There is a myth in entrepreneurship that is killing startup after startup. It is a disease that has spread like wildfire through the Triangle. Entrepreneurs, both young and old, fall victim to it daily. FUNDING. That’s right, the idea of funding has absolutely destroyed entrepreneurship for so many individuals.
Okay now that you are paying attention, here’s more detail. Funding is not a measure of success. Too many companies are being measured on how much they raised or what round they closed. Who cares?! The more important things are what was your revenue? Profits? Who are your customers? These answers are much more telling of a company’s success rather then how much funding they have. I understand that certain industries have high capital needs, but software companies just don’t need the funding in most cases.
Any snake oil salesman can convince an “investor” to give them money (trust me I learned this first hand and walked away from the money). Find enough investors who don’t know what they are doing and you can raise a lot of money. You can have a horrible idea, no experience, and still get money. None of this matters though if you can’t convince a customer to give you money for your product or service.
Here’s how we fix this issue. STOP GLORIFYING FUNDING. Let’s focus on who has the best customers, the most revenue, and even the most profit! I would love to see articles written about “Company X has a customer retention rate of 97%”, instead of “Company X raised $500,000.” Until we begin to see this paradigm shift, the Triangle will continue to produce mediocre businesses on average (we have a few stud companies but most don’t stack up to competition from other areas). After all, customer’s funding your growth if the best market validation!
Feel like I’m crazy and don’t know what I’m talking about? Please share your thoughts in the comments below. I welcome educated discussion!
Mobile games have become very popular recently. From Draw Something to Words With Friends to Angry Birds, more and more users are adopting mobile game entertainment. Most people play the game and never think about how the gaming companies make money. There are a few common options:
-The company can make the user pay for the downloaded app
-The company doesn’t monetize the game at all (think Instagram for games)
-The company allows users to make in-app purchases (most common form of monetization)
Most apps are free so there is no barrier to adoption and allows users to flock to popular games. The smart companies realize that they have to create revenue so they seek to monetize the game in some form. That leaves us with in-app purchases (or upgrades) as the main source of revenue for gaming companies. Do enough people really make these purchases to keep the gaming company afloat though?
ABI just released a report that shows most people are unwilling to pay. According to TechCrunch approximately 70% of consumers pay “either nothing or very little.” They love free games but don’t love the applications enough to spend their hard earned money. So where does the revenue come from?
Gaming companies have become increasingly reliant on “whales.” These are individual users that spend large amounts of money on in-app purchases. “The highest-spending three percent of all app users account for nearly 20 percent of the total spend in the market” according to ABI and reported by Colleen Taylor. There have been reports of people spending over $100,000 on a single game. Yes….six figures to improve their performance in a mobile game. Simply amazing.
All these statistics tell us one thing: The gaming company is in trouble if it can not figure out how to get more users to spend money! Every business owner knows that it takes revenue and profit to run a business. Some companies are content with continually seeking venture funding but the good ones will create organic revenue streams. The obvious approach is to limit the free content of games or place more ads on the already cluttered mobile platform. Whether these attempts will be effective or not remains to be seen.
I am a huge child at heart so I admit I play different mobile games. I love the free content but have personally never spent a dime on this form of entertainment. Keep an eye on this industry over the next 6-12 months as I expect to see major innovations. What would you be willing to pay for? Have you ever spent money on any form of mobile game? Share your thoughts and insights below!
Yesterday Dave McClure and 500 Startups announced the addition of 4 new partners. They also are in the middle of raising a second round of funding around $50million. For those of you that do not know, Dave and his fund are about 2 years old and have a very unique approach to investing. They invest in about 100 startups a year and are looking for what I would call “mid-major” investments. Keep an eye on this fund as I believe they have a very bright future, especially in the international market.