4 Reasons Why Your Web 2.0 Company Should Die
If 2005 and 2006 were the years for crazy startups forming around concepts that startups the week prior formed around, then 2007 should be the year when we start to see these companies disappear. The thing is though, when you start a company it is hard to know when it is time to hang up the boots because internally you might think that makes you a failure. That isn’t always the case, but how do you know when it is time for you company to throw in the towel? Here are some suggestions.
We were the first
If your reason for still existing is because you were the first social network catered to people who wear Simpsons underwear then maybe it is time to walk away. Being the first doesn’t mean you are the best or that you are even successful. Being the first means that you will be the first of your kind that people get to try out and that is basically it.
You can look back at your history and say you were successful partly because you had first-mover advantage, but just because you were the first out the gate that doesn’t give you a free ticket to continue on existing.
Nobody talks about you
When people enjoy something they use it and talk about it. When people hate something they talk about it…a lot. If nobody is talking about you then you know you have a problem. You can have a great service, but when people aren’t using it what good is it doing? If people don’t even care enough to hate your product, then why would people care enough to like it?
Or maybe the only time they do talk about you is when you get your 15 minutes of fame. That is still a bad sign.
First company to hit Series M funding
Lots of companies are beginning to enter their Series B & C funding rounds, but your company might be on round M by now trying to stay afloat. By this time your valuation should at least be at a cool $100 billion and the chances of a buyout are unlikely. There are three types of startups (I’m uber generalizing here) that I can think of:
- Ones that don’t need startup money (almost all web 2.0 companies).
- Ones that need a little bit of startup money (some web 2.0 companies).
- Ones that need a ton of startup money (almost no web 2.0 companies.
Unfortuntately we are starting to see a lot of companies that fit under Scenario #1, but think they need Scenario #3’s money. There are very few problems money can fix when your company is in trouble, so don’t confuse more VC Rounds with greater success.
We are X+1
Its a given that if you are building a startup you are probably taking ideas that already exist and either enhancing them or playing off of them, but what if you just do what everyone else does with maybe one more feature? You are screwed basically. Some online video startups have already conceded the throne to YouTube while others are trying to press on with a feature set that is either lesser, similar, or a tiny bit better, but not enough to persuade people to try it out.
If you are only X+1 get out of the game because X probably already won and the only person ready to take the title is X2.
If any of these apply to your company you might want to give it some though as to whether or not you want to keep on going. Look at the bright side, there are a million more ideas out there to copy.
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Show me several examples of web 2.0 companies that started with no money that are worth anything today. I can show you a big list of them that required seed money; YouTube, MySpace, and Flickr to name a few.
I think the fact that many web 2.0 companies don’t need much or any cash to start is because, 1) they are college kids that still have mommy and daddy footing their bills or 2) filling the niche doesn’t require much effort (like Gravatar). I think as the web moves forward, more and more businesses will need to create a business plan to secure management and funding to pull the idea off. Ideas like YouTube are just not possible without capital. I, for one, will never start another business that isn’t sufficiently capitalized.
By Justin Kistner on January 12, 2007 5:41 pm
An interesting article. I’m not as versed on Web 2.0 development as I probably should be. Thank you for sharing.
By Rashenbo on January 12, 2007 5:46 pm
Justin: From what I understand Flickr didn’t need any money and just from ads and the pro version was able to make it in the black. They were profitable when Yahoo scooped them up.
Are you telling me you need money to build Myspace?
YouTube I could understand needing some money from a hardware perspective.
37signals…
By Scrivs on January 12, 2007 6:30 pm
Justin: 9rules is an example of such a company. We’re self-funded, turned down various funding offers, and are currently doing well.
Web 2.0 companies don’t need lots of money because they’re not building any physical products, they don’t need factories or shipments from China, all they’re doing is sitting in rooms and writing code and pushing pixels.
The smarter your team the faster you can make key decisions and implement what your vision is. Maybe the companies that need a lot of money to build a web product are the ones that hire dumb programmers who take months to push live one feature…
By Mike Rundle on January 12, 2007 6:34 pm
[...] ha! 13Jan07 4 reasons why your web 2.0 company should die Filed under: links | [...]
By ha! « The not-so-Real Life of Digitalemma on January 13, 2007 3:37 am
Mike - I think you are a bit harsh with your “dumb programmers” comment. There are plenty of non-trivial features that can and do legitimately take months to develop.
I would argue that anything a couple developers can do in a week may not be worth that much….
By Matthew on January 13, 2007 1:18 pm
Your company should simply die if you use the term “Web 2.0″ at all to describe it.
By nahthan on January 13, 2007 1:22 pm
Reality check for web 2.0 companies.
By Cindy on January 13, 2007 1:52 pm
It’s possible to be second with an already existing idea and still survive: make that website/service in the language of the country you live in. Of course, english speaking people are screwed, the rest gets all the money.
By Brightlight on January 13, 2007 1:56 pm
I was under the impression that myspace wasn’t a startup at all, but a marketing company that knew what they were doing.
By Goldwing on January 13, 2007 2:02 pm
There is an old saying:
“Don’t quit your day job!”
