05 Jul Born-in-the-cloud Startups : Financial Fallacies and Funding

Born-in-the-cloud Startups : Financial Fallacies and Funding

The next wave of Internet entrepreneurship can be found in born-in-the-cloud startups – the thousands of small companies that launch almost daily offering a host of virtual goods and services. The ease with which these born-in-the-cloud companies can launch is deceptive though, and has led many startup entrepreneurs to fall victim to a few fallacies that lead to their downfall.

Building Infrastructure, Company

The first and most dangerous fallacy is the belief that building the infrastructure is the same as building the company. In fact, as-a-service tools have made it remarkably easy to build the appearance of a born-in-the-cloud company. In the space of a single day, it is certainly possible to build a serviceable website and populate it with offers, add an e-commerce component and the ability to take payments, build in content and a social component, and even drive a little initial traffic with a low-cost PPC campaign. The cost for doing these things is minimal. But having done that, you really haven’t launched a company, you’ve only launched the infrastructure of what will become a company later on.

Neglecting Marketing

A second fallacy comes in when entrepreneurs approach marketing as an afterthought, believe that it can be an automated and mechanical process, and that it can be done with low-cost providers on the cheap. In fact, marketing with born-in-the-cloud companies should take place at the very beginning, right alongside building up that infrastructure, so that once it’s ready to launch, you already have a marketing engine built in.

Financial Requirements for a Startup

In terms of finance, it’s easy for priorities to get misdirected and this presents a third fallacy, which has two parts: First, that you can launch a company with no money at all, and second, that you need millions of dollars. The correct answer is somewhere in the middle.

When the infrastructure can be built for a few hundred dollars and a day’s labor, one may get the impression that the marketing component can be built on a similar basis. Successful marketing is what makes a profitable company, and this is where some financing may be necessary.

While that financing may not reach the levels of the dotcoms of the ‘90s, which burned through millions of dollars in venture capital before making a dime, certainly an additional ten thousand dollars would go a long way towards getting your brand in front of the buying public. The truth is, a born-in-the-cloud company can be launched for a lot less than it would have taken during the height of the dotcom boom, and many have found success without the aid of venture capital – often launching with a small loan of five or ten thousand dollars. At that low level, even if your credit cards have been maxed out and the bank won’t talk to you, an asset-based loan can usually deliver the minimal funds you need.