A bullfighter learns a lesson the hard way
News startup, The Messenger, is fighting for its life, according to media reports. Unless it gets $50 million by the end of the week, it could fail.
This is not the first unicorn dream that has ended in the dustbin of venture capital. Given that 94% of billion-dollar entrepreneurs took off without VC and 76% avoided it altogether, here are 7 lessons for entrepreneurs in order to improve their odds of building a unicorn and not be reliant on the VC model that is flawed for 99,980 ventures out of 100,000.
#1. Decide whether you want to walk a tight rope or be finance smart.
Finance smart means that you do not have to rely on the “kindness of strangers.” You find your opportunity and develop your strategy to take off without VC, and then you finance it with a mix of internal cash flow and finance-smart capital you can control. You also invest on your strategic edge and bootstrap elsewhere. Jimmy Finkelstein of The Messenger did not follow this agenda.
#2. Make the VCs come to you.
Mark Zuckerberg and Jan Koum became extraordinarily wealthy because they took off with limited capital from family, friends, and angels. Jan Koum reached hundreds of millions in revenues with very limited angel capital. That is when the VCs came to them. Jimmy Finkelstein, the CEO, is said to be working on “multiple deals.” When you are begging for bucks, the ones with the bucks take advantage.
#3. Do not fake it because you may not make it.
The Messenger’s data is being called into question. Finkelstein’s timing is not right. The memories of Sam Bankman-Fried and Elizabeth Holmes are still fresh in investors’ minds, and there is a strong smell of suspicion in the air. The Messenger’s site seems to have garnered only 12.5 million unique visitors in November – more than a little short of the claimed number of 100 million.
#4. Tech startup or media startup – ask the right question.
According to some, The Messenger is not an attractive investment for VC because it’s a media startup and not a tech startup. But wasn’t Yahoo.com a media startup and a tech startup? What counts is the stage of the industry. When Yahoo.com was started, the Internet was just emerging, which allowed disruptive tech-media startups to jump on the emerging Internet trend and dominate the new medium. Now the Internet is mature and there are many tech-media companies that are competing for the same eyeballs and the same ad dollar, which affects the chances of success. Entrepreneurs should understand the stage of their trend. If it is emerging, they stand a better chance of beating incumbents to build a unicorn.
#5. Find the unmet need on the emerging trend.
The Messenger seems to be a political site to promote one person. Is this an unmet need? Will people rush to the site to read about the subject? Will the subject who is promoted pay or invest to operate the site? Is there a big enough market of potential “customers” who are not satisfied with the existing outlets carrying information about the politician? It is difficult to beat entrenched companies without an unmet need and an emerging trend. Zuckerberg beat MySpace by focusing on the unmet need among students to link up. The Messenger’s focus does not seem to be an unmet need.
#6. Use a finance-smart strategy on the emerging trend.
Most billion-dollar entrepreneurs use a finance-smart strategy to dominate with less. The Messenger’s strategy and execution show few signs of being finance-smart. Spending more than $40 million to earn $3.8 million in revenues is not finance-smart. Having offices in New York, Washington DC, and Palm Beach that cost $240,000 per month to generate about $300,000 per month in revenues is not bootstrapping and not finance-smart.
#7. Try to avoid multiple rounds of VC.
Entrepreneurs who reduce their needs for more rounds of VC improve their chances of staying as a leader, and reduce dilution. This means learning how to use each dollar raised for maximum impact, and not wasting expensive capital.
MY TAKE: Showing off without substance is a dangerous strategy for an entrepreneur. The Messenger seems to have excelled at it.
