Startups in Wonderland
"When I use a word"' Humpty Dumpty said in rather a scornful tone, "it means just what I choose it to mean -- neither more nor less."
"The question is," said Alice, "whether you can make words mean so many different things."
"The question is," said Humpty Dumpty, "which is to be master -- that's all."
Internet entrepreneurs and investors often seem to be speaking different languages. One reason for this is that they frequently have a disconnect about the meaning of startup. Our communication would improve if we acknowledge that startups are really experiments that fall into three categories: Technology Experiment, Application Experiment and Business Model Experiment. Each category attracts different entrepreneurs and investors.
Technology Experiment Startup
The purpose of a technology experiment startup is to see if a technology idea actually works. This is what the hackers who want to try something because "it would be so cool if it worked" tend to be up to.
Technology experimenters are often willing to instantly drop an experiment if it does not pan out, and try some other interesting idea. They may do this just because they lose interest. They are tinkerers.
The technology experimenter may or may not have any idea about practical uses for the technology. There is certainly no business plan.
To the extent that these startups are even quasi-businesses, they have an immense failure rate. Investing in these ventures is pretty much an oxymoron. Think gift or donation. Technology experiments sometimes morph into application experiments. Just don't count on it.
Application Experiment Startup
The purpose of an application experiment startup is to attempt to solve a specific customer problem or fill a specific customer need with a particular application design. This usually means trying to get something out there fast so the experimenter can see how users respond. Ideally, a feedback loop develops, with rapid refinement of the solution.
Early on, these startups often do not have customers so much as users. Business plans, should they exist, are vague at best about revenue. The application experimenter is often content to discover if and how the application can be monetized once they generate sufficient traffic.
These startups have a high failure rate. Even if they generate a lot of buzz and traffic, they often succumb to The Three Curses of Internet Success.
Investors in application experiments are angel investors, and should be willing to lose their investment without regret. Most venture capitalists should not get into the game unless and until an application experiment looks like a business model experiment.
Business Model Experiment Startup
The purpose of a business model experiment is to see if a management team can make their business plan work. The business plan ideally spells out a complete business model and makes a persuasive case that the model can work (sustainably make money or produce a liquidity event) in the real world.
While carrying high risk, this is the most likely experiment to result in a going concern. This is the model suitable for most venture capital investment.
Copyright © 2006 Philip Bookman
"The question is," said Alice, "whether you can make words mean so many different things."
"The question is," said Humpty Dumpty, "which is to be master -- that's all."
Internet entrepreneurs and investors often seem to be speaking different languages. One reason for this is that they frequently have a disconnect about the meaning of startup. Our communication would improve if we acknowledge that startups are really experiments that fall into three categories: Technology Experiment, Application Experiment and Business Model Experiment. Each category attracts different entrepreneurs and investors.
Technology Experiment Startup
The purpose of a technology experiment startup is to see if a technology idea actually works. This is what the hackers who want to try something because "it would be so cool if it worked" tend to be up to.
Technology experimenters are often willing to instantly drop an experiment if it does not pan out, and try some other interesting idea. They may do this just because they lose interest. They are tinkerers.
The technology experimenter may or may not have any idea about practical uses for the technology. There is certainly no business plan.
To the extent that these startups are even quasi-businesses, they have an immense failure rate. Investing in these ventures is pretty much an oxymoron. Think gift or donation. Technology experiments sometimes morph into application experiments. Just don't count on it.
Application Experiment Startup
The purpose of an application experiment startup is to attempt to solve a specific customer problem or fill a specific customer need with a particular application design. This usually means trying to get something out there fast so the experimenter can see how users respond. Ideally, a feedback loop develops, with rapid refinement of the solution.
Early on, these startups often do not have customers so much as users. Business plans, should they exist, are vague at best about revenue. The application experimenter is often content to discover if and how the application can be monetized once they generate sufficient traffic.
These startups have a high failure rate. Even if they generate a lot of buzz and traffic, they often succumb to The Three Curses of Internet Success.
Investors in application experiments are angel investors, and should be willing to lose their investment without regret. Most venture capitalists should not get into the game unless and until an application experiment looks like a business model experiment.
Business Model Experiment Startup
The purpose of a business model experiment is to see if a management team can make their business plan work. The business plan ideally spells out a complete business model and makes a persuasive case that the model can work (sustainably make money or produce a liquidity event) in the real world.
While carrying high risk, this is the most likely experiment to result in a going concern. This is the model suitable for most venture capital investment.
Copyright © 2006 Philip Bookman
Labels: software strategy
posted by Phil Bookman at 1:20 PM
<< Home