Part of the myth that surrounds successful businesses is the idea that a growing and popular company results from innovation, inspiration, or creativity. It doesn’t. Successful businesses learn early on there is no such thing as manufactured demand. Either customers want the product or they don’t. Every company that succeeds zeroes in on this fact early on. If they do not, the lack of sales dooms it.
However, once a company identifies their buying customers, startups can go from entrepreneur to IPO in a very short time. Here is a basic explanation of the process.
The classic startup race is revenue vs. burn rate. In the early days of the dot-com boom, for example, burn rate almost always won, because the companies racing to find large enough markets found they had to invent most of the infrastructure to support their operations. Only the companies with extreme long term growth plans like Microsoft, Apple, and Amazon made it through the years of losses until they found large enough markets beyond their initial surge.
One of the key strategies for fast acquisition of cash flow is to use capital to acquire crucial personnel and technology. Google is one of the best examples of this process. Building is far riskier and far more expensive than buying, as anyone in the resort business can tell you. It does have its benefits, of course, but few of those advantages translate into liquid cash dollars. Without cash flow, it makes no difference at all what you’re selling. You’re out of business before you ever get near profitability.
Even companies that get it right in their early years can drift off track and bleed themselves into receivership. It is absolutely crucial management understands exactly what they are selling and to whom. Without those key objectives carved in stone and then focused on with an industrial-strength laser, no amount of capital or expensive TV commercials will save the enterprise. The dot-com years were replete with organizations that went wildly off course and the results speak for themselves.
Once these initial steps are taken, an organization will likely find itself moving into a period of sustained revenue, profitability and opportunity. These are the things shareholders want to buy. This is the time when management has to be obsessively conservative, as the wrong decision or even a wrong perception can easily upend what will by then be years and years of competently executed hard work. It’s not easy, but it is possible, provided the right plan is in place on day one.