What? We Need to Make Money?

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The New York Times recently detailed the challenges facing entrepreneurs in 2013. The article points out that almost everyone is sombering up from all the hype. Even the much vaunted mobile wave cannot lift people’s spirit. “There was so much hype around the transition to mobile, but people are realizing that mobile is challenging,”

Some industry insiders believe what we are witnessing is an end of an era. “Earlier, entrepreneurs didn’t need a real monetization strategy” , they could attract money (and lots of it) by proving it could garner revenue or demonstrate growth,. In extreme cases, a startup only need to show promise and spin a tale before money comes in hand over fist.And then, the company could live off VC’s fund indefinitely.

But to quote Cutty from The Wire, the game done changed. The Times listed four reasons for this:

1. The promise is always bigger than the reward.

All the big boys have either crashed or disappointed. Facebook has potential, but it probably won’t justify its valuation of $100 billion. Zynga made money, but it was unsustainable. If they couldn’t make it, who could?

2. Growth is nice and dandy, but there is no light at the end of the tunnel.

Armed with $220 million war chest and a glittering reputation, the Gilt Groupe is perfect except for one tiny detail: it can’t seem to make money. “Last year, the company was forced to cut staff. It is scaling back on smaller brands like Gilt Taste and Park & Bond, and it has put Jetsetter, its popular online travel site, up for sale.”

3. “It has never been easier to start a company, and never harder to build one,”

One of the biggest reasons for this phenomenon is because “protectable from the onslaught of those big companies once they figure out what you’re on to.”

4. Rely on other’s fortunes

“BranchOut, a professional network that culled data from LinkedIn and Facebook, raised $85 million from venture investors but had to change its business model in 2011 after LinkedIn cut off access to its data.”

 

Why does this matter for China? Chinese start-ups are also afflicted by these problems, if not worse. Except for giants like Tencent, Baidu, Alibaba, Netease who got into the game early, everyone else is having problems making money or fulfilling promises. After all, when you throw the number 1.3 billion around, people expect big things, but big things rarely happen, especially this late in the game. The giants have taken up all the best turfs, and they are good at either innovating or “start copying”. This is also the reason why small companies must rely on the mercies of the giants: the big companies have or will take over all the vital infrastructure.

Another malaise that afflict Chinese companies actually derives from “start copying”. The different between the U.S. and China is huge, so to translate an American innovation is already difficult. But now data has shown that most American innovations don’t pan out, where are the chances for their Chinese imitators who face a much more difficult environment?

For both American and Chinese problems, this is only one way out of this conundrum: plan to make money from the get go? But I think I can hear entrepenurs cry: “what? To make money? Are you kidding me?”

 Photo credit: Bing Image

 

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