Thanks to Ben Kuo for taking the time to chat. He’s done a great job reporting on Southern California and helping to build the community here.
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This recent NYTimes article is worth a read and sparked some thoughts.
With the market tanking, the pendulum for consumer internet space monetization, which has largely relied on advertising as their primary business model, is quickly swinging the other way – to direct user charging methods such as subscriptions or virtual goods. I think this is a good, necessary, and inevitable outcome. While I wholeheardly still believe broadly in the internet advertising model, I think too much emphasis had been placed on this single form of monetization at the expense of billions of dollars of venture capital, private equity, and public offerings which funded money losing businesses for years.
The biggest problem I foresee though is that many consumers’ expectation have now been set – that people believe that internet services should be free. The last decade of internet companies has established this precedence and this will not go away easily or quickly. I personally think of one of the most widely used and under-monetized applications on the web – free online email accounts. This is a prime example of a product that created tremendous value but was not able to capture value.
The issue becomes pronounced for entrepreneurs when many newly established companies emerge without the benefit of huge and multiple venture capital rounds willing to keep funding money losing businesses. So, what should entrepreneurs do when they are faced with the situation of a) needing to generate revenue quickly because there is less funding available but b) having to compete with so many free services that already exist which may eventually die away but are still plugging along in a desperate race to the bottom.
While I don’t promise to have the answer, here is how I’ve been thinking about the problem and what kinds of business I’ve been looking at recently.
- Look at markets whose customers have been used to paying in the past such as marketing services, gaming, enterprise, SMB, etc. – generally originating from non-internet based roots.
- Think about niche audiences from a monetization perspective but build the platform for wider application to make investors believe in the ultimate size of the opportunity.
- Timing is everything – be thoughful not only about why your business is right but why NOW is the right time for it.
- Focus on product. Great products overcome the odds.
- Live and breathe metrics. The two most important for many of the businesses I look at are the balance of a) customer acquisition cost and b) lifetime value of the customer. Make sure your funding aligns with this ramp.
While most business I see now have multiple revenue streams, many are knee-jerk reactions to the market and haven’t really been thought through to see if they are realistic and viable. Do your homework and don’t force fit a model that doesn’t work. But opportunity is ripe and I do believe the next couple of years will be a wonderful time of innovation around business models.
With the recent expansion of Baroda Ventures and my efforts to help build the Southern California entrepreneurship ecosystem, I am going to be testing an open office hours format for anyone who would like some advice for 30 min by phone. This should be used as a way to get feedback on an idea or advice on how to approach a business vs being a formal pitch to raise money.
This is especially suited for anyone who is thinking about starting a business or trying to decide how to think about fund raising. My intention is to provide a safe way to ask the “dumb” questions. For many new entrepreneurs, its hard enough to get facetime with a VC (especially in Southern California where there are just fewer firms), let alone being comfortable asking general questions about the process and to see if you are at least thinking about the right things.
Go to my shared Google Calendar (switch to Week view – not sure how to make this view default – if anyone knows, send me an email) and look for any time slots labeled “OPEN”. Send an email to officehours [at] barodaventures [dot] com and let me know a 30min time slot that fits in one of the OPEN slots and send me a phone number where I can reach you and a quick overview of what you’d like to discuss.
I will continually be updating new time slots on an ongoing basis so keep checking back and let others know. I hope this format will be useful and helpful for any entrepreneurs looking for a safe forum to get advice.
NOTE 1 : After your session, please go back to the Baroda Ventures homepage and click on Entrepreneur Feedback Form and leave me some comments on how I can do my job better
NOTE 2 : This should be used for entrepreneurs looking for advice (i.e., not for people looking to get a job in VC or general career advice)