24 October, 2008 By Richard Kershaw 6 Comments Dude, Where’s My Revenue Model? web 2.0 is dead? Don’t get me wrong: I love gradient fills, drop shadows and year-long public betas as much as the next man. But the idea that anyone with a vague-but-sexy idea and a patsy to pick up the tab is an internet entrepreneur really grinds my gears. Quadszilla has beaten me to the sucker punch with a finance primer for web startups: Start with how you are going to profit and work from backwards from there. If you’re not spending less than you’re making, then you’re doing it wrong. We agree on the symptoms, but disagree on the diagnosis. The problem isn’t merely web startups not considering how to make money. The problem is some people still believe the basic rules of commerce don’t apply online. If taxi companies ran like web 2.0 startups, drivers would: Offer free rides for three years (‘first mover advantage‘) Spend heavily despite rising gas prices Aim to repay their bank loans by selling up to General Motors I’ve never run a taxi company, but that sounds like a high risk strategy. A few years ago, I worked briefly for a small startup. The CEO’s experience intimidated me, until he told me he expected to sell the company to Google or Yellow Pages within six months. Reader, I lost all faith in the man’s judgement in a heartbeat. This six-man strong company was turning over less than my then sideline (my fledgling affiliate business). Here’s my ready reckoner: if your business model involves, er, doing no business, it’s really a hobby. Simple! Many people have forgotten the lessons of the dot.com boom and bust. My advice? Read widely – start with Jason Calacanis on The Startup Depression – and be ready to capitalise on the stupidity of others. In the words of Warren Buffet: Be fearful when others are greedy and greedy when others are fearful. There are dozens of decent books on the dot.com bust. Here are some of my favorites: Boo Hoo: A Dot.com Story from Concept to Catastrophe F’d Companies: Spectacular Dot-com Flameouts Burn Rate: How I Survived the Gold Rush Years on the Internet Karaoke Nation, Or, How I Spent a Year in Search of Glamour, Fulfillment, and a Million Dollars TweetPinItComments Tanya de Grunwald says 24 October, 2008 at 12:13 pm So true, so true! And why is it that it’s always those who are barely scraping by who feel it’s their duty to offer unresearched, unsolicited and downright BAD business advice to those of us who are actually earning a decent wage quite effectively, thanks? Richard Kershaw says 24 October, 2008 at 5:13 pm Update: John Coronella has posted on a similar topic: “Sequoia Predicts Dot-Bust 2.0 – Hurry, Get a Business Model!“ Patrik Johnsson says 30 October, 2008 at 6:41 pm “Be fearful when others are greedy and greedy when others are fearful.” How true is this in the era of the Credit Crunch… I think I have to setup PayDay loan company right now. Ranked Hard says 5 November, 2008 at 8:36 pm “Start with how you are going to profit and work from backwards from there. If you’re not spending less than you’re making, then you’re doing it wrong.” Well, then a lot of companies are doing it wrong (including experienced entrepreneurs). There are many companies that have yet to turn profit. Mahalo, for instance, has yet to turn profit according to Calacanis. Does that mean that Calacanis is “doing it wrong.” No. This simplistic analysis that I’ve heard many people parrot stuck in my craw the first time I heard it, and it continues to. It’s not so important that something turn profit right away (or even in 2 years). It’s important that you have a product that can turn profit eventually due to its inherent characteristics. Richard Kershaw says 12 November, 2008 at 11:04 pm “There are many companies that have yet to turn profit” If you reread my post, I wasn’t talking about companies that are yet to turn a profit. I was talking about companies with no idea if/how they might ever make money. No profit yet does not equal no business model. To take your Mahalo example, Calacanis is clear that their business model is selling advertising (as his previous startup Weblogs Inc was). Trackbacks […] (See: “Dude, Where’s My Revenue Model“). […] Leave a Reply Cancel replyYou must be logged in to post a comment.