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February 1st, 2009
08:08 am - Entrepreneurial Spirit
Twitter Abstract: "Entrepreneurial Spirit: Idea First, or Company First? Vision more interesting than revenue model."
From Fred Wilson by way of Tim O'Reilly I read this article, amusingly entitled "When Talking About Business Models, Remember that Profits Equal Revenues Minus Costs." Wilson makes some points about business efficiency that should be obvious but tend to get obscured by the hype-first style of business leadership.
He uses Twitter, Google, Facebook, Digg, and Craigslist as examples.
Twitter and Craigslist are examples of "doing a lot with a little." Each under 30 employees, these two companies are amazingly efficient.
Facebook and (with caveats) Google he uses as examples of what I might call doing a lot with a lot. As for Digg, I read that as doing a little with a lot.
From a financial perspective--and Wilson is a VC so that's his thing--I agree completely. However, I don't think the interesting thing here is the financials. From an entrepreneur's perspective, financials are that extremely important stuff that you hire someone else to worry about. You worry about your ability to deliver something that people really want, and in some cases "revenues" is the best measure of that.
Wilson's examples point to something more interesting than financial models. I don't think Twitter and Craigslist "do a lot with a little"--so I'm not sure I stay with Wilson at his conclusion.
Instead, I think these are examples of "doing a little that does a lot." Both are minimalist approaches, exceptions to the feature-fat web 2.whatever. Both are simple. Both are obvious. Both are tools for actual human behavior (although twitter's usefulness takes a little longer to sink in). Google's original search service meets the same criteria, and while it may be the ad revenues that have elevated it to wild profitability, it was the search service that won people's hearts first. You can see Digg this way as well, although based on Wilson's analysis, I too would question their business model.
So, let's look at two motivating spirits that might be seen to inspire the entrepreneurial spirit:- Take a product idea and make it fly;
- Take a business model and build a corporation
In the first category, I see Twitter, Digg, Google's founding search, Craigslist, and thousands upon thousands of products that didn't fly. (Also, from previous generations, PayPal, EBay, Apple.)
Some companies (e.g. Craigslist) build on their success by keeping it simple. Others (e.g. Google) use their success to initiate new entrepreneurial initiatives.
In the second category, I see Facebook. (And also, from earlier eras, Amazon, Microsoft.)
First and foremost, Facebook is not a new product. When it was first introduced I remember the rolling eyes. "We need another social networking site? And we need it why?" We had Tribe, Orkut, MySpace, and lord knows what else. But the Facebook founders saw an opportunity based on the stumbles, and the failures of these services, and they stepped in, and they succeeded.
Corporations may benefit from being wildly overcapitalized (it seems like no matter how many turds Microsoft poops out the door, they continue on solid financial footing), but most corporations exist on slimmer margins because they are using all available resources to grow. One of Amazon's early mantras was "Get Big Fast." By rapidly introducing and innovating features, by expanding product lines, by experimenting with multiple revenue paradigms, Amazon showed very early on that they weren't trying to be the best bookstore on the web, they were trying to be the biggest retailer on the web. And that was the beginning of their corporate ambition.
One of the other mantras at Amazon was "Throw a bunch of stuff against the wall and see what sticks." This again points to the differences in entrepreneurial spirit.
Some entrepreneurs start with a vision of a product. They want to make that specific thing successful. Every resources is lasered in on that outcome. Everyone knows that most entrepreneurial efforts fail, but to these entrepreneurs, the company is the vessel for the idea, and if the idea fails then there is no company.
Other entrepreneurs start with an ambition for a company. They want to make the company successful, and the shotgun approach has more chance of success. Many particular features or products may fail, but all it takes is one success. In their early years, these are better seen as ecologies of entrepreneurs than anything else.
Conclusion: Wilson's article is interesting, but for me it points to the difference in entrepreneurial spirit rather than in business model. More personally, it makes me wonder which kind of start up I work for. As I contemplate it, I'm not actually sure. (Which may mean I don't understand my company as well as I should, or that I should beware the fallacy of the false dichotomy.)
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