Friday, January 30, 2009

Getting funding does not mean your business (idea) is successful

Just read on twitter that someone sent congratulations to a startup that got 1.2 Mio USD funding. For this company it might me good, but what does this mean in general?
One reason for the financial and economic crisis is, that businesses were overfunded. Banks and VC are spending millions of dollars just to be the one who is in. That might be good for small startups and maybe the revenue comes, and if not, it was a minor risk.
But when it comes to 1.2 Million USD, or even more, like Twitter is getting again and again, it might be a good idea to just ask for the business plan. Its a miracle for me why twitter is getting VC money even if they say "we don't have any idea how to make money out of it."
Even if you have a create, grow and sell strategy, at the end ther must be some return on the investments. Fort a long time VC and banks were giving away money for everything. We know this already from the last internet bubble. It seems to happen again. Startups are not looking for a sustainable business plan but for funding. And investment companies looking for be the first to invest instead of making a long term investment.
Even Facebook isn't making profit, but it seems to generate some revenue through advertising. But advertising isn't everything.

One of the simple questions I learned when I was studying economics was "What is your product and how you think you can sell it?"
The important oart is selling. Most social networks are failing after a while because they are not products. There is no real benefit people would like to pay for. Flickr is giving you storage and is focussed on pictures. No disturbing poking. You can buy Gmail storage - its a real product, even if its virtual. LinkedIn is offering you premium services and contacts - something special.
But Facebook and Twitter isn't offering a particular service. Its jut a platform, a playground. Ads on twitter would be pretty easy, but the main reason why they don't have ads is: Just a few geeks are using twitter. It's totally overrated and overhyped. I like the service and the concept, but I also like podcasting and just a minority is using what media called once the Radio Killer.

I predict that in 2009 there will be a clearance of social networks and services without a product sense. There is just not enaough cash anymore for investing, and once you are running out of money you take a closer look on what you buy and invest and what the return is. Market share and page impressions are not important anymore. Value ist more important, I think.

1 comment:

HongViet said...

I agree with the main idea of your opinion, which is about VC are wasting money to many unreal businesses which are not cleared in business models. And as the result, the second internet bubble has been happening.

But about facebook and twitter, I think they're different stories, the fact is that there's only 1 facebook, 1 twitter, 1 youtube ... their clones (which may befunded by other VC) actually almost can not catch up or make the same sucess. Their values may not be very clear now, but their power is real. The campaign of Barack Obama says it all.

Google does not sell their search service, it provides everything free to individuals for what? One of the reasons is to index everything about us, to know who we are, where are we living, what are we doing, what do we live, what types of movies we watch etc ... and their current ultimate goal is to display the right advertisement at the right time to us.

And facebook (almost) does not have to do everything to get our profiles since we provide all information to it, about our age, our gender, our friends, our co-workers... and no wonder that some day when we wake up, it advertises the right thing that we just want to buy the day before.

Am i wrong?