Friday, June 17, 2011

Internet start-ups dog or cash cow

My dog Max might take offense, if he could at being associated with failure. In particular he may take offense at being associated with failed Internet start-ups. Having said that, he has a lot in common with Internet start-ups. He is undeniably cute, as are many Internet start ups, he attracts a lot of attention - especially when out and about (in the park) and dispute all th attention and fans that he has, he costs me money and does not generate a penny ! Luckily I have invested in him as a companion rather than a business ...
Max the puppy  

The debate is on, are we in another tech bubble or not ? I agree with Steven Blank we are certainly in a bubble. For me the indications are more heuristic than scientific. I see young "entrepreneurs" running around using words like "social media", "traction" and "pivot" - most of them cannot define these terms and when I ask "what is your business model ?" - I get either a blank stare or a garbled collection of buzz words which I cannot comprehend. Yet, amazingly some of these "entrepreneurs" are being funded by "experienced investors".  Granted that the extent of "craziness" is not on par with the 1990's Internet bubble, however the over exuberance displayed towards mobile applications or social media is frightening.

Jumping on the bandwagon are a whole host of companies organizing pitch events, networking, workshops on getting funded etc. Many (not all) of the people running these workshops have never themselves managed to successfully start a company (that does not prey on entrepreneurs) - else why would they go to the trouble ?

The Internet start-up reminds me of setting up a market stall. My parents did this for years and I know from experience that it is one of the simplest of business to set-up and very hard to make real money from. All you do is find some collection of product for cheap, get a table (and some chairs - optional) join a market and then you try sell your products slightly less cheap to the foot-fall passing by. Likewise, it does not take a genius to set up a website or develop a mobile app. If you don't know how, you can hire some developers in Easter Europe for a couple of bucks and hour (pocket money). Being very easy to start, makes it very common and makes the success rates very small. So almost all Internet start-ups are dogs - they might be cute and fun, but be careful of investing in them !

Having said all of that, I distinguish between Internet start-ups and businesses that start with a strong Internet presence. Google for example is a marketing company, almost exclusively online. Amazon is a retailer which is based online. If you could create a business (no matter how competitive the market) and when answering the question where are you based - answer, online. Then you have a business on the Internet as opposed to an Internet business. For example, "we are a telephone company based online" - Skype or , "we are an auction house based online" - eBay. Whilst not all such companies are making profit, they at least have the "chance" of making it by virtue of a definable revenue source.

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