I did the opening presentation at MIT's Underground 2008 event yesterday for
student entrepreneurs. My hat's off to Albert Park and his colleagues for
organizing a great event. We need more of this kind of stuff in the
Boston/Cambridge area to bring student entrepreneurs together with others.
Here are some quick notes and points that I made from my presentation. My
favorite part about it was the fact that there were no PowerPoint presentations
allowed. When the organizers told me that, it made my day. [For
reasons, see "Why I Hate PowerPoint"].
Note: If you were at the event, please note that I didn't get to all of
these points during my talk (just wasn't enough time), but this is all the stuff
I wanted to say.
Some Ideas for Student Entrepreneurs
1. It's alright if your idea is sort of crappy: Most
startup ideas start out kind of crappy. The good news is that once you get
started, you'll start learning more and your ideas will get better. But you
have to get into the game and start doing things in order for your idea/startup
to get better. Don't sit on the sidelines waiting for the perfect idea. Get
started early and improve the idea.
2. Don't try to raise VC funding too early: Most student
entrepreneurs (or recent grads) with early stage companies should not try and
raise venture capital. The odds of succeeding are low and for most, it'll be a
waste of time and energy. Instead, work on the product/offering and work on
finding some great people you'd love to do something spectacular with.
3. If you do hit the VC circuit...remember that there are
two possible outcomes: One. You spend months being miserable and depressed
instead of doing what you love (working on the company). Or two, you spend
months being miserable and depressed and you get some cash.
4. Modest goals are just fine. Too many folks think that
startups are all about buying your ticket in the $1 billion outcome lottery (and
be the next Facebook or YouTube). You don't have to do that. I think it's
sub-optimal for a first-time entrepreneur. Look for successive wins -- even if
they're modest. The only people that tell you that you have to build a huge
company are VC investors. The reason is that they need all of their
entrepreneurs building gigantic businesses (so that at least one or two will
actually do that and give them the gains they need). The example I used: If
this is your first company (you haven't had a "liquidity event" yet), then
shooting for a 10% chance at a $50 million outcome (E.V. = $5 million) is much
better than a 1% chance at a $1 billion outcome (E.V. = $10 million). The
reason is that for you personally, the value of the extra millions above a
certain point diminishes quickly. Trust me.
5. Find Your Co-Founders: Student entrepreneurs are in a
unique position in their careers where not only are they starry-eyed optimists
(we all should be), they're around other starry-eyed optimists. Find
the best and brightest of these folks and start something. Join
up!
6. You don't need a business plan: Nobody cares about
business plans. Investors won't read them. They take a lot of time. Just work
on the idea, work on the team and work on getting customers (or understanding
why you're not getting customers).
7. Don't overestimate the risk: If you're just about to
graduate (or have recently graduated), you might tend to overestimate the actual
risk in a startup. Sure, it's not going to pay you what you'd get at a big
company, but the odds of you being able to find some job later, if
things just go horribly are pretty high.
8. GET STARTED NOW: It doesn't take much effort to get a
company started (though granted, actually growing one successfully is
non-trivial). But, the first step is really, really easy and there's no reason
not to take it. Your best lessons, ideas and opportunities will start showing
up after you've started a company. So go do it.
That's it. If you made the event, thanks for coming. If not, hopefully the
above notes helped. In either case, I encourage you to join the two startup
communities I (loosely) manage online and connect with other folks (you might find your co-founder there):
LinkedIn: http://linkedin.onstartups.com (7,000+
members)
Facebook: http://facebook.OnStartups.com (900+
members, but more features)
Looking forward to connect with you folks. And Albert, if you're reading this,
hit me up to be one of the sponsors next time. It's a good cause that I'm
passionate about.
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Brian Halligan (my co-founder at HubSpot, and MIT classmate) and I are scheduled to speak tomorrow to the "New Enterprises" class at the MIT Sloan school tomorrow.
New Enterprises (or more fondly known as 15.390) is a course focused on entrepreneurship. Both Brian and I took the course while grad students at MIT -- though during different terms. HubSpot was kicked-off, in part, during the New Enterprises class in Spring 2006, so the course has particular significance to us.
The focus of our talk tomorrow is supposed to be "sales and marketing for startups" (a topic that we both happen to be passionate about). However, we're also planning on weaving in some other topics that we think should be fun and interesting (like raising capital, founder dynamics, etc.) As it turns out, Howard Anderson and Ken Zolot (the guys that teach the course) are not going to be in class tomorrow, so Brian and I have the whole class period to do with what we want. The students are at our mercy. <diabolical laugh here>
In any case, if it turns out that you are a current MIT student and are taking 15.390 with Anderson and Zolot this Fall, please leave a comment and introduce yourself. For the rest of you, I'll plan to write a quick summary post about what we talk about later this week, in case you are curious.
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I’m scheduled to speak at the 9th annual MIT Venture Capital conference on December 2nd, 2006. The title of the panel session I’m participating in is “Commercializing Web 2.0: Hype vs. Reality”. Details of the conference can be found here: http://www.mitvcconference.com
Regular readers of OnStartups know that often the best content on this blog is not the material that I’ve written, but the ideas and commentary submitted by other readers. I’m hoping this article drives some interesting comments and ideas from you (some of which I’d like to use in my presentation at MIT).
So, in order to kick-off the discussion, I’ll begin with some of my personal ideas on the “Hype vs. Reality” topic. Based on readership interest and feedback, I’ll plan to post an article on a few of these themes later this week.
Commercializing Web 2.0: Hype vs. Reality
First off, I’m going to refrain from trying to spend time defining what Web 2.0 is (and isn’t). I’m not particularly fond of the term, but I didn’t pick it and have now gotten used to it.
