What Entrepreneurs Should Know First
Remember Webvan? It was a dot com company that eventually went bankrupt in 2001. It made one of the classic mistakes in business:
While Webvan was popular, the money spent on infrastructure far exceeded sales growth, and the company eventually ran out of money. For example: Webvan placed a $1 billion (USD) order with engineering company Bechtel to build its warehouses, bought a fleet of delivery trucks, purchased 30 Sun Microsystems Enterprise 4500 servers, dozens of Compaq ProLiant computers and several Cisco Systems model 7513 and 7507 routers, as well as more than 80 21-inch ViewSonic color monitors and at least 115 Herman Miller Aeron chairs (at over $800 each)
In short, webvan spent too much for something they didn’t need yet.
Entrepreneurs (like you and me) sometimes make the same mistake. We spend too much time developing our product and infrastructure.
Webvan went too deep into development. It wasted billions on computers, hardware and $800 chairs. Eventually, it became one of the greatest dotcom disasters in history.
What went wrong? Why did Webvan close?
Let’s compare it with another story.
In 2006, a British student needed money for school.
Alex Tew lay on his bed in his family home in Cricklade, Wiltshire. It was time for his nightly brainstorming session.
The problem was his finances. The first thing he wrote in his pad was “How can I become a millionaire?” Twenty minutes later, the Million Dollar Homepage idea was born. -BBC
Alex Tew did something right. He had a simple product – a website and its PIXEL spaces.
Launched on August 26 2005, the website MillionDollarHomepage.com is said to have generated a gross income of $1,037,100.
He sold pixel space to friends and family first. Eventually, he ran a Press Release. It caught on. He made more money.
Three days after the site began operation, Tew made his first sale. An online music website bought 400 pixels in a 20×20 block. After seven days he had sold 900 pixels, and another 4700 pixels a week later. Tew initially planned not to market the site, instead allowing it to become known by word of mouth; however, he used his first $1,000 to pay for a press release that was picked up by the BBC.
Alex focused on what was important for entrepreneurs – selling.
Compare how Webvan and Alex spent their money.
If you ever have some money to spend, buy a book (or Audiobook) by Michael Masterson entitled
Ready, Fire, Aim: Zero to 00 Million in No Time Flat (Agora Series)
Michael describes what businesses at its infancy stage go through:
Main Problem: You dont really know what you are doing.
Main Challenge: Making the first profitable Sale.
Main Opportunity: Achieving a minimum critical mass of customers.
The main point – SELL First. Learn from your selling experience. Get to your business tipping point quickly. That’s what entrepreneurs need to do for their fledging businesses.
MORE: If you want to go into a simple business, try webhosting. It’s pretty simple and and easy to start. You don’t need to pay $100-300 for reseller services or manage the daily operational problems (like Godaddy or Gatorhosting).
Thanks for this great post. I also found Masterson’s RFA book really helpful as it pointed out many mistakes I have had. He really elaborates on his thesis on “the supremacy of selling” rather than focusing on the dream of calling all the shots as a big boss of your own business.
In relation, it was very useful to read his concept on imitating first before innovating and micro testing the market, which are counter intuitive for a lot of entrepreneurs who get too excited (like myself).
Even with startup clients which we help with the drudgery of biz paperwork, I ask them upfront if they have already sold their services or products (not just to family and friends) and advice them to do so before spending so much on setting up the whole business.
Hi Dart! How’s business?
Could be much better if I borrow your head. Hehe.
All the best to you! Your blog is an inspiration for many.
LOL. Thanks though.
Sell *and create*. Create and sell. I agree with the need to sell, but actual substance is important. Build value.