Business is a very simple concept. You have to pay your bills. If you have anything left over, you get to smile and spend it as the principals of your business see fit. If you don’t have enough to pay your bills, you either have to raise money to cover the deficit, file bankruptcy and try it again, or go out of business.Simple.
There are no other options. Sure, you can sell, give or throw the business on someone else and make it their problem, but that doesn’t change the math. If(totalcashin<totalbizcashout)=You are now officially a consultant. No exceptions.
No matter what kind of business you have, you absolutely, positively must have a revenue strategy. No revvie, no survivee.
In the digital world not everyone, particularly those in Silicon Valley, seem to understand that. There seem to be two kinds of startup companies. The first understands this concept and knows going in exactly what they are going to sell, to who, what they hope to sell it for, their hoped for margins and just as importantly, who will sell it and how. When they model their business, they model the least expensive way to get into and stay in business with the focus on reaching profitability within months rather than years. They aren’t modeling in an exit strategy. They recognize that any company that is profitable gives them choices. They can meximize their ownership percentages. They can pay themselves an amount commensurate with their profitability. They can go public. Or they can sell. Profits provide choice.
The 2nd kind of startup relies purely on financial models to justify their future revenue streams. They create a company hoping to generate enough volume in whatever it is they hope to sell around, traffic, users, whatever. The goal is to then find a way to monetize all the volume or to execute on an exit strategy. They spend a ton of time playing with spreadsheet models. They are experts at plugging in CPMs, pageviews, unique users, sell through rates. They also know how to list “comps”. Companies that they hope to emulate and if they have only some subset of their success will more than generate enough revenue to fulfill their exit strategy. They are projection warriors. Perfectly reasonable, right ? Right, if you understand the reasoning of the people who fund these types of startups.
Venture Capitalists (VCs) tend to fall in love with concepts. They have the same problem that NBA GMs and Owners often do in evaluating players. We both see our last success in the promise of our next opportunity.
Entrepreneurs who start companies with the required, expected and motivating stars in their eyes usually forget the VC model for funding these types of companies. What’s the Venture Capital funding model ? Fund 10, hope the 1 or 2 winners more than makes up for the 8 or 9 losers. That’s right. Most VCs expect to have at least an 80pct failure rate. Which in turn means that 9 out of 10 of the entrepreneurs behind these types of “make it up on volume’ companies will end up as “consultants” .
On the flipside, if you talk to any company I have ever invested in, the only thing I care about are profitable sales. What are you selling? How hard are you working at selling? What are your revenues ? Why are you paying yourselves a salary rather than a commission ? What unique initiatives are you working on to generate sales TODAY.
When I invest in companies, I expect 100pct of them to be successful and grow and QUICKLY be profitable. I may not hit many homeruns, but I sure hit a lot of singles and doubles and rarely strike out.
Whats the point of all this and how does it apply to success and motivation ?
If you are an entrepreneur and looking at starting a company, its VERY easy to put off the hard part. Which is generating sales for your company and making a profit. Believe it or not, its far easier to go out and raise enough money so you are “in the game”. You can raise the money, start the company and take your chances. If you run out of money, you can raise more. Until you can’t. At which point you enter the world of consulting, having learned from your experience.
On the flip side, if you want to start and grow a business that you retain control of, put money in the bank from and can make a long term commitment to, then always remember that sales should be the first thing you focus on when you wake up in the morning. Profitable Sales to happy customers is the best path to making money. If you go to bed at night thinking about how to sell more and how to make your customers happy. You probably are in a good place. If you go to bed and wake up thinking about how to raise money to stay in business, you might as well get the new business cards and think about what your new consulting blog is going to look like
Pingback: Revenue vs. Growth
Are college professors considered consultants?
