. But often entrepreneurs fool themselves into thinking that lack of cash is their only problem. I’ve been involved or almost involved in so many early stage companies that said “If only we had $XXX in cash, everything would be o.k. Sometimes they get the new cash but still can’t scale or survive. Cash is certainly required to play, but it has to be part of a larger system, purpose, goal.
Venture capitalists, controllers of cash, are always looking for mind blowing new things that can “change the world”; can step out in front of our regular world and catch fire, anticipate what the world needs that no one else has figured out yet. And they have cash, high risk cash, to take a shot at being part of these new phenomenons. They get in early and guess at the future, which means they could be often wrong. But that’s not a problem; they only have to be right once in a great while to win big. That’s the game they’re in. What an exciting job!
On the other side we have the yet-to-be-funded or need-more-funding startup. Whatever cash is in this company is less than enough to spark it to the next level quickly enough to meet the business goals, or often just to make the next few payrolls. Is this you?
So what about REVENUE? Revenue is close to cash in it’s power within a startup. It can solve so many problems, including cash issues. It attracts more cash investment, it creates profits, it legitimizes your business. Revenue has to be managed properly and leveraged wherever possible, but those are good problems to have. It’s eventually more important than cash, especially when it’s steadily and predictably growing. Growing revenues, not cash, create higher valuations.
Early on, most startups focus more on adoption, eyeballs, users, traffic, assuming these will infer and convert to future revenue (Twitter, Google, Zynga, Facebook). The actual cash on hand and/or revenues don’t fully support the business, but no problem if major growth is apparent.
So is that it? User adoption? For Twitter it is, they’re currently at a valuation of 40X revenues, way high. But there’s no question that they’re permeating the globe, possibly with more longevity than Facebook.
The bottom line is value. What value, how many valuable things is your company providing. What’s better, cheaper, faster, unique, easier. Google is a great example of amazing and increasing value to user. It’s all of the above, mostly free, with an attitude of always wanting to provide more to its users while simultaneously simplifying use of everything digital.
Early on Google didn’t focus much on cash or revenue; they eschewed it, they had a higher goal – organize all the worlds information. Their goal and execution of it was most important to them. Of course they also happened to be a few blocks away from the highest concentration of venture capitalists on the planet, but they went 3 years without VC funding. Their first 2 years they had no revenues and received only $100K in funding, from Andy Bechtolsheim. A year later they raised $25 million. Their great ideas and excellent execution came before any cash.
So maybe cash shouldn’t be #1 for an ambitious startup, rather amazingness should, true passion, even if it’s nights and weekends around your day job.
@tomnora @cowlow @norasocial
by tomnora | Jul 19, 2011 | founder, Scalability
From July 2011,,.
California. Most of my 25 year career has been in California; about half of those in Silicon Valley. I’ve been involved with several amazing companies throughout Northern and Southern Cal; I have expanded, launched, M&A’d, relaunched, liquidated, succeeded and failed, you name it.
I’ve also had the good fortune to operate and sometimes live in several other fledgling tech corridors – Cambridge, NYC, Portland, Boulder, Santa Fe, Austin, Dallas, SLC, Frankfurt, Paris. In every case these other places aspire to be a self sustaining baby Silicon Valley of their own – Silicon Alley, Silicon Prairie, Silicon Coast. But they don’t quite make it. Some come close, like New York or now Boulder but it’s still not quite the same.
The term Silicon Valley is now a misnomer – it has moved way beyond silicon and way beyond the original Santa Clara valley to spread all over California. The new hot spots are San Francisco, Los Angeles, San Diego, the east bay, etc.
San Francisco
San Francisco has actually successfully co-opted the Silicon Valley magic and even surpassed it in some ways (Twitter, Salesforce.com); it’s again a very hot place to be right now and this will continue. Talk about scalability! If you plop your company here, great things could happen. It wasn’t always that way – in the 80’s and much of the 90’s San Fran was a sub-par runner up to SV, trying to catch up. Great PR and finance firms, but not many startups. Houses were cheaper, you couldn’t get good engineers, etc. That has all changed. Now companies have bidding wars for office space amid a major national recession.
There’s a magic and complex dynamic to the combination of things that make California so different. Just say the word and people take notice. There’s a seriousness, a buzz, confidence, reliability, completeness, professionalism. An assumption that you’ll more likely make it there.
Southern California
The “Silicon Basin” – – With the convergence of social media, the Internet, and digital entertainment, Southern California is now humming as a great startup region. In 2003 Electronic Arts actually moved their headquarters from Silicon Valley to Playa Vista, an crazy move at the time, and accelerated their growth as a result. Several smaller software groups, vfx studios and creative design labs are now benefitting from the movement south. Yahoo, Microsoft, Facebook, Google and others are growing their employee base and presence in L.A. Venture Capital from Northern and Southern Cal is flowing into the L.A. basin. It has the key catalyst – several excellent universities spitting out young engineers and business people. It has a strong and growing angel investor base, tapping one of the largest concentrations of individual wealth in the world.
