From Idea to Cashflow

Dale left an interesting comment the other day that I thought I’d follow up on with a post.

What I’d love to see is how you got from idea to cashflow on Pure Adapt or SportsLizard. That’s the part that a lot of us who grew up looking for jobs are lacking.

It’s a really interesting question and he brings up a good point.  Most people, just by the nature of their jobs, don’t really truly think about what it takes to go from idea to revenue.  Even if they are very entrepreneurial within their company, they generally have backing (financial or otherwise) that you don’t get when you go off on your own.  My guess is that, like myself, most people really don’t consider that type of stuff until they’re put in a position where they need to sell their idea…and it can be very scary.

First I’ll tell you what I did, which sort of worked although I think there are better approaches.  When I was heading into my senior year of college I didn’t know what to do for the summer.  I had done a few internships and co-ops, so I really didn’t need any more “real world” experience if I didn’t want it.  I had saved enough money to live on, so I really didn’t need to work just to get by.  I lived with my parents, so my expenses were almost nothing.  I had toyed around with entrepreneurship, so I took approximately $3k that I had saved and said to myself that I was going to spend every penny of that trying to grow an online sports collectibles business.

I read a few books and researched online marketing a bit, so when the launch day came I bought some ads on Overture (this was pre-AdWords), sponsored a few forums, traded links with some people, threw some listings on eBay, and expected the sales to pour in.  I’m almost positive that there was revenue on day 1 (if not, the first week), but it was less than I was spending.  That trend continued through that summer, into the school year, and into my first year at my job.

It’s not that there wasn’t customers out there, it was that I didn’t have the time or money (or maybe wherewithall) to do it profitably.  Once I had the time after leaving my job, I didn’t have the money.  Building a web site that people regularly use is hard.  There are just so many options out there these days.  Building a website that is profitable is that much harder.  It’s not impossible, but in most cases I think it takes years of hard work and enough money to reach out to the people who are looking for what you’re offering.

Which presents quite a conundrum:  how do you give something both your time and your money and still afford to live?  That was the basis behind that post I wrote last week about funding your first business. Unless you have unusual amounts of time or unusual amounts of money (or possibly, a really really unusual talent), I think it’s very difficult to start a quickly profitable business that isn’t a service.  I never would have made it had I not done SEO and web development services.   I wrote a few articles for SEO newsletters and within days had my first clients.  Detailed Image never would have made it to merge with Pure Adapt had George and Greg not provided Detailing services for a few years to keep the online store afloat.  Services have extremely low startup costs, both in terms of time and money, and have an immediate return.  You get your first client, you get paid. You also don’t have to sell someone on a new idea or new concept – web design, auto detailing, graphic design, wedding photographer, etc – those are all things people are constantly seeking out.  If you do a decent job generating leads, are hard working and friendly to people, you’ll be successful pretty quickly (less than a year in most cases).

The trade-off with services is your time, which eventually may or may not be worth it to you.  Services are also harder to scale.  But if you truly love your service, keep doing it.  If you don’t (like us), slowly but surely build businesses on the side that will give you the freedom to leave your service after a few years.  I think with a lot of time and a lot of money anyone willing to work hard and learn can turn a decent idea into a profitable business.  However, if you don’t want to approach angels/VCs for funding, and you or your family isn’t rich, I think the only idea that will bring you fast cash-flow and immediate profitability will be a service.

8 comments on From Idea to Cashflow

  1. Dale says:

    Hmm… interesting! The time vs. money trade-off is really relevant. I’m obviously in the “Corporatepreneur” state, which gets you to the money part, but limits your time part. It’s so hard to start working on something else after you come home from your day job, and especially if you’re traveling a lot like you said in a previous post. And it makes your opportunity cost really high, especially if you’re in a good situation.

    • Adam McFarland says:

      Dale – the “corporatpreneur” state is interesting. You’ve got the funding down as you said, but the really hard part is finding something you can give consistent time to. In a way, it’s better to try to run something that’s semi-automated (like your textbook site) and just stick it out for a few years while you slowly but surely gain traction.

      The one regret I had when I was working on SportsLizard while at a full time job was that I was too thrifty. I’m not saying spend frivolously, but I know I had several sites/events I should have just paid to sponsor, but was too cheap to do so. For a few hundred dollars I could have gotten in front of my exact target market. Instead I tried to do all cheap/free marketing, which only gets you so far on a limited time budget.

  2. Josh Turner says:

    This post is really personally applicable to my current situation, and I couldn’t agree more. It’s kinda like personal income diversification.

    One comment I’d add, from my experience as corporate entrepreneur. New initiatives and startups will always cost much more than anticipated to get to cash flow even, and will take longer than anticipated to get to that point. People take that for granted when they work for somebody else, and if you haven’t experienced this enough then it might be tough to convince you that you probably won’t meet your 3-month revenue goal for that new thing you’re starting. Always have more cash than you think you need, and more time as well, before making the plunge.

  3. Oke says:

    Adam,

    Great great post. It seems that what I’m dealing with right now is all aligning for something great – I just have to do it! I think during the trip I will write some about my business idea and start the service part of it first. That is such a good idea. This essential part only helps move the business. Yes, it could help you to realize that that isn’t what one wants to do, but it can also develop another type of business, because of the exposure a person would get and truths he/she didn’t know about in the beginning.

    • Adam McFarland says:

      Oke – can’t wait for your trip. We’re gonna have a fun time hanging out. I’ve got like a million questions for you!

  4. Rob says:

    This is another excellent post Adam, thanks for sharing.

    One thing that actually only struck me less than a year ago is that business are broadly devided into two categories; “products” orientated businesses and “services” orientated ones. I know, that sounds really dumb that I hadn’t realised, but it was only when we started experiencing scalability issues that it suddenly struck me (like a brick wall…). Now, we’re looking to move towards products but still keep the services, as we enjoy it and it’s great for cross-selling. Starting with a service has also, as Oke put it, realise a lot of truths we didn’t already, and notice a lot of gaps in the market that we can hopefully fill with products, things we never would have considered before.

    • Adam McFarland says:

      Rob – your business is the perfect example of a non-web business where having both a product and a service working in conjunction can be very successful…probably more so than if you just had one or the other.

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