Recently, a first time entrepreneur asked me for advice on “revenue sharing agreements.” He mentioned that it was taking his startup team a lot of time to work through this issue. I started telling him that in my experience, “rev shares” had a typical structure with partners getting a percentage kickback for business they send your way. He shook his head, and responded, “No, I mean revenue sharing among business partners.” I stared back, not understanding. Then it dawned on me: he was asking how he and his business partners should split profits among themselves. I asked him how much revenue they were generating.
“Do you have a product yet? How much revenue do you expect to bring in in the next 6 months?”
“No. Close to zero.”
“Why are you wasting valuable time debating something so irrelevant?” I asked. “At this stage of your business, your every moment should be spent either talking to customers or building an MVP (minimal viable product).” This conversation followed me around for a while: it seemed that everywhere I looked, entrepreneurs were focusing on nonexistent issues. For example, how to deal with scaling before product-market fit was reached, fundraising before gaining traction, building a product before validating a market. Why?
Startups are really, really hard. Time and money are scarce, and they become scarcer when teams focus on things that won’t define their success and will lead them closer and closer to failure. Most startups fail, and my hypothesis is that many times it’s for reasons like the argument outlined above: instead of focusing on creating substantial value for customers, they focus on future problems contingent on their success. It’s a lot easier to imagine success than failure.
Similar stories occur when entrepreneurs build products before validating markets: I frequently talk to entrepreneurs who have done no customer development before spending time and money on product development. Even if you have a great hunch that there is a pain in a market, you must validate that your solution to that problem is one that customers will embrace.
If you recognize yourself being in a similar position, remind yourself that you shouldn’t worry about issues before they arise because you can’t predict what problems your startup will face next month let alone next year. Focus on generating the most value and building a product people want and will use: the rest can be dealt with as it comes.
Special to The Globe and Mail