Tuesday 18 May 2010

Are you creating value for your users?

Is your business making money? It's a very straightforward questions to which you can answer with a "Yes", "No" and "Well,yes, kinda"! If the answer is "Yes", the deduction is fairly straightforward. However, there can be various ways of making money, the subquestion might be:"Is it making money with the actual operation?" If you can answer with Yes for the second time, you're golden. You then just worry about growth (if you want one) and sustainability of the model. You're a candidate for a late stage investors. The ones who finance sustainable business. 

If you answer with "Well, yes, kind" it begs for the second question: "So how you make money?" Answer are often: selling coding services to some clients, government grants (particularly popular with European startups) ... and similar. In that case, the key question is: "What do you plan to do in  the future". If you plan to sustain that kind of financing you should get out of sight of investors. Because you have no business model, you're just hedging your inability to build a sustainable business. This might not be bad, as long as you're aware of it and happy with it. You're building a lifestyle business. Not interesting to investors. 

If you're answer is "No" it might not be as bad as you think. Here the two subquestions kick in: "Do you have any revenue?" if the answer is Yes, it's great to have it from your clients by selling your core service/product, and it really helps if it's growing. The second and in my opinion the most important questions to ask is "Are you creating value for your users?" Here you have to have a good answer! If you are creating value for your users, chances are that sooner or later you're going to figure out how to money out of it. And early stage investors will start to pay attention. If your answers are sound and interesting, your chances of success will increase exponentially

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