I can almost picture it in my mind. Two seven-year olds are having a play date. Kids still do that right? One says to the other “Let’s play the startup game” OK! I’ll play the founder CEO and you can be the COO. Let’s pretend we invented this cool mobile phone app that EVERYONE wants to use. We’ll get some money from Mom and Dad and maybe even Uncle Jack, and then later on we can ask for more money from other people (who will be so excited!), and they can have a piece of our cool and successful company!
Big sister overhears them talking and they ask her if she wants to play too. She declines to join in their silly game but wanting to be helpful (after all big sisters are nothing if not helpful), she asks a few questions.
“ Um, before you get started, why will people want to keep using your cool app?”
“How long do you expect people to continue to use the app?”
“Will people buy the app or will it be a monthly subscription”
“Do you have an idea all the ways you think you can make money?”
“ What happens if things don’t go well and you have to fire all the people that came to work there?”
I could go on. And on. The startup world is the new “It” girl. Everyone wants in because it seems so cool to think of an idea, come up with a way to get it to market and see how it grows! You get to be the boss – or at least you and your friends and colleagues, and most importantly you have passion and dedication! All you need is a little luck, a few bucks, and you are acting on your dream!
You can read about startup companies all day, every day. Yesterday TechCrunch Disrupt NY served up the winner Beam http://techcrunch.com/2016/05/11/beam-wins-techcrunch-disrupt-ny-2016/ of this year’s New York City Startup Battlefield competition. You can read about the business model yourself and I think it is interesting and would want to know more.
An article in the Thursday May 12 Wall Street Journal caught my eye, Venture Capital Slowdown Hits Asian Startups and it is a poignant reminder that so many startups fail to do the heavy lifting of truly fleshing out their business model. Not to pick on Mr. Yin and it does not matter if it is China, India, the United States or somewhere else.
From the WSJ article:
In early February, Yin Sang, a prominent Chinese entrepreneur, sent an email to all 600 employees at his karaoke-booking startup: His firm was running out of money after failing to raise funds and wouldn’t be able to pay staff salaries.
“Our cash flow is almost zero,” the 23-year-old chief executive of Yiqi Chang wrote in the email, reviewed by The Wall Street Journal. “Our company is in a crisis.”
A year ago, Mr. Yin’s Shanghai-based startup was valued at more than $100 million and, in 2014, he made Forbes China’s list of the 30 most successful Chinese entrepreneurs under the age of 30.
The reversal of Mr. Yin’s fortunes underscores a new reality for many startup founders across Asia: venture capitalists are hitting the brakes on funding. In recent years, investors flocked to Asia—home to the world’s biggest number of mobile users—as its startup scene boomed. Now they are spooked by weakness in the global economy, volatility in China’s stock market and slumping investments in Silicon Valley amid talk of a tech bubble.
The result for founders is growing investor scrutiny, protracted fundraising discussions, and downward pressure on startup valuations, entrepreneurs and venture capitalists say. Some startups are shutting down altogether while others are laying off workers, cutting costs and moving away from business models that burned through cash to attract users.
The close of the article sums it all up:
Even so, many startups are making drastic changes in the harsher climate.
Mr. Yin, the karaoke startup founder, has cut his firm’s payroll from 600 to 200 in the past three months. Yiqi Chang, which means “sing together” in English, is trying to break even and now operates in just six cities, compared with 20 in January, he said in an interview. The company has also secured some loans.
“A year ago, we thought we could always raise more money,” Mr. Yin said. “Now, we have to survive on our own.”
I would not expect Mr. Yin to receive much sympathy from most people. I also want to wish him luck and success. Coming up with a cool idea is, well, cool. Starting versus maintaining a company are vastly different things I can tell you from experience. Mr. Yin knows that too now.
Back to our two seven-year olds after hearing big sister drone on. One says to the other “You know what? Let’s not play that stupid game. Wanna play Xbox?”