A VC - Latest Comments in Why You Can Sometimes Wait For Scale To Execute Your Business Model

Re: Why You Can Sometimes Wait For Scale To Execute Your Business Model

dziewczyny — Mon, 07 Sep 2009 18:40:45 -0000

After reading this blog makes me want to start my own.

Re: Why You Can Sometimes Wait For Scale To Execute Your Business Model

fredwilson — Wed, 09 Jan 2008 10:02:02 -0000

I posted the reasons we made the investment at unionsquareventures.com

I'll try to find the permalink but am on my blackberry.

Try googling unionsquareventurs.com twitter. That should get you there

Fred

Re: Why You Can Sometimes Wait For Scale To Execute Your Business Model

Aruni S. Gunasegaram — Wed, 09 Jan 2008 09:50:32 -0000

So when you "saw the opportunity" how did you get comfortable with market size/user growth? I am really curious about this to understand how potential investors might think about my or other web app business. Did you think "wow, they will get a ton of users because the tech community/entrepreneurs will love this (early adopters) and spread the word? So let's get in now?" Was it the "cool factor" that you thought could be sold or part of a suite of apps to form a company that could be taken public? For instance, I will be integrating some twitter-like functionality in our new social networking app.

By the way, I know you are extremely busy but if you ever had some time for a phone call (or if you are in Austin sometime or I'm in NY) would love to listen to your thought stream about this stuff since you are one of the leaders (go-to-guys) in investing in web apps. I'm @aruni on twitter.

Re: Why You Can Sometimes Wait For Scale To Execute Your Business Model

fredwilson — Wed, 09 Jan 2008 09:33:02 -0000

In twitter's case, they didn't

We approached them about an investment. We saw the opportunity clearly and wanted to be involved

Fred

Re: Why You Can Sometimes Wait For Scale To Execute Your Business Model

Aruni S. Gunasegaram — Wed, 09 Jan 2008 09:27:03 -0000

Thank you for this post. As I start the process of raising angel funds and if anyone requires that I have the business model 100% defined, I am going to point them to this post. The marginal cost to service an additional customer for my apps/business is negligible. Thanks! I'm being a bit sarcastic because I don't think that will go over very well here in Texas and I agree with Elia Freedman's comments.

I have a question related to Twitter's (or other social related web apps) market size analysis. When they (or other web app plays) were raising funds how did they quantify/illustrate their market size? How did they anticipate growth in users and where users would come from?

Re: Why You Can Sometimes Wait For Scale To Execute Your Business Model

Jim Duster — Wed, 09 Jan 2008 09:08:53 -0000

assuming you can get users, say 5K a month, what are the best ways "to monetize" that won't infringe on user's rights nor feel like they are getting the short end of some stick. Our premise is to make media content downloads across a broad set of categories available to consumers, but I need to come up with a set of ways to monetize it, beyond the small % of love we get from the content owners.

What is the short list that Klavdia speaks of: "generating money is a matter of time and experimenting with known and new business models "

Thanks!

Re: Why You Can Sometimes Wait For Scale To Execute Your Business Model

LauraAdams — Tue, 08 Jan 2008 18:53:29 -0000

While not a comment on business models (ever-changing beasts with no single or right answer and that no one really believes until the money comes rolling in), I found this very exciting use of Twitter- http://frozenpeafund.com- by @susanreynolds. You may already have come across it. Certainly shows the potential for Twitter to generate social value beyond the community created and conversations carried out with it.

Re: Why You Can Sometimes Wait For Scale To Execute Your Business Model

Klavdia — Tue, 08 Jan 2008 16:01:02 -0000

I completely agree with your rationale.
Once you have scale and good user base, generating money is a matter of time and experimenting with known and new business models - Biuro matrymonialne Rosjanki

Re: Why You Can Sometimes Wait For Scale To Execute Your Business Model

Doug Kersten — Tue, 08 Jan 2008 11:39:34 -0000

What do you mean by negligible? $1, $10, etc.? Or is it based on what the business has in it's bank account? Do you think worded this way it follows the vein of what you are talking about: If the marginal cost to service an additional customer is negligible when it relates to the resources the business has on hand , then you can wait to monetize. Or am I misunderstanding what you are saying?

Doug K.

Re: Why You Can Sometimes Wait For Scale To Execute Your Business Model

fredwilson — Tue, 08 Jan 2008 11:28:02 -0000

It varies

We prefer to fund companies post launch though

Fred

Re: Why You Can Sometimes Wait For Scale To Execute Your Business Model

chadrussell — Tue, 08 Jan 2008 11:22:16 -0000

In sort-of relation to my comment on the Twitter post you did, which in re-reading it, it sounds more like I'm being authoritative on the subject rather than speculative which I was trying to be, do you think that the majority of deals are now happening after the product is built and the scale is gaining or do you think that just coming to the table with a prototype or idea is still feasible? Or does it really just vary on a case-by-case basis?

