If your Startup is Financially Unsustainable, it’s a Burden on society

Startups typically use software to solve a problem at scale. In exchange, they demand money — an exchange of value —  from the users, a…

Startups typically use software to solve a problem at scale. In exchange, they demand money — an exchange of value — from the users, a class of user or some other stakeholder with a vested interest like an advertiser, sponsor or government.

Uber solves inefficiencies in transport and gets paid by the passenger. Airbnb solves inefficiencies in accommodation and is paid by the guest.

Gumtree makes it easier to sell or buy things and is paid by advertisers and a class of users — those willing to pay to be more visible than others.

Namola addresses crime and is funded by Dial Direct. Dial Direct gets value from addressing crime (fewer insurance claims) and by being seen as a company making people safer (stronger brand and more insurance leads).

The total revenue a startup can generate is less than or equal to the amount people that are willing to pay to have their problem solved, multiplied by the number of people who are willing to pay.

(Revenue <= how much users are willing to pay X number of users).

Put differently, the total value paid to a startup can only be less than or equal to the overall value society gets from a problem being solved.

Excluding corruption or monopolies, a profitable startup is one where society pays more for the problem to be solved than it costs the startup to solve it. It has created surplus value.

Investors are willing to pay in advance to get a share of this value in the future.

Likewise, a financially unsustainable startup — one which spends more solving a problem that the value society gets from them solving it — is a burden on society.