Getting 10 million users may determine if your start up makes it or not. The world just shifted.

8 Aug

Holy crap. I’ve just  had the biggest ah-ha moment that I’ve been building a non-transactional business. SH!T, WHAT WAS I THINKING!  Let me back up.

If there’s one thing to know about me, it’s that I’m intuitive and my ability to switch direction mid-course when signs point to a new direction, often ignored by others who are committed to perfect horizontal execution, are hands down what keeps this company progressing. But, I just had a realization that it might not be enough to keep this company afloat. Because, we’re building a transaction-less business.

Skate to where the puck is going and not to where it’s been. How many times do I have to here this? Normally, I totally get the interpretation of this statement in technology design, consumer behavior, and even marketing. But, until now, I’ve totally missed the signals that business models are changing – from non-transactional to transactional. The pressure of competition has therefore skyrocketed the user numbers needed to prove a business model successful. It’s now 10 million.

A non-transactional business includes those that make money from ads, lead generation, or, worse yet, has yet to figure out a business model. Uhm, we fit this one. But we have been working overtime to…wait for it….make a change to “lead generation.”  Who knew, our brillent idea to follow a Mint.com model was really choosing an uphill battle. Why?  Let’s follow the money.  Looking at the latest cohort of Series A funding, there’s a new line in the sand for non-transactional businesses: a 10 million users minimum has now replaced the 1 million users benchmark of 2010.  That’s right, in 2 years the metrics needed for Series A funding has jumped 10 fold. The earth cracked and dozens of startup will fall through it.

Yes, it’s possible to still get funded even if you’ve not reached 10mm users. But again, this about skating to where the puck is going. And higher user numbers for these kind of businesses is the net. Reaching these numbers quickly is a the goal. Unless you have been fortunate enough to already have a strong active user base, it will be nearly impossible to get Series A funding on a transaction-less business that isn’t dubbed the new darling of the net with promise appeal that will result in cult-like user numbers quickly. Building a company, today, given this new world order has just became the highest hurdle a web-tech founder has ever had to jump. And well, even with all that right stuff and training, we’ve seen what happen to LoLo Jones in these Olympics: entered a star but will leave an also-ran.

So, what changes can we make to spare us the fate of competing with break-out non-transactional stars like Instagram and Pinterest? Become a transactional business. And that is exactly what’s happing in the Valley to startups that have lived by “we’ll figure the business model out later”, they are finding ways to make money from the transaction embedded in their core service. Revenue is not easy, so for now the benchmark is much lower. Just having cash coming in, even if small, trumps valuation for the low to mid total user-based companies.

What does that mean for us, who has no embedded transactions? We made a widget. It does a calculation. Although we think this calculation and its result is important, nothing tells us (yet) that the market will pay for it. So, now I’m afraid that unless we figure this out soon, we’ll be tossed into startup purgatory. We’ll be stuck between success and non-success; able to stay in business with bridge financing, but never becoming Series A worthy. Well, not until it’s way to late the the market has moved yet again.

This conundrum and many others like it that I encounter everyday is why I love being an entrepreneur. To survive, I have to figure it out. I’m happy to say that even before being able to articulate these points, my intuition kicked in. I knew something about how we were building this business wasn’t right. Now, realizations like this just make me more poised in my justification for pushing for a transactional based business.

In my 20% time, I’ve been working on just that.  I really want to hit that darn puck. I’m starting to skate that way.

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