HacStart Blog - Sydney Venture Capital, Seed Funding, Startup Incubators, Technology Startups, Internet Startups

• Send 400+ SMS text messages a month 
• Watch 1-2 hours a week TV (with advertising removed, DVR/TIVO)
• All own Apple iPods (and wouldn't consider changing)
• All buy stuff online (clothes, electronics, stuff) with either their own debit card or their parents credit card
• Most use Firefox or Safari, with some form of popup blocker / banner advertising remover
• All use myspace or facebook or both
• All see email as best for a formal communication (teachers, parents, work) and recieve 5-10 email a day.
• 1/2 use IM, those that do have an avg of 5 windows open
• 10% owned game consoles or played online gaming - as a social activity
• None knew what RSS was
• All read blogs
• 90% used Microsoft Office as an "integral part" of work/study/homework
• 50% Owned Apple Mac Laptops as their personal computer

• hi5.com ( Social Networking / Travel)
• Fark.com (Social News & Humor)
• Slide.com (Flash photosharing tool)
• PlentyOfFish.com (Dating Site)
• HotOrNot.com (Web voting / Dating)
• SuicideGirls.com (Dating, Soft porn)

All top 500 WWW websites by traffic (Alexa.com) and all bootstrapped by their founders

Interesting to hear their stories: The main points were:

• Make something people want
• You don't own you website, your visitors/customers do
• Try several iterations of your product / business model to get it right
• Luck is a big factor (or being in the right place at the right time)
• Do what you love (improves your stickiness to work on the cause)
• Starting a startup is like agreeing to become BiPolar

You’ve probably heard at least a few times how important it is to focus.  I find it interesting that though there is general consensus among successful entrepreneurs on this topic (i.e. focus=good, lack of focus=bad), the advice to focus continues to be hard to follow.  I’ve struggled with this challenge myself, even though I know how important it is to focus.

The Phenomenal Force Of Focus 

1. The Temptation Of The Big Market:  Because software is so malleable and we’re all so smart, we tend to think that our product can (and should) have a nice, big market to address.  For example:  In the case of I’m In, they could have easily tried to argue that the product is could be easily “reused” for organizing trips for small businesses.  Just a tweak hear and a tweak there and instead of limiting its market to gender-based social trips, it could expand the market considerably.  The same can be said for many software products.  There’s no technical reason to limit your software to a niche market.  Why not “go broad”?
   
2. Figuring Out What The Customer Wants:  One of the biggest reasons not to “go broad” is that it becomes very difficult to figure out what to build.  For example, in the case of I’m In, small business group travel and social group travel have lots of overlap – but vary in some key ways. Businesses might care about things like rules and policies for travel – social travelers care more about fun, bonding and memories (like photos of the trip).  By trying to address the needs of two different customers (despite the fact that there are some needs they have in common), you end up compromising one or the other. 
   
3. The True Cost Of Broad Products:  Lets stipulate for a moment that you and your team are smarter than average (just like all founding teams believe they are).  Despite your brilliance and the unquestioned ability of the team to create an exceptionally cool product that can address the needs of millions of users, the harsh truth is that broad, flexible, products that can address the needs of many types of users are almost always more expensive to build and maintain than products that only address the needs of a small group of people.  The larger the divergent needs of a group of users, the more complexity that has to be baked into the software to address the needs of these disparate users.  Even with our brilliant ability to deal in high-order abstractions, the very fact that we have to have lots of high-order abstractions makes the product harder to build and get right.  If you ever run into someone that tells you that they can build a really flexible product that can do lots of things (add an option here, set a configuration there…) at the same cost or lower than one that doesn’t have that much flexibility, run.  Certainly don’t send them my way and make me expend the effort to resist the temptation to smack them upside the head. 
    
4. It’s Not Always About The Product:  Lots of software people fall into the trap of believing that the primary cost factor is product development.  This is not always true.  The primary cost is often not building the right product, but getting it into the hands of the right customers.  This is where focus really starts to play a big role.  By focusing on the needs of a small subset of the potential market, lots of things become much, much easier.  A direct quote from Josh at I’m In:  “By focusing on a tight customer segment (gender-based travel), it has been much easier to write copy for the site, select photography, create tonality, and develop a list of targeted fulfillment partners.”  Though I don’t know what the heck tonality is, what I do know is that it is much easier to figure out what you’re going to say (your message) and get the word out there when you have a smaller, more focused audience that you’re trying to reach.  It’s really hard to believe how much of an impact this has until you actually experience it.  Literally overnight (the day you make your decision to tighten your focus), your discussions become clearer, your meetings more productive, your product roadmap more defined and you become immensely more attractive to members of the opposite sex. 
    
