52 Bicycles

Brad Feld’s Ask the VC has a a great post, How Do I Create Projections For My New Web Service?

The more interesting piece is the user adoption – how it’s going to work, what is going to drive it, and how this links back to the underlying costs. 

Recognize that the costs are not just hardware / software / bandwidth / hosting costs.  These are going to relatively minor in most cases compared to your “user / customer acquisition cost.”  How are you going to get new users?  If your answer is “they’ll just come”, that’s probably wrong (although not always - you might have one of the insanely effective web services that spreads rapidly by word of mouth and nothing else.)  So – assume you are going to have to spend some money somewhere getting users – what do you think that actually looks like.

This is true for more than just web services. Geoffrey Moore says in Dealing with Darwin that particularly in a volume operation, innovating the business model is crucial to success. (He contrasts this with a complex systems environment, where s 10x improvement from the technology is the focus of innovation.) Cost of customer acquisition (COCA) is usually the most crucial lever to pull in the business model, because that is how dollars come in. Especially when the back-end is built on commodities, the ability to generate top-line either at lower cost or at a higher effectiveness is going to be critical.

For web services that essentially want to operate like media properties, they have two issues: getting readership, and selling inventory. So 2/3 of the business is really about getting customers (either indirect, as readers, or direct, as advertisers).

For those of us in the ”we sell stuff” space, it’s a little more straightforward, because rather than matching advertisers to readers/clickers, we just need paying customers. But that doesn’t necessarily mean easier, and it is snowboarding to the media model’s skiing - they both get you down the hill, but require very different skill sets.

Either way, the great entrepreneurs of history were all great marketers - they put customers together with their products. Show the VC (or anyone else looking to invest time or money) that you can do that!

This entry was posted on Wednesday, March 7th, 2007 at 6:51 pm and is filed under Technology Business. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed. Reddit This