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by Alan Hargreaves

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Inquisition versus Acquisition

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Starting up in the global marketplace

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Staying realistic when all those around you are billionaires.

One statistic doing the rounds is this: to build an audience of 50 million, it took radio 38 years; for TV, it was 13; the net took four; Facebook was there in six months.

The drama is not so much the audience growth; it’s the speed with which new communication channels have become dominated by the few.

The early automobile industry consisted of thousands of producers. It was 50 years before it was down to a dozen or so global players. Once the assembly line forced up capital costs, the number of players started to shrink.

Not so with the internet. Most of us could set up an online presence in a few hours, probably for free. Yet a handful of large firms already dominate the space. Facebook. Google. Amazon. When it comes to delivering content, the new elephants are already in your living room.

How did they do it?

Consumer decisions are driven by convenience. That means simplicity: no confusion, attractive pricing, minimum time. In online speak, the fewest clicks.

I like browsing in bookshops, but I can also download an electronic version of War and Peace in about two minutes. When I looked this afternoon, the kindle edition of the complete works of Tolstoy was going for $1.99. The bookshop alternative is not just less convenient, it suddenly looks expensive.

The new players thrive on low price and easy access. Want to join Facebook? Put in your name and a password and you’re on. Want to send a message. Type and press enter. Search on Google? Input your query and go. All free.

We already knew this. It’s why there’s always a queue at the MacDonald’s takeout window. If you want to dominate your space, be the most convenient and inexpensive supplier on your block.

But that’s not how they did it. All three survived on venture capital. Amazon didn’t turn profitable until its seventh year – even then only modestly, and after cutting costs, tightening budgets and focusing on profit rather than growth. It was eight years before Google developed Adwords, which finally moved it into serious profitability. Facebook’s audience growth was spectacular but not so its revenues.

It’s one thing to have a big audience. It’s another to monetize it. Contrary to popular belief, none of these entities got by on the smell of an oily rag. They rapidly built a pipeline, but it was only when they started putting profitable ideas in the pipe that they could stand alone. Amazon once sold books. Now it sells anything.

It’s still about cash, whether it’s yours or someone else’s

This is the history of most businesses, be they elephants or sole proprietors. The basic rules have not changed with the web. Market share is built on convenience and price but survival is based on cash flow. Businesses don’t fail when they don’t make a profit. They fail when they run out of money.

Don’t let the spectacular statistics blind you to the hard yards. You still have to run a business. It’s not a matter of how exciting your idea is. It’s a matter of having the resources to survive the start-up grind. To do that, you need cash, either yours – or, as in the case of these online giants, someone else’s.

When you put your business plan together, don’t forget the worst case scenario – the one that assumes that getting there will take twice as much and twice as long.

There are lots of strategies for managing a startup in my book, Recharge. You can buy it in every conceivable electronic form at modest cost. Just click on any of the following digital suppliers: Amazon; Apple; Google; Kobo. If you want a hard copy delivered straight to your door, click here. 

Reader Comments (3)

Nice piece. I wonder if anyone has ever done the calculation of how many billionaire entreprenuers are created in any one era. There seems to be millions of online startups, but only a handful of billionaires. Eveyrone keeps quoting the same ones. There actually don't seem to be that many. What are the chances? One in a million?

March 19, 2012 | Unregistered CommenterAndy Roebner

How come I get Tolstoy for $1.99 but I have to pay $9.99 for your book?

March 19, 2012 | Unregistered CommenterHanny McQuire

I think it's because Recharge is more manageable than Tolstoy's work. I know someone who has actually finished my book.

March 19, 2012 | Registered CommenterAlan Hargreaves

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