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.
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.