The web 2.0 business we started required 4 years of nightly programming (3-4 hours a night), outside programmers (no, we couldn’t do it all), and lots of patience. People think these things are whipped out in 2-3 months but the reality takes 2-3 years if you do not have the capital to begin with.
It takes time, patience, skills, help, and a little of your own money to boot. No one is going to pay you to build your own company.
By David Brannan on January 13, 2007 2:03 pm
Good post, some good information for Web2.0ers.
By Miles on January 13, 2007 2:26 pm
Totally agree, now of days if you’re going to a company, start one that has residual income, little start-up cost and doesn’t rely only on page views, adwords and user registration.
By wayne on January 13, 2007 2:53 pm
Ones that need a ton of startup money (almost no web 2.0 companies.
blurb got 12million in startup cash with another 2million and another 2.5 million.
doing something right takes cash, and doing something in a limited time frame takes cash. any web 2.0 companies should be up and running in under 6 months but most should be under 2 months.
why waste your time if something is not going to work.
By steve on January 13, 2007 2:55 pm
I don’t agree. If someone wants to try something out, they can. They can do what they want. If someone wants to keep their network around, they should be able to.
By Josh on January 13, 2007 3:01 pm
I agree that a virtual company has much less overhead than a manufacturing business. However, a Web 2.0 company is still a business and there is much more to the business than simply writing code. 9rules may have been started without money, but I would suggest that this is a rare time in history where there is low lying fruit a couple of nimble programmers can snatch up. I would also suggest that 9rules isn’t going to sell for $1.65 billion. And, if you do, it will be because you guys decided to build off of your community and take it to the next level, which would require an influx of capital (most likely from outside investment).
There may be a couple of examples of companies that made it huge with little to no money, but it is the exception and not the rule. Again, I think those exceptions are low lying fruit and in the future it’s going to be more and more important that start ups are sufficiently capitalized. Because while building a web app may not be a big deal for a few smart programmers, fulfilling support for a quarter of a million accounts takes an organized team of people. That also requires the support staff to manage them including HR, IT, management, etc. It’s nearly impossible to have the money to build the facilities and hire the staff to keep up with demand for an in-demand 2.0 service without outside capital.
By Justin Kistner on January 13, 2007 3:32 pm
Matthew: Paul and I routinely put together brand new features for 9rules in an afternoon. Things like 9rules Search and 9rules Celebrity Gallery each took about one day to put together (design, code, test, launch), and our entire forum system 9rules Notes took about a week’s worth of time. All three have been immensely popular and instrumental in boosting traffic and increasing the bottomline.
My advice to any company out there is to always hire 1 brilliant designer/devloper who can do the job of 2 other mediocre designer/developers, and then fire the 2 mediocre people. Business isn’t about being nice and hiring your friends, it’s about forming the best team for the job.
By Mike Rundle on January 13, 2007 3:37 pm
Justin:
“Because while building a web app may not be a big deal for a few smart programmers, fulfilling support for a quarter of a million accounts takes an organized team of people. That also requires the support staff to manage them including HR, IT, management, etc. It’s nearly impossible to have the money to build the facilities and hire the staff to keep up with demand for an in-demand 2.0 service without outside capital.”
If a company has a quarter of a million accounts and is not making enough profit to pay for the people necessary to manage those accounts, then the company is doing something terribly wrong. User growth without accompanied revenue growth means that the very foundation of the business was not built properly. Taking venture capital is not a substitute for revenue, nor is it a substitute for a revenue model or sound business practices. Funding gives you the opportunity to build your product without the immediate need for revenue generation, but once your product is built and being used then it needs to be able to sustain itself or there is a mistake in the equation.
By Mike Rundle on January 13, 2007 3:42 pm
Whoops, forgot to end the .
By Mike Rundle on January 13, 2007 3:43 pm
This is true. Once a company has those accounts, the revenue is there. However, the majority of businesses need the staff and facilities in place before they have all of the accounts to support them.
Most businesses that take on investment capital are not start ups. Many of them already have a product. Investment capital is commonly used to help a business make it over a threshold. Perfectly profitable businesses need outside funding to grow past their start up roots. If a business remains small, I suppose they wouldn’t need capital. But, YouTube, Flickr, Google, MySpace, and the other biggies out there all needed capital to make it past different hurdles in their growth, whether it was at the beginning or after they were already profitable.
I’m not suggesting it isn’t possible to be a profitable Web 2.0 company without funding (ala 9rules). I am suggesting that receiving funding isn’t the sign of a poor business model or a lack of talent on staff. I am also suggesting that there are more Web 2.0 businesses that need money to be successful than ones that don’t. I also think most of the Web 2.0 examples that started with no money won’t have the large valuations of those that leveraged outside capital.
I know we are all enamored with the promise of making a ton of money from a simple start, and I think we should continue to pursue those kind of opportunities. But, let’s not lose our heads about the fact that some very lucrative opportunities require more upfront investment to realize and that doesn’t mean those Web 2.0 companies should die.
