a weblog by Schuyler D. Erle

Thu, 05 Nov 2009

[01:27] On Winning the Dot-Com Lottery

I'm going to preface this post by saying that I'm sure that wiser heads than I somewhere out there on the Internets have already said everything I'm going to say, and in greater depth than I could hope to say it. If you feel more comfortable doing so, please read this essay as satire.

I want to talk about winning the Dot-Com Lottery. I call it a lottery because there's a strong component of luck, but the reward can be substantial. It's just like having your garage band sign a multimillion dollar contract with a major record label. Lots of people play guitar with a dream in their heart, but not many people get rich doing it. The point in trying to win valuable cash prizes in the Dot-Com Lottery is to be able to spend your time (before and after) pursuing your passions, whatever they are.

I know someone who has a technology business which makes a product that they sell at a modest profit. Someday he might sell the company and retire. That's the time-honored way to build a business, and it's not what I'm talking about. I'm talking about all the friends and acquaintances of mine who've cashed in on tech startups built around their passions over the years, and the basic ingredients I see in each of their stories.

The difference between the Dot-Com Lottery and the kind of lottery that supports senior citizens is that not every ticket has the same chance of winning. You can improve your odds. The following points are what I see as the five sine qua non for getting the best chance of buying a winning ticket.

1. You need to be smart. Hell, why hedge this point: You have to be a genius, along with everyone else on your core team. Everyone I've ever known who's launched and sold a tech startup has been among the smartest or, at least, savviest people I know. You already know who I mean.

2. You need to have a product idea that is too simple to fail. You need to be smart enough to focus on a product idea that everyone wants (even if they don't know it yet), and you have to deliver it in such a clear and simple way that people can't not use it.

I think it's hard for smart people to focus on a simple idea without dismissing it as trivial, but the elevator pitch for every big tech startup I can think of isn't even an elevator pitch, it's a noun phrase. Moreover, it's almost always a noun phrase composed of words of two syllables or less. These days the phrase starts with "a place to share _____". Examples:

  • Flickr is "a place to share your photos"
  • Delicious is "a place to share your bookmarks"
  • Dopplr is "a place to share your travel plans"
  • Twitter is "a place to share your status"

Other examples are left as an exercise for the reader. ;-)

Also, not only does your product have to be simple, but your delivery has to be as flawless as possible. Every time you add a button or a link to a web page, you increase the chances that people aren't going to use the thing. Witness, for example, the clean original designs of Delicious and Flickr and Dopplr and Twitter.

You'll note that I haven't asserted that an acquireable startup actually needs a viable business model at any point. You don't. You do need what Kellan calls a "revenue story," which is about how your VCs or your prospective corporate overlords *might* make money on your service, if they want to go to all the bother. This is one place where your compellingly MBA-like co-founder will be of substantial service (of which more later).

3. You need to be 100% passionate about your product. You need to be building something you want. Your team not only has to build it, but they must also be its most avid users. In Free Software, we call this "scratching your own itch."

However, you do have to pace yourself. Launching any successful startup is a marathon, not a sprint. You need to work hard and be patient. Expect it to take 2-3 years before it's even worth worrying about why you haven't hit the knee of your uptake curve yet.

The deal is that part of what defines most alpha geeks is that they are early adopters, i.e, intellectual sprinters. It's all too easy to lead oneself up the garden path, or to burn out fast. Kellan pointed out to me that most successful tech companies have at least one really disciplined person who can play the hard-ass. This individual can be either a geek-minded MBA, or an MBA-minded geek. It can be tough for an alpha geek to willingly subject themselves to this kind of stubborn catherding, but somebody has to keep the geeks on track.

Maybe your geeks will get bored anyway. Maybe your product idea will turn out to be crap. You can change tack somewhat before your funding runs out (e.g. Odeo and Twitter, or Dopplr's social atlas feature), but all five of these theses apply doubly at that point.

4. You need to know the right people. Again, this seems tautological, because nearly every startup has to get seed funding from somewhere, but knowing or finding a few good VCs is a condition that a logician might refer to as "necessary but not sufficient."

When a bunch of alpha geeks launch a technology product, by definition, their peers among the tech innovators and early adopters will be the first to try it out. If these folks continue using the site or product long enough for the leading edge of the mainstream to take note, then you're starting to look like acquisition material. (If you don't get or choose not to sell before then, you're going to wind up having to issue an IPO, or resign yourself to finding a real profit model. I'm looking at you, Facebook. You too, Twitter.)

That means you must evangelize (in a respectful and non-irritating way) the hell out of your product to everyone you know, and be really attentive to your first couple thousand users, who will hopefully be all of your friends and colleagues. You want them to feel as enthusiastic as you do for your product. If you're really lucky, your new converts will happen to be way over on the left side of the power-law curve of influential technologists, possibly because they were already the people you knew to begin with.

While you're doing this, you also need to solicit the opinions and advice of said first couple or ten thousand users (in a respectful, non-irritating way) constantly, and, more to the point, you need to act on their feedback as quickly as you possibly can. You may become fortunate enough to create a (dare I say it) feedback loop that will give your users a sense of participation and engagement *and* provide them with an increasingly valuable product. That's what will keep them coming back long enough to draw in the early majority, and, hopefully, behind them the mainstream.

5. You have to be really, really lucky. A lot of the luck comes in being early to market, but not too early to market. Launching a service two years too soon can be as fatal as launching it two years too late. All the same, if you're not first to market, you can still win *if* you do score on all other points.

Remember, this is a lottery we're talking about, but not every ticket has the same chances of winning. As Benjamin Franklin, that patron saint of tech innovators, once observed, "God helps those who help themselves."

A few weeks ago, when this essay started coalescing in my mind, I was planning to review startups past and present, and predict that Dopplr was next in line for a big corporate acquisition, because they seemed to be the closest of any startup I know to having all five of these points down. Today, uttering this prognostication seems slightly less prescient than it did the week before last. But I'll go out on the next limb and bet on Foursquare, probably around late 2011 or early 2012. :)

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