Comment by ambishade -
Pingback: For the week starting: 8/13/2009 « astrofish.net/xenon
Pingback: Pool Of Thought
Mr. Cuban
Your Insight and Professionalism speaks for itself, and I must say that I admire what you do here. I am looking for Professionals like yourself, that have an eye for new and Innovative Products. I have Products that Help Others, Help the Environment, We have a True World Peace Solution(Of course no one believes such a thing exists), and Now, we Help Everyone, Marketers and Business’s to Be Seen Online Easily by the Major Search Engines at a Fair Price.
Thanks for your Articles
The North American CEO for UBIEE Corp. S.L.
Gary Wells
Comment by gewells -
Mr. Cuban,
I have developed a league featuring a sport that is already well known worldwide that has multiple revenue streams and marketable athletes. The only problem is that I can’t focus on making profits and pleasing customers until I am able to secure the proper funding. Do you have any funding advice for sports production startups like mine?
Thanks,
NJ
Comment by nrejohnson -
Pingback: Capitalist.tv » Blog Archive » CashIn>CashOut
Mark,
Great post. I just sawed my business model in half today and burned the dead wood. Just at the time of re-strategy, I read your words. I’ll wake up with a new perspective tomorrow.
Comment by webjock1 -
Best post ever. It motivated me to get a username/password just to say THANK YOU for that.
Comment by wylkatz -
Hi – We would love to include a screenshot of your blog as an example of executive blogging in our new book – Please email me for additional information! Thanks, Kate.
kcook@sensorylogic.com
Comment by sensorylogicinc -
Pingback: BlogBites. Like sound bites. But without the sound. » Blog Archive » If you go to bed and wake up thinking about how to raise money to stay in business, you might as well get the new business cards and think about what your new consulting blog
Mark,
Thank you for your very timely advise! BSEE, inventor (1 granted+1 pend), author, entrepreneur, ex-rugby player and now C4 cyclist. I have been on my own for 10 years developing solutions for manufacturing. My question for you: I got several products (software and hardware) developed and many more to come. I spend too much time perfecting every detail about them which takes time away from selling (which requires more energy from me than developing ideas and solving problems). After several months, I perfected my sales pitch and I will be making calls starting today….How did you balance them when you got started? Which one was your driving force (developing solutions vs. making money)?
Once again, Thanks!
Sergio
Comment by sergioargentina -
If(totalcashin<totalbizcashout)=You are now officially a consultant. No exceptions.
Mark,
While I agree with the above statement, exceptions do exist. I have been living as a student far to long not to have noticed that I fall into this category. So to modify
If(totalcashin<totalbizcashout)=You are now officially a consultant (or a student). No exceptions.
Through Knight and yourself, I have always had an aversion to refs. It might be justified:
http://www.bepress.com/jqas/vol5/iss3/4/
If you have a few moments you might want to look at this, something to think about.
Tim
Comment by tez07 -
Profitable companies like mama.com?
http://AppUseful.com
Comment by rebelvc -
Hey Mr. Cuban
I am unable to read this post I am in a huge predicament.
I have to be brief I am in some trouble right now however I fear no man but God.
I can not go into it at the moment but If you ever watched Dallas J R EWING was in the same situation. I am up chit’s creek without a paddle. I wish one thing when I get out that I could find out some truth in such a weird year. Anyway ciao for now.
WHITEWOODY
Comment by whitewoody -
Government is so much easier than business. There is an infinite supply of cash and there is no need to worry about making money as new revenue sources are both born and die everyday. What amazes me is that folks like Mark would waste any more time with the fragmented internet when its such small change compared to other sectors of the economy. Mark won’t admit it here but the NBA is in serious trouble when you have a handful of teams funding the rest and the NBA had to take out loans to survive – they’ve been in business for awhile and are victim to the bubbled debt economy that is bringing down all sorts of businesses. That is some serious racket they have going on. Professional sports are similar to financial services, insurance, real estate, health care and education – a gravy train that counts on socking it to the masses and giving little to nothing in return to the customer while collecting billions and in some cases trillions. All are protected by the government and will always will be. I think what Mark should be writing about is how much trouble entrepreneurship and small business is in now and will be in the future. The inefficient parts of the economy are eating the unprotected, productive parts more quickly each day. This is a recipe for disaster imo and I wish Mark would address it.
