Party Planning for Startups: Martha Stewart or Impromptu Kegger?

by Paul Lenehan

In the Social Network, Mark Zuckerberg refers to Facebook as a party. They’re throwing a kegger. It’s happening tonight and they have no idea what to expect. No one may come or they might run out of everything. It can be chaos and it’s the gold standard to consumer Internet companies: if you get a crowd, success will follow.

Lean startups throw a party like Martha Stewart. Everything has been planned before the first guest. They know who to expect and how much to buy. They probably asked you if you had any food allergies. Your mother would be very approve of a lean approach: do your preparation now and you'll be better off later.

Being lean sounds sensible, but the Facebook mentality is alive and well at companies like Twitter, Foursquare and others. It isn't purely a reversion to tech bubble economics. For these businesses, first mover advantages can be significant due to both network effects and scale economies. You can imagine the board meetings at Foursquare:

“We have to focus on users. Look at all the competition: Facebook Places, Loopt, Yelp! We can monetize later with our eyeballs, advertising, data, and social graph!”

Far too many businesses focus on first mover advantages to defend rushing to scale. Take SecondLife, which built up a user base before defining their product and customers. As a result, few would argue that they're living up to the initial hype.

So can you be Martha Stewart and still throw a great kegger?

Yes. Being first is important, but it isn't everything. The Kindle came after the Sony E-Reader. FourSquare came after Loopt. Google came after Altavista (and others). iPhone applications came years after applications on Palm, Windows Mobile and Blackberries. OkCupid came years after Match.com. Even Facebook, a clear natural monopoly, was after MySpace and Friendster.

Successful companies are not just the first to market; they are the first to achieve and maintain product-market fit: there's a clear customer demand for their product. Essentially, some keggers are better planned than others. They just don't always tell you. You could say that many are focusing on vision, rather than validating hypotheses, but exponential growth and user engagement serve as strong validations.

But what about the business model? In the early years, these companies have a clear focus: venture capital. VCs have long proven that they will fund businesses with user engagement and growth (see Twitter).

The party's great. Now what?

The issue with this approach is that companies need to be prepared for a massive pivot. Fred Wilson noted that the best monetization improves the overall experience, like deals on Foursquare, but not every startup can be so lucky. I don't get more value out of Square by paying transaction fees or on YouTube by watching pre-roll ads.

More often, transitioning from VC money to an independent business model is like cleaning up the house while keeping the party going. It isn't easy. If you clean up too much, you kill the party. If you don't clean up enough, the cops pull the plug. It is a fine line to walk, but a truly lean startup tests their hypotheses until they're successful. Facebook isn't considered lean but quickly killed beacon, a nearly immediate pivot, and is now is at a $2B run rate. That sounds like a pretty great party to me.

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