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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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  11. 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.

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

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  13. 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.

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  14. 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!

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  15. David Sachs Friday, May 9, 2008

    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….

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  16. David Sachs Friday, May 9, 2008

    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.

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  17. 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 :)

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  18. Buying advertisement is easy..

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

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  19. 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.

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  20. 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.

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  21. Stacey Higginbotham Sunday, May 11, 2008

    Paul, I love the purple widget idea! Lemme know if that raises your eCPM.

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  22. [...] 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) [...]

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

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  24. [...] 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 [...]

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  25. nice ;)

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

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  27. Alex,

    Hey nice list. Very funny.

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  28. LOL, this is great!!!!

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  29. 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.

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  30. 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

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  31. Stacey Higginbotham Wednesday, May 14, 2008

    @Aruni, believe me, I know how crazy you entrepreneurs are since I’m married to one. And if y’all didn’t step up to bat, who would I write about?

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  32. I want to develop web intelligent systems for a shopping portal. I am struggling finding people to help. Any ideas?

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  33. [...] An interesting and funny article from GigaOM that dates from April, but I just re-read it: The 5 Stages of a Consumer Web Startup. [...]

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  34. 1. Wide eyed optimism
    2. Confrontation with reality
    3. Panic
    4. Prosecution of the innocent
    5. promotion of the guilty
    6. Celebration by those who had nothing to do with anything

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