I was psyched when Ev announced his plan for Obvious Corp., buy the Odeo assets and run a lean company that can take advantage of rapid/cheap development and the network effects of multiple products.
There’s three trends in the ensuing discussion, all caused by plummeting costs of running a web business. Most people are only paying attention to the first two.
1. The VC world is adapting by offering more seed funding. George Zachary, Odeo VC/Board member, launched a seed funding program called Quickstart that’s aiming to make 50 loans in the $100-250k range. That’s a fortune compared to Paul Graham’s Y-Combinator.
2. Entrepreneurs are adapting by skipping venture funding, acquisitions, and IPOs in favor of running small businesses. 37Signals blows this horn loudest, but I’m partial to photo sharing site SmugMug. Chief Geek Don MacAskill said of a recent SmugMug acquisition rumor:
We love our business, we love our customers, and we love the people we work with. Not only that, but it pays the bills - we’re profitable, with no debt and no investors! Why mess with a good thing?
3. Geeks are finding happiness. That’s my favorite trend. Don doesn’t just think that keeping SmugMug privately owned makes economic sense, he thinks it’s more fun.
Ev said the same thing about the formation of Obvious:
Lastly, for me, I just wanted to create a company that would be as much fun and as fulfilling as possible. Fun in work to me means a lot of freedom, and ton of creativity, working with people I respect and like, and pursuing ideas that are just crazy enough to work. I don’t want to have to worry about getting buy-in from executives or a board, raising money, worrying about investor’s perceptions, or cashing out.
Costs are low so you don’t have to be in somebody else’s debt. Development tools are more powerful. And companies are building the infrastructure that supports the ‘muck’ of doing business online. With massive storage systems (Amazon S3), ad programs (Adsense / FM Media Publishing), and cheap hosting you can focus completely on your customers. A company can easily be two people who are 100% focused on building and polishing features for their users.
As David Galbraith points out, small sustainable business is the natural state for every other professional group.
When I was an architect, you didn’t set up a practice on your own to ‘exit’, you setup to build a company that made a profit and made products that made the environment a better place along the way - a sustainable enterprise. The whole idea of ‘exit’ in the context of building an architecture firm, or a legal or medical practice is preposterous.
Will it work?
Bryce at O’Reilly Alpha Tech Ventures calls the venture reaction “spray and pray”
This is a hits business and we just don’t know who the winners are going to be any more. The old formula was one that they were all comfortable with - get a proven team in a hot market and you’ve got a winner. Then Odeo happened (CRV was the primary backer). Rockstar team, smoking hot market, all-star angels — and it didn’t deliver the hyper growth traditional VCs need for their return profile. YouTube on the other had was a couple of junior guys from PayPal moving into a saturated market which had never really panned out. $1.65B later…
That may be true if you’re a venture capitalist and you require one of the investments to be a gigantic success. But I don’t think it’s true for companies like Obvious that have a parallel products in development (Odeo, Twitter, Hellodeo, Odeo Podcast Studio). It certainly wasn’t true for blog networks like Weblogs, Inc. As Jason Calcanis points out, launching to a network that already has traffic works:
StyleDash.com was the best launch in the history of Weblogs, Inc. thanks to the support of AOL and their traffic machine. The graph below is from SiteMeter which we’ve found is about 5-10% less than our internal stats.
It shows 1.5M pages in month one and almost 2M pages in month two. It used to take us 12-18 months to get a blog to 1M pages… now we start at 1M pages. That’s the power of scale, and that’s been the biggest lesson I’ve learned at AOL: how to build a “scale business.”
Of course the network effect isn’t actually a new idea. John Andrews from the SEO world calls it competitive webmastering (just added that to my vocab):
I am an independent competitive webmaster, and this sounds like what I (and many SEO practitioners) have done for years. I build web properties using the latest technologies and small teams (if I need any team at all). I monetize via subscriptions, advertising, and (affiliate) marketing. I use my sites to support my other sites, following sound SEO principles such as semantic theming and whatnot, for organic search traffic and search marketing. My “network” is my base for launching new sites and new promotions, obviously.
If that’s not inspiring, check out Markus Frind of Plentyoffish.com’s take on where the web is going:
Ebay Created a economy of 750,000 people making a living off its site. Google created a program where a couple of hundred thousand people could monetize their sites. Now thanks to google, huge drops in hardware costs and better software individuals and small companies can build sites that were impossible only a few years ago. At the moment there is no better example then me, if you would have said 3 years ago that someone was doing 600 million pageviews a month out of their apartment with no employees you would have been laughed at. There are thousands of other people who in the past 3 years have used adsense to grow and build large sites. In the next 2 or 3 years we are going to see thousands of these sites run by little groups taking over industries. This is because they will have reached critical mass.
I wonder if we’re in a happiness bubble where instead of chasing IPOs, tech entrepreneurs are chasing happy lifestyle businesses. If we are, then I’m pretty sure it’s early and that there’s plenty of room for the first few hundred thousand people to setup store fronts.
