Sunday, April 8, 2007

Did Anybody Read Getting Real?

Sometimes I really wonder. A year or two ago all the news about venture capital was that Kevin Rose didn't take his VCs seriously and 37 Signals thought VCs were stupid, period. But it seems as if the vast majority of Rails work out there is with startups. One startup I talked to told me they had a high-profile serial entrepreneur coming on as founder. I'm like, he's coming on as founder? And they're like, founder is a job title.

That particular group of people had degrees from great schools like Harvard and Stanford and they had no idea how pointless it is to brag about your degree to a college dropout who's instructed guys with master's degrees and was one of the people who invented and defined the category you got your degree in. What are these people thinking? Why are they going to VCs for venture capital to write social networking sites in Ruby on Rails? The whole point of Ruby on Rails is it gives you the ability to write applications without VC funding! That's what it was invented for! Getting Real is the car; Ruby on Rails is the wheels. Using Ruby on Rails to build a VC-backed startup is like putting wheels on a horse. You have to wonder what these VC startup people are even thinking. It's not about the wheels. It's about the engine.

My most recent foray into the startup world, I met somebody with experience at Overture, obviously a kickass startup that did very well - a ball that Yahoo dropped, but quite a ball until Yahoo dropped it - and they were basically like, we'd like to give you tons of money to work constantly. And I'm like, well, how about a reasonable amount of money to work a reasonable amount of the time? And they're like, no. And then I was like, well, how about a tiny amount of money to work hardly ever? And they're like, no.

And the funny thing is, they had initially been worried about whether or not they would be able to afford me. I'm like, look, this is how you get me at a discount. But they weren't into that. In the end we had to settle on no money at all for no work at all, which, I have to tell you, was a much better deal for me than it was for them.

The crazy part? Check this out. This wasn't a startup in the sense of possessing an innovative technology. They had a brand and they were building a social network. They were in essence a social networking site built around an entertainment brand. And a VC had gone "Wow!" because their entertainment brand was good, and then passed them X amount of money and said "Now you need to work constantly!"

But the reality is, they didn't actually need to work constantly. They just thought they did, because that's the culture of startups. But it's the culture of startups because when startups are based around a technological discovery or innovation, time is of the essence. But an entertainment brand's social network isn't based around discovery or innovation. It's based around the network. And social networks aren't about technology, they're about people. The big name in VC-backed social networking startups is Facebook, and that was built in somebody's spare time. The VCs came calling as soon as they heard about it, but they heard about it because it was a huge success. So if the biggest success in VC-backed social networking was built in somebody's spare time, without any VC help, maybe the whole idea of working constantly is totally unnecessary in this context.

Maybe it's all just cargo cult management strategy.

I mean you have to wonder. Anybody who builds Rails applications but thinks they know something that 37 Signals doesn't, well, maybe.

Maybe not.

The thing is, a lot of what went wrong in the dot-com boom was people rushing things. They thought the most important thing would be establishing a brand in a given space. But those were the companies that went down so painfully. It wasn't companies like Google and Amazon that wasted people's time and money in the bubble, and ruined them when it burst; it was Pets.com and all the rest of that madness. Google and Amazon had technologies and business plans. Amazon's founder Jeff Bezos was previously a "quant geek," which is a business analyst specializing in mathematics and logistics. These companies had real business goals, which is why they're still around. But Pets.com was all about building a brand.

The brand-building idea is all about casino thinking. The theory is, the minute you have a brand, you can cash out. This casino attitude is good for VCs but it's ruinous for programmers, and it's ruinous for normal investors as well. (And it isn't even really that good for VCs.)

Startups are a great place to meet smart people and a great place to work hard, but the reason so many startups fail is because nine out of ten startups are ridiculously bad businesses with no real foundation at all. The alternative is Getting Real, and if you haven't memorized every word of that book already, you should. Working constantly like that doesn't add up to success. More often it adds up to burnout.

4 comments:

  1. Excellent post Giles.

    Most geek startups are building glorified prototypes. If your monetization strategy involves either A) getting bought out B) slapping adsense on your site's pages, or C) hoping Paul Graham has enough contacts to get you cashed out before you burn out, then you don't have a business.

    I'm sure we'll see an article by Paul Graham next month outlining how monetizing a business is totally old school. Collect money? That's so outdated.

    Jim
    RunFatBoy

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  2. Hello,

    I loved your post. My partner is constantly telling me to work smarter, instead of longer hours. Your post reminded me why.

    Frank Hileman

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  3. yo roomie it's not reddit, but rather news.ycombinator.com. You're #6 right now.

    Just so you're aware.

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  4. Not to discount what you're saying at all, but my impression of the reason the dotcom bust happened was because of two flawed ideas: "profits don't matter" (I never really got this. Of COURSE they do!!), and "build it, and they will come". The idea was that so many people would come on the internet that all you needed to do was set up a web site, sell a product or service, and you would become a millionaire sooner or later. Another mistaken impression was that having an online presence was cheap, cheaper than brick and morter, a sales staff, etc. Everything was going to be done on the internet, and you needed fewer people. Little consideration was given to special cases, like if your service goes down, or you ship a product and there's a problem with it. Buyers tended to feel gyped, like they weren't being supported, and they were right.

    There seemed to be this assumption that you didn't have to put a lot of effort into marketing your product, either. People would just find it and start buying. It's like the internet-based MLM marketing schemes I hear about occasionally. They're for suckers.

    The reality was that most consumers got this idea that everything on the internet is free, and they chaffed at the notion of having to pay for anything. It typically cost more to put up a site and stock product than the income you would get from it, because the web consumers you were getting didn't want to spend much. It may have been less expensive, but not by the amount that people thought. The way I like to think of it is it's not really less expensive, just different. Most e-commerce is just a glorified mail order service. That had probably been around for a century or more, and a successful e-commerce business could follow a similar business model. This is coming from me with absolutely no experience with mail order or e-commerce. I'm just observing what was going on.

    I think branding is important on the internet, but I think branding is by reputation in this case, not by making an impression with a few TV ads. The advertising can get people interested in taking the time to look at you, but then you've got to make a good first impression. There's got to be some steak to the sizzle. The hundreds of thousands, or millions of buyers you want can quickly detect an overhyped product and not patronize it.

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