Caterpillar Cowboy

There seem to be two kinds of startup companies. The first understands this concept and knows going in exactly what they are going to sell, to who, what they hope to sell it for, their hoped for margins and just as importantly, who will sell it and how. When they model their business, they model the least expensive way to get into and stay in business with the focus on reaching profitability within months rather than years.  They aren’t modeling in an exit strategy. They recognize that any company that is profitable gives them choices. They can meximize their ownership percentages. They can pay themselves an amount commensurate with their profitability. They can go public. Or they can sell.  Profits provide choice.

The 2nd kind of startup relies purely on financial models to justify their future revenue streams.  They create a company hoping to generate enough volume in whatever it is they hope to sell around, traffic, users,  whatever. The goal is to then find a way to monetize all the volume or to execute on an exit strategy. They spend a ton of time playing with spreadsheet models. They are experts at plugging in CPMs, pageviews, unique users, sell through rates.  They also know how to list “comps”. Companies that they hope to emulate and if they have only some subset of their success will more than generate enough revenue to fulfill their exit strategy. They are projection warriors.  Perfectly reasonable, right ? Right, if you understand the reasoning of the people who fund these types of startups.