Not focusing on revenue – the F(l)ounders dilemma

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Being in Silicon Valley again after a few years away reminded me of the danger of taking business models from the US and transferring them to the UK.

Most US VC’s want to invest in things that are going to be big – and put money to work that supports this (their funds are usually quite large). They do this by betting early on success and following every round of investment of successful companies. It’s a great strategy but one that doesn’t particularly translate well to the UK (and Scotland especially)

The reason why it works is that there is a large wall of money that just isn’t available in the UK unless you are a absolute success (when you usually don’t need the money!)

But one of the cardinal sins I see is copying the “let’s grow users” and worry about monetisation later strategies.

Again this works very well in the US – only if you can prove that having large user bases can be monetised later (think Google, Facebook, Twitter). In general the market lead you are going to generate is worth sacrificing the short term reliance on revenue, but they are just deferring the day they are going to focus on revenue – and the growth better be HUGE!

The worse trap to get caught in is not focusing on revenue and not growing users – which I have seen quite a lot. You can’t be stuck in this path.

Also raising money isn’t always the sign of a successful company – in fact there are hundreds of companies that have raised large amounts of capital and then failed. Reading The Hard Things About Hard Things isn’t a bad introduction to this strategy

If you are based in the unique ecosystem of Silicon Valley then good for you – thinking about revenue later is a luxury of your location and access to capital. For the rest of us, let’s work out if anyone wants our product and the best way to do this is to charge for it!

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