A Friday series exploring Startups and the people who make them go. Read all If the Shoe Fits posts here

Last Friday I compared valuation based on investment vs. revenue with AppLovin as my example.

Put another way, it’s the difference between focusing on outside money and inside money, AKA, revenue.

“One of the problems with raising money is it teaches you bad habits from the start,” said Jason Fried, the co-founder of the software company Basecamp, who has written frequently on the perversions of the venture capital industry. “If you’re an entrepreneur and you have a bunch of money in the bank, you get good at spending money.”
But if companies are forced to generate revenue from the beginning, “what you get really good at is making money,” Mr. Fried said. “And that’s a much better habit for a business to work on early on, to survive on their own rather than be dependent on money people.”

That’s the approach embraced by 16 year-old MailChimp, with 2015 revenue of $280 million and will top $400 million this year.

As a private company, MailChimp has long kept its business metrics secret, but founder Ben Chestnut wants to publicize its numbers now to show the road less traveled: If you want to run a successful tech company, you don’t have to follow the path of “Silicon Valley.” You can simply start a business, run it to serve your customers, and forget about outside investors and growth at any cost.

Chestnut also doesn’t have a Silicon Valley ego, as demonstrated when defining the company’s values

I asked all of our managers and senior managers to help me out with them, and we came up with three: creativity, humility and independence.

and hiring.

I’m looking for that philosophy because I want someone to push me and make me better. I want people who are smarter than me, and who will push and fight for something they believe in while also respecting the values and unique nature of the company. We have to be creative in pushing our boundaries, but sticking to our values.

There is an interesting thread I find running through founders who bootstrap and build their companies by focusing on generating revenue, as opposed to fundraising and hypergrowth.

Both types have vision, focus, drive and grit, but, based on reading, those building their companies on internal money don’t seem to have the same need for validation — not of their vision, but of themselves.

Image credit: HikingArtist

A Friday series exploring Startups and the people who make them go. Read all If the Shoe Fits posts here

A founder I know is complaining that almost it’s impossible to achieve unicorn status with investment dollars so tight.

Really?

I guess nobody told the founders of AppLovin, who just sold a majority stake in the 115 person company for $1.4 billion.

The mobile ad network was founded in 2011 by Adam Foroughi, Andrew Karam and John Krystynak and has  never taken traditional venture capital funding.
“I couldn’t find anyone to give us an investment at what I thought was a reasonable starting point valuation (maybe $4 million or $5 million) and, by the end of our first year of operations, we were profitable and doing over $1 million a month in revenue,” he explains. “So I put together a round with angels not really because we needed the cash, but because I thought these were influential people who could help us grow.” —Adam Foroughi to Forbes’ Dan Primack

Easy money made for high valuations sans revenue.

These days you need actual revenue as opposed to users, promises, and sunny predictions.

My reaction can easily be summed up in one word.

Tough.

Image credit: Hiking Artist

FANTASTIC! An absolutely fantastic, no-frills conference that went to the core of what any startup CEO needs to know about starting and scaling sales, how to align with marketing and what types of people to hire and how.

AA-ISP stands for the American Association of Inside Sales Professionals and is an international association dedicated exclusively to advancing the profession of Inside Sales. The association engages in research studies, organizational benchmarking and leadership round tables to better understand and analyze the trends, challenges, and key components of the growth and development of the Inside Sales industry.

When I arrived I was exhausted after pulling an all-nighter and having had only 1.5 hours of sleep. I was sitting in the parking lot before to going into the conference (of course I was an hour late for the start) and kept nodding off as I was collecting my thoughts prior to going into registration. Eventually I did go in, registered and went to my first session, which I mostly dozed through.

However, by my second session called “The Uberization of Sales”, I was perky and awake, and the subject matter held my total attention. It continued this way until I left the conference at about 8:30 pm, elated that I’d had lucked out in this manner.

In fact, I had been dubious about whether I should attend at all, as I had slept so little and my impression was that it would be of only limited interest or relevance to Quarrio and me personally. I was embarrassingly wrong.

This conference is among the best I’ve attended as a startup CEO and addressed a number of issues I’ve struggled with throughout my career in startups.

After creating a product, the most challenging aspect of making the company successful is not continuous rounds of funding, but rather building the sales organization, getting the product out to customers and driving revenue.