5. Restrictions Are Not Permanent:  Just because you start with a narrow niche and focused strategy does not mean you have to remain there for all eternity.  It’s simply a better way to start a company because it makes the early stuff so much easier.    As the company evolves and you learn more and more about the market, you can decide whether you want to go broad (i.e. tweak the product to meet the needs of another segment of customers) or go deep (build more products/features that serve the needs of the customers you already know).  The point is, don’t convince yourself that you have to widen your potential market now – because you don’t.  In most cases, you’re better off starting narrow and broadening later.

Before you approach a early stage venture capital firm be sure to have the following points presented neatly in a PDF or Powerpoint doco.

This book is fantasic for anyone looking at getting up to speed on what Web 2.0 can do for their business (If you think blogs, RSS and Podcasts are not important for your business then you need to read this book)

The eBook can be downloaded Here

Some excerpts from the book

“Your brand is no stronger than your reputation — and will increasingly depend on what comes up when you are Googled”

“Markets are conversations. Markets consist of human beings, not demographic sectors. Conversations among human beings sound human. They are conducted in a human voice. The internet is enabling conversations among human beings that were simply not possible in the era of mass media.”

“The internet is a powerful tool. But most attention seems to focus on its use as a means of vertical communications: from one to many.

…But as important as this is — and it’s very important indeed — it’s probably dwarfed by the much more numerous horizontal communications that the internet, and related technologies like cell phones, text message and the like permit. They allow a kind of horizontal knowledge that is often less obvious, but in many ways at least as powerful, as the vertical kind.

 “Horizontal knowledge is communication among individuals, who may or may not know each other, but who are loosely coordinated by their involvement with something, or someone, of mutual interest. And it’s extremely powerful, because it makes people much smarter.”

It’s all about disruption and the people taking back control of what they pay attention to

So many great new web sites are cropping up all over the place!  From Social Bookmarking Sites, to Real Estate sites, this list has only the best Web 2.0 Sites available today! 

What makes a Web 2.0 Site?  Really Web 2.0 is the second coming of World Wide Web. New and improved sites that make the web their platform, provide users a way of interacting with each other, and organize and categorize their content are perfect examples of Web 2.0.  Below is a list of web sites that are the best of the best! 

A comprehesive list of web 2.0 sites

Myth #1: A brilliant idea will make you rich.

Reality: A brilliant idea is neither necessary nor sufficient for a successful business, although all else being equal it can't hurt. Microsoft is probably the canonical example of a successful business, and it has never had a single brilliant idea in its entire history. (To the contrary, Microsoft has achieved success largely by seeking out and destroying other people's brilliant ideas.) Google was based on a couple of brilliant ideas (Page rank, text-only ads, massive parallel implementation on cheap hardware) but none of those ideas were original with Larry or Sergey. This is not to say that Larry, Sergey and Bill are not bright guys -- all three of them are sharper than I can ever hope to be. But the idea that any of them woke up one day with an inspiration and coasted the rest of the way to riches is a myth.

Myth #2: If you build it they will come.

There is a grain of truth to this myth. There have been examples of businesses that just built a product, cast it upon the ether(net), and achieved success. (Google is the canonical example.) But for every Google there are ten examples of companies that had killer products that didn't sell for one reason or another.

Myth #3: Someone will steal your idea if you don't protect it.

Reality: No one gives a damn about your idea until you actually succeed and by then it's too late. Even on the off chance that you do manage to stumble across someone who is as excited about your idea as you are, if they have any brains they will join you rather than try to beat you. (And if they don't have any brains then it doesn't matter what they do.)

Patent protection does serve one useful purpose: it can make investors feel warm and fuzzy, especially naive investors. But I strongly recommend that you do your own patent filings. It's not hard to do once you learn how (get the Nolo Press book "Patent it Yourself"). You'll do a better job than most patent attorneys and save yourself a lot of money.

Myth #4: What you think matters.