Comment by shake200x -
mark,
the “you are no officially a consultant” remark made my day. As the founder and owner of a tech startup actually focused on revenue it’s very irritating to sit here and watch insane concepts with no idea of revenue get millions and millions of investment capital. In our space we were the first to do certain things and got copied quickly by current market leaders. A few VC’s have enjoyed our concept but most have balked at us because we are currently making negligible revenue compared to cost we must incur and our concept is realistic.. not insanely unattainable such as many tech startups.
Basically it’s a vicious cycle. It takes money to make money, sometimes it takes a ton of money to make money and if you dont have a ton and can’t get a ton.. then like you said you keep trying. We have spent the last year testing revenue models and are now focusing on areas where we saw partial success. Our goal now isn’t to get VC funding, our goal is to make our own cash and grow from there.
Comment by joeyoungblood -
Pingback: Two Traps For The Technicals | There Is NO Box
Many of us on the technical side have a “build it and they will come” mentality. This works once in a while. But not very often. It’s probably a result of sticking with what one knows best.
Another trap for the technically minded is the notion of being so good at what you do, you don’t have to look for work. The work finds you. This is true for an extremely small number of people… who, perhaps not coincidentally, are extremely well-networked.
Comment by nothardly -
Pingback: Your Business Depends on Selling
is apple trying to put youtube out of business? the new iPhone with video capabilities might just choke the bandwidth just enough to hear google gasp for air.
Comment by nakedpizza -
Pingback: Revenues NOT Concepts « Startupreneur
I’d say that this is more prevalent in Silicon Valley than anywhere, but there is a certain arrogance amongst a lot of young people in my generation that believe that their knowledge of technology somehow transcends basic business principles, as if having a Facebook account tied to an .edu email address you haven’t used in years somehow qualifies you as some kind of guru.
You really did hit the nail on the head: if you don’t make more money than you spend, you will go out of business. Yes, there needs to be some upfront investment and it may take time to recoup that investment before you begin making money. However, just because you aren’t making money immediately doesn’t mean you don’t have a reasonable plan to do so in the near future.
Non-profits are different, in that their income is derived mostly from the generosity of others. In tough economic times, you’d be better served riding the leading edge of the economic wave and reducing costs before you see a drop in donations.
The word “consultant” gets thrown around too much these days. Really, it means someone whose knowledge and experience is available for a price, which is offset because you don’t have to pay them full time. If you work for or run a company, and your expenses exceed your income, that doesn’t make you a consultant, it makes you broke.
Comment by monkeybusinessiu -
It is not as simple as you state the case. All businesses have lead times. Some lead times are longer than others. Even a lemonade stand requires up front investment. You have to get the materials, build the stand, shop for lemonade mix, buy ice, cups etc. Only when you are done those things can you bring in cash. So during this phase cash in is less than cash out. From what you are saying that makes my 7 year old a consultant….not bad.
But extrapolate that to the big boys/girls world. All concepts, ideas, products and services have a lead time that requires cash out to exceed cash in for some period of time.
During that period the founder must worry about getting funding…even if he or she is mortgaging the house (extreme worry!!) or using their own savings. For whatever the length of negative cash flow the objective has to be keeping the funders on board so the wheels keep turning.
Your only valid argument is that some people lose sight of driving toward revenue and a positive cash flow. Could be true but I think it is neither black or white but a shade of grey.
Comment by markwaldin -
Oh man, do we have a good backup plan since we lost Gortat!?!
Comment by Nat -
Cities, states and country governments are exempt, of course, from the cashin<cashout thing.
But even municipal startups are expected to lose.
Comment by wonderl -
Pingback: Review, Free by Chris Anderson | Small Business Trends
Mark,
Are there any good start-up books that you could recommend?? Thanks.
