Here is a post (the first of two) from Steve Carpenter on the different potential business models for internet startups right now and some of the metrics necessasry to get to $10mm in revenues.
I believe that services are one of the best internet business models for the next 10 years for the following reasons:
- Price shopping. It is tough to compare a service provider to another using an apples to apples comparison. There are no SKU numbers because it's not a standardized product. Thus, it gives good companies the ability to establish brand and customer care around the service in order to raise value.
- It's just the beginning. Web services is still in its infancy. While there are well-established players for social networking, gaming, and product commerce, services is still the wild west. This leaves room for smart companies to position themselves and get a foothold without having to knock off the 800 lb. gorilla.
- Accepted. Services are an integrated part of the economy. You're not trying to teach an old dog new tricks. You're just making it more efficient for people to buy.
- Demographic shifting. More and more people in their 20's are reaching the age of starting their careers, having kids, and arguably increasing their spending power. As this happens, there will be a natural shift towards the web. People will seek out service providers over the web because that's what they're used to.
- Better technology. It's now worlds easier to discover and choose service providers on the web. Word of mouth is effectively shifting to the web through rating systems, transparent customer feedback, microblogging, and other tech advances. Over time, this will leave a digital identity of most businesses out there, and customers will use the feedback to make quicker, better-informed decisions.
Guy Kawasaki has an excellent post on Plan B: Another way to grow your company. Over the past few years, I've seen so many companies with stars in their eyes. I know what it looks like – I've been there myself. Somehow, the idea of a big round of venture funding solidfies their existence and proves that their concept is destined to be the next big hit.
It's very similar to getting signed on a major record label.
It is imperitive that the artist is solid and can make unbelievable music with or without the label. The label then ads the firepower to get the the next level. But if the artist is relying on the idea that the label is proof of their superiority, then the artist probably won't get traction.
It's the same with your startup. Struggle and fund it yourself. Fail fast. Understand that your model will change 2-4 times in the first few years. Commit yourself to persevere through the chaos and find a way, no matter what, to understand what the market is willing to pay for. Then, focus on developing a service or product that answers those needs better than others.
Kawasaki's best advice on this article: "Rather than trying to boil the ocean, try to boil a tea kettle." We've found that mantra to be true within TakeLessons. Rather than focusing on the entire world/country, we've targeted specific geographies. Rather than focusing on everything related to lessons, we've focused down on what we do best. This allows us to direct our strategy in the areas that will provide us a true competitive advantage. The truth is that we will never have enough time, money, human capital to do everything we want at all times. So the power of focus has proven to be an invaluable tool.