Don’t Raise Money. Make Money!
by Aner Ravon

The unanimous ‘word on the street’ is that recession is ahead and the social media is filled with ‘advice’ for web 2.0 start-up-ists on how to get through the storm. The most common (some would say irritating) advice is “Raise a lot of quickly! The gate is about to close!”.

Err…Great advice! Duh! Do you personally know any company that would say no to a big financial infusion right now? Web start ups that measure themselves in terms of ‘traction’ and ‘growth’ need venture money for survival. But the current problem is not with the desire for money but with the state of the feeding hand. When bull turns to bear the hand tightens and the ’Raise now’ chant becomes totally obsolete. As a matter of fact, it may even divert attention towards an endless street, causing more harm than good.

So what can you do? Well, to start with there’s an easy way to avoid dependence on VC money and that is to simply not need it. When you actually earn money your dependence on external financial sources is no longer vital for your survival. However when you do need survival money you’ll find it to be the most expensive money on earth. The logical conclusion is to become profitable at the earliest possible stage. Simple, isn’t it?

I know, it’s pretty difficult for a 3 person start up to become profitable as a result of a decision, before having developed groundbreaking technology o a critical mass of eyeballs. Still, the foundation of every business is with its ability to create value that can be measured in hard currency. Many web companies managed to postpone that part and to raise significant funding based on some promise for traffic that would eventually be monetized. Others banked on some innovative technology that would eventually be worth a lot to someone. Most of these companies are slightly more comfortable at this very moment, but will realize the meaning of life at a later stage and will have a very tough time adjusting. Earlier is better.

So how can you turn your web 2.0 business to a profitable one?

First, you need to stop thinking in terms of raising VC money. As a matter of fact, imagine you have already raised the last penny you would ever raise. Once you get over the panic stage, start working your brain towards getting out of such a mess. Does this mean the end of the road for you? If so, quit now. If you find this new curve ball motivating then you’re probably made of the right stuff.

The next step is to let go of your start up ego. Yeah, your service is groundbreaking, your technology is superb, your user experience is flawless, but chances are you’ll profit from the most unexpected angles of your efforts. Some unique piece of knowledge here and a bit of cunning technology there, everything someone would pay for should get priority. Don’t fear diversion from your roadmap. The sad truth is that nobody cares about your roadmap but yourselves. Most of your innovation will never be used regardless of your success, so why not stick to what makes money at the very beginning?

Last but not least, stop thinking in terms of an exit. Don’t pretend to be a venture capitalist, you’re not. You read about exits everyday and you tend to forget that this type of success is mostly random. The excitement from growing user bases is wearing off and web technologies were never considered big assets anyway. A profitable company, on the other hand, is always attractive. Sequoia asked you to come back with a billion dollar market opportunity? Let it go, there isn’t any, they should look someplace else. Don’t worry, as founders of a profitable company you’ll have no problem raising, not even at times of recession.

Aner Ravon
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