Comment by wrx2005 -
Pingback: blogmarks for 2009-07-10 | I Live In Success
Mark,
Please write about the news about Google releasing an OS.
A Free OS… Will they have an impact is google going to “Free”?
(www.GamalR.com my blog)
Comment by gamalr -
Mark,
I Agree. It’s like Mary Kay said, “NOTHING HAPPENS unless somebody sells something.”
To which I will add, “NO YIELD, NO WIELD.”
Free may be an enticement, but it’s hardly an effective business model.
Posted by Bill Churchill
Comment by billchurchill -
Mark,
Thanks for all the insights! Here we go 1st comment after reading blog many times so a lot to say.
Currently Sales Consultant aspiring to be an Entrepreneur.
Have some supplies ready in box and now need a plan and some customers. Oh also some fine tuning of needed skills to be an “Expert”. Stop there that sounds like an excuse.
Perhaps a good comparison would be L.L. Bean who went from a Woodsman to a Sportsman/Entrepreneur. Ref. in case didn’t read: Biography of LL Bean.. Great story.
Kudos to the Commission model where it pays to have incentives and Win Win for both bank accounts.
This stuff seriously pumps me up and by the way particularly liked how you started in retail and busted out of those gates on fire and didn’t look back. You obviously not only successfully sold the software and services but yourself many times over to be so successful.
Hard to put a price tag on those customer relationships. Customer TRUST. Ah ok we can consider it a sort of Fund in addition to the ample time/hard work it might take to gain it..
Ok. Curious how the SK is running?
Now Jamn soon to be Slamn on the HTC Android Product. iWhat? Personally I don’t think so. Just downloaded awesome ANDROID App called Flixster 1.3.0. I watched a trailer along with a Synopsis of movie amongst other details and reviews of course with great sound quality even coming out of the BlueAnt Bluetooth Stereo Speaker. This is a huge upgrade from any other previously used App. 1,000% Better. Result: Save time being mobile and have the perfect movie recommendations/options ready for my wife also to see. This is an example what we need… Real solutions not the same old BS and excuses not to get the info we need with the tools and technology available.
Hold on tight both sales and satisfaction is on the rise. Customers won’t look back either. You either provide today or at a minimum soon along with your plan & promise or you will not see them again.
Bottom line folks someone eventually has to pay. Here is a great example for Corporate Email ANDROID fans (future fans) .. I downloaded Approx. 30 Free Apps. A few of the free Apps were LITE such as Boxing and Baseball Game versions that need to be upgraded for optimal performance and some for even to be functional such as TOUCHDOWN for Corporate email at a $19.99 tag/lic. No worries not all peaches and cream as still need calendar that has dropdown button for regularly used events like WorkJob1, WorkJob2, Church, Gym, Practice, please that the purest BS I’ve smelled in a while. Basic Customizable Drop-Down menus. Off to trac the sent of the ChiefDevInCharge of that one. No hard feeling just a great opportunity save “Time “ also one of favorite songs on Jaime’s album.(not on Amazon MP3 App yet; see MySp)
For all the free loaders the time is now to pay. I still haven’t figured it out paying Netscape $6.95/mo.
Sorry for all plugs but needed for various reasons like those ignorant not to carry StereoBluetooth Speakers in Retail and afraid to advertise great products. Ouch.
Please check out Jaime Dolce Innersole in case you’re a Blues Rock Fan. This guy will make it. Main reason? Tremendous passion for his work and also he’s going where others have yet to venture. Waiting for some Live Releases along with future tour plan when he’s back from Italy.
Thanks so much for this opportunity and with keep it short & sweet next post if preferred.
