Entrepreneur Beginners Guide
“Focus on Building Revenue”
My revenue was $4 million my first year in business, off of one $20 item. —Sara Blakely, billionaire, founder of Spanx
I attended an angel group meeting where my friend presented. His technology company, funded by the angel group, gave a brief up-date on the company’s progress and took questions from the members of the angel group. A few years before this follow-up meeting, his company had received almost a $10 million investment by angels to spur rapid growth. Because of its unique business model and underlying patented technology, the company had tremendous promise, or at least that’s what we thought until a candid question prompted an unsettling revelation.
During the five-minute presentation, my friend talked primarily about the impressive amount of earned media or free press that the company had received. It was featured in international and national media, ranging from print news to television. In fact, it was featured on a popular late-night television show that was a perfect fit for the target consumer it was attempting to reach.
The large amount of coverage the company received was great, but I thought it was a bit odd that the presentation was so focused on press coverage and not much else. I became very skeptical about the business’s measurable progress. Apparently, the angels in the room shared my uneasiness. One of the angels addressed the concerns directly during the question and answer part of the presentation: “What are your revenues?”
There was an eerie silence in the room.
A normally poised and coherent CEO, my friend hesitated to answer the question. He was a bit stunned. His blank facial expression foreshadowed what happened, next. After a poor introduction to his answer to mitigate the circumstances, he said sheepishly, “Around $5,000 a month.” After his answer, I looked around the room at the faces of the angels, who are each high-net-worth individuals and are veteran investors who have seen it all. They all looked unimpressed as my friend rambled on, trying to draw attention away from the low numbers. Like I did, the angels sensed that the CEO was emphasizing the publicity his company received to cloak or to undermine the fact that his revenues were abysmal. I thought to myself that it was only a matter of time before his company went under or was acquired.
Not even the trillions of impressions received from a massive publicity campaign can hide the fact that you have poor sales. A company without sales is headed out of business or is really not even in business. In general, companies prove their viability through sales and indicate their level of success through profit. Technology companies are often an exception to this rule in the short tenn—as they may build value through increasing their user base, for example-but even these companies must show that they have true value by producing revenue.
Barbara Corcoran, a real-estate tycoon and angel investor known for her role on the television show Shark Tank said, “No sales equals no value to an investor.” On her hit show, entrepreneurs frequently have the same stunned face that my friend had when investors asked about revenue. Ironically, the entrepreneurs who have strong pitches proactively declare their revenue while those who have weak pitches timidly hide their revenue. I often find myself talking to the television when I watch Shark Tank, saying, “All of that is great, but what are your sales?” The sharks normally ask the same thing, which emphasizes that eritrepreneurs should be focused on building revenue to increase their chances of an investment. Rarely do angels or venture capitalists invest in companies solely on the attractiveness of an idea.
The phrase attributed to champion boxer Joe Louis is quite applicable to business when it comes to facing the inevitable matter of revenues: “You can run, but you can’t hide.” The revenue question always finds an-entrepreneur, as my friend learned in an embarrassing way. He was running and trying to hide by emphasizing the wide acclaim that his company had received only to be gutted by the humbling revenue question. Investors didn’t fall for his sleight of hand. They knew that publicity doesn’t always translate into sales. It turns out that the angel investors were right on the money, literally. When I came up with the idea for writing this segment, I did a quick search on my friend’s company. The tech company had just shut its doors and its supporting angel group cut its losses.
Entrepreneurs who ignore the revenue question only hurt themselves by overlooking the obvious. The best entrepreneurs ask the revenue question every day and focus on building value through sales. Everything else is less important.