from Hacker News

Death By Revenue Plan

by white_eskimo on 2/16/10, 2:02 PM with 7 comments

  • by btilly on 2/16/10, 3:32 PM

    Anyone who wants to try to create a new market (as opposed to get into an existing one) should read The Innovator's Solution. I say this because of the excellent chapters explaining all of the ways in which over-investment can kill a startup in a small market which is likely to have a big future potential. (The preceding book The Innovator's Dilemma is also interesting, but doesn't provide any discussion of this dynamic.)

    The key phrase that sums it up is, Good money is impatient for profit and patient for growth. Bad money is impatient for growth and patient for profit. Unless your company is sized small enough to find and be interested in whatever existing market can be found, you won't be in a position to grow with that market with the right cost structure to take advantage when the market opportunity grows.

  • by ccc3 on 2/16/10, 4:48 PM

    After reading this it struck me that no revenue model could really be complete without some statement of the level of uncertainty. In science, for example, you would never make a prediction without also stating the uncertainty in that prediction. But none of the revenue model frameworks I've seen have included uncertainty.

  • by andrewljohnson on 2/16/10, 6:31 PM

    Besides understanding the growth of a particular market, it's also important to understand the motivations of a VC.

    It depends on the overall sharkiness of the particular VC, but in general, VCs like to have entrepreneurs poorly estimate their revenues early on when funding milestones and the price of shares depend on those estimates.

    More than one founder has gotten into bed with a VC, blown the revenue plan, and found themselves a minority shareholder in a VC-owned company. It's not that amazing how many founders will give away tons of equity, confronted with lack of revenues and a need for cash to pay all the employees they dazzled with their dream.

  • by gyardley on 2/16/10, 3:15 PM

    Good article, but I'd add 'make sure your amount raised matches your market type.' If you do a large round, there's a whole lot of pressure to spend that large round.