The other day I went, uninvited, to the hive in Sydney, again thank you Michel Williams (@mia_will) it was great! Thanks again Michel. I was talking to some of the guys and we started discussing business plans. It was amazing how we were all in under the same opinion that there are too many startups who are based on thin air with no real solution to the monetization problem. There is a general feeling of lack of ideas on how to monetize the plentiful ideas out there. Many of the ventures get an idea and think that they do not have to have a way of making money from day one.
Some people talk about Google’s early days and not having a plan on how to make money, it’s a nice example but they were selling their search services in the early days and made the money to survive. But mostly you see niche markets been explored with the plan on becoming the next Twitter, Gwella, Facebook or Google’s apps. It is possible to do so but on a short-term basis. Lets go back to the hay days of Internet entrepreneurs and the time before the bubble burst of 2000.
wowowowoowowwowo (time machine sound)
We were all racing to get users. The equation then was Users=Money. We didn’t know how we do the conversion but the general assumption was from either adverts or some other form of monetisation that no one thought about yet. It was a race for the best base of users. And why users you ask? That was the investors way to calculate how good you are. In those days it was not even how many active users you have but how many registered users, no one thought about monitoring what are the users really doing.
Back then there were no Instant messaging platforms so ICQ guys invented that. They got great traction and many users. Soon after them came Odigo and other competitors to the space and they were making nice traction, not the same as ICQ but nice. When AOL bought ICQ all the other players in the IM field were all praying to do the same fate, not just the IM field, we were all praying. The sole survivor for the years to come was ICQ, none of the other independent ones survived. The bubble burst and they had to show how they monetised the service, they tried with adverts but the market was too young, some took money for the service but ICQ was free. None of them started with the idea of having a source of income.
The same happened to a startup I was in, TreeWay – we made some thing like homestead, it was competing in a market where the major player was in and had considerable amount of users, when investors stopped funding we were not in a position to continue but Homestead was. They were offering premium services and collected money from 15% of their users at that time.
We all hope to stumble upon Twitter or Facebook with our ventures, it’s a great dream! But it is quite rare and mostly unlikely. We are in a business environment and we need to play the business game.
When going to the market these days you need to have a plan on how to make money, not huge amounts in the starting point but enough to show investors that people give money to get your product. You should also plan on how to make lots more when the time comes, it can be a simple plan since that is not set in stone.
As a sidenote I personally hate integrate advertisements and think they don’t make the point of people paying for a service, but that does not disqualify them as part of a business plan, the only problem with them is that they don’t scale very well and you will need to be Google to really make something substantial.