4 ms·

The Internet startup model is broken and how to fix it

22 points by uxjulie 14y ago

adrianmn 14y ago
Ain't broke don't fix! Both bootstrapping and VC/funding model work fine they just each embrace different business models. Bootstrappers mostly focus on revenue from day 1 while the others are more focused on rapid growth and exit potential. There is nothing wrong with any of them and the world is a better place by having different models as each offers unique innovation opportunities.
- danmaz74 14y ago
  What is "wrong" (or at least suboptimal) is when good bootstrapped products get killed by money-heavy venture capital backed ones that fizzle out when they finish their money. That is pretty frustrating.
  - njx 14y ago
    what is wrong is bootstrapped companies don't get exposed in media (techcrunch etc) and every VC funded company is guaranteed the exposure. Exposure creates mindshare and mindshare leads to pocketshare. The bootstrapper eventually suffers because whether the VC funded company makes money or not, the opportunity for exposure is very limited. On the other hand bootstrappers need to be more creative and keep pushing the limits.
nchuhoai 14y ago
I really liked the post (and the sentiment about 6wunderkinder as a Bostonian in Germany). However, I also really liked the reasoning of Nate Weiner on why he chose to make Pocket free: http://blog.ideashower.com/post/21276590202/why-pocket-went-free http://blog.ideashower.com/post/21276590202/why-pocket-went-... As you pointed out, it's up to us customers what kind of vision we want to support, the "low-risk", immediate revenue model or the long-tail, high-risk, winner-takes-it-all model. I totally agree that too few people are aware of the inherent differences and then cry if the latter fails or gets shutdown after an acquihire. That being said, I prefer Pocket over Instapaper
- uxjulie 14y ago
  Thanks for sharing that post explaining why free. I hadn't seen it. Yes, it's up to the customers. But we'll see what happens. I'm curious what Pocket's new business model is. And whether it'll be around or acquihired within a few years.
jhull 14y ago
I think the argument here can be summed up as: Don't shop at Home Depot, Amazon or Whole Foods. Shop at the neighborhood Hardware store, the corner Bookstore and the local Farmer's market (for tech.)
talkingquickly 14y ago
I agree it often seems crazy companies with no clear revenue model raising millions in funding but I'm not sure the approach of looking at each one individually and saying "it doesn't look like they could generate sufficient revenues to justify that investment" takes into account why they're getting the investment. At such an early stage most startups are at best guessing what their main revenue source will be, the only thing they've demonstrated is that they're able to build something people want. My understanding is that the bet VC's are taking isn't that all or even most of them will work out a way to monetize this sufficiently to make a return on investment, it's that one or two of them will work it out in a big way and be successful to the point that they more than compensate for the majority of others which just about broke even or never cracked it at all. If anything these investments are just an acceptance than no-one really knows what's going to work and one solution to this is to put money into teams which seem to be able to make something people want and hope that by allowing them what look like unrealistic costs to begin with, they'll come up with something game changing. Not suggesting that's the best approach to building companies but I don't think it's a completely unreasonable one. The point's made a lot better than I can in this lecture (http://blakemasters.tumblr.com/post/21869934240/peter-thiels-cs183-startup-class-7-notes-essay http://blakemasters.tumblr.com/post/21869934240/peter-thiels...) from Peter Thiel's startup class (with Roelof Botha and pg).
- uxjulie 14y ago
  I agree with you and that lecture is great. But let's face it. Most startups fail and are not revolutionary. Many are copies of existing services. I celebrate the few that really inspire me, like Twitter, Instapaper or Square and others. But I am disgusted by the Colors and Pockets out there.
alttab 14y ago
When Cheddar was posted here a while back, I scoffed at it and said "Great, another Todo app that they are trying to charge like a service." This article provides a little more context around it. I think we'll see more single-man shops proliferate as venture funding tones down over the next few years. All in all, when that happens I think everyone will win: 1) Consumers will have more choices as developers set off on their own. 2) Consumers won't get bait-switched when a start-up sells out to turn a profit for investors. 3) Investors won't have to play the numbers game as much. These dudes are already rich so personally I don't care what happens to them. 4) Developers/business owners won't be at the mercy of investor pressure or a board and are finally a master of their own domain. Quitting your job to take funding for a venture simply changes who your boss is.
JoeAltmaier 14y ago
Strange argument, that we fix the internet somehow, by boycotting products that don't match our expectations of what an internet business should be. I thought the free market determined what survived? Adding this pressure - has to conform to a blog writers vision - just adds another hurdle to success. Was something about the free market broken? Will a half-dozen annoyed blog-readers make any difference? What's the goal here.
- uxjulie 14y ago
  Well I personally think a bubble is coming because we're busy creating products and services that don't produce revenue and value. Free markets generally work but can fail miserably when gone unchecked. That happened only a few years ago. And I personally believe it's irresponsible on the web. My point and goal is for us, the workers of the web to recognize that and steer away from that irresponsibility, if possible. We don't need millions for another photo app, reading app or social network. Let's build something useful.
  - JoeAltmaier 14y ago
    The investment in web trash is not significant. If its a bubble, it won't be of the magnitude of a S&L or mortgage meltdown - it'll be some privileged Valley execs and coders getting disappointed. Photo apps and social networks are possibly the single most useful invention of the last decade. Variations may bore you or seem silly, but there is probably room in the market for some tweaks on these themes. If they make money, then it was worth it. If you have some future-radar that can predict which will fail, perhaps you can convince some VC or Angel firm to employ you. Otherwise they'll have to make their best guess and plonk their money down where they think best.

