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Summary:

In my years covering technology, I’ve gotten more than my fair share of pitches related to the latest consumer Internet startup. Thanks to this I’ve been able to witness what amounts to be a near-familiar life cycle for these companies. Not every company hits every step, […]

In my years covering technology, I’ve gotten more than my fair share of pitches related to the latest consumer Internet startup. Thanks to this 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.

IN THE BEGINNING

One day an entrepreneur is chatting with his friends, gets an idea, writes about the idea on his or her blog, and then starts coding. A few weeks or possibly days, a beta — increasingly a euphemism for a not-fully-thought-out-product — emerges.

THE LAUNCH

Then the buzz builds and the company opens up the beta far and wide. Maybe TechCrunch, ReadWriteWeb, WebWorkerDaily or WebWare write about the product. Either way, this is the first traffic spike and the entrepreneur rejoices. The VCs come calling. If they don’t, the angels will certainly do a fly-by.

But eight weeks later reality sets in. The traffic stops growing or — worse yet– dives. The VCs stop calling and blogs start posting Alexa charts that look like ski slopes or tabletops. But as an ever-optimistic entrepreneur it’s time to regroup, gather your programmers, toss back some Red Bull and…

LAUNCH A SOCIAL NETWORK WIDGET

If the user adoption press releases, the widget and subsequent coverage can’t get your site growing again, it’s time for the big guns...the open API. Now you’re a platform! The startup gets a fresh round of publicity, maybe more exposure to new users, and the founder rejoices again. This time the money men get serious because you have shown them you can survive the Silicon Valley jungle and you have a Facebook strategy.

12 MONTHS LATER

Maybe the media is getting too insistent with their questions about how this service is supposed to make money. Maybe the bills from Amazon Web Services are getting too high, or the VCs are getting impatient. The blogs are back to posting unflattering Alexa numbers. Compete data backs those charts up! So it’s time for advertising.

If the startup is well-funded or has a famous founder, the ad unit might be something novel like a widget, pre-roll voice ads on a mobile phone, or Beacon. Otherwise it’s generally based on banners and Google AdWords with promises of more to come.

THE END IS NEAR

But selling online advertising is hard. If Google, Yahoo, AOL or Microsoft haven’t stopped by with a buyout, it’s time to consider reality. You could always try your hand as an ad network or merge with a competitor, but more than likely it’s time to sell that domain name and user base on eBay or quietly shut your doors. Better luck next time.

  1. 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.

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  2. 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.

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  3. @ Alan,

    Seems like you speak from experience. Share more with rest of us :-)

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  4. 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.

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  5. Stacey Higginbotham Friday, May 9, 2008

    @Alan and Walabok, on my optimistic days I look at the startups getting funded and think, “You have to kiss a lot of frogs before you get a prince,” but most of the time I wonder why so many sites are getting money without having a real business plan.

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  6. 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.”

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  7. 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?

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

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  9. Steven Roussey Friday, May 9, 2008

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

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  10. thank you, it is very intersting post !

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