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It may seem surprising that a seemingly successful product could fail, but it happens all the time. Although we arguably found product/market fit, we couldn’t q

It may seem surprising that a seemingly successful product could fail, but it happens all the time. Although we arguably found product/market fit, we couldn’t quite crack the business side of things. Hopefully people will read into this and learn that building a product without figuring out how to make money and just hoping it becomes obvious -- or that someone will acquire you -- is NOT a business model.

freehunter 13y ago
I would say that many people would disagree. Launching without a profitability model is what a lot of startups do, and some of them are successful. I'd like to see numbers on how many of those types are successful versus the startups looking for profit to begin with. I would argue that it is A business model. The debate would be around whether or not it's a good business model. I guess as long as you're honest with yourself and your employees, aiming to be acquired as a profitability plan is perfectly valid.
- mvkel 13y ago
  "aiming to be acquired as a profitability plan is perfectly valid." Getting acquired and becoming a cost center for another organization is not how I'd define success. Yes, companies like this exist, but they typically are in the news because they're the exception to the rule. For any sustainable business, the obvious part has to be how it makes money; the tough part is building it in a way that captures the customer.
  - freehunter 13y ago
    Not everyone wants a sustainable business. Some people just want to get acquired. This was even mentioned in a business class I had in the 90's. Did you make money? Yes. Did your investors get their return? Yes. Sounds like a successful exit to me. Every week I'm seeing an article about Google/Apple/Microsoft buying a small company that had no hope of being profitable on their own. Everyone defines success on their own terms.
  - GauntletWizard 13y ago
    "Getting acquired and becoming a cost center for another organization is not how I'd define success." I'd not consider that failure, either; Many things are valuable, yet often defined as "Cost centers". IT Support, for example, is almost always defined as a cost-center, yet it fuels so many parts of the business and can be such an improvement to getting things done it's insane in the modern world not to have it. Building a technology or product that is only good as an add-on, loss leader, or tech demo isn't shameful. If somebody's willing to pay for it, if you and your investors can get a good return, that's a reasonable measure of success. It's nice when a product is successful on it's own, but not everything is about direct-sales.
  - brianpgordon 13y ago
    Creating unsustainable businesses that get acquired is a sustainable business.
- BrainInAJar 13y ago
  > Launching without a profitability model is what a lot of startups do, and some of them are successful. I actually wonder about the statistics about failed startups. That is, how many are started, how many achieve some sort of profitability, and how many just whither away within a year or two. I suspect that it's in the mid-high 90% that fail within a couple years regardless of any initial seed rounds. Hackernews is an especially bad circlejerk about the nobility and predestined success of all manner of startup
- fastball 13y ago
  For reference, see Facebook.
  - dclara 13y ago
    Good argument. It's a gambling instead of a business model. According to the traditional business practice, if you don't have a sales projection, you don't have a business. Tech world should not bet on the exceptions. Investment could cause bubbles. Whoever is the last gets caught. The reality is: not every startup and business is qualified for making profit. They should pursue it diligently to merge to a model to have enough margins, but be prepared to fail. Therefore the founder will not be that sad.
    - freehunter 13y ago
      But a business model that depends on having enough users to support the business is a gamble as well. What's the difference between a company hoping for one more user before the end of the month and one more penny to keep them in business versus a company hoping for that buyout offer before the end of the month, that $300m that would pay off their investors and be enough to start the next business? I guess it's the difference between starting a business versus starting a company. But any business is a gamble at first. "Starting a startup is so hard that it's a close call even for the ones that succeed. However high a startup may be flying now, it probably has a few leaves stuck in the landing gear from those trees it barely cleared at the end of the runway." http://paulgraham.com/mit.html http://paulgraham.com/mit.html
