GigaOM

How about this lifecycle:

Create a Client server and Web based system for dispatching independent towing, glass repair, and mobile locksmiths for an Automotive auction, a closed system.

have 1000 users beg you for an expanded, open enrollment, system with new features, that any job submitter can bid out the tows and more

try to bootstrap with programmers - back end too complex for fast payout

try to get VC, response,”why would you want to be in that greasy business” uh, because the subscribers want to pay?

Give up.

I once had a conversation with the founder of a famous (and very profitable) web startup, and he shared that his number one advice for any startup is to build products that will generate revenue first, then you strip some features and launch the free version. The issue with most startups today is that there is no clear way to monetization, and eyeballs do not translate to dollars as quickly as bandwith costs increase.

Oh Gawd, Mr. Om, it’s an epic written in a series of dramatized articles @ http://bizcast.typepad.com/clients/vencap/index.html

and you can check out the actual venture docs (briefing, Power points) at http://www.scribd.com/people/view/165569-alan-wilensky

Now, if there are any ambitious startup savvy folk out there - I am not that legendary combination of CEO / CFO / Valley Wag insider - but I know my market, I know that I can deliver the product, and I can collect 20-30 a month from 30K towing, glass, and lock providers in New England, and then scale nationally. The features and architecture are non-trivial, but a true revelation in getting independent work-forces aggregated. This is my area of study, my expertise.

The fact that the VC, angels, and incubator and valley thief community continues to throw cake at cloned social networks that are sure to queue toward the dead-pool, and not to even minutely examine this true market where ordinary labor is performed daily, and is poised to consume work-performance enhancing mobile products…..

Don’t get me started. G-d forbid a real product should be born into a paying blue-collar market.

Just one more thing, Om:

the most memorable pitch I ever gave was in Atherton:

The junior partner was going to be trouble, I knew it when he asked, “can these towing people be recruited through a Facebook App?” Also, the fact that he was wearing loafers without socks did not bode well for a future meeting of the minds.

I said, “The job submitters are serious businesses that currently use the phone, dialing multiple numbers or using Nextel Direct to find a local servicer that may or may not be available, the big mobile app and workforce vendors are disparaging of these independents, though they have the technology - I don’t think a facebook app is the way to approach this, although this is a social model ”
http://bizcast.typepad.com/clients/2007/11/social-networks.html

He didn’t like this, “If you had the potential of making a billion, I wouldn’t put a dime into the service business.”

Great post. Absolutely spot on, particularly the Facebook app being the big hope (”maybe people will like us more if we were on Facebook”). The one thing that I have always wanted to do is to track the traffic (on Alexa or Compete) for large number of start-ups from month one. It would be really interesting to see if there is a point at which if they are above x then it is looking good but if they are below y then it doesn’t look so good. Have you ever seen that analysis?

It would also be nice to see some startups getting funded with a business plan that didn’t revolve around ad revenue.

Hahaha! I’m going to post that up on the wall in the office!

thank you, it is very intersting post !

You are like the Dr. Phil of startups!

The travesty is that sound business models like Alan’s will never see venture capital while some guys get millions with no clue what they plan to do, based purely on a couple of decent successes.

I just wrote a post about a great new startup in Houston that will do very well but never get a dime of funding. American capitalism has issues.

[...] Here, Gigaom discusses the lifecycle of a startup. But they forgot one crucial step: [...]

I usually find your posts filled with good facts, vision and direction. But, I must say this is not one of them. Oh well, we all can’t bat a 1,000%.