There are exceptions to the California phenomenon; several amazing companies have emanated from these other areas, always have, and many of these ecosystems are now of course self sustaining, but they’re not the same as California. Countless companies have moved there for this advantage, reference Mark Zuckerberg/Facebook. Good move. If you’re somewhere else, it’s because you’ve made a tradeoff, a compromise. I know as I’ve done it myself several times and I’m glad I did. I’ve rooted for other places to approach California’s ecosystem, but I know they’ll never come close.
If you want maximum scalability for your business, you should be in California. If you the best capital providers, the best people, the highest valuations, you gotta be in Cali. You could get more advantages from a couple of visits to a coffee shop in Palo Alto than spending a year in some other town. @tomnora @cowlow
by tomnora | Mar 20, 2011 | founder, Revenue Growth, Scalability, startup CEO
What’s more important for your company, growth that is stimulated internally or externally? Which is more Organic? More Sustainable?
The answer is that both are equally important, and quite dependent upon each other. Internal (proactive and reactive) actions by your team must intertwine and hopefully spawn and tune external factors that match your growth goals.
Externally stimulated growth, where the market is coming to you, is when the outside world has significant impact on your message, your “buzz” increases as well as your message hitting where you want it to. Viral growth. Can’t be stopped (for now).
External growth is more exciting, also more difficult and more expensive, but can be quite rewarding. Expensive means using precious cash, which most startups are very reluctant to do. On the other hand, if well placed promo dollars (internal) cause external market to take off on it’s own, it may be worth it.
Internally stimulated growth is all the things you do, inorganic, synthesized. A strong internal growth plan focuses on coordinated, timed, manipulated maneuvers, paying for press releases, making sales priority 1. Internal growth is safer and controllable but limited in it’s effect without your message catching on externally. Old school internal growth strategies are still vital to the plan: marketing, advertising, marcom, sales, work ethic, camaraderie, common vision, right attitudes, belief in the leader. All of these things help you to be prepared for external spark when it happens.
But External growth is harder to synthesize, unless you’re Steve Jobs. Stimulation can come from many places – the momentum of the market, outbound marketing, results from outbound marketing, all trying to create this external alchemy.
The best channel these days for external pop is Instant Social Media. Instant Social Media can make your message travel very rapidly to giant volumes of people, into the highest levels of the market, for little money and hassle, viral marketing. For more see my Instant Social Media blog entry.
The key to all this is to challenge yourself for the best in both areas. Please contact me if you want to discuss your situation and plans.
by tomnora | Jan 27, 2011 | Revenue Growth, Scalability, venture
REPOSTED 2013
:: An ominous title for a blog post, but “Grow or Die” has been one of the most basic rules in the high-growth startup world for decades. And by growth I mean revenue growth.
The first trick is to offer something that the world will need more and more over the next few years (growing market), without that it doesn’t matter much anyway; your product/service/thing must “catch on”. This can be somewhat manipulated by your successful marketing execution (i.e. why one iPhone app succeeds vs. another).
If you do have something compelling, you’re either running as fast as you can to catch up to something bigger or to stay ahead of those below you. Lack of growth will encourage others to come along and knock you off the track, attack you; they will smell blood. Inconsistency in growth can do the same thing. Millions are currently watching boastful high flyers like Zynga, Google, and Facebook to see if they stumble. If you’re not offering something in a growth market, it doesn’t matter so much; you become either a zombie/lifestyle company or shrink slowly then die.
If you’ve got something hot, the idea is to spread your footprint quickly and prevent others from knocking you off (first mover). Growth means bigger and more complex barriers to entry – more advertising, products, support and security for your users/buyers, advanced services, etc. And protection form death. And gasoline to create more growth.
Flat to negative revenue growth is a real red flag, especially for early stage companies. Your stakeholders start to wonder what is going wrong? Did we build the wrong product? Are we becoming passé? Time for a new CEO? And all those other depressing clichés. If you’re venture funded, things get kind of ugly -unhappy board members, cut off from communications, down- rounds to keep you going, or no more funding.
Many early stage founders aren’t sure how to handle this requirement for success. What about users? Eyeballs? Hits? Press Mentions? Those are all nice and should be designed impact revenues, but usually aren’t a real measurement (unless you’re Twitter). Revenue growth must be the core strategy and drive all other strategies.
Continued growth becomes more and more difficult for larger companies, you must “feed the monster” as it grows. Many companies are currently hitting the wall after strong growth, like MySpace, Yahoo, Dell, Fedex. Even Google is starting to struggle due to a slowing growth rate, and attracting attention for this problem – losing employees to Facebook, trying across the board 10% raises, switching out their CEO of 10 years.
But the focus here is not big companies, it’s startups in their first years of revenue. Companies that hit their “first millions” then get stuck, and often panic. I was once VP of Sales for a startup that went from zero to >$10 million in one year, then back to zero the following year. Talk about panic! That’s an extremely contracted timeline for up then down the growth curve, but the general trend is not that unusual in startup land – up then down quickly. In our case we didn’t have our internal house in order, and didn’t know how to handle our sudden success – no strategic planning and thereby no adherence to such a plan.
