15 points to reveal the “Launching a Startup is easy” myth. (2/15) – Make money to be able to make more money

Posted on August 4, 2008
Filed Under Internet tutorials

July 26 I wrote the first part of a series of posts that will reveal that saying “launching a startup is easy” is just a myth. Some media covered this posts and I was extremely happy to see that my site’s monthly bandwidth exceed within 48 hours. Today let me tell you about another key issue to be taken into consideration.

2. Make money to be able to make more money

This sounds like a very stupid advice, but in fact it isn’t. I have recently talked to a friend, who is a an investment director of a leading VC/PE company. He told that he was having problems because the companies he was investing in were losing money due to complete lack of revenues. Some of those projects were Web 2.0 startups, with very high hosting costs every month. Even though critical mass had been achieved he seemed to be unable to convert the considerable number of users his projects were able to achieve into real money. I told him that he could change this situation and start making money from day one. It’s simple:

A) Utilize ads starting from the very beginning.

If you want to start making money and if you have a website there is nothing more simple than using google, adbrite or any other similar system. If you have high traffic and readers that come to your site everyday or every week you will notice that they tend to utilize links on your ads section at least 5-10% of the times. It sounds bad, but in fact that’s an easy way to cover basic costs such as hosting, site management, etc. It’s hard to rely only on this kind of revenue, but it may easily represent 20-30% of your site’s financial results. A better way would be to focus on contextual ads only. If you launch a startup devoted to tourism, you are likely to find someone willing to click on links of travel agencies or airlines. So remember “context is the king”.

B) Find sponsors from the very first day.

Yes, it’s not easy, but you need to make an effort. Let’s imagine that you have a startup that requires few thousands dollars a month to be launched and maintained. If you have a steady source of income you can focus on the “conceptual” side of the business. It basically means that you will have time to think and rethink your content, without spending too much time on financial issues. This reminds me of some painters who want to be successful artists and businessmen at the same time. It can be done, but it’s not going to be efficient. Focus on what you are really good at: painting or accounting. It’s up to you, but never forget to choose only one of them.

C) Try to involve friends and people sharing similar interests.

If you manage to attract people who are enthusiastic about your projects you are likely to save money. Imagine how much it would have cost to hire millions of people who upload videos on youtube, millions, maybe billions of dollars. You can it done for free. Your enthusiasm should be contagious and make everyone feel proud to join the project. Motivation is the key, as you will see that many people will help you build huge projects almost for free.

D) Be original to attract media and save money.

A good strategy is to be controversial. Ryanair is a good example. How many times have you heard about advertisement campaigns that were very cheap, but allowed to let everyone know about a product. If you want to lose money: be boring and repetitive. If you want to make money: invent something that is totally ugly or attractive.