People start businesses for emotional reasons, not logical ones, and vastly, vastly underestimate the amount of money they'll need to get the thing off the ground. Entrepreneurial people are inherently optimistic, (and they have to be), but he said their estimates were typically off by ~5x. If you think you need a million dollars of runway, you probably need 5 million. If you think it'll take a year to achieve profitability, it'll probably take 5 years.
Ironically, that’s what VC funding aims to provide - capital to extend runway and improve scale quickly.
Whereas the reality is VCs support negative unit economics and absurd customer acquisition costs.
Having seen my share of failed businesses - I'm very skeptical of these numbers.
When you start a business, your costs basically fall into 3 categories: initial costs (like furniture and stove-tops), fixed costs (like rent and bare-minimum employee wages), and variable costs (like raw input ingredients and additional labor to handle additional business).
As long as your revenue is growing each month, and you're making money on each individual sale (as determined by your variable costs), you'll eventually achieve profitability.
When I say most new businesses have no fundamental flaw in their business plan, I mean that most businesses make money on each sale (e.g. they're not selling burgers for less than the cost of ingredients and the labor to prepare it), which is not that surprising. What is perhaps surprising is that the business is also usually growing each month and they're on a path to eventual profitability, yet they run out of money and fail anyway. When starting a business, you're not convincing investors and debtors that your business model is sound (most are), but rather, that your business model is more sound than most other businesses that they can invest in.
'Bootstrapped' as we now say, 'mom and pop' as many here might say, or just 'small to medium businesses' as we used to say.
There are a lot of moving parts, a lot to learn, and timing/luck are also factors. Until they all hit at the same time, it looks like a flop. It takes time to find, learn, or assemble all the key bits.
Sorry your dad's impatience was so persistent. Sense of urgency is important, but impatience is deadly. Thanks for sharing such a clear example.
Are some businesses under capitalised? Sure. Could "loads" be saved with more capital? Well yes, for some definition of "loads".
But annedotally I'd suggest that "most" are just bad ideas. Or perhaps more accurately "incomplete ideas".
To be a success business you need; A) a product B) a market for the product (ie people who would actually dip in their pockets) C) that you can reach via marketing D) that can afford the product.
The vast majority of business ideas have A, a few do B but its very rare that they consider C or D.
As techies we're all about A - build it and they will come. But a successful business needs all 4 - miss one out and you fail.
Also, the offspring of the man in question identifies an aspect of his temperament that led to things turning out the way they did.