Tuesday, 1 April 2014

What do startups really spend their money on?

In the last post we talked about what not to do when you get your project funded. If you don't know the silicon valley tech startup bubble is either deflating or about to pop. What this means is that mediocre ideas are getting overvalued and getting more money then they are worth.

For example, I could go to an investor with a mediocre idea like: "Let's make educational iPad games for kids and get a lot of funding.

In the real world it doesn't really work like that. You have to build your product first, make some sales, then go to an investor for capital. Although sometimes tech companies can do this process a little differently. Generally you want to make sales first before you go ask for money. The invest is there to leverage your business not make your business.

What are all of these startups spending their money on? Advertising. I see it everyday on my Facebook page and in the ads on the internet. Startups that have too much funding spend a lot of their cash to get the word out.

This is why I don't like to advertise. I can't compete with the "Educational iPad games for kids" start up that just received 2 million dollars pre revenue. It's not cost effective.

For people like me this bubble deflating is going to be a great thing because what you see on the advertising sites will be established companies with profits to actually pay for their advertising. It brings down the noise and it highlights the businesses who are actually profitable.

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