Why You Shouldn't Bash Startups For Raising Millions Of Dollars While Making No Money
Steve Kovach/Business Insider
When consumer startups like Foursquare, Snapchat and Instagram raise millions of dollars without generating much (or any) revenue, people tend to flip out.
"But they don't make money! How will they ever make money?!" critics want to know.
If you've ever wondered that, Greylock Principal Josh Elman says you've been demanding an answer to the wrong question.
"The primary challenge with building a large consumer company is not 'how will you make money,' but 'how do you get to be a long-standing durable network and define a new set of behaviors or verbs?'” Elman writes on Medium.
In addition, he asks the following four questions to make sure a startup isn't just a "flash-in-the-pan":
Is there a new behavior here that you can see 100M+ people doing?
Is the product evolving in a way where people are getting more and more engaged and committed over time?
Will the growth be sustainable?
If the product succeeds at scale, can you monetize the key behaviors?
"If you believe that the behavior can be big, and can grow big, then you’ve answered the biggest questions," writes Elman. "But once you have that, it is a good idea to gut check whether at scale there will be enough of the primary use case and behavior that can be monetized in a meaningful way."
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