Red is the new black
It seems only a blink of an eye ago we were all drowning in a global pandemic as financial markets buckled under the strain of debt.
Now it appears the dot-com space is simmering to the boil and serving up another tantalising distraction from reality. We have short memories.
Human beings are predictable creatures, attracted en masse to success, like a month to a flame. A Facebook valuation of $50 Billion, Groupon $25 Billion and Twitter (with no recorded profits) of $7.7 Billion and hey presto the space is abuzz again.
I dont mean to be a bearer of drab hearsay, but creating a dot-com-rocket as far as the average punter is concerned is like winning lottery ten times in a row. Fritter your dollars away on as many tickets as you like, but succeeding on that level is preposterous. No doubt it’s exhilarating trying, particularly if it’s not your money.
The fundamentals of a business must be exact for it to succeed long-term, and even so there are inherent risks and challenges that inhibit growth and profitability.
I’m a slave to the internet and I have a vested interest in it commercially. But, I am circumspect of any business, online or traditional, in idea or practice that is built on hyperbole, dubious expectations and no real profit.
Before investing your hard earned cash or taking a second mortgage on your house on the next big dot-com idea, take a moment to consider a few things:
(1) What’s the back-story of the people driving the business and their relevant experience? Being able to talk-it-up and arouse emotions from investors is not enough. What’s the substance driving commercial value?
(2) Is the business recording a profit? Even a tiny profit demonstrates promise. Throwing more money into a “red hole” often begets a deeper and more inflamed hole.
(3) Is this a hobby or a real business? Often people start a business will enjoy, which is admirable, just make sure there is a market demand first. Genuine passion and genuine demand should march together.
(4) Is the business scalable? This is a key advantage. Conversely, if the business relies heavily on too few people, it’s nothing more than owning a job with an expiry date.
(5) Have the people behind the business failed before? If not, that can be a warning sign they’re due. And it may suggest they’re hiding behind mistakes and haven’t learnt from them.
(6) How much money have the people behind the idea invested? If they aren’t liquid, what other sacrifices are they willing to make to demonstrate a commitment and be accountable? Side note: be wary of a start-up entrepreneur who demands hundreds of thousands of dollars in salary.
(7) What level of detail is in the plan? Granted plans often change on the ground, but a detailed plan shows a pledge to the cause and a willingness to think before acting.
(8) What are the risks to all parties? Avoid selling the farm too early if you’re the brains behind the idea. By the same token, as investor dont submit the business to unrealistic expectations and pressures by being too leveraged and anxious to get an ROI. Both are proven paths to frustration.
(9) Forget a public exit. I can name no less than three people that I know directly who have taken this path and failed, in doing so harming their wellbeing and reputation.
(10) Be prepared to walk away from the opportunity if your gut doesn’t feel right, this applies for both investor and entrepreneur. There will be others.
Start-ups fail for many reasons, none more telling than poor execution, unrealistic expectations and deals being done out of desperation instead of inspiration.
My dot-com forecast isn’t all boom and bust. This space is an exciting one and extraordinarily scalable and profitable. Not to mention sexy for investors.
In haste, make sure you’re not overlooking the fundamentals before investing, or leaving a paid salary to fulfil an entrepreneurial call, for the wrong reasons.
Inspire,
Trent Leyshan