Maybe you should do a follow up post:
1) Brain fart idea
2) act on idea
3) get first beta customer
4) charge X price for the product
5) use first customer as a reference for the coming 2 years
6) grow the business - bootstrapped
7) word gets out and VC’s start calling (business is growing and maybe cash flow positive)
8) VC who was CEO of a software company in 1978 convinces you that he has seen it all - b) presents you term sheet c) you take his money
9) Board of directors takes your business in a different direction because they are wisemen and you are green and just part of the bewildered herd.
10) Board fires you
11) Board brings in new CEO with more funding
12) CEO replaces VP sales and hires executive serach firm that charges $125K to replace VP sales
13) Burn cash
14) Burn cash
15) Burn cash
16) VP Sales tries to sell Web 2.0 offering as if he was selling client side sofware back in 1994
17) Three more months of burning cash
18) Fire VP sales
19) Burn cash
20) Burn cash
21) Fire CEO
22) Shut down company or sell off assets for a song
23) VC’s turn to limited Partner and say “oh well, sorry. I’m just glad it was your money not mine”
24) Founder says to himself that he will never take another penny from a VC
25) see #1 start cycle again.

btw -

1) I should clarify. I forgot to include the :) after my opening paragraph.

2) OM, one of these days we should chat. I’d like to find out more about True Ventures. I like their portfolio.

Have a great weekend!

This parallels the Web 1.0 lifecycle that Softbank/Mobius satirized in its Christmas video in 2000, transplanting a B2B business model into a dying B2C commerce company.

Scroll down to “VC-ER” here in an article mentioning it that is reprinted from the WSJ in 2000: http://www.enlivensoftware.com/NewsEvents/News/tabid/101/mid/447/newsid447/48/Default.aspx)

Of course, the actual epilogue to that video would have been a giant financial asteroid destroying the entire facility….

Found it: http://www.spike.com/video/vc-er/2411541

Every company mentioned in this video is long gone. But the blooper reel at the end is pretty amusing.

Curse you Stacey Higginbotham ;-)

http://broadstuff.com/archives/921-Curse-you,-Stacey-Higginbotham-;.html

By the way, a marvellous book to read on this subject is the “100 greatest Internet Stocks to own” pub 2001 :)

Buying advertisement is easy..

Try converting the traffic to your customers..
Now that’s my challenge. ;)

You’re right - the widgets aren’t working that well. Instead of going from widgets to The End we’re going to make some cool purple versions of the widgets first.

Wish us luck.

This one had me laughing out loud. :)

Yep, coming up with revenue models is hard!

On the other hand, that does prepare one for the “how do you plan to make money” question.

[...] The 5 Stages of a Consumer Web Startup - GigaOM I’ve been able to witness what amounts to be a near-familiar life cycle for these companies. Not every company hits every step, but most of these will be familiar to those of you in the Silicon Valley Social Media/Web 2.0-Something trenches. (tags: startup) [...]

[...] The 5 Stages of a Consumer Web Startup - GigaOMFunny. [...]

[...] of whether to give it a try. On GigaOM, Stacey Higginbotham considers similar questions in The 5 Stages of a Consumer Web Startup. Higginbotham writes about Web 2.0 startups: many started as an interesting experiment. Many [...]

nice ;)

The question is:
Is it correct that 90% of Consumer Web Startups closed down in first 2 years or more then 95%?

Alex,

Hey nice list. Very funny.

LOL, this is great!!!!

This is just hysterical. Between the content building, the pursuit of free traffic, paid traffic, and elusive monetization, what I find fascinating is how quickly startups forget the reason why they started up! Love the 5 steps.

In my view, the best of the internet is and always has been the ability to find free information and to share ideas with friends and strangers around the planet. Traffic is the currency of the day (unless a pure e-commerce site) and from what I’ve witnessed, it is based on long term integrity rather than flash-in-the-pan sizzle (or Alexa spikes). I’ve been blogging since 2005, have experienced, along with many of you, the development of Web 2.0 and still believe that the reason my 2,000 plus subscribers stick around is because they like what I have to say and how I say it. Because I blog to boomers and 50 plussers, I may never get to 10,000 subscribers or massive streams of daily traffic. I may not make my millions, but I know I’m helping a heck of a lot of people every day. That is a currency I can live with.

Hi Stacey - Great seeing you last night at the DEMO party after so many years. Pretty good post and usually spot on. Us entrepreneurs are a little bit crazy but as Marc Andreesseen has said before, the more times up to bat the better your chances for success.

Aruni