The Idea Dude

CONNECTING THE DOTS ONE AT A TIME

Wednesday, July 12, 2006

New millennium, new rules

I'm starting to wonder how many of the age-old barometers for startups are still valid in Web 2.0 and beyond. Looking at what we are currently doing and how I used to evaluate companies for acquisition or investment, I see many assumptions and key indicators are now out of date. If you take a true brick and morter company, like a restaurant, you could make some pretty good assumptions regarding your location, clientele, revenue projections, time to build. Building a business model was not too complex, like putting a drive-thru coffee stop on a busy highway. In the 90s and the boom of B2B or enterprise internet companies, you still asked the same questions, what pain are you solving, how many paying customers out there, who are your competitors and what's your IP and barrier to entry. Building a credible business plan that could attract investment was pretty much a known and accepted practice and process.

Enter Web 2.0, the emergence of many small companies (er...startups) trying many things. Sounds like the dotcoms of yesteryear so what's changed? What hasn't changed is the celebration of human creativity to look for new ideas and innovations. That's a good thing. What has changed, from my angle, is more sanity when creating and funding these startups. In the past, we knowingly or unknowingly, perpetrated huge lies about revenue potential, 'if you build it, they will come', we told investors who in turn plowed millions of dollars in building huge teams, extravagant offices, large salaries in anticipation for that holy grail, the IPO. Sure, some of that is still around, but there are many Web 2.0 companies that have less than 5 employees, either self-funded or on small salaries, chasing an idea, a dream. Why is this better? Agility, to accept that while you have a goal, your journey may take you somewhere else, hopefully somewhere better. In return, you have a couple dozen competitors you don't know about, a dozen more who will emulate what you have done and a fragmented, hard to quantify market that is distributed across the globe. So what's the business model again? The new age economics is not the full design, roll-out and optimize, it's the XP programming (Extreme Programming) paradigm. Do just enough, do it fast, and adjust accordingly. Maybe it's really Prototype 2.0. Take a sheet out of Google's book and never emerge from the beta.

So here are some honest answers to questions I'm asked.

  • Is it a huge market? Potentially, it's the Internet, giving an actual number would be insane
  • What's your barrier to entry? zero, anyone telling you otherwise in any Web 2.0 startup is lying. The key to the web is transparency. To say that you can keep your competitors at bay with some innovation no-one can mimic or circumvent is naive.
  • Have you filed a patent? are you kidding, a) there's the cost and time and b) doesn't stop anyone finding a different way or hosting offshore
  • What percentage of the market will you own?Interesting question, MySpace is reportedly the number site in terms of page visits ahead of Yahoo. Yet it represents less than 5% of the total internet portal activity. The point is, it is a much bigger pond and we should focus on growing a stable loyal community not trying to conquer the world. There's actually enough to go around.
  • What's the business model?I have no clue...actually that's not true, I have an idea of how several revenue models may work but what's more important is I have a value model I understand
  • How many millions do you need?I need enough for several people to throw out the idea, it's called germination, that's why it's called seed capital. Accepting huge sums of money is great from an ego point of view but brings a different kind of responsibility i.e. the need to generate huge investment returns too early will force you to make decisions to quickly or for the wrong reasons
  • So if it's not for the money, why are you doing it?Oh, it's always for the money, prolonged living on bread and water is not on my life goals, but doing something I'm passionate about has the same priority.

I was watching a TV show last night. This guy built a motorcycle from scratch in 30 days. If he got that built and working, he could keep it. Needless to say, he achieved it and promptly handed it to his son as a gift. Very cool Dad. But the key point was the people sponsoring the show/contest commented that while there were no guarantees, the people who won were invariably those who were totally passionate, focused and took every punch on the chin without bitching about the raw deal they were dealt. That's my kind of dude.

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