The other day I read an article on Entrepreneur titled, Why Startups Should Consider ‘The Bakery Model’ When Starting Out. It was essentially encouraging startup founders to try focusing on selling their products and/or services to fund their startups.
Novel idea, right?
But it’s not exactly a new concept. Actually, this is the model that has always been used in business. You have an idea. You create a product or service around that idea and put a price on it. You convince people to buy what you’re selling. If you do this well enough, you will find yourself with a business.
Yes that is a very oversimplified breakdown, but that doesn’t make it any less true. Businesses are created to sell products and services. But in today’s time of venture capitalists, angel investors, crowd funding and the like, the concept of simply selling something is fresh and inspired.
Or is it?
We are a microwave society. We want what we want when we want it.
The rise of the startup rock star has created dreams of millions in capital being bestowed upon the person with the next big tech or digital innovation. Everyone’s become quite familiar with the story of Mark Zuckerburg and Facebook. Mark became a very wealthy man as a result of his creation, and now his name is ubiquitous in the world of social media. Another popular story is that of the creators of Instagram, Kevin Systrom and Mike Krieger. The photo sharing app went live in October 2010 and by April 2012 had been acquired by Facebook, making Kevin and Mike millionaires.
It makes perfect sense that startups would become the next hot thing. In the past, the idea of starting a business was shrouded in the possibility of failure so only the stubborn and determined would try it. With “common” knowledge being that 9 out of 10 businesses ultimately fail, many people expect that most new businesses won’t be around for long. Now whether the “9 out of 10” is a number backed up by science or conjecture is another conversation entirely. The fact remains that the information is out there, and it affects how people view business ownership.
So when the concept of a startup became a popularized form of entrepreneurship, many people jumped on it. Hearing stories of simple but ground breaking technology that turn the creators into millionaires can cause even the most entrepreneurship-shy people to do some brainstorming with friends. I definitely get it.
But all of this talk about “overnight” millionaires and startup rock stars has caused everyone to forget one very important fact about starting and running a business.
You have to make money with the business.
Even if you do come up with a great idea and find someone interested in buying or investing in it, you will be asked how that idea is going to make money. The best way to demonstrate whether your idea is going to make money or not is to use it to actually make money. It’s that simple.
Yes, you can spend time building and developing something with the hopes that a multi-millionaire will discover it and give you lots of money to take it to market. But remember, for every Instagram there’s a Hipstamatic or a Camera+ that many people may have never heard of but are very similar to Instagram without the million dollar story line.
Don’t get me wrong. There’s absolutely nothing wrong with creating an idea that you hope to sell for millions one day, but realize that it may take years (not months) before that happens. And in the mean time, you may need to fund your business in other ways. Try selling something. Not only will you be able to prove to investors that your idea can produce an income, but you will be able to raise the funds to grow your business at the same time. Who says you can’t learn from the past?