I’ve seen countless websites and businesses fail to launch because the project exceeded the budget for development, and nothing was left for marketing or building a team. The dreaded cash crash.
Right now, adult entertainment is heavily focused on creator platforms, but many are running out of money and seeking buyers for distressed properties. Sometimes the only marketing you’ll see for a new platform is the launch press release, and then off to the graveyard it goes. The reason? Creator platforms are usually cost-heavy with tiny margins, and only become profitable when they reach a specific scale.
It is wiser to start small and build on your success than risk it all and lose.
With technology companies and platforms, development costs frequently overrun and starve the business to the point that there’s nothing left to cover launch costs, like marketing. When I started my own company 17 years ago, I was the lead developer, so we always had the advantage of low programming costs, which made it easier to stay afloat. But that’s not usually the case.
Sometimes, founders try to sell a distressed business because they run out of money and fail to launch, or get into trouble because they need more capital than they can raise. Approximately 29% of businesses fail because they need more money. I’ve sold distressed companies as part of my broker business, but they are challenging to sell and never sell at a price that truly makes the parties involved whole again.
The problem is broader than just tech companies. About five years ago, I invested in a gym for exclusive use by personal trainers and their clientele. When the initial renovations exceeded the budget to the point where they returned for additional capital, it permanently crippled the business’s cash reserves and cash flow, and left very little for marketing.
Soon after launch, more gyms with the same business model popped up all over town. To make matters worse, when COVID-19 hit unexpectedly, the company was intermittently closed due to government regulations. By some miracle, it limped along for years. As I write this, however, the shareholders have voted to finally close the business.
So, what can be done to avoid the cash crash?
Walk Before You Run
Often, startups fail because they try to do too much too soon. They build something too big instead of focusing on a minimum viable product (MVP). The purpose of an MVP is to test the market without going all-in. Sometimes customers use a product or service differently than expected, and an MVP allows for pivots and adaptation. Simply going all-in and building everything without yet understanding how your customer will use your platform can lead to costly mistakes.
Avoid Feature Creep
“Feature creep” is a phenomenon that occurs during development, when more and more noncritical features get added and delay the release of software. It can doom your budget without adding to the financial bottom line. Be vigilant with your development team and stay lean by phasing development.
Expect Cost Overruns
It is common amongst businesses that rely on developers and tech to miss their estimates on building costs, especially with inexperienced first-time founders. They may think they’ve considered everything, but there’s always “just one more thing” to add to the spec at the last minute. It would shock you to learn how many founders don’t keep a contingency budget. This is why it’s critical to have quotes in writing, ask for references when hiring developers and budget significantly more than expected — or at least make sure you have access to the capital in the event of overruns.
Learn to Say No
When budgets balloon, founders often desperately spend all their money building the product, only to have little to no budget left to tell everyone about it. This is like flooring the gas pedal when you're running on fumes. Be a better leader by finding ways to solve problems as cheaply as possible, or do what you can to avoid them altogether.
Think About What Comes After the MVP
Surviving the initial build is only one of the cash reserve hurdles. Depending on your business segment or business plan, you’ll need anywhere from six months to several years of capital to operate the company until profitability. This is called “runway” in investment-funded companies. If you run out of runway before the plane takes off, you crash and burn.
Choose the Right-Size Business Venture
Sometimes your eyes are bigger than your stomach. Personally, I have always wanted to get into the energy sector, with ventures like solar farming, as well as property development. Unfortunately, building apartment buildings and skyscrapers requires access to obscene amounts of funding, so these businesses will always be impossible for the average entrepreneur. The same pertains to digital business. Sometimes it does not matter how fantastic your idea is; if it requires more capital than you can access, you just won’t be able to do it.
Take, for example, the plethora of people who want to start a webcam platform from scratch. Even if the development goes well, the next challenge is the marketing budget for traffic to build a user base, and a recruiting budget to attract top talent. Small marketing budgets mean that efforts will have to be targeted at smaller segments of the market or a specific niche to have any significant impact. Going into a large market with a small budget is like filling your tank with half the gas needed for a trip. You’ll never get to where you want to go, and it will all be for nothing.
Empires Are Built Over Time
The good news is: Even if that massive project is initially out of reach, there are still unlimited options for smaller ventures. There’s nothing wrong with building something smaller first and using that success to leverage yourself into a bigger project later. It is wiser to start small and build on your success than risk it all and lose.
Juicy Jay is the CEO and founder of the JuicyAds advertising network, as well as the founder of Broker.xxx, which helps people buy and sell adult websites and businesses.