By Justin Kistner on January 13, 2007 5:28 pm
I agree with Nathan.
By Rob on January 13, 2007 5:33 pm
What about patents in regards to creating new web services not seen on the Internet yet? Is a patent worth pursuing?
http://www.internetpatents.blogspot.com
By chaser7016 on January 13, 2007 6:12 pm
Talk about a reality check. Isn’t MySpace still lagging in Web 1.0? ;)
By Berlette on January 13, 2007 6:32 pm
@Scrivs:
the J man once said (paraphrased) “no such thing as bad publicity”
By Sarven Capadisli on January 13, 2007 7:11 pm
I strongly disagree .. innovation is important. And if everyone was to just sit back and think of England, some of the greatest innovations would never have come about.
Remember Hotmail had a monopoly on the e-mail market, closely follwed by Yahoo - which had a monopoly in the search market. Google came about and stood against these sites, when most thought it was impossible, and it quickly beat them.
I recommend that if people have a good idea, and they find use in it - they should make their site - but ONLY when it adds something new. If your taking something that already exists and not adding anything new - then you may as well concede.
By Sal on January 13, 2007 7:34 pm
I make $5k monthly (99% passive) from X+1 projects.
Not every site has to get bought for $1billion for it to be a success..
ps. my sites fall into category #1. that’s the secret.
By fez on January 13, 2007 7:55 pm
[...] I know we’re a little behind all the hype of web 2.0 but maybe it’s not too late yet. I’ve even seen an article about how web 2.0 will be going down this year, ironically on Digg, one of the biggest web 2.0 sites out there. [...]
By Ickystuff! » Blog Archive » Pootfile on January 13, 2007 9:04 pm
Nathan and Rob I don’t think Web 2.0 is a bad term. It provides nomenclature for discussing what is a pretty clear distinction in eras of the web.
By Justin Kistner on January 13, 2007 10:51 pm
[...] 4 Reasons Why Your Web 2.0 Company Should Die I think somebody’s feeling grumpy today… (tags: Web2.0 Creativity) [...]
By Planeta Ubuntu » links for 2007-01-14 on January 13, 2007 11:39 pm
Justin, I totally agree that having outside capital does increase your company’s potential valuation, but that’s a built-in side effect of taking capital at a certain valuation :)
By Mike Rundle on January 14, 2007 12:37 am
AskTheHerd is another (albeit very simple) example of a site that took almost no investment to create. VCs are naturally just out for the money, and many an entrepreneur ends up an employe of VCs with over-ambitious funding requirements. My rule is: Start small, get to revenue+, then only take VC when you need to expand.
By Frank on January 14, 2007 2:21 am
[...] 4 Reasons why your Web 2.0 company should die - When you start a company it is hard to know when it is time to hang up the boots because internally you might think that makes you a failure. That isn’t always the case, but how do you know when it is time for you company to throw in the towel? Here are some suggestions. [...]
By TechMount » Archive » Daily Friction #209 on January 14, 2007 5:21 am
[...] Original post by Comments for Wisdump [...]
By Planeta Ubuntu » Comment on 4 Reasons Why Your Web 2.0 Company Should Die by Planeta Ubuntu » links for 2007-01-14 on January 14, 2007 10:17 am
Well shoot Mike, it looks like we might be in harmony here: Money isn’t going to provide the magic sauce that makes the project work, but if you do have a talented team and a good vision, then money can help it accelerate.
By Justin Kistner on January 14, 2007 2:20 pm
[...] 4 reasons why your Web 2.0 Company should die [...]
By Kishor Krishnamoorthi’s Website » Blog Archive » Happy Pongal! on January 15, 2007 4:26 am
People do not need venture capital money.
By sorry on January 15, 2007 4:26 pm
“Quit your day job and move to Whistler/Blackcomb, if you don’t do it now you will be another year older when you do” (WM).
Web 2.0 is just a label. Hansen Gress, my company which has brought major personal rewards, continues to inspire us because we love what we do. “Do what you love and do it better than anyone else.”
hansengress.com
jeremyhansen.wordpress.com
By Jeremy on January 16, 2007 3:53 am
[...] In a bizarre yet surprisingly accurate piece, Scrivs lays down the worst excuses for keeping your company alive. It seems like every Web 2.0 business model is covered, from the mashups to the first movers.read more | digg story [...]
By diggblog » Blog Archive » Four reasons to kill off your Web 2.0 company on January 31, 2007 12:28 am
“I, for one, will never start another business that isn’t sufficiently capitalized.” - Justin
I totally believe this to be the case.
By Adrian L. on January 31, 2007 2:57 pm
[...] 4 Reasons Why Your Web 2.0 Company Should Die I think somebody’s feeling grumpy today… [...]
By All in a days work… on July 17, 2007 8:20 pm
thank you for the input on web 2.0 knowledge. i am the creator and service provider of this techology and i think as long as the web 2.0 companies assisting me keep up the good work they will be fine i need all the networking and communication i can get to reach the worlds goal for global peace,trade,education and customer happiness. “TRUST”
By gail hughes on May 23, 2008 3:53 pm