How long does it normally take a new internet business to achieve cash
flow  and be profitable?  How long should it take to know whether an
internet business will be profitable?  I'm looking for a rule of
thumb.  I'm an investor in a start up internet company that has been
on the market 2 years this month.  Sales more than doubled the 2nd
year and expenses are decreasing.  In Oct. '01 monthly income missed
profitability by $10,867;this year we missed by $1,839.  Excellent,
highly rated product. Should I continue to invest and help subsidize. 
When will we know whether we've made it?

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Request for Question Clarification by justaskscott-ga on 23 Nov 2002 08:57 PST

"Internet business" could mean a lot of things.  Without giving away
too much about your company (I presume you don't want to be
identifiable in this question), could you tell us a little about what
your company does?

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Clarification of Question by cash58-ga on 23 Nov 2002 11:09 PST

We make e-commerce software.  You can see from the information already
given that we reversed the the rule of thumb "the first loss is the
smallest loss" by a long shot.  Year 2 sales were 270% year 1 sales.
Year 2 expenses were 115% of year 1 expenses.  During the 2nd half of
year 2, expenses declined each month as income increased.  And in
2003, a major expense will be eliminated.

We variously hear from 3 to 5 years are needed to know whether a
company will succeed.  We are putting up approximately 1/2 the amount
we invested in year 1.

One rule of thumb is that only 10% of all start-ups (in any field)
ever make it ... regardless of the research that was done beforehand.

A serious competitor could emerge ANYTIME and, potentially, could wipe
your investment off the map.

A critical factor is whether the guys running the business are putting
value into the business or taking it out.

If they are taking out, then you need to ask 'Are they stringing me
along?' or 'Are they as fully committed as ever?'

Oher rules of thumb are 'Never throw good money after bad' and 'Your
first loss is your smallest loss'.

Trust that this helps.

(Of course, you never really know and only time will tell.)

As you know, only you can really determine if you have
"made" it or not, that is, what do you consider success.

That said...

One of the "rules of thumb" that people use in general
business concepts is if you haven't turned profit after
3 years, you probably should fold.  It looks like the
product/company will meet that test.

Let's analyze it; it did a $10K loss the first year;
not too bad!  That was reduced to 10% as much in the
second year; impressive, especially since these two
years are within the 9/11 business environment!

Economy is looking pretty good right now and on the
upswing, so as long as the product is not one that
does bad in good economy (is there such a thing?),
then profitabilty should be right ahead.

The question is instead, how much profit do you need
before you expect it to be enough?  If it turned $12K
profit this next year, are you happy?  I probably
would be, because that means it is even over the three
years of business, which again, is not too shabby.

The company will have to innovate/improve on the
product, and it is risky to be a one product company,
so some development of new (related is best...) products
will have to be done, but if you turn a $10K+ profit
this next year, yes, you have "made it".