The AA-ISP conference was wholly devoted to this. In fact, it’s the first conference I’ve attended with this focus.

In my experience, sales is the most under-emphasized area of knowledge for the startup CEO.

For some strange reason, we are just supposed to understand the process, how to build the team, how to hire reps and managers and how to manage them.

We are supposed to be able to know how to hire people whose profession it is to sell, while being immune to their ability to make us like them and make us oblivious to their weaknesses.

They are professional sales people — this is what they do every day, and most of us just have no defenses or ability to properly identify a good sales person from a bad one.

I know this has certainly been one of my areas of failure in the past.

This conference should be attended by every B2B startup CEO – other than creating the product, this is the best way to learn and network with people who are in the business of selling, building sales teams and getting new products into the market.

This is the place to learn how they think and how to hire and collaborate with them. I’d say that this is a must attend conference for anyone who hasn’t built several B2B companies.

I highly recommend joining the AA-ISP to gain knowledge and save yourself a ton of pain.

Ever wonder what the old proverb, “the proof is in the pudding” means?

No? That’s good, because it has no meaning.

Why? Because the phrasing is incorrect.

The original proverb is: The proof of the pudding is in the eating. And what it meant was that you had to try out food to know whether it was good.

Startups are like that.

Creating them doesn’t prove anything.

Neither does customers trying them out.

Funding rounds proves even less.

Only when the public market or another corporation has the appetite to eat is the value proved.

Or is it?

Living Social and Groupon are proof that those appetites are fickle as a teen.

Square lost nearly half its value in its IPO (priced $6.46 below the last funding round) and now being actively shorted.

The true test is whether the appetite is sustainable.

Sustainable isn’t just a matter of price; share prices will always go up and down — that’s the nature of the beast.

It’s not even about profitable.

Sustainable means a business model that generates enough revenue to function, grow and innovate without requiring new/outside infusions of cash — like Amazon.

Flickr image credit: Ruth Hartnup

A Friday series exploring Startups and the people who make them go. Read all If the Shoe Fits posts here

Since 1996 founder/CEO Kevin Plank built Under Armour into a real billion dollar company that went in 2005.

Real because that billion dollars is revenue, i.e., money paid to the company in return for its products.

In other words, sales, as opposed to a great story told to investors so they will fund yet another round raising valuation, but not value.

During his talk at the iConic conference, Plank cited two serious misconceptions rampant among today’s founders.

1. Raising money at high valuations is equivalent to a successful business

2. Going public is a way for founders to cash out and ease up on intensity

His thoughts echo what Salesforce CEO Marc Benioff said at the Fortune Global Forum.

“They are being drawn in by these venture capitalists and private equity to take these huge amounts of money at these huge valuations. They cash out early, they buy these penthouses in the sky and then all of a sudden they’re trapped. They can’t go public because their last valuation would be higher than their public valuation.”

And Benihof sees value in an IPO that has nothing to do with losing intensity.

“Public markets are great for CEOs. You have to answer to the public market. You have to listen. You have to pay attention.”

Plank also offers a solution for cheap capital to fund growth.

“I think that the cheapest capital in the world is probably sitting in your inventory racks or the product you are trying to sell because, No. 1, it doesn’t require a board seat and doesn’t have an opinion to weigh in on what you are trying to do with your business. So use that as your capital. Go sell what you have, and go raise money.”

Granted, it’s a mundane solution, with no glitz and is unlikely to garner headlines in techland, but it works.

Kind of like getting your medical or law degree without student loans.

Image credit: HikingArtist

A Friday series exploring Startups and the people who make them go. Read all If the Shoe Fits posts here

You build an app that is greeted with raves.

You have 15 million installs and counting.

You have 36 talented, motivated employees.

You raise 35 million dollars from top investors, including Draper Fisher Jurvetson.

What’s your next step?

You shut it down before you run out of money.

Why?

Because you can’t identify a viable business model.

In short, you can’t figure out a way to generate revenue.

That’s what just happened to Everything.me.

The startup had seasoned founders and did everything right.

The investors were smart, savvy and experienced.

But one thing slipped by everyone’s radar.

No clear, or even murky, path to revenue.

Not profit.

You can live without profits, but you die without revenue.

Lesson learned: no vision/business plan is complete without a viable way to make money.

Image credit: HikingArtist