Up until now I didn’t draw a distinction in my mind between cashflow businesses and non-cashflow businesses.
And this really burned me.
Some software businesses really cannot be cashflow businesses until they get economies of scale.
But most can.
Ours could have – especially Reverb – and I could argue we should have had monetization in Commit Club from the get go.
A previous startup, World of Ether, made money immediately, which was great. I didn’t value the distinction between cashflow and non-cashflow businesses back then, which is why the project, despite starting strong, eventually failed.
Most founders don’t try to make their software businesses cashflow businesses so they can get a lot of users and raise a lot of money. Their plans are to only then, only after fundraising, turn on monetization.
And this is stupid.
There are some things to note:
- It’s easier to find areas for churn if a product is free.
- It’s faster to growth hack if a product is free.
For many founders, us included, this is why they do not put in monetization.
Bad reasons.
Use freemium.
Why are you trying to run your widget like it’s a hyper-disruptive venture-backed company?
Replace widget with most SaaS.
Doesn’t make sense.
I shared these thoughts with a close friend and mentor, Yuriy Chernin, of Darn Good Ads. He said:
I mean yeah. I’ve always thought all these wannabe tech people I meet were full of it and couldn’t make any real money or build a real business.
Like they know the tech industry, how to raise money maybe, but they don’t understand consumers and they don’t understand business.
Businesses need to make profit and there’s good business models and bad business models.
From now on I’m going to become obsessed with businesses that can generate revenue right away.
Venture funding is down for all but AI.
I believe that the future venture capital space in the United States will soon become similar to Europe – as in it will become more conservative. I think multiples will decrease, and burned investors will be more cautious. This will be the case for the next few years, at least.
So I believe cashflow obsession is a good direction to go in.
Think about something that can make money right away.
Then reinvest back into the product.
But try to make money from the jump.
/rant
If you have any thoughts on this, leave a comment…
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Okay I’m done.
End rant for real.
