6 ms·

>Never, ever trust another company for your business model. This is just another thought-terminating cliche not unlike "if it is free, you are a product" and I

by vdaniuk 12y ago

>Never, ever trust another company for your business model. This is just another thought-terminating cliche not unlike "if it is free, you are a product" and I can't help but respond. Large technological companies create ecosystems where smaller players can coexist with "hosts" in a mutually beneficial relationship. Ecosystem companies are not able to predict the future of the ecosystem, its evolution for all intents and purposes is mostly unpredictable. Sometimes the relationship works out, sometimes it doesn't. Startups have 70-90% failure* rate, the possibility of the host cutting of some parts of the ecosystem to integrate their food chains into the corporate borg is factored in the business and investments strategies of the smaller companies. You should not trust another company for your business model, but building your tech business in the ecosystem of a large fish is an absolutely valid and quite possibly lucrative strategy. *definitions vary EDIT success/failure

raverbashing 12y ago
> Startups have 70-90% success Don't you mean failure rate? > You should not trust another company for your business model, but building your tech business in the ecosystem of a large fish is an absolutely valid and quite possibly lucrative strategy Yes, as long as if you have a Plan B if/when your relationship is cut (a valid Plan B is to close shop and try to do something else with the expertise gained)
- vdaniuk 12y ago
  >Don't you mean failure rate? Sure, thx >Plan B Certainly. Datasift has 25 various information sources. Twitter is really important, but doesn't seem to be critical for their platform.
  - bane 12y ago
    It is if it's 90% of their business by revenue. I've worked for small companies in the past that had dozens of partners, but most partnerships don't really do anything except give you brand logo to mutually share on each other's web pages. It's like anything else, partners provide revenue to you following a power-law distribution, with a long-tail that provides nothing and a very select few that make up the lion's share.
ColinWright 12y ago
I disagree that it's a "thought-terminating cliche" - it certainly shouldn't be. There's a difference between trusting someone, versus using them to your advantage but having an exit strategy. I agree entirely that there is value, sometimes significant, in exploiting the ecosystem created by a larger fish. You'll see that in my comment, wherein it says: ... leverage off XXXX to start with ... be able to shed [it] and replace it with something else. You are saying the same thing I've said, but emphasizing that starting in the jaws of a larger fish is sometimes worth doing, and sometimes they'll deign to let you survive there. Consider, though. If you become successful - which is surely your aim - then you will come to their attention, and they will do whatever they like. So I repeat: Don't trust them. Use them, yes, but don't trust them.
- vdaniuk 12y ago
  Sometimes trust is essential and diversifying would be a loosing strategy as the larger partner will react specifically to your diversification but will help develop your business until you are not looking for something on the side. Generic business strategy rules don't work anymore, the conditions are changing too fast. I agree, however, that blind trust is always a bad path.
- frabcus 12y ago
  I think this needs more detail as to what stage in the tech lifecycle the businesses are in. Obviously, I'm going to trust an electricity company to provide my business with electricity. I'm even going to trust laptop manufacturers to continue to provide laptops I can code on. In both those cases, the thing I'm depending on is a commodity, where there is also either strong competition or regulation. There isn't much risk in depending on them. The stage to be wary of is when a whole industry is still at product stage and people are trying to move them into being platforms, or using them to Innovate/Leverage/Commoditise (ILC, see Simon Wardley) to play ecosystem games. i.e. Where the business models and how the industry will be vertically and horizontally sliced are not yet settled. Those are the ones you should be wary of dependence on.
  - jackgavigan 12y ago
jacquesm 12y ago
It's not a thought terminating cliche at all, it is very sound business advice and you will ignore it at your peril. Not all that long ago I did tech dd on a company that had exactly one very large company as their main unwilling partner. They claimed that they were 'too big to fail', guess how that ended?
- vdaniuk 12y ago
  Yeah, Gnip founders ignored this "very sound business advice" and raked in ~$130M. Startups are risky, startups that are growing in the ecosystem of one large megacorp are even riskier but they are prime acquisition targets. You decrease success chance for higher yields. This is like business 101. The advice "do not base your business model on another company" evaluates to "do not increase your risks" which would be an absolutely absurd advice. If one qualifies the original statement with several conditions for different contexts, it may become a solid advice. As it stands this model of understanding business strategies is useless.
  - jacquesm 12y ago
    Super for gnip. But basing your business model on being allowed access to other companies' data fails far more frequently than that it succeeds, and it fails far more frequently than the already pretty bad chances that you have as a start-up to begin with. See the thread subject that you're commenting in for how Gnip's competitor fared.
- blumkvist 12y ago
  Yeah sure, the countless resellers of MSFT, Oracle, IBM, VMWare, Redhat, EMC all do not understand business at all. If only some of the uptards knew how little they know, yet how much they run their mouth.
  - jacquesm 12y ago
    I think you're mis-understanding the issue, but that's fine. Let me try to explain it a bit better: if you use documented interfaces and have an established supplier role with a larger company that's fine. But if you are taking data from some API and you're re-purposing that data in a way that the company supplying you with that data may not agree with then you may one day find your access terminated. You probably should not include RedHat in a list like that.
gtirloni 12y ago
The problem is that there is nothing preventing the "ecosystem host" from deciding that a niche an "ecosystem player" is exploring is lucrative and worth pursuing. You can fly under the radar for a while but if Twitter/Facebook/Google/etc decide your area is lucrative, they will go after it, whether that will kill one of their "ecosystem players" or not. There is no partnership involved, they provide a service as a huge "blob" that is making them money and they don't care about 1 out of 1 million of their regular users. Your small company cannot call itself a partner, you've as much leverage as any user when it comes down to deciding to sacrifice you in the name of something else more lucrative. I'd say explore the benefits to bootstrap but have a strategy to depend less and less on them or your time will come. And if you really want to tie your business survival to one of these ecosystems, get yours and theirs responsibility down in writing (and even that won't help much because a breach of contract for them will mean nothing in terms of dollars, while for you it'll be your existence).
- droopyEyelids 12y ago
  Ah. So you mean, "If you want to be perfectly secure for all future time you must be completely self sufficient." Can't really argue with that. Maybe not useful advice, but it's self-evidently true.
  - ColinWright 12y ago
    It's more like: If you build a great business based on something over which you have no control, and which is such that the ones who do have control actually may have an interest in cloning what you do and terminating your facility without warning, be sure to have a "Plan B". Yes, sounds obvious, but so many people seem to ignore it, and in some cases actively disagree with it. You seem to be disagreeing with it - what would you suggest as more useful advice and a more reasonable stance? Honestly, would you build a business based on a Twitter or Facebook facility, relying entirely on them not arbitrarily terminating your access? What is your advice?
    - lifeisstillgood 12y ago
rorykoehler 12y ago
Allowing your business model be beholden to the whims of another company is setting yourself up for failure. Sure using an ecosystem built by another company can be a great way to gain traction but by limiting yourself to this ecosystem you are also severely limiting your growth potential. Not only that but you will be easily and quickly dispersed with when you become successful enough. Having validated your idea the larger eco-system company will simply replace you with a clone that they own. Unless you have some serious in-house advantage (patents and people) that is not easily replicated then you will fail.
- vdaniuk 12y ago
  Or be acquired by the larger ecosystem company what would be the desired endgame for many startups. This alone may be worth all the risk of being squeezed out of the market. The example is obvious: Gnip vs Datasift.
  - rorykoehler 12y ago
    As I mentioned unless you have some compelling reason to be bought (people or patents) you don't stand a chance.
- jusben1369 12y ago
  There's always risk but it varies greatly by platform. Twitter is by now notorious for doing this behavior. On the other hand Apple has a flourishing ecosystem of app developers. And FB has improved greatly moving from being Twitter like to closer to Apple. It's a function of maturity (young startups have growing pains on what they want to be and how they monetize) which can definitely create collateral damage. Mature companies like Apple don't experience the same degree of angsnt. It's no accident that Twitter, which has generally underperformed and disappointed more than its peers, is still screwing up and over its ecosystem far more than others.