So, here are some my thoughts on how we might determine whether this is hype or reality – and as you might guess, the answer turns out to be a little bit of both.
1. More Internet Users = Larger Opportunity: Compared to the time of the dot-com bust, there are many more users now on the Internet. More users means more potential traffic and in theory, more revenues. One could argue that some of the Internet startups that crashed during the last bust were simply ahead of their time. But, one could also argue that although the potential audience has grown (i.e. the demand-side of the equation for web-based content and services), so has the “supply-side” – there are still lots of startups hoping to grab the attention of this audience. The question is, has demand grown faster than the supply?
2. Advertising As Revenue Model Now More Viable: The online advertising industry has evolved significantly. Systems like Google’s AdSense make it possible for even websites with minimal traffic to participate in online advertising revenue. You no longer have to be generating hundreds of thousands of pageviews before you can start making any money through online advertising. In fact, many startups can start making some money within a few days. What gets forgotten, however, is how little this money is (generally < $1,000 month for most startup websites until they really start getting some traffic). Also, I’m still not convinced that websites planning to generate significant revenues through advertising will be able to do so with the simplicity of something like AdSense. I believe most of the higher-end Web 2.0 companies are striking independent deals with major advertisers or advertising networks and reaching well beyond Google and the more recent Yahoo Publisher Network. Nothing wrong with this, but once again, it requires resources on the part of the startup to find the right advertising partner and negotiate deals.
3. Economics Of User Generated Content: Though advertising has been a reliable way to make money in traditional media like print and television for a long time it has always had one irritating quality to it. Creating content that drives a sufficient a significantly sized audience has been expensive. It also requires that the media companies constantly invest in creative talent in the hopes of locking in ratings or subscribers. With Web 2.0, it is now possible to take one of the biggest components of cost out of the equation. Let the users create the content! Nowhere is this more visible than YouTube, which was recently acquired by Google in a well publicized transaction amounting to $1.65 billion (yes, that’s billion with a “B”). Though user-generated content is clearly working for folks like YouTube, one thing I’m concerned about is the sustainability of this model. I would argue that there is a non-zero probability that over time, users become savvier and savvier and ultimately become unwilling to simply give away their content (particularly the type that drives lots of revenue) to startups or large commercial enterprises. Similar to what happened with Google AdSense and blogs, I think the economic incentives will begin to kick-in and users will start demanding a cut of the action. This will dampen the “easy money” scenario that is prevalent in so many user-generated content business models. But, that’s just my opinion, I could be wrong.
4. Lack Of Big Technology Disruptions: Unlike the first wave of the Internet where there were some major leaps in the technological landscape, this time around, the changes are a bit more subtle. The only two real technological factors associated with Web 2.0 right now are AJAX and “web as platform” The benefit of AJAX is clear. It makes browser-based applications almost tolerable from a user experience perspective. The “web as platform” model or “mashups” is taking multiple existing web applications exposed as services and combining them into creative new applications. The benefit of the “web as platform” is that it opens up an abundance of new opportunities for innovation. In theory, this is true. In practice, once you actually start trying to build one of these mashups, you don’t really begin to appreciate the challenges of unreliability, lack of service level agreements, lack of clear (or any) pricing and in many cases (like with most of the Google web services), lack of ability to create any commercial applications at all. Point is, the “web as platform” is a powerful concept, but the implementation is still very, very early and nobody has really figured out how to divvy up the revenue that is generated (if there is any revenue).
5. Better Marketing and Distribution: Gone are the days where startups have to spend hundreds of thousands of dollars launching and promoting their new product. It is now possible to get a fair amount of visibility (at least within early adopters) very early in the process via blogs and search engine marketing (like Google AdWords). A great example is TechCrunch which has emerged as an efficient path for smart, innovative entrepreneurs to get profiled and get immediate exposure to tens of thousands of interested early adopters and investors.
6. Capital Efficiency: One of the great things about software startups (even before Web 2.0) was that they’ve been relatively capital efficient. Now, in addition to more efficient distribution channels as described above, several other factors have come together to drive the capital required to launch a Web 2.0 startup even lower. Hardware is cheaper. Infrastructure and bandwidth (via an abundance of hosting providers) is cheaper. Systems software like operating systems, databases and development tools can now all be had at minimal (if any cost) via open source options. And finally, the availability of a global talent pool has driven some of the product development costs lower as well. All in, it takes a lot less money to launch a web-based startup these days than during the Internet boom years in the late 90s. This capital efficiency is great news for entrepreneurs. It is now possible to get a new startup off the ground without raising any institutional capital.
7. Tighter IPO Market: Unlike the frenzy we saw during the last bubble, there is no longer a pool of retain investors sitting on the sidelines waiting to jump on the next hot technology stock. In fact, the IPO market is relatively tight. As such, there’s no longer that incentive for VCs to pour money into questionable startups and ultimately get their return by pushing these companies into the public markets. Now, the most likely path is some type of M&A transaction with a larger player (as we have seen with MySpace and YouTube). This dramatically reduces the chances of this being Bubble 2.0 because acquirers are generally much more diligent about assessing value than retail investors. Deals like YouTube will continue to be reasonably rare.
So, what do you think? Putting aside whether you like the term “Web 2.0” or not, do you think we are in (or entering) a new Bubble? Or, have enough of the dynamics of the Internet industry changed to sustain some of the patterns we are now seeing these startups exhibit? Are venture capitalists “ahead of the game” in their understanding (hence more and more money getting invested in these deals) or are we already seeing over-funding? Would love to read your thoughts and ideas in the comments. Thanks in advance for helping me get ready for my presentation at MIT.
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