Q: Why do businesses fail?
A: Because they don't have any money.

Q: Why not?
A: They spent it all. There was a bucket they pulled from to do their business, and that bucket is empty.

Q: How do you keep the bucket from going empty?
A: Profit.

Profit is based on an ancient, seemingly forgotten equation many Internet startups have never experienced. Centuries, even millennia, of business wisdom have followed this simple idea:

Profit = Revenue - Expenses

(Sure, you can get more complicated by calculating your break even point, analyzing fixed costs, variable costs, marginal revenue, equilibrium price, supply and demand, etc... but let's just keep things simple.)

If you don't have profit, you might just have a hobby.

If all you can do is convince others to invest in your hobby or buy it completely, it may be a ponzi scheme.

I'm concerned for the tech industry. For some reason, it seems we didn't learn from the dot-com bubble. We somehow think if we get enough people "interested" it will make up for not delivering real value. The service provided to the customers should have real value. Someone should be willing to be pay for it (customers, preferably, but advertisers get in the game as well).

If "going public" or "selling the company" is your business' only strategy for making money, it might be worth asking, "Are we bringing real value to our customers?" If you're pouring your heart and soul into building something, make sure it'll last. Make it something people are willing to pay for. Work hard to keep it that way.

Don't pull money out of a bucket to run your business. Instead, do something awesome your customers will tell their friends about. Meet real needs in the marketplace and continue to evolve as the needs change.

Rabbi Daniel Lapin calls a dollar bill a "certificate of appreciation."

Your doors are kept open by the appreciation of your customers.

Do something worth appreciating.

It won't be easy, and it won't happen overnight. In fact, it will probably take years of trial and error.

Warren Buffett (quoting Fred Brooks from the Mythical Man Month) said it well: "You can't produce a baby in one month by getting nine women pregnant."

Spend the time to grow your business the right way. Meet needs, deliver value, and create profit.

Image Credit: modified pixabay image

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P.S.

To those who believe profit and/or money is "evil":

I highly recommend you read the book The Origin of Virtue. It's possible you believe some myths about how civilization with its markets and money corrupted otherwise morally superior cultures. This may be a story we started telling ourselves during a time when our academic rigor was quite low regarding social studies. I now think for as long as humanity has created items of value such as tools, clothing, shelter, etc we have engaged in trade and used tokens for keeping track of the ledger that is money for who provided value to whom. No matter how many times someone misquotes 1 Timothy 6:10, it'll still say the love of money, not money itself, is the root of all sorts of evil. Profit is a result of specialization and efficiency, not of exploitation. Almost every time I dig deep enough to see why some businesses enjoy unbalanced profits, I find coercive government monopoly creation. That's a result of greed and the belief in authority, not the principle of profit.