      - dclara 13y ago
        You have two questions in argument if I understand you correctly. 1) What's the difference between a business model based on having enough users vs. having buyout offer? I don't differentiate a business from a company in that way. Business and company in the real world are pretty much the same thing. In the tech world, large number of users may bring a business into profitable stage because they have a huge pool of leads. Even if the conversion rate is low, there is still many chances to earn, especially due to the trust level. This model is similar to the traditional business. High tech startups rely on the second way a lot because once they catch some investors, they made money no matter if the business is really profitable or not. That's why it's like gambling, you don't need to have a real business, as long as you make somebody believe you can make money, you win. 2) Is every business a gamble? Not quite. The odds are a lot higher if you follow the typical business rules in the real world to provide true values to your customers. Now, a lot of people believe in that money can make money, so no real product is necessary. That's completely wrong. This belief puts everybody into gambling. At the end of the day, you will find that only the product/service values being realized can make money. So business is not gambling. We consumers are living on it everyday. If there is no product/service value but money trading, we will be running out of the fuel so quickly.
elwell 13y ago
Judging by some of the talks I've watched, pg would disagree with this.
- bronson 13y ago
  and Youtube and Twitter would certainly disagree with this.
  - nine_k 13y ago
    Running a video service without even thinking of a distant possibility to make it an ad platform or a paid video-on-demand platform? I can hardly believe that. Running a centralized messaging service without ever thinking about selling aggregated data (e.g. sentiment analysis) or anonymized ad targeting data (e.g. based on keywords in recent tweets)? I can also hardly believe that. I'd like to hear about a monetization model for DrawQuest, even as far-fetched as the ones I listed above — besides simply putting hard-to-target ads on the page.
    - ryanhuff 13y ago
      I hadn't heard of DrawQuest before today, but an idea I had while browsing the site is to add a marketplace module, possibly centered around crowd-sourced greeting cards. People can build/buy greeting cards using the creative work. The creative work that I saw on the site seems ideal for the format.
    - logicallee 13y ago
      >without even thinking of a distant possibility to make it an ad platform or a paid The point is that distant possibility wasn't enough in this case. Of course everyone had a distant possibility in mind, 95% of the readers of this article already thought of a distant possibility of where the company could have made money eventually if it had kept growing.
zaidf 13y ago
400,000 uniques/month in a consumer play is peanuts. They didn't shut down because they couldn't monetize. They shut down because they didn't get the traction needed for consumer ventures.
- mvkel 13y ago
  Agree. 400K uniques/month isn't a lot. I'm surprised Poole was seemingly satisfied with this number, considering he knows exactly how much traffic one would need to survive.
- nine_k 13y ago
  Imagine that all these 400k consumers were bringing just $1 of income (not profit) each. I suppose that operating the whole thing is significantly less than $400k a month. To sensibly kill a service that brings in a couple hundred thousand dollars of profit a month you must be a large corporation, not a startup.
  - carbocation 13y ago
    They were probably bringing in much less than $1 for each of those 400,000 people.
    - moot 13y ago
      Much, much less :)
  - aylons 13y ago
    Each individual visitor (which does not correspond directly to a consumer) usually brings a fraction of a penny to the table, if anything at all.
  - zaidf 13y ago
    Consumer startups with such little traction don't get anywhere close to $1 per user per month. I ran a start-up with a million uniques a month and we were making a fraction of a penny per visitor.
logicallee 13y ago
it worked for Google.

