Nowadays, most of the START-UP news I read and hear is all likely about their success in obtaining a new round of funding in XYZ amount of dollars, with an objective so-called "SCALING" to expand their infrastructure, hire new talents and so forth, but rarely notice any startup has positive earnings since the very beginning in before their seeding stage. And the worst part is quite many of them not even solving any problem (business, social, political and so on) to improve the quality of living in present or future, but simply a replacement proposal of today's one in market -- nothing's extraordinary and we can't even call them a new 'Model'. Some idea is so poorly crafted, but conversely able to pitch off millions and millions of dollars from Venture Capitals (VC). And I guess I don't need to pull out any example to validate my point here (Wink wink... such as the magical blood examination device).
Back in the good old days when I studied business ethics in college, I was being taught that it's evil not to generate profit for your shareholders. Seemingly, what I learned wasn't right at all and doesn't apply to today's business. If my memory served me right, a fascinated number of Fortune 500 were bootstrapped for decades prior to fundraising from bankers, private equity investment or VC (There ain’t formally any VC before the Rockefeller family in 1938), so planning a 'Runway' wasn't even an option back then.
Like the Hon Hai Precision, also known as the maker of iPhone - Foxconn Technology Group, Mr. Terry Gou the Founder Chairman started his electrical components manufacturing business under a rented shed next to Tucheng jail in Taiwan by borrowing the first bucket funding of US$7,500 from his own mother. He planned that specific location was because of its convenience to enter in and out of the jail if he failed to pay his debt (Account Payable). The turning point came in 1980 when he traveled to the States with a red-eye flight, stayed at a $10 motel without food (he claimed the physical hunger will keep his mind sharp), and tried to strike the console joystick order from Atari. Of course, we don't need to review any further and already knew what happened next to him and his USD $130B+ empire.
Also on yesterday, I met with a cellular accessories distributor for my consultation service in eCommerce project and learned a great story how the immigrant owner started his $80M enterprise from $3,500 in 2+ decades ago, without any injection of external funding.
It's very awkward and disturbing for me to see startups burning the borrowed money (investment) like a steady stream from VCs to rent a flashy office, offer upscale dining venue, pay their staffs in 7 figures, and more unreasonable, in regardless of their profitability growth. On the other hand, I can't completely blame this type of misbehaviors are all being responsible by the startups. After all, this startup culture is nurtured and indulged by VCs because of the yearning and desperation of X times of ROI (VCs have all rights to withdraw from this type of irresponsible investment). Furthermore, crooks take advantage of their possession and infuse more bad blood into the capital system causing an irreversible side effect. Last year, many VCs got burned by cases in similar. Henceforth, this year situation gonna be more settled and VCs begin seriously evaluating startups not just from their concept and growth scalability, but from their profit sustainability first. Everything restarts from the fundamental business principle -- A good balance of revenue and profit.
Last but not least, to the startups, Social 'HYPE' is not equal to Social Proof. So, don't get overexcited about reaching the first 100K followers on FB, IG, SNAP or Pinterest. And valuation is nothing, but a number.
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