by vdaniuk 12y ago

raverbashing 12y ago

> Startups have 70-90% success Don't you mean failure rate? > You should not trust another company for your business model, but building your tech business in the ecosystem of a large fish is an absolutely valid and quite possibly lucrative strategy Yes, as long as if you have a Plan B if/when your relationship is cut (a valid Plan B is to close shop and try to do something else with the expertise gained)

vdaniuk 12y ago
>Don't you mean failure rate? Sure, thx >Plan B Certainly. Datasift has 25 various information sources. Twitter is really important, but doesn't seem to be critical for their platform.
- bane 12y ago
  It is if it's 90% of their business by revenue. I've worked for small companies in the past that had dozens of partners, but most partnerships don't really do anything except give you brand logo to mutually share on each other's web pages. It's like anything else, partners provide revenue to you following a power-law distribution, with a long-tail that provides nothing and a very select few that make up the lion's share.

ColinWright 12y ago

I disagree that it's a "thought-terminating cliche" - it certainly shouldn't be. There's a difference between trusting someone, versus using them to your advantage but having an exit strategy. I agree entirely that there is value, sometimes significant, in exploiting the ecosystem created by a larger fish. You'll see that in my comment, wherein it says: ... leverage off XXXX to start with ... be able to shed [it] and replace it with something else. You are saying the same thing I've said, but emphasizing that starting in the jaws of a larger fish is sometimes worth doing, and sometimes they'll deign to let you survive there. Consider, though. If you become successful - which is surely your aim - then you will come to their attention, and they will do whatever they like. So I repeat: Don't trust them. Use them, yes, but don't trust them.

