We have been speaking with quite a few Angels and VC's as of late. What's amazing to me is that many of them still seem to be in the 90's "get big fast and spend as much as you can" camp. I'm not sure if they realize we can build a company with traction and revenues for a fraction of what it used to cost.

Yes, we are working out of a garage. Yes, we are hardly taking any salary. Yes, we are using opensource. But what that allows us to do is stay lean, keep our underdog/fighter mentality, and focus on building a company that produces cash. After going through the last tech crash and watching it all go away, we came to realize that too much money, or the wrong financial partner, makes a start-up too confident and puts them at risk of slowing down or resting. No thanks. This time around, it's about being a fighter, and letting our community declare us the victors.

Posted by Steven , August 9, 2006 11:44 AM

Capitalizing on user generated content/transactions is a super business model. eBay is probably one of the earliest and most successful in doing so. However, the problem with generated-by-users is its quality and reliability. It took eBay a lot of effort to build up self policing mechanism within its community as frauds started to pile up and buyers losing confidence. eBay fortunately got everything under control in the end. I'm curious to see how Craiglist deal with the same problem with its limited work force as we can see users definitely start to get frustraded with the high percentage of phony information on the site.

Posted by Jamie , August 9, 2006 07:00 PM

I agree with both of these comments, and the original post. User-participation (generating content, monitoring accuracy, etc.) can greatly enhance the value proposition of any online property --be it a service, information resource, or product-sale. However, I would argue that if a site is run almost entirely by its users, the "tyranny of the masses" (as Geoff Gilmore would call it) makes the future of the property questionable and very risky.

On a totally different note: Steven's comment here is one I hear from a number of successful entrepreneurs, and it's shocking to see that (just like the 1st bubble) some investors have a romance with a certain type of startup company-culture that appears to take priority over the essentials of business. What Brad is talking about here really separates the cultural-attraction from the *leverage-point* appeal. This is a very important distinction that I see being missed by many others.

The issue to me is that the companies responsible for (both) bubbles are smoke and mirrors because they are part of "extremist" scenarios, and at their core, they're overlooking the need to develop strong foundations built on lasting business principals. (1) The 1st bubble trend, rewarding "burn-through-capital/grow-topline $ and-membership #'s-with-no-clear-plan-for-monetizing/eventual-profitability" was proven to be a recipe for disaster in financing great snake-oil-salesman who knew how to buy tons of (apparent) marketshare but when push came to shove their "share" had unreliable profit-potential, certainly not enough to justify the acquisition cost... AND, conversely, (2) The current trend: "stay-lean-forever-bootstrap-on-the-backs-of-passionate-insanely-hardworking-bitter-exdotcom-engineers-and-a-rare-subset-of-passionate-users/participants," which isn't really a guarantee of a positive business outcome either. Two examples of this: the current article in The New Yorker on Wikipedia, which highlighted the phenomena of "Wikipediholism," describing obsessive-compulsive individuals who were personally responsible for editing or writing something like 70,000 entries each...! This is of course amazing on an cultural/observational level, but very scary on another level: I kept thinking, once those people get therapy, the whole model collapses. The second example is the recent disruption in the successfully bootstrapped online video site Rocketboom, which posts a new video everyday and was garnering something close to $40K/week in sponsorship. After the sudden and unexpected company-departure of its on-camera vlog star, Amanda Congdon, the tiny production team survived with only a few days hiatus, but just barely --*and* her departure revealed on the blogosphere an overly stressed and disorganized team of bootstrappers who were struggling to keep up the quality-product they were known for. Not a great PR moment, nor has it helped them secure professional advertisers.

To me, the problem we're facing today is the same problem we faced last time: the companies that are garnering a lot of attention are extreme cases where the emphasis is being put on how they're going about it, and the real foundations of the business --competitive advantage, barriers to entry, go-to-market-strategy, scalability and sustainability-- are overshadowed by what they're leveraging. Honestly, does it really matter how you're set up if you're building a killer product/service, have developed an unfair advantage, are targetting a growth market, and have a talented management team? Companies can just as easily succeed or fail out of a garage or from a 5th ave office --those are just superficial details, and in my experience, not terribly relevant indicators of your chances of success.

Posted by Megan Cunningham , August 13, 2006 05:07 PM