freehunter 13y ago

I would say that many people would disagree. Launching without a profitability model is what a lot of startups do, and some of them are successful. I'd like to see numbers on how many of those types are successful versus the startups looking for profit to begin with. I would argue that it is A business model. The debate would be around whether or not it's a good business model. I guess as long as you're honest with yourself and your employees, aiming to be acquired as a profitability plan is perfectly valid.

mvkel 13y ago
"aiming to be acquired as a profitability plan is perfectly valid." Getting acquired and becoming a cost center for another organization is not how I'd define success. Yes, companies like this exist, but they typically are in the news because they're the exception to the rule. For any sustainable business, the obvious part has to be how it makes money; the tough part is building it in a way that captures the customer.
- freehunter 13y ago
  Not everyone wants a sustainable business. Some people just want to get acquired. This was even mentioned in a business class I had in the 90's. Did you make money? Yes. Did your investors get their return? Yes. Sounds like a successful exit to me. Every week I'm seeing an article about Google/Apple/Microsoft buying a small company that had no hope of being profitable on their own. Everyone defines success on their own terms.
- GauntletWizard 13y ago
  "Getting acquired and becoming a cost center for another organization is not how I'd define success." I'd not consider that failure, either; Many things are valuable, yet often defined as "Cost centers". IT Support, for example, is almost always defined as a cost-center, yet it fuels so many parts of the business and can be such an improvement to getting things done it's insane in the modern world not to have it. Building a technology or product that is only good as an add-on, loss leader, or tech demo isn't shameful. If somebody's willing to pay for it, if you and your investors can get a good return, that's a reasonable measure of success. It's nice when a product is successful on it's own, but not everything is about direct-sales.
- brianpgordon 13y ago
  Creating unsustainable businesses that get acquired is a sustainable business.
BrainInAJar 13y ago
> Launching without a profitability model is what a lot of startups do, and some of them are successful. I actually wonder about the statistics about failed startups. That is, how many are started, how many achieve some sort of profitability, and how many just whither away within a year or two. I suspect that it's in the mid-high 90% that fail within a couple years regardless of any initial seed rounds. Hackernews is an especially bad circlejerk about the nobility and predestined success of all manner of startup
fastball 13y ago
For reference, see Facebook.
- dclara 13y ago
  Good argument. It's a gambling instead of a business model. According to the traditional business practice, if you don't have a sales projection, you don't have a business. Tech world should not bet on the exceptions. Investment could cause bubbles. Whoever is the last gets caught. The reality is: not every startup and business is qualified for making profit. They should pursue it diligently to merge to a model to have enough margins, but be prepared to fail. Therefore the founder will not be that sad.
  - freehunter 13y ago
    But a business model that depends on having enough users to support the business is a gamble as well. What's the difference between a company hoping for one more user before the end of the month and one more penny to keep them in business versus a company hoping for that buyout offer before the end of the month, that $300m that would pay off their investors and be enough to start the next business? I guess it's the difference between starting a business versus starting a company. But any business is a gamble at first. "Starting a startup is so hard that it's a close call even for the ones that succeed. However high a startup may be flying now, it probably has a few leaves stuck in the landing gear from those trees it barely cleared at the end of the runway." http://paulgraham.com/mit.html http://paulgraham.com/mit.html
    - dclara 13y ago
      You have two questions in argument if I understand you correctly. 1) What's the difference between a business model based on having enough users vs. having buyout offer? I don't differentiate a business from a company in that way. Business and company in the real world are pretty much the same thing. In the tech world, large number of users may bring a business into profitable stage because they have a huge pool of leads. Even if the conversion rate is low, there is still many chances to earn, especially due to the trust level. This model is similar to the traditional business. High tech startups rely on the second way a lot because once they catch some investors, they made money no matter if the business is really profitable or not. That's why it's like gambling, you don't need to have a real business, as long as you make somebody believe you can make money, you win. 2) Is every business a gamble? Not quite. The odds are a lot higher if you follow the typical business rules in the real world to provide true values to your customers. Now, a lot of people believe in that money can make money, so no real product is necessary. That's completely wrong. This belief puts everybody into gambling. At the end of the day, you will find that only the product/service values being realized can make money. So business is not gambling. We consumers are living on it everyday. If there is no product/service value but money trading, we will be running out of the fuel so quickly.

elwell 13y ago

Judging by some of the talks I've watched, pg would disagree with this.

bronson 13y ago
and Youtube and Twitter would certainly disagree with this.
- nine_k 13y ago
  Running a video service without even thinking of a distant possibility to make it an ad platform or a paid video-on-demand platform? I can hardly believe that. Running a centralized messaging service without ever thinking about selling aggregated data (e.g. sentiment analysis) or anonymized ad targeting data (e.g. based on keywords in recent tweets)? I can also hardly believe that. I'd like to hear about a monetization model for DrawQuest, even as far-fetched as the ones I listed above — besides simply putting hard-to-target ads on the page.
  - ryanhuff 13y ago
    I hadn't heard of DrawQuest before today, but an idea I had while browsing the site is to add a marketplace module, possibly centered around crowd-sourced greeting cards. People can build/buy greeting cards using the creative work. The creative work that I saw on the site seems ideal for the format.
  - logicallee 13y ago
    >without even thinking of a distant possibility to make it an ad platform or a paid The point is that distant possibility wasn't enough in this case. Of course everyone had a distant possibility in mind, 95% of the readers of this article already thought of a distant possibility of where the company could have made money eventually if it had kept growing.

zaidf 13y ago

400,000 uniques/month in a consumer play is peanuts. They didn't shut down because they couldn't monetize. They shut down because they didn't get the traction needed for consumer ventures.

mvkel 13y ago
Agree. 400K uniques/month isn't a lot. I'm surprised Poole was seemingly satisfied with this number, considering he knows exactly how much traffic one would need to survive.
nine_k 13y ago
Imagine that all these 400k consumers were bringing just $1 of income (not profit) each. I suppose that operating the whole thing is significantly less than $400k a month. To sensibly kill a service that brings in a couple hundred thousand dollars of profit a month you must be a large corporation, not a startup.
- carbocation 13y ago
  They were probably bringing in much less than $1 for each of those 400,000 people.
  - moot 13y ago
    Much, much less :)
- aylons 13y ago
  Each individual visitor (which does not correspond directly to a consumer) usually brings a fraction of a penny to the table, if anything at all.
- zaidf 13y ago
  Consumer startups with such little traction don't get anywhere close to $1 per user per month. I ran a start-up with a million uniques a month and we were making a fraction of a penny per visitor.

logicallee 13y ago

it worked for Google.