My 'This Week in Startups' Question

So last week I got in touch with Tyler Crowley” from Mahalo.com and Alex Miller from Calacanis Conferences about a question I had for Jason Calacanis on This Week in Startups, along with his guest Chris Tolles, CEO of Topix.

My question went like this:

My question is regarding revenue models. We all know what has happened/is happening in the music industry and we’re all preparing to witness the destruction of revenues in the news media. The problem, other than working out a new revenue model in each of these industries and in each of the industries which is due to follow (film, etc), is knowing how quickly changes are going to happen. For instance, very few people in the tech sector read print newspapers these days, and the masses will eventually follow, but there’s no way to accurately map these kinds of transitions. Obviously, the best tool an entrepreneur could ever wish for is a crystal ball. My question is this: how far in the future should an entrepreneur try to predict, and where should the line be drawn between entrepreneurship and economics?

I sent a video of this question to Alex and it was included in last week’s show. You can find a clip of it here. The response was thus:

Jason: “It took him a while to get there, but it’s actually a very good question, which is how far out should your startup be, because if you’re too far out from where the future is, you’re going to..”

Chris: “Pave the way for the next guy to win, right.”

Jason: “Basically first guy up the hill gets the arrows. So if you’re 6degrees or Friendster or Rise, then you run up the hill and Facebook and MySpace get the prize. How do you know you’re too far ahead? I always think I like to go into a space where someone’s pioneered a little bit but they havn’t commercialized it yet. When I went into blogging, there were people blogging but nobody had really commercialized it yet. They hadn’t figured out the business model yet. I like to see a little bit of activity, street level activity, sort of cutting edge people playing with something and then trying to figure out what’s the business model that could be layered on top of that.”

Chris: “Yeah, I think you’re right, I think in social media particular that seems to be the case, MySpace and Facebook certainly took the lessons of Friendster and the other folks in that space. I actually did something called Spoke software which [unintelligable] to enterprises. I think there are people that seem to just hit it out of the gate immediately. It might not be the commercialisation, but seeing that there’s a problem could be the other part of it. In the case of Google, everyone talks about them, but search was a large and well established space. Google saw that there was a huge opportunity in actually providing something that was a lot better, and had the technology to do that. Getting out there with a technology without a solution is a good way to wander around for a while.”

Jason: “Yeah, we were just starting up the TechCrunch50 interviews for September and we saw a technology yesterday that somebody was pitching - I can’t say what it is because it’s all under NDA, but I just thought this was a technology in search of a market, in search of a solution. The way you can always tell this is by actually talking to the people doing something. We did Weblogs Inc. and before we even launched it I started blogging personally and doing it every day and I had lunch and coffee with every blogger I could find and just talked to them open ended for an hour or two. I think it’s a critical way to know if you’re too far ahead.”

Chris: “This guy asked about the news media in particular and it’s something where we have a lot of experience, actually having newspapers as partners and watching people…you know, 8% quarter to quarter decline in newspaper revenues right now, so that one doesn’t necessarily provide an opportunity. Other people going out of business is not necessarily an opportunity, in media especially. Advertisers have not shifted to buying on the web as much as the declines have indicated, and I think you have to take a look at that, like where is the money going is another part of that in terms of looking ahead.”

Jason: “Yeah, I mean revenue destruction is one of those things, where if revenue is being destroyed, that doesn’t necessarily mean that value is being created somewhere else, it could just be going away. If you think about newspapers as an example, everyone’s so upset and there’s an emotional response, but what does the San Francisco Chronicle or the LA Times do that’s so unique and awesome that ESPN, New York Times or Wall Street Journal doesn’t?”

Chris: “There are 25,000 bloggers covering what they used to cover.”

Jason: “There’s so much massive redundancy in these newspapers.”

Chris: “Your startup has a lifespan, it’s not going to be 25 years before you make a dollar, basically you want to be starting to get revenue or funding in the first six months to a year, and then you’re supposed to actually make something of yourself in the first two or three years, so I would say more directly that if you can’t be cranking some revenue within two to three years, you might want to bring in your expectations.”

Jason: “That’s actually another good sort of indicator. If people aren’t willing to pay anything, there’s no revenue stream, what’s the point. I mean, unless you’re Twitter and you can just go on forever, without making any money. That’s the other strategy, just raise an insane amount of capital.”

So the general feeling I get from this response is that there really is no scientific way to figure out if you’re doing something at the right time or not, and that talking to others in and around the industry and gathering thoughts is the only way to assess a business plan. The usual point of initially foregoing revenue in support of fast growth was also made. Further, Chris and Jason raised the idea that value being destroyed in one place, doesn’t necessarily mean value can be created elsewhere. Not everything changes, some things just end.

Ben Langfeld 04 August 2009 Manchester, England