Is it normal to be losing a lot of money in the initial stages of a startup?
I've started an independent comic book company and have been selling two digital comic books via the Amazon Kindle Store, but have not been making much money. I invested thousands of dollars and have had low sales. Is this a business I should dissolve or is it normal to be losing so much money in the first stage of a startup?
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Oct 22, 2014
Any business needs an investment to get started, which varies with the type of business. So, being in the red for a certain time is not really losing money. You must decide how much exposure you can afford or have apetite for and after what period of time you must be cash flow positive. You must also decide when to cut your losses and start something else. There is a thin line between being tenacious and obstinate. P.
Oct 21, 2014
Jose,
publishing is a type of business where large exposure is necessary. That means getting your publications onto a lot of sites that do the selling for you and have a large visitor base. In addition, you can choose to start such a site yourself and resell others' comic books as well. Otherwise, just get it onto the big existing sites, and don't spend any more money on it. Just focus on adding more comic books.
Oct 21, 2014
It all depends on what your revenue projection was and what your costs are...Why are you hemorrhaging money? If you have a business plan you should be able to tell if this projected loss was projected accurately or not?? IF you are running out of cash, downsize quickly and decide why and how your business of comic book selling can be turned around...What is your mission, vision and projections for the 1st few months...Normally the first months are the toughest, but they should be planned for and if the plan is wrong fix it in a hurry...
Oct 21, 2014
Richard Stern-
It all depends on your Business Plan and the assumptions made for development of the company.
The Sales and Marketing Plan should have outlined the time for introduction of the menu of products being introoduced and the time it would take to ramp up for the sales and revenue to start
Furthermore, for new companies customers will test the products based on two factors: Are the products being sold offer a solution to a problem, or are you offering a more than competitive option than those comanies in your niche of your industry.?
Every business is different thus "normal" does not factor in your analysis.
.
For new c
Oct 20, 2014
Good Afternoon Jose,
There is a lot more to your question than perhaps it might seem. There are 3 things I'm going to address here: 1. losing money as a startup 2.what is going on in the first stage of a business 3. low sales and what that means
Let's tackle your question around losing money in the initial stage of a startup. Yes, it is totally and completely normal to lose money in the first stages of a startup. In fact, it's actually expected. Most business will operate with a year end loss after their first year. Don't worry, there is a way to get your initial investment back on your tax forms. That is another conversation for another time though.
2. There is a reason why the first 3 years of business are the most touch-and-go. As a new business owner, it is important to remember that in the initial stages of business,the first year in particular, are spent testing your product, introducing it to your audience, seeing what they like and don't like and adjusting accordingly.
As a business owner, if you start a business hoping to make a large amount of money up front, that is almost an expectation that will fall short. Large corporations spend a lot of time testing their product and doing market research, but they still have to deal with the realness of what happens when their product actually launches.
I think even Amazon itself took 3 years after it initially started to turn a profit.
3. It seems like you're in the place where your product is being tested by your market. Your buyers are seeing what they like a don't like. Look at this initial stage of business as a petri dish to see how your customers connect with your product. This is your time to experiment and see if you need to add different kinds of graphics or change your marketing. Food for thought: what are you doing for marketing? Or are you just putting your books out there on Amazon, hoping customers will choose your books?
This is also your time to decide what type of reader you really want for your book. Who is interested? See if you can give a survey to those who already read the book to see why they bought it and what they liked most? Doing this research will help you narrow down exactly the kind of person you are designing and writing a comic book for. Knowing your very special audience will help you target your product directly to them.
It's hard to make money without spending money first. There is a time lag between your initial investment and the sales you need in order to cover the first investment. Have you been able to calculate that out?
Now, let's go back to your initial question of whether or not to close up shop. How committed are you to the success of this business? Are you willing to take the time to experiment with your audience and see what they like? Is creating comic books something you feel incredibly passionate about that you want the world to see, or is it just a side hobby? How much research/background did you have before starting this endeavor?
You don't need a lot of experience to make a business work. The people who create successful businesses are the ones who are most committed to finding the ways that their business can succeed. That is by trying new things when your original plan isn't working and finding new ways for people to get excited about your product.
If you look at how much effort it's going to take to find your ideal comic book reader audience and get them excited about your project and you just want to curl up in ball, that is a much better answer for you to close down the business rather than keeping it open.
If you are really passionate about this idea and you want to see your work flourish, then keep at it. Try different strategies, see what works and what doesn't. If in 6 months you are exhausted and you really can't come up with anything new and you are starting to resent the work, then revisit the question of closing shop.
In order to make money, you have to try a plethora of different things. (Quick word to the wise, pick 1 or 2 new things to try at a time. More than 2 is hard to implement.) Have the courage to do something new a different in how you reach your audience than what you are currently doing.
