Wednesday, October 22, 2008

Secrets of Success for Web 2.0 Start-ups

I have been working with Web start-ups for the past year, and there are several lessons I have learned:

1. Do not be a loss leader. Too many start-ups assume the business model, "we lose a little on every deal, but we'll make it up in volume." To be successful, a business model needs to have a positive variable margin. Yes, the amortization of R&D can be excluded, but it is important for customers to pay for what you sell...from the start!
2. Whatever it is you do, do it well. Do not go too broad too fast. You can have a roadmap to be broad, but you need to make certain that each step is on solid ground. Insure you have great technology, and a true advantage in the first step, then the second, and so on. Having a suite of average products will not succeed.
3. Do not overlook B2B. One truth is that businesses must spend moeny to make money. If your ultimate ambition is B2C, that's fine. Whatever you are doing to attract consumers will also be attractive to businesses trying to reach those consumers. Said differently, every B2C web app is a potential B2B app.
4. Think beyond Advertising and Search. This is related to my first point, but I want to over-emphasize it. I believe if you added up all the web start-up business plans in the US, you would find that they assume advertising revenues that are 100-200 times what is actually spent in the market. We can call this the "Me Too Google" phenomenon. Here is some advice, "Go meet with someone who buys advertising from the client side." Go straight to the brand, and skip the agency. Just ask them if they would spend money with you...theoretically. You will then get a grounding in reality.
5. Make certain you are building capability for social networks, publishing and media. But be a student of what is going right and wrong with MySpace, Bebo, Facebook, et. al. This is the right place to be, but no one has figured out how to serve customers with services for which they are willing to pay.
6. Related to point 5, make certain that your web app can become a widget and be included in social network sites, portals, and yes, mobile phones. Having a great mobile and widget version is a great way to scale and learn.
7. Make certain you have an expert in public relations, non-web customer acquisition, and channel/partner management. You will need a connection to the "brick and mortar" world, or you are missing serious business opportunities.

If you are interested, I can help with all 7 of these points. Call or write. bell801@gmail.com or 425/577-8673.

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