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Peter Clarke
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Re:
Peter Clarke   8/16/2013 2:08:25 PM
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@prabhakar

While i agree that some loss making may be necessary in some product or service introductions one must be wary.

All too often this is used as an excuse to pour good money after bad rather than addressing flaws in the business plan.

If you have a solid plan that justifies a quarter or even year of loss...but then profits thereafter there need to be metrics that show you are on course.

Otherwise it is easy to say "We are not making a profit because we are still in year 1 or year 2 and we are not meant to."

 

SimonBarker
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SimonBarker   8/16/2013 7:20:22 AM
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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.

prabhakar_deosthali
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prabhakar_deosthali   8/16/2013 6:48:54 AM
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I agree with all the points raised in this blog.

I would like to add some more.

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.

Peter Clarke
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Re: Revenue = Success
Peter Clarke   8/16/2013 5:01:20 AM
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There is also the the filtering effect of hindsight.

For every Google and Facebook that built usage first and then went after monetization there are probably tens of thousands of other software, internet startups that tried the same approach and failed.

And in a way ......usage is key indicator as much as sales..

Usage of www.google.com is a kind of sale at $0.......

Which Google then monetizes through Google Ads and other things.

 

chanj0
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Revenue = Success
chanj0   8/15/2013 3:00:20 PM
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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.



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