22 points by uxjulie 14y ago

Ain't broke don't fix! Both bootstrapping and VC/funding model work fine they just each embrace different business models. Bootstrappers mostly focus on revenue from day 1 while the others are more focused on rapid growth and exit potential. There is nothing wrong with any of them and the world is a better place by having different models as each offers unique innovation opportunities.

danmaz74 14y ago
What is "wrong" (or at least suboptimal) is when good bootstrapped products get killed by money-heavy venture capital backed ones that fizzle out when they finish their money. That is pretty frustrating.
- njx 14y ago
  what is wrong is bootstrapped companies don't get exposed in media (techcrunch etc) and every VC funded company is guaranteed the exposure. Exposure creates mindshare and mindshare leads to pocketshare. The bootstrapper eventually suffers because whether the VC funded company makes money or not, the opportunity for exposure is very limited. On the other hand bootstrappers need to be more creative and keep pushing the limits.

nchuhoai 14y ago

I really liked the post (and the sentiment about 6wunderkinder as a Bostonian in Germany). However, I also really liked the reasoning of Nate Weiner on why he chose to make Pocket free: http://blog.ideashower.com/post/21276590202/why-pocket-went-free http://blog.ideashower.com/post/21276590202/why-pocket-went-... As you pointed out, it's up to us customers what kind of vision we want to support, the "low-risk", immediate revenue model or the long-tail, high-risk, winner-takes-it-all model. I totally agree that too few people are aware of the inherent differences and then cry if the latter fails or gets shutdown after an acquihire. That being said, I prefer Pocket over Instapaper

uxjulie 14y ago
Thanks for sharing that post explaining why free. I hadn't seen it. Yes, it's up to the customers. But we'll see what happens. I'm curious what Pocket's new business model is. And whether it'll be around or acquihired within a few years.

jhull 14y ago

I think the argument here can be summed up as: Don't shop at Home Depot, Amazon or Whole Foods. Shop at the neighborhood Hardware store, the corner Bookstore and the local Farmer's market (for tech.)

talkingquickly 14y ago

I agree it often seems crazy companies with no clear revenue model raising millions in funding but I'm not sure the approach of looking at each one individually and saying "it doesn't look like they could generate sufficient revenues to justify that investment" takes into account why they're getting the investment. At such an early stage most startups are at best guessing what their main revenue source will be, the only thing they've demonstrated is that they're able to build something people want. My understanding is that the bet VC's are taking isn't that all or even most of them will work out a way to monetize this sufficiently to make a return on investment, it's that one or two of them will work it out in a big way and be successful to the point that they more than compensate for the majority of others which just about broke even or never cracked it at all. If anything these investments are just an acceptance than no-one really knows what's going to work and one solution to this is to put money into teams which seem to be able to make something people want and hope that by allowing them what look like unrealistic costs to begin with, they'll come up with something game changing. Not suggesting that's the best approach to building companies but I don't think it's a completely unreasonable one. The point's made a lot better than I can in this lecture (http://blakemasters.tumblr.com/post/21869934240/peter-thiels-cs183-startup-class-7-notes-essay http://blakemasters.tumblr.com/post/21869934240/peter-thiels...) from Peter Thiel's startup class (with Roelof Botha and pg).

uxjulie 14y ago
I agree with you and that lecture is great. But let's face it. Most startups fail and are not revolutionary. Many are copies of existing services. I celebrate the few that really inspire me, like Twitter, Instapaper or Square and others. But I am disgusted by the Colors and Pockets out there.

alttab 14y ago

When Cheddar was posted here a while back, I scoffed at it and said "Great, another Todo app that they are trying to charge like a service." This article provides a little more context around it. I think we'll see more single-man shops proliferate as venture funding tones down over the next few years. All in all, when that happens I think everyone will win: 1) Consumers will have more choices as developers set off on their own. 2) Consumers won't get bait-switched when a start-up sells out to turn a profit for investors. 3) Investors won't have to play the numbers game as much. These dudes are already rich so personally I don't care what happens to them. 4) Developers/business owners won't be at the mercy of investor pressure or a board and are finally a master of their own domain. Quitting your job to take funding for a venture simply changes who your boss is.

JoeAltmaier 14y ago

Strange argument, that we fix the internet somehow, by boycotting products that don't match our expectations of what an internet business should be. I thought the free market determined what survived? Adding this pressure - has to conform to a blog writers vision - just adds another hurdle to success. Was something about the free market broken? Will a half-dozen annoyed blog-readers make any difference? What's the goal here.

uxjulie 14y ago
Well I personally think a bubble is coming because we're busy creating products and services that don't produce revenue and value. Free markets generally work but can fail miserably when gone unchecked. That happened only a few years ago. And I personally believe it's irresponsible on the web. My point and goal is for us, the workers of the web to recognize that and steer away from that irresponsibility, if possible. We don't need millions for another photo app, reading app or social network. Let's build something useful.
- JoeAltmaier 14y ago
  The investment in web trash is not significant. If its a bubble, it won't be of the magnitude of a S&L or mortgage meltdown - it'll be some privileged Valley execs and coders getting disappointed. Photo apps and social networks are possibly the single most useful invention of the last decade. Variations may bore you or seem silly, but there is probably room in the market for some tweaks on these themes. If they make money, then it was worth it. If you have some future-radar that can predict which will fail, perhaps you can convince some VC or Angel firm to employ you. Otherwise they'll have to make their best guess and plonk their money down where they think best.