Literature is mostly about having sex, and not much about having babies; life is the other way round.
Startup pundits have focused primarily on funding events and product launches, and not much about how viable the business model and scale up strategy are. Successful businesses are the other way around.
Jeff Nolan wrote in January 2009 about “Why the TechCrunch Economy Will Falter” noting (bold in original):
“…a fundamental flaw in the startup economy promoted by a wide swath of pundits and proponents, that starting is more important than sustaining.”
The other half of this situation is the ‘pundit’ sites lack of aggressively asking companies exactly how they are going to make money. Endless coverage of start-ups that are more about a gimmick, reiteration of an original technology or an imitation of something else, without questioning the viability of the business model, helps create an environment where typically young entrepreneurs scoff at the need for revenue. When we hit a downturn like this and funds dry up, they are going to fold.
The good news it that most serial entrepreneurs fail at least once and return as much more knowledgeable and pragmatic business owners. So covering failure has its purpose.
It’s taken a little more than a year but Dave McClure notes yesterday in “Subscriptions Are The New Black”
We have largely WASTED an entire web decade of time, energy & venture capital on extremely inefficient revenue models. There have been a few interesting examples of startups acquired in the 00’s for large amounts due to amazing growth (eGroups, MySpace, Skype, YouTube) or advertising potential (aQuantive, DoubleClick, AdMob, RightMedia). However, mostly the decade has been an uninterrupted string of uninspiring business models and small-time acquisitions of Web 2.0 startups filled with rainbows & unicorns, rather than those based on simple, transactional revenue models.
and he posits two key assertions related to startup business models:
- The default startup business model from 2000-2009 was based on growth (aka acquisition) and CPM- or CPC-advertising
- The default startup business model for 2010 & beyond will be subscriptions and transactions (e-commerce, digital goods).
What does this mean for the average bootstrapping entrepreneur?
- More competition as fewer teams bet on “build it and they will come” models and start competing to deliver services that firms or individuals will pay for today.
- Perhaps less derision when they tell other startup entrepreneurs that they plan to charge right away.
- Craig Newmark’s answer “Our history is slow, continuous growth. In the race between tortoise and hare, well, we’re the slow guy” to “How Craigslist Spread” is worth keeping as your screen saver quote.