Reality: It matters not one whit that you and all your buddies think that your idea is the greatest thing since sliced pizza (unless, of course, your buddies are rich enough to be the customer base for your business). What matters is what your customers think. It is natural to assume that if you and your buddies think your idea is cool that millions of other people out there will think it's cool too, and sometimes it works out that way, but usually not. The reason is that if you are smart enough to have a brilliant idea then you (and most likely your buddies) are different from everyone else. I don't mean to sound condescending here, but the sad fact of the matter is that compared to you, most people are pretty dumb (look at how many people vote Republican and they care about dumb things. (I just heard about a new clothing store in Pasadena that has lines around the block. A clothing store!) If you cater only to people who care about the things that you care about then your customer base will be pretty small.

Myth #5: Financial models are bogus.

As with myth #2 there is a grain of truth here. As Carl Sagan was fond of saying, prophecy is a lost art. There is no way to know for sure how much money your business is going to make, or how much it will cost to get to market. The reason for doing financial models is to do a reality check and convince yourself that making a return on investment is even a plausible possibility. If you run the numbers and find out that in order to reach break-even you need a customer base that is ten times larger than the currently known market for your product then you should probably rethink things. As Dwight Eisenhower said: plans are useless, but planning is indispensible.

This myth is the basis for one of the most classic mistakes that geeks make when pitching their ideas. They will say things like "Even if we only capture 1% of the market we'll make big bucks." Statements like that are a dead giveaway that you haven't done your homework to find out what your customers actually want. You may as well say: there's a good chance that only 1 customer in 100 will buy our product (and frankly, we're not even sure about that). Doesn't exactly inspire confidence.

Myth #6: What you know matters more than who you know.

Reality: You've been in denial about this your whole life. You were either brought up to believe that being smart mattered, or you just didn't believe your mother when she told you that getting along with the other kids was more important than getting straight A's.

The truth is, who you know matters more than what you know. This is not to say that being smart and knowledgable is useless. Knowing "what" is often an effective means of getting introduced to the right "whos". But ultimately, the people you know and trust (and more importantly who trust you) matter more than the factual knowledge you may have at your immediate disposal. And there is a sound reason for this: business decisions are horrifically complicated. No one person can possibly amass all the knowledge and experience required to make a broad range of such decisions on their own, so effective business people delegate much of their decision-making to other people. And when they choose who to delegate to, their first pick is always people they know and trust.

Ironically, C programmers understand this much better than Lisp programmers. One of the ironies of the programming world is that using Lisp is vastly more productive than using pretty much any other programming language, but successful businesses based on Lisp are quite rare. The reason for this, I think, is that Lisp allows you to be so productive that a single person can get things done without having to work together with anyone else, and so Lisp programmers never develop the social skills needed to work effectively as a member of a team. A C programmer, by contrast, can't do anything useful except as a member of a team. So although programming in C hobbles you in some ways, it forces you to form groups whose net effectiveness is greater than the sum of their parts, and who collectively can stomp on all the individual Lisp programmers out there, even though one-on-one a Lisper can run rings around a C programmer.

Myth #7: A Ph.D. means something.

Reality: The only thing a Ph.D. means is that you're not a moron, and you're willing to put up with the bullshit it takes to slog your way through a Ph.D. program somewhere. Empirically, having a Ph.D. is negatively correlated with business success. This is because the reward structure in academia is almost the exact opposite of what it is in business. In academia, what your peers think matters. In business, it's what your customers think that matters, and your customers are (almost certainly) not your peers.

[UPDATE: this is not to say that getting a Ph.D. is useless. You can learn a lot of useful stuff by getting a Ph.D. But it's the knowledge and experience that you gain by going through the process that is potentially valuable (for business endeavors), not the degree itself.]

Myth #8: I need $5 million to start my business

Reality: Unless you're building hardware (in which case you should definitely rethink what you're doing) you most likely don't need any startup capital at all. Paul Graham has written extensively about this so I won't belabor it too much, except to say this: you don't need much startup capital, but what you do need is a willingness to work your buns off. You have to bring your brilliant idea to fruition yourself; no one else will do it for you, and no one will give you the money to hire someone to do it for you. The reason is very simple: if you don't believe in the commercial potential of your idea enough to give up your evenings and weekends to own a bigger chunk of it, why should anyone else believe in it enough to put their hard-earned money at risk?

Myth #9: The idea is the most important part of my business plan.

Reality: The idea is very nearly irrelevant. What matters is 1) who are your customers? 2) Why will they buy what you're selling? (Note that the reason for this could very well be something like, "Because I'm famous and I have a huge fan base and they will buy sacks of stale dog shit if it has my name on it." But in your case it will more likely be, "Because we have a great product that blows the competition out of the water.") 3) Who is on your team? and 4) What are the risks?

