Tech start-ups are the life-blood of entrepreneurship, right?
In this video I’m going to explain how tech start-ups are destroying entrepreneurship, and why you need to think differently if you want to be successful in business.
Tech-Start-Ups are the life-blood of entrepreneurship, right? Wrong.
Hi, I’m Carmen Sognonvi.
Keep watching because in this video I’m going to explain why I think Tech-Start-Ups are actually destroying entrepreneurship, and I’ll show you how you need to think differently if you want to be successful in business.
By the way, if you’d like to get a list of the seven tools I rely on to run all of the marketing in my business, head on over to CarmenSognonvi.com/tools. There I’ll share with you everything from who we use for graphic design and printing, and I’ll tell you about a cool app that you can use to track how your flyers are being distributed.
Imagine you’re in a coffee-shop and you over-hear this conversation:
“Hey, Carmen! How’s it going?”
“Hey! I’m doing great! Guess what? I just got a twenty thousand dollar line of credit on my credit card. Isn’t that awesome?”
“Oh,my God! You’re so wealthy!”
Okay, so that would seem ridiculous, right? After all, the twenty thousand dollars doesn’t belong to me.
It’s just that someone at this credit card company has said, “hey, hold onto this twenty thousand. I’m giving it to you in the knowledge that you’re going to pay me back with more money on top of that.
That’s not making me wealthy. The sad thing is the equivalent of this conversation is happening every single day in the business media.
How often have you read about a founder of a cool tech-start-up that’s being lauded for being successful, and the only proof of that success is that they’ve managed to raise X amount of million dollars in venture capital?
Here’s the thing: If you manage to raise money for your company, that’s great! There’s nothing wrong with that. That’s just the beginning.
We’re at this really strange phase in history where people seem to equate raising money with actual success in business, without realizing that’s just the first step. Now, you actually have to take that and go make money.
Before I continue, I just want to make it clear that I am not against venture capital. I know that there are many businesses out there that can’t be boot-strapped.
You need to have venture capital to get things off the ground, and that’s totally fine. There’s nothing wrong with that.
What I do have a problem with though, is that people are acting as if venture capital is the end game. Perfect example of this is: I was reading recently about LearnVest.
LearnVest is a start-up that has been lauded all over the place. They’ve been written up everywhere from Entrepreneur, to Inc., Business Week. Every publication you can imagine.
The founder has been on pretty much every magazine cover. She keynotes conferences all over the place.
This is a company that’s had a lot of buzz. I was just reading that they’ve been acquired by Northwestern Mutual. One thing that was really, really interesting in the article is if you read between the lines of the press release that was issued about this, you’ll realize that LearnVest raised over 75 million dollars in venture capital.
That was basically the basis of a lot of this hype and a lot of this media attention. But, if you read the press release that was issued surrounding the acquisition, you’ll realize that the company generated less than 2.2 million dollars in revenue.
Just to put that into perspective: that’s probably the same amount that a popular bakery in your neighborhood makes. I’m guessing they didn’t have to raise 75 million dollars to do it.
The reason that I think tech-start-ups are really destroying entrepreneurship is because we’re raising this generation of entrepreneurs that thinks the point of business is to raise money.
They are really good at raising money, talking people into investing in them, but they have absolutely no idea how to make money. That’s a real problem.
Let’s say that you started a business and your end goal is to sell this business. You actually don’t care about making money. Because you’re just making something that you know is going to be really valuable that you know it’s going to get acquired.
You know what? That’s totally fine. Say, a business acquires you and you never generated any revenue, but they acquired you anyway. You walk away with a big sum of money.
Congratulations. That’s awesome. But, guess what? You didn’t build a business. You built a product.
Because, business’s actually generate revenue and hopefully generate profit. So, what you did was you built a product that was very valuable. That was something that this other business knew that they wanted for themselves because they would have a way to make money using it.
But, you built a product, not a business. That means you’re not and entrepreneur, you’re an inventor.
It’s no different than inventing some kind of gadget that gets sold on infomercials. You know, there’s nothing wrong with it, but understand that there’s a difference.
What should you take away from this? Well, if you’re flipping through business magazines and you find yourself comparing yourself to the founders that you see on these magazine covers, please stop.
It’s not the right success metric for you. Understand that the founders of these tech-start-ups live in a very specific world with a very specific set of rules.
In their world, the only way they get cash in the door, is not by selling their product or service to a consumer, it’s by raising more investment capital.
They need to do this round, after round, after round. Every round has to value them at a higher valuation. Otherwise, they’re going to see their reputation change in the marketplace. That’s not going to work well for them.
Part of that game is they have to keep building this buzz machine around themselves. Part of that is being really prominent in the media, on the conference scene, and getting their name out there on a constant basis, because this is part of how they generate cash.
You’re probably in a of business where you generate cash the “old fashioned way.” By actually selling stuff, right?
Understand there are tons of companies out there that are absolutely killing it. That are doing seven figures, eight figures, nine figures that we’ll never read about in the business media because they are not seeking media attention. They don’t need it.
They’re doing just fine by actually selling their products or services to customers who are happily paying top dollar for that.
If you find yourself comparing your business those that you read in magazines, stop. You need to decide on the correct metrics to measure your own success.
If you are not a tech-start-up, you don’t need to be measuring your success in terms of how many millions of dollars of venture capital you raised.
Now, if you’re in the very early stages of your business, then maybe it is suitable for you to measure some success by how much capital you’ve raised. That is going to take you to the next level. Understand that this is not the end goal. This is the end goal.
How are you going to take that capital, then build revenue, and then build a profitable business. That’s the end goal.
Please, do yourself a favor and understand that you need to define success by the correct metrics. Those correct metrics usually have to do with revenue and profits.
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It’s time for some shou-outs! We’re doing another Instagram edition. If you’re not already following me on Instagram, I am @CarmenSognonvi
Be sure to find me there. Today I would like to shout-out:
Thank you to all of you for your lovely comments. I’ve linked to all of their profiles below, so be sure to check them out.
Thanks for watching.