February 27, 2010
If you got a startup with a brilliant idea and you think that all you need is a bit of VC money to get off the ground, think again. According to a recent study, about 41% of startups believe that they qualify for venture capital money. At the same time, VCs indicate that they go through about a hundred of business plans to make one deal. That is, fewer than 1% of startups are considered as venture worthy by the money people.
In other words, the businesses grossly overestimate their ability to raise capital. “Grossly overestimate” is probably not good enough to describe the 41% vs 1% discrepancy.
And if you are not an average native Silicon Valley grad (like me), the chances are even worse. Says Vivek Wadhwa, former entrepreneur: Despite having co-founded a software company that we took from startup to $120m in revenue; profitability; and IPO in a record five years, I couldn’t get Research Triangle Park (RTP) VCs to even return my phone calls when I was ready to start my second venture. I later found out why: “my people” <Indians> were great at mathematics and made great engineers, but didn’t make great CEOs — “we” didn’t have the necessary management skills, didn’t like diluting our equity ownership by raising venture capital, and couldn’t “fit” into the rough-and-tough American business-management culture. That’s what one RTP VC told me over lunch, to explain why his firm wasn’t inviting me to pitch my business plan. They were very busy and had to be selective in who they met.
February 23, 2010
While reviewing ad inventory on the StackOverflow, it occurred to me that it’s not easy to sell things to the programmers. If the visitors of your site are programmers, what ads are going to be most effective and perform better than the others? Currently, the only non-job ads on the StackOverflow are promoting SDKs, components, development and related tools, training courses. This is basically all you can try to sell to the programmers. From the top of my head I typed www.programmers.com into the browser and got a site with just the same sorts of ads.
Now, one would think that it’s not easy to sell these things to the programmers for a variety of reasons:
- There are many open-sourced and free alternatives.
- High piracy rate. Programmers (in general, but not all of them) love to find and download things they need without paying.
- A lot of programming is outsourced these days, meaning there are many programmers from India, China, Russia and other countries, whose buying power is reduced. In other words, there are a lot of customers who won’t spend an extra dollar unless absolutely needed.
- Build or Buy thinking, meaning that every time a programmer evaluates someone else’s software, he thinks “I can build it myself and it will be better”.
For me personally, these reasons are scary enough to keep away from programmers market as far as possible. I know there are people who built successful companies selling stuff to developers, like a code review tool or bug tracking system. Well, these people are very smart and lucky. I’ve seen dozens of companies that tried to sell components and crashed into the ground.
February 16, 2010
A while ago I was writing about StackExchange, which is a platform to create simple web 2.0 questions-answers community sites. StackOverflow was the first community site created by Joel Spolsky using StackExchange. I sometimes browse through another StackExchange offspring – OnStartup Answers, which is themed around startup industry. Ironically, one of the questions asked on the OnStartup Answers was the following: Do owners of sites like OnStartups.com and Startups.com have any revenue off of these websites? I was skeptical about it and got slammed by fellow OnStartup lovers. Meanwhile, Jason Cohen, a co-owner of the OnStartups himself wrote that the site “is like blogging. It’s almost impossible to make money off ads and blogging, even with thousands of readers (you need many 10s of thousands). But blogs can be a fantastic way to drive traffic to other things that do make money, like a startup or like consulting time.”
So guess what happened. Joel started looking for VC money to fund his StackOverflow project. Funny enough, he also wrote in that post that it is a sign that you should NOT be looking for VC money “if there is any other way to raise the kind of money you need, for example, by selling actual products to customers“. In other words, he doesn’t think that he can make good money by selling actual products (ads or whatever) off StackOverflow and decided to go to VCs. This is exactly the answer the OnStartup lovers didn’t like.
It is not necessarily a bad business model for Joel and StackOverflow. This is the way to do things in Silicon Valley – you get a site off the ground, get funding, grab the audience, do IPO or sell to a strategic investor, and then you walk away smiling. Webvan, anyone? 😉
February 9, 2010
A while ago I did a post, showing how EverNote was bleeding money at an astonishing rate. Turned out their CEO Phil Libin gave confusing data, so it was not just me falling into wrong conclusion. You can find updated math here. In short – they do have operating profit, and things are not as bleaky as they seemed two months ago.
February 8, 2010
OK, we finally got our ad copy approved by Google and it has word “iPhone” in it. We didn’t do anything fancy, just were persistent and Google caved in. The thing is however that we are getting miserable CTR on those ads. It doesn’t look that Google is good to advertise iPhone apps on it.
Now we are trying Microsoft adCenter. The CTR in Search will probably be low as well. The idea is to get somewhere on a Microsoft page with “OneNote” on it. This should be a relevant page for OneNote client for iPhone, ain’t it?
February 4, 2010
We tried advertising our app on AdWords and were immediately set back by Google. Turned out, they don’t let some trademarked terms to be used in the ad copy. Namely, we can’t use word “iPhone”. They neither allow “i Phone” or “i-Phones”, but you would expect this from Google.
This is obviously wrong, because it’s legal to use a trademarked term to describe product compatibility. And the sole purpose of using the word is to say that our app is designed for iPhone, nothing else.
Funny enough, we can use “Onenote” no problem, even though it’s a trademarked term too. So, Apple nowadays is really the Microsoft of 90s, the enemy of openness, competitiveness, trying to preserve the monopoly by any mean.