The bottom line is that continuous growth, at a good rate, is imperative for long term scalability. If this is a hole in your business strategy, don’t ignore it. Put your heads together, hire expertise, call your advisors, revisit your business models, sacrifice sacred cows, and respect this key piece of your success.
But make sure you deal with it.
![THE “WEEKEND” STARTUP – – – SCALABLE?]()
by tomnora | Jan 19, 2011 | early stage, Scalability
There’s a recent phenomenon in the startup world, the quickly built startup, where as few as 1 or 2 engineers can hatch an idea in code and deploy a new web-based company within a few days or weeks. Also known as startup-lite, startup-in-a-box, the 90 day startup, hackathon, etc., the proliferation of these quick startups are the result of many converging milestones in high-techdom – advanced simplicity in web design, “little or no-programming” visual technologies, extremely low cost of entry, an explosion of micro-funding and some shining examples of dream-come-true companies/people like Facebook/Mark Zuckerberg.
Groups like Techstars, Y-Combinator and several others are fostering this trend with “summer camp” like gatherings to help young entrepreneurs get a new company up and running, with a team of world-class mentors, paid lodging and often funding, in less than 3 months. Techstars alone graduates 30-40 companies per year in 4 different cities. What a concept!
The advantages of this trend are obvious – democratization of the process (anybody can do it), low barriers to entry, minimal overhead (a laptop and free dev tools), almost instant revenues, easy leverage of the social graph for push-button marketing. This new bridge between the haves and have-nots, or techs and tech-nots is inspiring many to start their own web/app companies as never before. Any undergrad at Stanford or Harvard or any other college must be constantly thinking about this – “What company am I going to start?”. There are countless people in their early 20s these days that are on their 3rd or 4th startup already. Mark Zuckerberg was on hs 4th (Synapse, Wirehog, Facemash) at 19 when he started Facebook.
So it’s clearly easier to build and easier to discard one that doesn’t take off and move on to the next. And the next. Amid all this excitement, what is the long-term track record of these mini-companies? How many survive after 12 months? 24 months? How many never achieve revenue at all? There is a naturally high failure rate in startups that we know about, ~90%, so is this new generation more or less likely to make it long term? There are no proper records for the many unknown startups that never make out of the bedroom or off the living room couch, but the throw away rate is probably very high. Techstars actually keeps statistics of its graduates on its website – alive after 12 months, 24 months, funding, acquisitions <$2 million and >$2 miilion, etc. But remember, Techstars rejects over 500 companies every year. How are those accounted for?
Does it matter? Maybe not, this is almost more experimentation, practice than pass or fail – Zuckerberg still holds all night hacking sessions at Facebook to stay sharp and connected to the keyboard, to promote discovery. There are hackathons, hacker spaces and other informal Internet company formation vehicles everywhere you look. The world has clearly changed.
But back to Scalability… are these entities scalable over time? In most cases, probably not.
Let’s measure the Idea plus the Implementation:
- The more amazing and unique the idea, the more likely it will grow into a sustainable company. Most quick-Internet company ideas don’t have much longevity.
- The faster (i.e. very few engineering hours) something is put together, the lower its barriers to entry for others to knock it off.
- The personal investment and passion are typically much less in a quickly built site.
There are exceptions to these rules of course (twitter), but generally it takes a lot of work to design, build, implement, adapt and polish something into a must-have application for the masses.
An Exception to these rules
A great example of an exception to this rule is Twitter. The first Twitter (Odeo) interface was by design extremely simple, and drawn on a piece of paper by Jack Dorsey:
And the rest is history. It turned out to be an extra-amazing idea that grew enough as a name brand before it could be knocked off. Although some people still aren’t sure what to do with it, Twitter is clearly now a must-have for 100s of millions, myself included. A fairly simple idea, quick to implement (it took 3 months). But an amazing addition to our world.
by tomnora | Jan 11, 2011 | Scalability, startup CEO
When tech entrepreneurs hear the term “scalability”, they get excited, and rightly so.
Scalability is a worthy subject, arguably the most important parameter in startup success, especially long term. Controlled growth is the primary ingredient for survival in the highly competitive startup world. But what exactly is “growth”?
Is it measured by quarterly revenue? Eyeballs/Users? Buzz? For early stage companies, it is mostly revenue, especially if the company is pre-revenue. Revenue is the fuel that propels the company, allows hiring of great people, decreases dependence on investors and thereby preserves equity for founders and employees.
For most startups, first revenues and continuing revenues seem like magical milestones; before they are reached there is no sure way to know if/when it will happen. I know, I’ve been a pre-revenue CEO many times.
But there is much more to scalability than revenue. Revenue injections are like oxygen, and strong measures and reassurances that your company is real, and that you have a chance to become a long term enterprise.
The resulting cash flow, cash on hand, and recurring revenues give a warm fuzzy feeling like no other. But revenue alone doesn’t ensure scalability. Many other factors are critical in building the right foundation to construct a strong, integrated enterprise down the road.
This blog will hopefully explore many of those other factors, and help early stage management teams to make the right decisions as they create or encounter and then manage growth.
