Business Cycles Based on Feelings
/Extracted 19MAR2012 from http://tinyurl.com/769pklq
Paul Graham’s Trough of Sorrow... the diagram which has become very well known among alumni and fans of Y Combinator, the Silicon Valley-based startup incubator. It describes, using feelings and energy, the experience every startup goes through – from the initial exciting bounce through the "trough of sorrow" to improvements, and either a crash or the promised land, acquisition and beyond... this diagram reminds me of the Shirlaws Stages framework.
Both diagrams make the same bold claim – every business moves through the same cycle, based not on revenue or fame or traffic or employee numbers but on feelings. The only difference I see (apart from terminology) is that Shirlaws Stages moves beyond the Start-up and initial Growth stages.
Are you really committed?
Immediately before the brick wall is a period of anxiousness where you will question whether you are really committed to this business.
A business model is a simple equation – volume x margin. But how clear are you, your cofounder, even your investors or your team, on exactly what your product is, and what your margin and necessary sales volumes are? Have you the necessary sales / programming / deliver / service skills?
When you exit the First Brick Wall you will shift from an equity (largely 'future, investment') phase into a more income (short term, profitable cash flow) phase. You won’t get there if you (via your website, or in person) can't acquire customers, deliver on their expectations, and then build on that for repeat or referral work. Acknowledge your feelings
This doesn't (necessarily) mean group hugs! But if you don't, occasionally, talk about your feelings then you will only talk through them. If you feel anxious but aren't aware of it and don't share it with your cofounder, you will still be acting anxiously – and you can expect them to get worried about your commitment, for example. If necessary, do this over a Friday beer, but don’t pretend you're not human. Reset your expectations
The excited dreams have been replaced by the reality of business. If you continue to expect a £100M Google acquisition before the prototype actually works, now is the time to reset your expectations and, if necessary, re-draft your business capacity plan. Otherwise the sorrow will set in, and the wall will brick you in. And the key question you and your team need to ask: "What is the investment that will create the growth for you?" Maybe it’s product. Maybe it's skills. Maybe it requires someone to invest in you to achieve your (documented) plan. The sooner you understand the investment and the likely return on that investment, the easier you will find it to raise capital and the faster you will move through the wall.