cyberlaxamana

by George Levitte Startups often face difficult decisions surrounding when and how to grow, particularly regarding whether or not it’s necessary to fully validate a business model prior to scaling up. Under most circumstances it’s best to test and iterate over and over again until the model has been validated and the entrepreneur is confident that the startup can scale and eventually achieve profitability. More specifically, in markets that do not have “winner-takes-all” dynamics (e.g. strong network effects or significant scale economics) it’s important to have validated the model prior to ramping up. Note that this does not require being profitable, but rather just proving that profitability could be turned on if necessary. Startups often refer to “flipping a switch” on profitability, which might mean adding more ads, charging fees for premium offerings, or any of several other avenues for generating revenue. It’s important to test and iterate sufficiently to prove that you have this...

by Varun Gupta Valuations of three of the most spoken about technology companies that are arguably still only scaling up: Facebook at $65 billion (General Atlantic got in today for 0.1% stake at a valuation, 30% higher than the previous month’s); Twitter at $7.7 billion; LinkedIn at ~$3 billion. What really are these companies being valued on? More importantly, what should an entrepreneur focus on – valuation or intrinsic business model? Sadly, the adage of “test, and then invest” is not being used to test the business model, but only to seek a superficial product-market fit. When Facebook, foursquare, Twitter, etc., get rewarded through the means of valuation on the number of registered members they show every month, it is unlikely that they are as driven to increasing ARPUs. The predominant thought in the industry is to get the user base; revenues and profits will follow through some mysterious force of nature. This, inexplicably, assumes that the user base is captive, upcoming com...

…they are in effect social enterprises that are for profit by necessity not by design by Evan Baehr (blog: http://www.evanbaehr.com) "[My aspiration is] to change the world," said Dennis Crowley, cofounder of Foursquare.  "If this turns out to be an amazingly big business at the same time, well, that's an added bonus."  This is hardly what you would expect to hear from a founder who raised $20 million in a Series A from all stars including Andreessen Horowitz.  Aren't these guys supposed to be razor focused on monetization?  In a quixotic way, many founders of revolutionary internet companies begin with visions that have no component on monetization.  How can we explain this irony: some of the "best" and "most innovative" internet companies--and therefore those with the highest valuations--are often founded by visionaries who are supposedly indifferent to--you might even say disinterested in--monetization. Consider Crowley, a dreamer who...

by Ashwin Limaye A recurring theme in many of our class discussions and my conversations with entrepreneurs has been the 'When to monetize' question, which is frequently posed as a 'Monetization v.s. Growth' tradeoff. The thesis here is that in the early stage, tech startup first focuses on product market fit, and seeks to establish a customer base with which it can validate critical assumptions and which is also the seed market that hopefully goes viral and grows into a large user base. While in this stage, spending effort on monetization is likely unproductive. For one, monetization may require the investment of scarce human resources that do not really 'improve' the product but focus on meeting the needs of other constituencies such as advertisers. Indeed, some features may need to be built or introduced that become a nuisance for the product's primary customer. Consequently, it seems logical and sensible to invest in creating the right product first, gr...

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...

by Jeff Bussgang, republished with permission from his blog I had the pleasure of teaching a new case at HBS yesterday on  foursquare  that I co-authored with Professors  Tom Eisenmann  and  Mikolaj Piskorski  as part of Tom's new course  "Launching Technology Ventures" .  Foursquare executives Dennis Crowley, Naveen Selvadurai and Evan Cohen were kind enough to allow us to interview them in preparation for the case, which framed some of their current key strategic issues and looked back on the choices they made in the early days to draw pedagogical lessons of lean start-up best practices, building a platform business, network effects and running monetization experiments. The foursquare team was consumed this week with SXSW preparations, but we were fortunate to have as class guests Charlie O'Donnell, who wrote the  original blog post on foursquare  that got many in the community excited about the company, and Andrew Parker, who was an a...

by Rick Hansen The Chicken-Egg Problem The current obsession among tech start-ups is driving user adoption.  The emergence of social networks and platform-based businesses has pushed it to a fever pitch.  But which is more important: growth or profitability?  How do you value services that presumably become more valuable with network effects?   The first lesson in investing is that if a value proposition appears to be too good to be true or really hard to understand, then it’s probably not true.  Recently John Pestana came to speak at HBS in an informal setting.  He’s semi-famous in tech circles as a co-founder of Omniture, which was acquired about a year and a half ago by Adobe for nearly $2B.  He mentioned that if ten years ago he had to list companies who might potentially buy Omniture, Adobe wouldn’t have cracked the top 50.  But John built a business which made money.  He didn’t want to worry about strategic buyers or synergies.  Th...

by Brent Hurley In business, timing is everything and priorities matter.  For a business, there’s nothing more important or more pressing than monetization, right?  Not necessarily.  I’m often asked whether startups should focus first on monetization or on reaching scale.  As with most everything, it depends.  In particular, it depends on the circumstances facing your company and the type of company you’re trying to create. Conventional business wisdom holds that any new venture should first establish product-market fit and then optimize unit economics before expansion.  That is, make sure there is an appetite in the market for your product and that your sales price exceeds your cost of goods sold, or that your estimated lifetime customer value exceeds your customer acquisition costs.  If these metrics are inverted, scale will only amplify the losses produced by the venture. Why, then, do some of the most successful consumer internet companies fly in t...