Comment by innersolemark -
Mark – I don’t disagree with you on your business philosophy (I’m only as smart as Donald Trump), but as an IT director of a struggling manufacturer who had a small budget early on and needed to find a cheap (or free) database platform that would work in Windows, I used postgreSQL as my database server and was able to basically implement my accounting systems for free. Now that we’re doing better and I have a larger budget, I just bought a MS SQL server so that I can develop in a more Windows-friendly environment (although for the cost (free) and given the time that must have been been spent on it’s development, PostgrSQL is an awesome example of what can be done by a development communtity). You Pro-Capitalist pig who I hope these idealist don’t listen to! If the open-source (i.e. free or cheap) community know that their business model can’t make money , you are going to make it harder on start-ups with small IT budgets to do much, aren’t you? And what do you thing of Chrome as an OS? I think it is WAY over-hyped and under-developed!
Comment by miniatas -
It just depends what kind of business you’re looking for. You can start a me-too business and be at break-even relatively quickly, but the odds are great that you’ll never be extremely profitable because you never developed a unique capability. Or you can invest in building unique intellectual property and potentially run a loss longer. Companies like Google (or any life sciences company) weren’t being lazy by not having a sales/revenue strategy early on. They just realized that they needed the right thing to sell first. Sometimes that includes audience as well. So focusing on the product/market first and revenue second isn’t always a bug, sometimes it’s a feature.
Comment by gentschev -
I like the article Mark. I couldn’t agree more with the 2 examples of businesses. I own and operate a crime scene cleanup company in Arizona and my mind is always on our customers and how to grow and fast! We understand that there is no room for failure and don’t have a plan b or c. Just as importantly, the people invested in our company expect the same. When failure is not an option, things tend to fall in place.
Comment by crimecleaner -
Mark, great read and a good observation on business as a whole. If you dont make enough money to pay the bills you need to get your resume together or get another business. If more businesses followed this simple concept they would all be better off. Stop modeling what could be and focus on growing what you got and how to increase its value.
My family owns a company we founded in 1937 in Dallas Texas that we still run today based on this simple mantra. This is the one reason our simple little company has survived generations and continues to thrive in these economic times.
We dont make electronics, consult or develop the next best hardware thingy. We simply make the best donut in the world. Southern Maid Donuts.
Comment by dphargrove -
I will say it once and I will say it again, do you want sexy or profitable? Sometimes they are the same, but many time the least sexy product in the world can rake in the cash, while the sexiest internet businesses never make a dime. I know to be a BSD, you need to have that sexy internet application, but sexy doesn’t pay my bills.
Comment by crfbusiness -
Hi Mark, this is my first time posting here but I’m a long time fan of your blog. Just wanted to throw in my opinion as an inexperienced college graduate who is hacking together a web app.
In my opinion “free” has its perks depending on its investment costs, and if it can cater to your future web projects. If you are new, young, and unestablished in the web and/or a niche, the free platform can give you credibility and a marketing audience. The free website can be anything — it can even be a wordpress blog that writes good articles for a niche.
From there you can create new “service websites” under different domains that is marketed on your free website. These service websites would be based on the needs of your free website’s community and what they would be willing to pay for.
I believe, if built right, a free website can be the best advertisement investment possible for future projects. I’m a firm believer of the old saying: you have to give before you can get. I do agree with you though that it is stupid to rely only on a free model for revenue. It takes a critical mass application to MAYBE pull it off and many of those, as you’ve mentioned, struggle to do it.
Comment by Keita Sumikawa -
Good post, Mark.
Not only true for starting businesses, but for reinventing businesses that you’re in, such as the shift we’re seeing in the advertising world.
By the way, any chance that Ewe Blab will be making a comeback?
– Tripper Allen
freerange1201.blogspot.com
Comment by freerange1201 -
Hey Mark! Thanks for the great insight. When you have a moment, take a look at a new product that my company has recently launched called Zingle. It’s a text message ordering solution that is simple and easy to use for consumers and operators. I definitely think it would be a viable solution to enhance the customer experience at your Mavs game.
Brett
bweiss@thezingle.com
For a better understanding view the quick video that is posted on our website.
http://www.thezingle.com/video
Comment by bweiss22 -
This is such a great blog post.