vdaniuk 12y ago
Sometimes trust is essential and diversifying would be a loosing strategy as the larger partner will react specifically to your diversification but will help develop your business until you are not looking for something on the side. Generic business strategy rules don't work anymore, the conditions are changing too fast. I agree, however, that blind trust is always a bad path.
frabcus 12y ago
I think this needs more detail as to what stage in the tech lifecycle the businesses are in. Obviously, I'm going to trust an electricity company to provide my business with electricity. I'm even going to trust laptop manufacturers to continue to provide laptops I can code on. In both those cases, the thing I'm depending on is a commodity, where there is also either strong competition or regulation. There isn't much risk in depending on them. The stage to be wary of is when a whole industry is still at product stage and people are trying to move them into being platforms, or using them to Innovate/Leverage/Commoditise (ILC, see Simon Wardley) to play ecosystem games. i.e. Where the business models and how the industry will be vertically and horizontally sliced are not yet settled. Those are the ones you should be wary of dependence on.
- jackgavigan 12y ago

jacquesm 12y ago

It's not a thought terminating cliche at all, it is very sound business advice and you will ignore it at your peril. Not all that long ago I did tech dd on a company that had exactly one very large company as their main unwilling partner. They claimed that they were 'too big to fail', guess how that ended?

vdaniuk 12y ago
Yeah, Gnip founders ignored this "very sound business advice" and raked in ~$130M. Startups are risky, startups that are growing in the ecosystem of one large megacorp are even riskier but they are prime acquisition targets. You decrease success chance for higher yields. This is like business 101. The advice "do not base your business model on another company" evaluates to "do not increase your risks" which would be an absolutely absurd advice. If one qualifies the original statement with several conditions for different contexts, it may become a solid advice. As it stands this model of understanding business strategies is useless.
- jacquesm 12y ago
  Super for gnip. But basing your business model on being allowed access to other companies' data fails far more frequently than that it succeeds, and it fails far more frequently than the already pretty bad chances that you have as a start-up to begin with. See the thread subject that you're commenting in for how Gnip's competitor fared.
blumkvist 12y ago
Yeah sure, the countless resellers of MSFT, Oracle, IBM, VMWare, Redhat, EMC all do not understand business at all. If only some of the uptards knew how little they know, yet how much they run their mouth.
- jacquesm 12y ago
  I think you're mis-understanding the issue, but that's fine. Let me try to explain it a bit better: if you use documented interfaces and have an established supplier role with a larger company that's fine. But if you are taking data from some API and you're re-purposing that data in a way that the company supplying you with that data may not agree with then you may one day find your access terminated. You probably should not include RedHat in a list like that.

gtirloni 12y ago

The problem is that there is nothing preventing the "ecosystem host" from deciding that a niche an "ecosystem player" is exploring is lucrative and worth pursuing. You can fly under the radar for a while but if Twitter/Facebook/Google/etc decide your area is lucrative, they will go after it, whether that will kill one of their "ecosystem players" or not. There is no partnership involved, they provide a service as a huge "blob" that is making them money and they don't care about 1 out of 1 million of their regular users. Your small company cannot call itself a partner, you've as much leverage as any user when it comes down to deciding to sacrifice you in the name of something else more lucrative. I'd say explore the benefits to bootstrap but have a strategy to depend less and less on them or your time will come. And if you really want to tie your business survival to one of these ecosystems, get yours and theirs responsibility down in writing (and even that won't help much because a breach of contract for them will mean nothing in terms of dollars, while for you it'll be your existence).

droopyEyelids 12y ago
Ah. So you mean, "If you want to be perfectly secure for all future time you must be completely self sufficient." Can't really argue with that. Maybe not useful advice, but it's self-evidently true.
- ColinWright 12y ago
  It's more like: If you build a great business based on something over which you have no control, and which is such that the ones who do have control actually may have an interest in cloning what you do and terminating your facility without warning, be sure to have a "Plan B". Yes, sounds obvious, but so many people seem to ignore it, and in some cases actively disagree with it. You seem to be disagreeing with it - what would you suggest as more useful advice and a more reasonable stance? Honestly, would you build a business based on a Twitter or Facebook facility, relying entirely on them not arbitrarily terminating your access? What is your advice?
  - lifeisstillgood 12y ago

rorykoehler 12y ago

Allowing your business model be beholden to the whims of another company is setting yourself up for failure. Sure using an ecosystem built by another company can be a great way to gain traction but by limiting yourself to this ecosystem you are also severely limiting your growth potential. Not only that but you will be easily and quickly dispersed with when you become successful enough. Having validated your idea the larger eco-system company will simply replace you with a clone that they own. Unless you have some serious in-house advantage (patents and people) that is not easily replicated then you will fail.

vdaniuk 12y ago
Or be acquired by the larger ecosystem company what would be the desired endgame for many startups. This alone may be worth all the risk of being squeezed out of the market. The example is obvious: Gnip vs Datasift.
- rorykoehler 12y ago
  As I mentioned unless you have some compelling reason to be bought (people or patents) you don't stand a chance.
jusben1369 12y ago
There's always risk but it varies greatly by platform. Twitter is by now notorious for doing this behavior. On the other hand Apple has a flourishing ecosystem of app developers. And FB has improved greatly moving from being Twitter like to closer to Apple. It's a function of maturity (young startups have growing pains on what they want to be and how they monetize) which can definitely create collateral damage. Mature companies like Apple don't experience the same degree of angsnt. It's no accident that Twitter, which has generally underperformed and disappointed more than its peers, is still screwing up and over its ecosystem far more than others.