Take 6 months, see what happens. And feel free to reach out and let me known what happens. I'm curious to see your decision.
Oct 20, 2014
Many startups do not generate positive income or cash flow at the beginning. The question as to whether it is "normal" or not is not in an of itself a gauge of success of failure of your business.
It really depends on why the company is not generating cash/profit.
If you are investing in development of technology or markets it could very well be OK that you have not yet hit break even. This cannot obviously continue forever and there must be a reasonable plan that does generate profit and cash at some point in the future.
So the answer to your question is: it depends. I would recommend you have someone who has experience with startups take a look at your operation and give you an opinion as to continued business viability.
The most important components are:
1. Does you business fill a need in the market place
2. Can you deliver it at a price which customers find acceptable
3. Does your cost to deliver this product/service allow for long term positive cash flow.
Once you have answered these questions then you can make some decisions about your path forward.
Oct 20, 2014
Several insightful answers here, but I gave Alan Jackson an up vote for his simple answer. My answer: "yes, it is normal." That is why 9 out of 10 new businesses fail.
I don't completely agree with Alan; you still may have a chance of success, but you can't keep bleeding. Maybe concentrate on paying gigs & give your initial investment / dream a chance to mature without additional funds.
Best of luck
Oct 20, 2014
Typically, start-up's lose money during their initial embryonic stage. However, most start-up's don't plan well either, and many do not even develop a business plan for their new business. The most important thing for any entrepreneur to do before they start is to work out a break-even analysis - that is determining all the start-up costs and expenses so that you can see how much of whatever you are selling you have to sell just to cover all the start-up costs. This will give you a good idea of what you have to sell to who, and over what period of time (usually the first year). Then the question is - can you do it? Who are the customers, how do you reach them, why will they buy your stuff - is it faster, better, cheaper? All of this should be done BEFORE you start on paper, or your computer.
Oct 20, 2014
It sounds like your plan was to put it out and see what happens so you can't be surprised by results if that's the case. Content publishing always has a front loaded costs but this is about your metrics, where are they, what are they? How many views, what is the growth, how does that compare to the competition? What are your customer's reaction, do they love it or is it just another piece of fruit on a crowded shelf. You need to ask better questions before you decide to scrap or continue. First question is what is your ongoing cost to produce? If you are pleading a drip put on a bandaid and listen to customers. If you are bleeding to death then take the lesson and move on.
Oct 20, 2014
Yes most startups lose money at the onset and will do so for some time depending on the business, the product, the market, etc. From what I understand of your situation, you have already produced and are selling two books. Considering these are ebooks, you should have very little ongoing operating costs aside from marketing. So, maybe the issue you are having is that you aren't getting enough sales rather than losing money. Therefore, your problem is not operations but marketing.
The first thing you should do, if you aren't already, is to track your costs. This will show you where you may be able to cut operating expenses. However, my guess is you don't have much to cut operationally.
Next, I would look at your marketing strategy and your targeted customer base. What channels exist for you to reach your targeted customers? It seems your books may be a good fit for social media and crowdfunding campaigns which could get you some customer traction.
Oct 20, 2014
i think you went about opening before you had market fit All companies need to talk to their customers before opening their business and find the minimum that their customer wants or whether they will pay for it.
right now what is your cost to get a customer?
Oct 20, 2014
Time to do a "pivot" since you ought not to waste money building the wrong business. Check out "Lean Startup" (Eric Reis, Ash Maurya).
AJ
Oct 19, 2014
No, it is not necessary ,according to my practice if you have a good business plan then you got the result from first day so I recommended you following sagheer business plan:
STEPS:
(0) Market re-search………………………….why?
(1) Market re-search……………………………what?
(2) Market re-search…………………………..How?
(3) Title or name …with respect to name, with respect to business, with respect to location, with respect to era.
(4) Motto…with respect to business.
(5) Dimensions.
(6) Competitor.
(7) Mission Statement.
(8) Vision Statement.
(9) Location……with respect to positive and negative aspects.
(10)Team…………..with portfolio.
(11)Finance……..Fix and Running.
(12)Finance Management……with feasibility report in the form of chart.
(13)Business Formula.
(14)Business Flow…with the help of flow chart.
(15)Mathematical Model of Production…with cost estimation method.
(16)Promotion Strategy ……..with Probability or regression model.
(17)Risk factor…with your weak points (S (strengths) W (weaknesses) O (opportunities) T (threats) Analysis).
(18)Role of Technology.
(19)Growth Graph.
(20)Break Even.
Oct 19, 2014
First of all plan is necessary, using plan you lead and operate with chaos but not chaos leads you. Also maybe it was better to examine the best selling channel which can give you back much more money, to be selling in internet book shop you should have great name or digital advertising everywhere in internet especially in the social media for comic books or banners at the comic tv channel (websites) in internet = 1) be mass product and reposted in social media (long strategy) or 2) to be linked with comic famous subject (symbiosis short strategy)
Wish you and your business good luck
Marina.
