In Startups

Last week in New York I attended another Startup business Show & Tell event. This one was sponsored by the Entrepreneurs Roundtable Accelerator and featured ten promising startups presenting to a crowd of over 200 people. Each team had display tables set up with live demonstrations, well designed banners and nice company T-Shirts.

The presentations were well rehearsed multi-media experiences made even more impressive by a hundred foot wide display screen. The ten businesses were all full of energy and hit many of the hot buttons investors might look for.

And at the end of their pitches each presenter had the requisite “one more thing”… Be it a deal signed, new partnership or some new feature.

Euphoria was high in the room as we all felt like we were part of a new wave of great businesses ready to change the world.

But then after the dust settled…

Calmer heads prevailed and we were able to shake off the altered state of consciousness generated from the high energy multi-media presentations and generous applause. I realized that none of the presenters had put simple six line spreadsheet on a slide to show us their actual revenue/profit producing business model.

Yes this is very reminiscent of 1999. Packed with smart young entrepreneurs sporting flashy companies and no concept of how to actually make money. I sounded the alarm back in 1999/2000 and I am doing that again today.

Back in ancient times (1980s/1990s) when we created new businesses, product lines, or services the second thing we did (after roughing out what the product/service/company would do) was a good old fashioned “back of envelope” calculation to determine if we could make money on the product/service/company. In all my experience I can tell you most confidently that if you can’t get it to work on the back of an envelope no amount of magic, whiz-bang technology, or insider connections will make it work.

I see far too many smart, well educated, highly motivated entrepreneurs spending time on concepts that will probably never make a profit. Not with any amount of invested capital. If there is no business model putting more money in just loses more money.

It comes down to one simple concept… You have to be able to acquire customers for less money than you can extract from them as revenues. Short of that it’s a non-profit business and there are many great charities out there that we can support if profits are not required.

Sure there are some exceptions to this Profit Requirement rule but you are better off spending your money on lottery tickets at those odds.

I volunteer time with a local small business startup group based on a 35+ year old organization call WIBO (Workshop In Business Opportunity). I am not going to get into the details of this 16 week program but weeks eight and nine are dedicated to the determining if the business can make money. The businesses in this WIBO program are not usually the flashy high-tech ones you find at one of these 200 person New York City investor presentations. WIBO-type businesses are small mom and pop ventures like catering, hair salons, and smoothie shops. They don’t need investors because from the beginning they are designed to make money.  Click Here for a simple business model worksheet.

Maybe before designing T-Shirts and starting on their next venture some of these high-tech entrepreneurs should sit in on WIBO weeks eight and nine. It will save them much heartache later. When they don’t show their business model in one of the first slides of their presentation I automatically assume they don’t have a business model. No clear plan for making profits on a sustaining basis.

All investors are in business to make money. More start-ups should be in the same business.

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