Om Malik sent me a link to an article that got me thinking. It’s an article called “It’s all in the numbers,” written by Basab Pradhan, who’s CEO of Gridstone Research, “which delivers comprehensive data and analysis on public companies to investment professionals on a subscription-based platform,” according to the tagline.
The article talks about the challenges and intricacies of developing a budget in the startup environment. I can tell you: “it’s hard.” There are always new, hidden costs. Especially when you’re in video content.
But there’s something in the article that caught my attention:
Your primary tool is your budget. The most important purpose of a budget is to forecast cash flows. It is easy to become lax about forecasts, especially beyond the next quarter, since there is so much uncertainty in the early stages of your business. You might be asking yourself: “How do I forecast revenue when I haven’t sold anything yet!?’ But the absence of revenue is not a good enough reason to leave a revenue line out of your budget.
Maybe it’s just me, but that last line is C-R-A-Z-Y, symptomatic of Silicon Valley culture where revenues and profits are a nice to have, and not a need to have. Of course, with VC funding to burn, you might not need to develop your revenue streams, but that’s crazy talk, every company needs to understand who will pay for their services, products.
When I worked in search in 2000, we were one of the first three meta-search engines and adopted the paid click model. Overture was the leader in the space, and the challenge really, was that consumers were not really accustomed to paid ads. I was not in sales then, so I had no pull, but our company went with paid inclusion, the tactic of including paid ads within organic results. Quickly we changed that (but by then I was long gone from the company) and ran ads alongside the organic ads, where we are now fully accustomed to it (after Google began to run with the market).
But the point is: we knew we could not sit still and simply build an audience, with no revenues.
When I left search, I moved into online publishing of text content in arguably the worst ad environment since the Great Depression. No one, and I mean no one was advertising online.
But again, with $500,000 of VC in the bank - and having depleted half of it - we were on pace to go out of money in a few quarters, so at that point I put on the sales hat and started to make money in any way possible.
We remained ethical, trying not to blur editorial lines with advertising, but we did have to be original and one way was to offer some clients advertorials. This was not the bulk of revenue, most of that was in good old fashion banners, text links, etc. But we did have to pull out all of the stunts for some clients, and sometimes that meant an advertorial. Of course, we ensured that users would get a lot of value out it. And to do that, it was actually 90% informational, but say for Merck’s Propecia, we’d talk about cause of hair loss, myths of hair loss, natural ways (healthy diet, exercise, reduce stress) and then even encouraged people not to care about it… but that if they really wanted to do something about it, they had choices, including hair transplants, topical medicines (Rogaine) as well as pills such as Proprecia. We’d then give you all of the reasons not to take anything, but would admit that the article was brought to you in part by Propecia. To really protect our butts, we’d even say that within a few years there would be more options… so don’t rush into taking Propecia (for example).
It was no different at my new company WatchMojo.com. In 2006, I did some custom video work, some consulting. We did not technically need to, but it got me into many important networks and allowed us to showcase our stuff. By 2007, we had built up our audience and began to sell advertising. Now we’re far more selctive in our custom video work, but the point is, even if I have $10M in the bank that I could do what I want with, I’d always be thinking of how can I generate revenue and improve what we do.
The key in the custom work, is that it got us to up our quality on WatchMojo.com. I’ve always, doing is more important than you think. I talk a lot. My former partners always said I had a big mouth, but the difference was that I backed it with actions with tangible results. When you force yourself to generate revenue, you can take shortcuts which hurt you, or you can take the high road and improve what you do. Even in the Propecia example, the output was a very good article on hair loss, informative etc. It also forced us to ensure it was highly accurate etc., because we knew it would get scrutinized.
But, the point was, we knew we could not sit still and do nothing. So the concept of “put in a revenue line even if you don’t know what that is” is rather foolish with all due respect to Mr. Pradhan.
Every day, no matter how long I actually spend in the file, I log into my dashboard and see revenue, what is booked, what is in the pipeline, what is realistic. I force myself to look at both the revenue and costs of the company to gauge the wisdom in running the business.
Don’t get me wrong, most of the explosive startups of the Web never showed much, if any revenue, but the fact remains, running a business with no consideration for revenues is a time-tested recipe for disaster.
Now, I know what you’re thinking, what about the audience? the technology? the content? the expertise? etc.
Yes, those are all nice and dandy, and 1 company out of 1,000 might succeed based on one of those things, but a lot of companies never get acquired, or miss an opportunity to merge etc., and have to remain self-sufficient.
The day you go into business, you have to be very clear about who will eventually be sending you checks. You can get as creative as you want about how that will happen, but it better be a matter of when and not if.
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