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If I started a service which gave away free cases of beer, I'd have insane 'traction' with a product hundreds of millions of people would find engaging. Like P

If I started a service which gave away free cases of beer, I'd have insane 'traction' with a product hundreds of millions of people would find engaging. Like Pets.com, WebVan and the other "we'll make it up on volume" disasters, my service would be loved by everyone but it wouldn't be a good business. It seems the lessons of the first dot.com bubble have already been forgotten. A business needs to have a clear path to profitability or else it's going to be left without a seat when the music finally stops; and the music always stops.

pg 19y ago
The lesson of the Bubble is not that you have to know right away how to make money from users, but that you shouldn't pay a lot to acquire them. If an additional user costs you nothing more than a few cents a month of server and bandwidth, you can safely just grow. Google didn't have their business model figured out when they started, and they seem to have done ok.
- dpapathanasiou 19y ago
  Google is a black swan; modeling yourself on an extreme probabilistic event is not realistic.
  - pg 19y ago
    It's a black swan in the size it grew to, but not in the fact that the founders didn't have the business model figured out when they started. That's more common than not, if you look at recent web startups.
    - dpapathanasiou 19y ago
      It's about expectations: having a popular service does not mean a successful outcome (this is the implication against which I object).
      - wheels 19y ago
        Right, but nobody said that it does. The point is rather that if nobody notices what you're doing, you don't even get to the point of dying because of a bad business model.
        Mistone 19y ago
        somehow this has splintered into an "business model vs. traction" agreement - in fact you need both. It will not kill a programmer to spend some time running a few models on how they can actually monetize the service, just as it is not beyond the scope of any biz/marketing person to understand that building something users want is job #1. where many people stumble is thinking in one dimension terms, like assuming Adsense is a business model (see recent posts by Josh Koppelman and Jeremy Lui) on just how big you need to be for this to be truly viable. What I liked in the original article is that it offered a few, less obvious options for monetization.
        wanorris 19y ago
        Some of the articles' suggestions were good ones. And yes, you should always have some ideas for how to monetize your business. However, one key problem is that if you try to implement a monetization strategy before you build a user base and really understand who shows up at your site, your monetization could be completely wrong. Consider the following possibilities: your user base turns out to be very broad-based and large, your user base turns out to be smaller, but a significant percentage of them is from a particular demographic or vertical, or your product turns out to be most interesting to other businesses or other websites that want to integrate what you built into their own businesses. Each of these scenarios implies a different approach to monetization. Given the way your understanding of a market can change as you actually meet the real people who use your site, a change in targeted user base can happen to a lot of different businesses. And if you spend too much time up front working on revenue, you may end up throwing all that work away when you confront the actual opportunities that present themselves. For some businesses, you may have a precise understanding of who your customers are going to be in advance, and then that turns out to be exactly who they are. If that works out for you, cool. But my guess is that that's not the most common scenario, especially for a website.
    - jimbokun 19y ago
      "That's more common than not, if you look at recent web startups." It is likely common in failed web startups, also.
      - pchristensen 19y ago
        If it's common in successes and failures then it doesn't have predictive value and isn't worth stressing over.
  - skmurphy 19y ago
    I agree on the black swan analogy. I think you have to be careful of survivorship bias, reasoning backward from a handful of highly successful survivors. Among the startups we see at the Bootstrapper Breakfasts very few are able to prospect for oil and find uranium in their backyard. The ones with a simple plan to build a compelling product, at a price, for a particular set of customers at least have something to tinker with when they start to miss their own expectations.
- tom_rath 19y ago
  If those users still cost more to maintain than a company makes from them, more users aren't going to solve the problem. Google became successful because they increased per-user revenue, not because they increased the number of users.
topfunky 19y ago
It's often hard to convince people to pay for something that was previously free. So you have fewer options if you start out without a business plan. Additionally, a revenue scheme isn't just something that you tack on later. Your options are narrowed further if your technology plan is implemented before you think about sustaining it.
thelordpsy 19y ago
There's a significant difference there. Beer costs money to replicate, programs do not. The marginal cost of adding a new user to the Free-Beer program is the price of a case of beer. The marginal cost of adding a new user to your startup's community is a minor bandwidth charge. I'm not completely sure but I'm willing to bet that if you make a good enough service, people will come. With such a small marginal cost per user, you can afford to grow a userbase before you start incurring serious charge, and once you've reached a point where bandwidth costs are actually meaningful, you can almost definitely find a way to make money off of it. As another user said, the companies listed so far failed for auxiliary reasons. One of them to be wary of is overexpanding, which is basically what Webvan did. The trick is to not do a massive land-grab unless you absolutely have to; Read this- http://www.joelonsoftware.com/articles/fog0000000056.html http://www.joelonsoftware.com/articles/fog0000000056.html
- losslessignal 19y ago
  If you don't have any secondary costs this is true. A lot of web companies still need to "pay the rent" or other variable costs. Even without that, don't forget that revenue gives you a huge leg up when searching for funding.
- tom_rath 19y ago
  If your cost per user is less than the incremental revenue each user brings you, it doesn't matter how little those users cost: You're still following the "we'll make it up on volume" battle cry in the wrong direction. Bandwidth and server costs are still costs. Whether you split those costs among four customers or four million, you still need to recoup them and show a profit to create a sustainable business.