Myth #10: Having no competition is a good thing.

Reality: If you have no competition the most likely reason for that is that there's no money to be made. There are six billion people on this planet, and it's very unlikely that every last of them will have left a lucrative market niche completely unexploited.

The good news is that it is very likely that your competition sucks. The vast majority of businesses are not run very well. They make shoddy products. They treat their customers and their employees like shit. It's not hard to find market opportunities where you can go in and kick the competition's ass. You don't want no competition, what you want is bad competition. And there's plenty of that out there.

Special bonus myth (free with your paid subscription): After the IPO I'll be happy.

If you don't enjoy the process of starting a business then you will probably not succeed. It's just too much work, and it will suck you dry if you're not having fun doing it. Even if you get filthy stinking rich you will just have more time to look back across the years you wasted being miserable and nursing your acid reflux. The charm of expensive cars and whatnot wears off quickly. There's only one kind of happiness that money can buy, and that is the opportunity to be on the other side of the table when some bright kid comes along with a brilliant idea for a business.

All these myths can be neatly summarized in a pithy slogan: it's the customer, stupid. Success in business is not about having a brilliant idea. Bright ideas are a dime a dozen. Business is about taking a bright idea and assembling a team that can turn that idea into a product and bring that product to customers who want to buy it. It's that simple. And that complicated.

Good luck.

ITConversations has a fantastic podcast on the dilemma of Innovation. Basically, the podcast talks on how market leaders try to stifle the next parasign shift that eventually break that market (eg telco's trying to stile VOIP) but that since that shift is inevitable, what is the best way manage that shift without alienaiting customers who are not ready for the shift or destrotying the existing profitable business model that will eventually die when the new paradigm shift kicks in? 

"As we enter the next era of software, market leaders are faced with a dilemma. Early innovators can soon become victims of their own success, bound by the demands of a large customer base. Meanwhile, startups and upstarts gain the edge in the innovation space. In this talk, Mark Bregman shares his insights and vision for maintaining leadership while driving innovation."

ItConversations - The Dilemma of Innovation

Here's a quote from the article by Rupert about the new media world...

"To find something comparable, you have to go back 500 years to the printing press, the birth of mass media – which, incidentally, is what really destroyed the old world of kings and aristocracies. Technology is shifting power away from the editors, the publishers, the establishment, the media elite. Now it's the people who are taking control ."

For a man that comes from the establishment he certainly is making sure that News Corp are making some pretty smart moves to ensure that they are not totally destroyed by the new wave
 
http://wired.com/wired/archive/14.07/murdoch.html
 
Wired have a great article where they talk to Rupert Murdoch and a few other people in News Corp about MySpace and the new media world that they are moving into in a big way.

So you have built your new web business and your launch got a bunch of customers and champagne is popped and pats on the back go all round. But beware, for most online businesses there is an inevitable lull that will occur after launch and this can be extremely disparaging for new entrepreneurs.

In our experience successful online businesses are never "Launched" but are "Built" over a period of time. This is a common misconception by many young web entrepreneurs.

Make your you love your business idea enough to still be working on acquiring new customers for your business in whatever way you need to in 2,3,4,5,10 years time to keep your business successful.

7. If you are successful someone will sue you eventually. Are you prepared?

Make sure you have a trademark on your domain name. Don't even consider using a domain name that has been trademarked in a major legal jurisdiction (US, UK, Europe, Japan).

Once you have invested in all your business branding, good will and customer recognition with a business name, if you then have to change your name due to a trademark conflict you will kick yourself.

If you use a trademarked domain name, expect to have to cash up an extra 10,20,30,50k in legal fees somewhere down the line.

And as obvious as it sounds, make sure your Terms & Conditions are locked down. The extra 1-2k in legal expense upfront to get your butt covered may be worth it 100x over down the line.

What do you think? Are there any other major factors in your experience that you feel we have not mentioned? Feel free to leave a comment.

Today we launched VCNewsCentral.com, a social news filter for the Startup and VC Blogosphere. Site: http://www.vcnewscentral.com/

Today we announced the full launch of iTrainer.com.au.

iTrainer is "The Personal Trainer on your iPod" and starting a 29.95 a month, a damn site cheaper than a personal trainer of Gym membership.

Check out the website at www.iTrainer.com.au

Today we announced the Launch of PodWorkx.

Check out www.PodWorkx.com

Yay! Thanks to our web guys for getting the blog installed on the HacStart server. Woohoo!