“Whats your Revenue Model?”. It sounds like such an informed question to ask an entrepreneur. I have been asked this question not only by the people who really matter, but even by people who are far from gathering even 5% of the courage required to start up. Its a glamorous question to ask, and its so much fun to show contempt when one doesn’t get a convincing answer, or when one hears that “advertisements” are going to be the revenue generator.
That brings me to think: How relevant is this question for an early stage start-up venturing into Consumer Internet. I have the following reasons to think it is not a very relevant question:
1. In consumer internet, the user never pays. If we look at start-ups outside India, in their initial days, they concentrate on creating value by getting a large number of users, engaging them deeply, and making a lot of them return to their service. They hardly ever concentrate on monetizing very early, and that, probably is behind the success of many start-ups.
2. When the user does not pay, but is engaged by the service provided by the start-up, then it makes Advertisements not only the only, but also the most lucrative way to earn money. Various innovative ways of Advertising and Promoting on web apps have evolved, and if one looks at the top 30 internet startups in the world today, a very large number of them are banking on Ad revenues as their primary revenue stream.
3. In my opinion, the raison-de-etre (The Reason to BE) for a consumer internet start-up is to create value by deeply engaging a very very large number of users. This is probably the only value that a consumer internet start-up can create today. Very few of them really succeed in doing this, probably just 1-2%. For those who are confident of doing this, it is a good thing to bank on a buyout by an established company which really knows how to monetize this huge user base.
This, I think, is the rationale that consumer internet start-ups abroad have followed.
Would love to know what you guys think about this. Whether it is, and is going to be any different in India? Why, and How?
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Much appreciated! Thanks everybody for your opinions. This forum is all about discussing and learning things together.
I’ll present a slightly mutated version of my argument soon as a new post 🙂
I guess everybody who starts out is confident of having the ‘huge’ user base in place (despite the fact that everybody knows that 1-2% would succeed). This inherently means that anybody investing should (historically) not only be looking at a failure probability of 98% but also take the risk of the business getting bought out at the end of achieving that userbase. Doesnt sound great.
Also I believe as an entrepreneur it is fine to expect a lot.
Niraj: Difficulty to raise money is not a function of investors not appreciating the model. There are people who have raised money based on simple trust, or mortgaged their houses, or even convinced hundreds of people to pool into a dream.
I think the problem is the ending. If the ending is silly, like “sell to someone before we run out of cash”, it is not bound to find investment unless there is a visible and established population of greater fools, like there are in the US.
Find a sustainable model, and then either bootstrap it or fund it, and the rest will follow. It’s when you start looking at funding as a revenue item rather than a balance sheet liability that it all comes apart.
Having said that I’ve tried the service/product mix and it just didn’t work for me. Eventually it’s about killing the golden goose and it’s too darn difficult. But then It might work for you, so all the best there.
Great Rohit!
Basically, instead of complaining, we need to “work it out”. I see the last 2-3 months we spent developing our product (http://apps.facebook.com/aspirations) as the most productive phase of my life.
But then, since it is so very difficult to raise early stage money, precisely because investors here do not appreciate/understand/subscribe -to the model, we must find a way to generate revenue and earn money to go ahead with our lives. We have learnt to do that, and have learnt the hard way. This is what one needs to do, in my opinion:
-Build a small team to do services that generate money. Exercise restraint, so you don’t focus away from your product. It is easy to get off-focus from the product, because services generate money. This is where the strength of the entrepreneur to say NO to something lucrative for the larger picture plays a big role.
-Build your product fast, work night and day, and get users, so you reach “fund-ability” as soon as possible.
I think an entrepreneur should always take 100% responsibility for the success of his idea. Just accept the facts – things are hard and stop complaining about stuff like – VCs not giving you their money to let you experiment freely without worrying about revenues; family and parental pressures and ecosystem-shecosystem. It’s not gonna change anything.
The time when you are totally on your own, without any outside money and pressure is also the time when you can try out all your ideas. A few years down the line you might look at this as the most productive period of your life.
New Indian entrepreneurs complaint a lot and expect too much. Giving up your secure job at that Indian outsourcing company, doesn’t make you a martyr who has sacrificed something for the larger good. You did it because you want something very big. So please stop complaining. Be a man (or lady) and put up a good fight.