Great post this morning from Hank Williams, in which he says:
In today’s “free” world, in most online business categories, it is inherently impossible to start a small self-sustaining business and to grow it. This is because in the digital world, advertising, the only real revenue stream, cannot support a small digital business. If businesses were based on the idea that people paid for services then small companies could succeed at a small scale and grow. But it is very hard to charge when your competition is free.
He’s got a great point. I’ve been thinking about startups solely within the context of “how can I provide something immediately profitable” for this very reason – I’m not interested in taking on $MM of VC money solely to get an exit. I’d like to start and grow a sustainable business, which means attracting paying customers from Day 1.
I’ve been working in professional services for a long time, which attacks this problem using the equation (labor = money), but, as Joel Spolsky points out, (labor = money) doesn’t scale. Software as a product or SaaS offering does. But there’s little revenue in small-scale advertising. It’s like we’re all chasing our economic tails:
- Consulting doesn’t scale
- So, move to product
- Product isn’t profitable, because of the “free” mindset
- So, move to consulting to bring in revenue
The bottom line (for me, at least this morning)? Relentless focus on adding value that people will pay for. If you can’t get there, you’re essentially competing in the VC lottery with other people who have a lot more money they’re willing to lose.