To sync or delay the business model?
I heard Joe Kraus (founder of Excite and JotSpot, latter sold last year to Google) speak at a Web 2.0 Expo panel (“Built to Last or Built to Sell: Is There a Difference?”) this afternoon. At the conclusion, John Battelle asked panelists about mistakes they’ve made in past.
Joe offered that his biggest at JotSpot was not launching their business model at the same time as their product. He pointed out 2 problems that resulted: (1) more burn over the period until b-model launched, and (2) X months less info on what b-model will actually work.
I also think that while users obviously like to take advantage of free services without advertising, figuring out the right way to introduce advertising (or whatever b-model is to be integrated) at the outset sets realistic expectations for consumers (no surprises later) and forces the company to be smart about a sensible way to generate revenues.
OTOH, I’ve heard some VCs say that the entrepreneur should focus on the product first and worry about revenues later. The rationale: given limited resources, it’s better to focus on the UE rather that its monetization. There’s perhaps also the benefit of gaining more return visits by users who aren’t put off by advertising, for example, further driving viral growth, assuming that’s an integral aspect of the offering.
I have to admit, one other angle did cross my mind. If an entrepreneur’s new venture generates a steady stream of revenue early on, he or she may not need to raise a larger round of venture financing.
Finally, one entrepreneur suggested that modest revenue generation could even be detrimental, particularly if a company is seeking to be acquired, because the revenues that could realistically be generated probably pale in comparison to what a prospective acquirer might envision for the venture, creating a distraction or otherwise adversely impacting valuation based on growth and an estimated figure for CPM, subscription take-up rate, etc.
A new venture’s product and UE obviously have to be the first focus; without enthused users there’s no opportunity for any business model. And while there may be certain circumstances that dictate otherwise, Joe’s view — getting an appropriate business model in place as soon as possible, and desirably prior to beta launch — seems like the right guiding principle.
Filed under: valuation, ventures | 1 Comment