Selling at a loss, while it may seem an attractive way to penetrate the market can back fire. Firstly it is very difficult to raise your price once you've sold x thousand at a cheaper price - try telling your distributors and retaillers that they need to pay more, they won't be happy. Instead you should look to have a small margin and increase it with cost savings through scale - a subtle difference but an important one.
Also, a knock on effect of being profitable as early as you can is that you can get better investors - by that I mean customers. While VC investment is all well and good, there is no better money than that from a customer in the form of a sale and its profit.
When a new company tries to sell its product in the market, it should not expect to make profit right away. To be able to penetrate the market you have to offer your product at a very attractive price even though at certain loss to you. That loss should be counted as advertising expenses. Once the product gets entrenched into the market and the required market pull for your product gets created , you can always start selling your product at premium price.
But this means you should have pockets deep enough to absorb those initial losses and also conviction that your product is finally going to win the market.
No doubt revenue will drive startup to next stage, towards profitability. Without enough revenue for a too long of a period of time means only 1 thing, the fall of the company. I very much enjoy and appreciate the points that Barker raises. To wannabe entrepreneur, all those questions shall be answered prior to launching a startup business. You may argue Google and Facebook didn't have a clear path to revenue until a lot later time. It might look like so. The main difference to most other business is Google and Facebook are launching a new kind of product/ service. They had yet figured out the business model and more importantly, their revenue is heavily relying on the information in the Internet. The information will value more with time. For most startup, the scenario of Google and Facebook will not be applicable. Nowaday, even if you are trying to launch similar business, you may still want to examine the questions that Barker raises. The nature of enterpreneurship is uncertainty. Yet the more certainty you have found; the better chance you will have. Read the questions, study them. If you have come up more questions to develop certainty, I have my ears up.
As we unveil EE Times’ 2015 Silicon 60 list, journalist & Silicon 60 researcher Peter Clarke hosts a conversation on startups in the electronics industry. Panelists Dan Armbrust (investment firm Silicon Catalyst), Andrew Kau (venture capital firm Walden International), and Stan Boland (successful serial entrepreneur, former CEO of Neul, Icera) join in the live debate.