I see too many start-ups coming to us for development that do not adhere to this statement and it is such a powerful quote.
“… if you want to start and grow a business that you retain control of, put money in the bank from and can make a long term commitment to, then always remember that sales should be the first thing you focus on when you wake up in the morning. Profitable Sales to happy customers is the best path to making money”
I am going to print that and hang it on the wall.
Good stuff once again!
Comment by emcanes -
The analogy you’re looking for is in baseball. GMs are looking for Ryan Howards instead of Pete Roses.
BTW, I LOVED that HDnet had the Enron documentary showing. HDNet should pick up more documentaries. Maxed Out, The Pixar Story, Man on Wire…
Comment by brownst -
There is nothing wrong with being a consultant. Logically if a consultant wants to stay in business consulting they must be profitable they must generate revenue, have positive cash flow. The consultants business as I see it is to provide information that improves the businesses the are acting as consultants for.
I have often heard sales trainers tell sales people to think of themselves as consultants. Like a shoe sale person would be a consultant to someone who wanted to buy shoes or a car salesperson would be a consultant to a somebody looking to buy a car or a realtor to somebody who wants to buy real estate.
Comment by kpurfield -
Hey Mark, I’ve got a really great dotcom biz idea that I know you’d love…and it’ll be profitable within the first 4 months after launching. My email is ambishade@yahoo.com. You can also contact me at admin@ambishade.com.
BTW, it’s not related to curtains or the likes.
Comment by ambishade -
@davidkjudd
Not-for-profit business should still be run as for profit entities. The difference is that at the end of the year, the not-for-profit should pay a dividend back to it’s customers if any substantial profit was recognized.
Regardless though, not-for-profits still need to generate revenue and pay it’s bills. Now that revenue might come from donations but it still doesn’t change the business model.
Comment by frooyo -
No revvie, no survivee
Mark, it’s a good thing you live in Texas. There’s a marauding throng of VCs out here in Silicon Valley who are looking for somebody to lynch now that there Ponzi schemes are collapsing around them!
Comment by Michael F. Martin -
OK… let me just say thank you. I’m a practical guy that truly believes that HARD WORK and EFFORT are always rewarded in the long run (lessons learned from my parents & through participation in sports, by the way). As an entrepreneur, it is a WONDERFUL day when I get to read Words of Wisdom from a Mark Cuban perspective.
THANKS 4 SHARING!!!
Comment by True Soul -
How would you define success for a not for profit business model? Take a private school or charitable organization for example. They do not have “profit” in the purest terms of the word, but have the same cash flow issues as a for profit company. “Sales” in their world is fee based services, which don’t cover all operating costs, and donations – which I would equate to ad revenue on a web site. I’m curious about your thoughts on how to run a successful business under these guidelines.
Comment by davidkjudd -
Mark
I’m curious to know what Mahalo’s business model is given this post and your investment in that web start up.
Comment by frooyo -
Amen, Brother Marc!
Comment by Michael David Liss -
I work in transmedia which includes entertainment and you learn very, very quickly in that market that if there is not a solid revenue strategy out of the gate, the idea is not accepted. It’s very hard, but it has helped me overall incredibly in my work — being forced to make money early on is how every business should work.
Comment by dailypatricia -
Mark… well put. Mirrors lessons from The Printed Blog, which I had to close down http://bit.ly/2fZHB8 BTW, thanks for letting us republish your work – it was quite well thought of and received. Josh
Comment by joshuakarp -
I’m not sure that Silicon Valley isn’t perfectly aware of the situation. The products being given away for free actually sell a huge amount of SV product. While our attention is on Facebook and Twitter and other loss leaders that seem to have no purpose, they actually move iron, boxes, cable, electrical connections, cell contracts, etc. The losers are companies that ‘don’t get it’ simply because their content was difficult to protect.
Comment by Fred H Schlegel -