Re: Why You Can Sometimes Wait For Scale To Execute Your Business Model

fredwilson — Tue, 08 Jan 2008 09:34:02 -0000

Excellent point

Thanks for making it

Fred

Re: Why You Can Sometimes Wait For Scale To Execute Your Business Model

Elia Freedman — Tue, 08 Jan 2008 09:28:20 -0000

Fred,

This post seems to be a constant theme on VC posts and, frankly, I am tired of the generalization. It completely depends on the customer, not the costs to deliver the product. The costs give the providing company the flexibility to consider it but shouldn't be the deciding factor.

I agree in many cases that free out the door is the right model. Twitter, which is mentioned here, is a good example. I think so is Facebook and MySpace. But they shouldn't be free because the cost is low. They should be free because the customer isn't willing to pay. Would you pay to watch videos on YouTube? I don't think so.

In other cases, however, having customers pay is important because they often don't derive value without it.

The beauty of the web is that it makes the conversation possible. There are many cases, however, where free should be ill-advised.

Thanks for the entertaining my perspective.

Elia

Re: Why You Can Sometimes Wait For Scale To Execute Your Business Model

fredwilson — Tue, 08 Jan 2008 09:07:01 -0000

I like being called a twit!

Re: Why You Can Sometimes Wait For Scale To Execute Your Business Model

markslater — Tue, 08 Jan 2008 07:53:04 -0000

the paradox here is that freds investment in twitter is fascinating. it has network effects, its application limble, it is going to grow, and its going to challenge - buts its business model is unclear (at least to us users). This is freds delicious investment all over again! whatever you 'twits' have up your sleeve - i like it!

Re: Why You Can Sometimes Wait For Scale To Execute Your Business Model

aizheng — Mon, 07 Jan 2008 22:31:01 -0000

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Re: Why You Can Sometimes Wait For Scale To Execute Your Business Model

lawrence coburn — Mon, 07 Jan 2008 22:00:54 -0000

Dang Fred, I kind of want to read the whole post. Aren't folks supposed to be defensive / biased about their portfolio companies?

Re: Why You Can Sometimes Wait For Scale To Execute Your Business Model

Matthias — Mon, 07 Jan 2008 19:56:45 -0000

Fred,

1. what's your take on getting customers used to the business model? Not as important as growths if you have the opportunity to scale?
2. the above question is only relevant to a small proportion of businesses, others are just not growing fast enough, right? but what would you call "fast enough"? Let's say, start-up, six months after launch, team of five.

Thanks, Matt

Re: Why You Can Sometimes Wait For Scale To Execute Your Business Model

Sean Ammirati — Mon, 07 Jan 2008 19:22:54 -0000

I understand your concern it sounds too defensive, but I'd love to read it. Maybe you could just put a disclaimer at the top of the post and then run it? This is something I discuss all the time and would love to get your thoughts.

Re: Why You Can Sometimes Wait For Scale To Execute Your Business Model

Arne — Mon, 07 Jan 2008 17:01:57 -0000

Thanks. I like your thoughts. Considering start-ups will most likely change their product specs before the service is good enough for gaining mass, the business model is also likely to change. But in the end, we all want to know how a web app will become profitable.

Re: Why You Can Sometimes Wait For Scale To Execute Your Business Model

Pete Vlastelca — Mon, 07 Jan 2008 14:41:43 -0000

I like that you qualify this headline with "sometimes." I suppose in terms of pure economics, low marginal cost businesses do have a bit of a luxury to push out their thinking about making money. But this is more than an economic issue -- it's an organizational one, and a matter of leadership. When people running the startup set a tone in the beginning that revenue is not yet important, that attitude creates an institutional hurdle that needs to be overcome at the point when everyone agrees that monetization should become a priority. Much like user acquisition, customer development is a long, iterative process for most internet companies. If the company's early culture doesn't reinforce the importance of learning from that process, and it's assumed that when the time is right they'll just "flip a switch" and turn on revenue, it can be a shock to everyone's system when the eventual model produces less-than-expected results.

Even at a low marginal cost of adding users, in my experience, the average internet company can stabilize more quickly the earlier it honestly focuses on what makes it unique to its customers, not just its users.

Re: Why You Can Sometimes Wait For Scale To Execute Your Business Model

vadadean — Mon, 07 Jan 2008 14:35:50 -0000

It's really all the customer related costs that has to be low, including, the cost of serving the customer and the cost of acquiring the customer. From this vantage point my business scales while affording me the necessary experimentation. That's critical within such a fast changing media market filled with attention saturated users.

Re: Why You Can Sometimes Wait For Scale To Execute Your Business Model

Emil Sotirov — Mon, 07 Jan 2008 13:44:49 -0000

Two considerations...

1. Monetizing involves the users... if you don't try monetizing early, you cannot be sure how users would react when you start monetizing.

2. Many start ups just don't have the money to go without trying to monetize early.

Re: Why You Can Sometimes Wait For Scale To Execute Your Business Model

pwb — Mon, 07 Jan 2008 12:47:44 -0000

Don't get defensive...get offensive!! Monetizing early can leave services vulnerable to competitors who wait. It's easier to make money from heavy usage than it is to create a service that garners heavy usage.

Re: Why You Can Sometimes Wait For Scale To Execute Your Business Model

fredwilson — Mon, 07 Jan 2008 12:44:02 -0000

Lifelock seems like it is a great business but its not a web app. Its an insurance company. I don't know anything about that business

Fred