Having worked in the digital space for few years now, being involved both with big companies (such as Google) and in much smaller ones (like my startup CircleMe, but also in few others where I am a shareholder and/or advisor), I have often heard statements that seem the “panacea” to all problems. People ‘evangelize’ left and right about the secret sauce to a digital startup’s unicorn-like success. [I am still looking for a good term for these guru-like statements, which could help all of us keep safe from them. I am open to suggestions if you have a good term. 😉 ]
Anyway, while any common-sense person who has experienced first-hand the challenges, complexities and randomicity of a company’s evolution will easily know to stay far from such beliefs, I think it might still be helpful to share my view on few of these ‘guru statements’ that are dangerous for the ones who, with much dedication and hard work, try to succeed in their profession in the digital space.
In this post I will just start with just two of these ‘guru-like’ statements which make me shiver every time I hear them (the first one applies specifically to digital, while the second one is actually pretty generic to any entrepreneurial venture). I will write more in future posts, but let’s keep things easy to ready.
Here it goes…
1) Traffic will lead to Monetization
I am sure most of us who launched a site or a mobile app have heard this statement from a bunch of folks. Well, this might have been true 5-7 years ago, when monetization was very much correlated and relatively-proportional to advertising dollars being spent on your site. One thousand views of a specific banner on your website (i.e., CPM’s) could probably be valued a few bucks, regardless of what engagement, loyalty or action would these views generate. But in the last years we moved far away from this ‘trivial’ methods of monetization. [Just for clarity, of course you can still generate some revenues from traffic (regardless of type and quality), but certainly traffic alone will not ensure sustainability of your business and often will not even enable you to pay partially the bills related to your company’s operating costs.] Surely you can also create a cash-generating machine that will just focus on attracting any type of traffic to your site and for the most diverse (or even irrelevant) reasons: but these are specific types of businesses, with their rules, characteristics and even arguable ethical standards. Yet, not all digital business will survive (let alone, be profitable) just on traffic conditions.
Today, you need to do two things: on the buying side (people who invest in communication, marketing and advertising online) you need to understand what is behind those numbers and statistics that site/apps managers sell to you as “traffic”; on the sale side (people who run sites on the web and/or developed mobile apps), you need to make sure you know how to value your users, as this is the first step to ‘sell’ each user and every one of his/her characteristics and profile details as best possible. The fact that we are moving away from simple CPM/CPC considerations is natural and positive. This is in fact a natural evolution of the economics as the Internet businesses mature and get more knowledgeable, hence destroying less value for business while they generate more value for users of apps and services.
2 ) You must have an exit strategy
There are two main flaws in this statement, and they are specular and interwoven. The first flaw is identified by first realizing that the success of a business is given first and foremost by the value this business creates for people and the consequential surplus that this value creates for the business owners (in short, its profits). The success of a business is in this net positive value-creation, and only this outcome can motivate others to allow the founder to exit from the business (through an IPO, an assets sale, an acquisition, etc.). Would the business lack in any type of value-creation, an exit strategy would be completely useless (while of course an ‘exit’ would be more than desired!). Creating an “exit strategy” is like deciding to be successful after the market has confirmed that you are indeed successful in what you do. Duh.
The second flaw is specular to the first one: you can in fact consider this guru-like statement such an obvious consideration that it is likely not worth the mention, hence the validation. Any entrepreneur aims to have success with their business, and this implies that either the business will continue to add value to its ‘customers’ and in the process generate a surplus for its stakeholders (hence growing organically, with the same number or more stake/shareholders), or it will find a way to generate better surplus to other businesses (i.e., exiting somewhat the current business, but to allow other businesses to ‘stay’ stronger in the field they operate – hence the opposite of an ‘exit strategy’ for them). In short, an exit strategy could be considered a strategy to fail, or to have someone else not fail.
BONUS POINT: To this couple of conceptual flaws, we could easily make numerous examples of situations in which exits have not been a sign of success for businesses, but rather the opposite. We can look back few days and find an interesting example of an ‘exit’ that certainly did not imply any type of positive outcome for founders or investors in the news (e.g., Gilt being sold to Hudson’s Bay Co for $250M, a small fraction of its latest unicorn-like valuation).
The point seems simpler than the guru-like statement: there is no need for an exit strategy for a business to be successful, because the fact that the business is ‘healthy’ will in fact determine its “exit” or lack thereof, necessarily.
Frankly, I tend to believe that, more than an “Exit Strategy”, entrepreneurs should think with more depth about the implementation of a “Stay-In Strategy”, which will push them to make their business successful, no matter what, showing to any other party that they believe strongly in the value of what their business is creating.
I have no doubt that many of you who have ventured into the tough world of entrepreneurship and who have not remained segregated in your ‘garage’ for the past years (even though many times I ponder if that actually would have been a better move), have probably come across these and many other guru-like statements. Probably these statements even even made you wonder for a split-second: “Ah, perhaps that is what I need to do… to become a billionaire!”. I would be curious to hear your take on these two statements or any other one; feel free to write the sentences you love/hate the most in the comments. I will not shy-away from giving you my opinion on them.
Time to go back to hard work. I am sure the only ‘exit strategy’ I will follow will be the Logout one at the end of the day. 😉