pg 19y ago

The lesson of the Bubble is not that you have to know right away how to make money from users, but that you shouldn't pay a lot to acquire them. If an additional user costs you nothing more than a few cents a month of server and bandwidth, you can safely just grow. Google didn't have their business model figured out when they started, and they seem to have done ok.

dpapathanasiou 19y ago
Google is a black swan; modeling yourself on an extreme probabilistic event is not realistic.
- pg 19y ago
  It's a black swan in the size it grew to, but not in the fact that the founders didn't have the business model figured out when they started. That's more common than not, if you look at recent web startups.
  - dpapathanasiou 19y ago
    It's about expectations: having a popular service does not mean a successful outcome (this is the implication against which I object).
    - wheels 19y ago
      Right, but nobody said that it does. The point is rather that if nobody notices what you're doing, you don't even get to the point of dying because of a bad business model.
      - Mistone 19y ago
        somehow this has splintered into an "business model vs. traction" agreement - in fact you need both. It will not kill a programmer to spend some time running a few models on how they can actually monetize the service, just as it is not beyond the scope of any biz/marketing person to understand that building something users want is job #1. where many people stumble is thinking in one dimension terms, like assuming Adsense is a business model (see recent posts by Josh Koppelman and Jeremy Lui) on just how big you need to be for this to be truly viable. What I liked in the original article is that it offered a few, less obvious options for monetization.
        wanorris 19y ago
        Some of the articles' suggestions were good ones. And yes, you should always have some ideas for how to monetize your business. However, one key problem is that if you try to implement a monetization strategy before you build a user base and really understand who shows up at your site, your monetization could be completely wrong. Consider the following possibilities: your user base turns out to be very broad-based and large, your user base turns out to be smaller, but a significant percentage of them is from a particular demographic or vertical, or your product turns out to be most interesting to other businesses or other websites that want to integrate what you built into their own businesses. Each of these scenarios implies a different approach to monetization. Given the way your understanding of a market can change as you actually meet the real people who use your site, a change in targeted user base can happen to a lot of different businesses. And if you spend too much time up front working on revenue, you may end up throwing all that work away when you confront the actual opportunities that present themselves. For some businesses, you may have a precise understanding of who your customers are going to be in advance, and then that turns out to be exactly who they are. If that works out for you, cool. But my guess is that that's not the most common scenario, especially for a website.
  - jimbokun 19y ago
    "That's more common than not, if you look at recent web startups." It is likely common in failed web startups, also.
    - pchristensen 19y ago
      If it's common in successes and failures then it doesn't have predictive value and isn't worth stressing over.
- skmurphy 19y ago
  I agree on the black swan analogy. I think you have to be careful of survivorship bias, reasoning backward from a handful of highly successful survivors. Among the startups we see at the Bootstrapper Breakfasts very few are able to prospect for oil and find uranium in their backyard. The ones with a simple plan to build a compelling product, at a price, for a particular set of customers at least have something to tinker with when they start to miss their own expectations.
tom_rath 19y ago
If those users still cost more to maintain than a company makes from them, more users aren't going to solve the problem. Google became successful because they increased per-user revenue, not because they increased the number of users.

topfunky 19y ago

It's often hard to convince people to pay for something that was previously free. So you have fewer options if you start out without a business plan. Additionally, a revenue scheme isn't just something that you tack on later. Your options are narrowed further if your technology plan is implemented before you think about sustaining it.

thelordpsy 19y ago

There's a significant difference there. Beer costs money to replicate, programs do not. The marginal cost of adding a new user to the Free-Beer program is the price of a case of beer. The marginal cost of adding a new user to your startup's community is a minor bandwidth charge. I'm not completely sure but I'm willing to bet that if you make a good enough service, people will come. With such a small marginal cost per user, you can afford to grow a userbase before you start incurring serious charge, and once you've reached a point where bandwidth costs are actually meaningful, you can almost definitely find a way to make money off of it. As another user said, the companies listed so far failed for auxiliary reasons. One of them to be wary of is overexpanding, which is basically what Webvan did. The trick is to not do a massive land-grab unless you absolutely have to; Read this- http://www.joelonsoftware.com/articles/fog0000000056.html http://www.joelonsoftware.com/articles/fog0000000056.html

losslessignal 19y ago
If you don't have any secondary costs this is true. A lot of web companies still need to "pay the rent" or other variable costs. Even without that, don't forget that revenue gives you a huge leg up when searching for funding.
tom_rath 19y ago
If your cost per user is less than the incremental revenue each user brings you, it doesn't matter how little those users cost: You're still following the "we'll make it up on volume" battle cry in the wrong direction. Bandwidth and server costs are still costs. Whether you split those costs among four customers or four million, you still need to recoup them and show a profit to create a sustainable business.