Oct 19, 2014
Thanks, Marina. Yes, I've thought the same. Your words are much appreciated.
Oct 19, 2014
Hi Jose
There is always a phase during the initial stages of getting a company started where doubts begin to emerge. They mainly focus on how long can I hold out with no income coming in. There are a few questions you can ask yourself : have I done my research well enough to know others are making a decent living from this type of company setup? What were my expectations in the first place and are they still realistic? What are the other things I could consider doing to get the ball rolling?
Having set up a few companies now I can tell you that it's not for the faint hearted. But I always remember that to reach the best fruit you have sometimes to go out on a limb.
In practical terms I would recommend you draw on your network of friends and acquaintances to provide you with some honest feedback on your venture.
Hope this helps. Dave
Oct 19, 2014
Thanks, Dave! Where do you suggest I conduct my research? Any helpful websites you know about?
Your advice is much appreciated. It definitely helps! This is a roller coaster ride for me. I'm learning a lot from this experience.
Oct 20, 2014
Sorry Jose but this is an area (comic books) that I know nothing about at all. I would suggest you think like a customer and try and find your competitors that way and see what they're doing. Also try other digital publications not just comic books and steal their best marketing ideas and modify them to your own situation /speciality. Good luck Dave
Oct 19, 2014
No its not normal , I think you should have made an estimation of your operation cost of certain period of time till you can make your targeted sales , through planing your books sales , if not that means you are missing a part of your operation chain , restudy your whole procedure in order to fo strengthen the weaknesses -step by step , situation will change I think . wish you all the best .
Oct 19, 2014
If it is a capital-intensive business then yes, there's not much you can do about .negative cash flow until you can get a customer base built up. Otherwise, not so much - see the Lean Startup literature for how to define a market and get some paying customers before spending any more than you have to.
Since you are where you are - you've already spent the money to make the comics. Consider it as a sunk cost. From here on out, if you start making sales and you are making more on the sales than it costs to get them, then you're in business.
Oct 19, 2014
Your situation is by no means out of the ordinary . Loosing money should have been in you projection for a period of time. . The big question you need to solve for is do I need to invest more ? If that is the case you need to step back and look at the long term view . As I said most start ups loose money it is really about your taste for risk . I strongly suggest you minimize any more dollars and ride out the next few months and see if the nose of the plane comes up if not your first lose is your best lose . Good luck and keep in mind you do not want to pick up pennies when dollars bills are flying over head Best Chuck Green
Oct 19, 2014
This is such a common question and problem with startups that haven't planned well. I've launched 8 of my own and they didn't lose money because I started them with guaranteed contracts or confirmed sales in place and this was out of necessity more than smarts back then as I didn't have cash to burn.
Should you dissolve it?
1. Any business, in my experience of my own and 100's of others I consult to, take 3yrs to really gain momentum. Yes, some just go ballistic within a year due to right product, right time, right place but even with these, when you look closely they usually had a few years of experimenting and tweaking. So, if you have only just started this business, then its likely you haven't given it enough time.
2. Should you dissolve it because it is not a financially viable business?
You need good honest answers to the following:
- How many people will realistically buy?
- How much will they spend immediately and over their lifetime with you?
- What is the profit from these sales?
- How much does it cost you to get them?
- How much more do you have or are willing to spend in order to gain the above?
Put these numbers into a spreadsheet and that will help paint the picture and the argument to keep going or dissolve it.
Oct 19, 2014
Do you think that guaranteed contracts or confirmed sales would be viable in this kind of business? I'm not sure how you could do that in a line of business where you sell digital comic books. The demand would have to be too high, which already contradicts the nature of being an independent comic book rather than a mainstream comic.
1. Thank you. I've been told this before. My fear is that if I wait even a year the losses will be much too great. I'm not sure if I should be more cautious or brave in this kind of situation, or cautiously brave?
2. Thank you for this insight. Sometimes my hopes cloud me from the reality. It's a blessing and a curse I suppose. Being a dreamer can give birth to interesting findings, but can also lead to disastrous results.
Nov 26, 2014
I don't think "guaranteed contracts" is a model or approach that works with very many business models - it's suited for a very specific kind of business model, and to Jose's question, I don't believe that a comic printing business fits.
In terms of David's second point, that is exactly why I suggested bringing in experts. They don't just know the questions to ask - they know how to get the real answers.
Oct 19, 2014
There's a huge difference between in selling products or services. In the products market you're expected to make a shortfall in revenue whereas in a services industry you should be making money straight off the bat. It all comes down to your COGS vs your invoices.
The "9 out of 10 new businesses fail" reference is a wives' tale, but the statistic 50% of new businesses will fail in 5 years is still considered accurate.