Delusions of Facebook – Should you be a Facebook Startup?

You can’t deny it: Facebook Applications have been a hot topic from the day the Facebook API was announced 5 months ago. Early success stories spread quickly, and the app-installation-fever that most users went through was overwhelming. Invitations to install this app and that one, we all had flooded inboxes.

Here in Toronto, FaceBookCamp 1 and FacebookCamp 2 were wild successes with over 300 people in attendance at each. There are no surprises when Facebook takes over any conversation, and certainly not one about startups. StartupWeekend here in Toronto is now Facebook Weekend.

I am a fan of Facebook, and have written my own predictions on how successful they will be.

So, should you consider building your startup as a facebook app. Or is that, should you consider building a facebook app as a startup?

I think there are a few fundamental problems with trying to do so, and I will try to explore those here. As a disclaimer: I have not tried to start a business on Facebook, I have just been an observer. I am also aware that there are some facebook apps which are doing quite well, and time will tell if they truly manage to cash-out.

You cannot build a business on someone else’s platform when they don’t see you as a partner.
This is the single biggest obstacle. Facebook does not see application developers as partners in any way. In fact, they forbid you from calling yourself a partner.

The implications of this might not seem so bad up front. You are still getting access to a great API, lots of community-based support and most of all, you have access to Facebook’s 40-50 million users.

The reality is more harsh however. You are putting yourself at the mercy of an organization that is growing at a phenomenal rate, you do not know what sort of value they prescribe to your, or any other, application and there are no guarantees about how long the platform will be as accessible as it is today.

To make money, you need to have your own customers.
To make real money, you need to have customers, even just users will do, but you have to have something.

When you are building your business on Facebook, you won’t get either one. You get visits. Brief interactions with someone else’s users, and you have no control.

Being able to move people from being visitors in to being customers is critical to building any sort of sustainable business. In order to generate any sort of sustained revenue, you need to be able to deliver ongoing value to your customer, so they can continue to either pay you, or click on your ads.

If they don’t innovate, you die.
You may or may not remember Compuserve, BBSs, AOL, and countless other internet beomouths. In their day, they were all the big thing, the had tens of millions of customers, doing billion dollar deals and they were bringing new customers in faster than you or I could count.

The one common theme between all their stories? They have all gone away slowly and painfully.

You may be able to build the most popular Facebook application there is, and you may be able to generate some cash through advertising or sponsorships, but one thing you won’t be able to do, when the time comes, is take your customers with you.

When Facebook’s day does come, and it will come at some point, it will be your last day too. You won’t have a hope in hell in getting contact information or any other sort of data about your customers, because they were never your customers in the first place.

This road has been travelled before.

Your business is their feature
The name Facebook Applications is misleading. You are building Facebook Features. Slideshows, Maps, Sticky Notes, all of it, they are all features.

I don’t have to tell you that a feature is not a business, because you already know that. Don’t you?

You have two options: Change or Die
You are building your, *ahem* business *ahem* under the Facebook Terms of Service. While they may be relaxed and manageable now, Facebook can change them at any time.

When that happens, you will have two options. You can do what they say and change your application, possibly removing things like advertisements, or you can go away and die. (And no, you can’t take your users with you).

Treat your own customers well, and they reward you. Treat someone else’s customer well, and they are rewarded
We have already established that you don’t have your own customers or users when building a Facebook Application. The kicker here is that you now have no incentive to enhance your ‘application’. The better job that you do, the more Facebook will benefit.

You may being saying “aha, that means what you said above is invalid”. Well, almost. You see, at some point you begin to provide a diminishing return to Facebook. Their users are spending too much time in your application. At this point, Facebook has more to gain by making sure that you are no longer the flavor of the month, and they gain by having their customers go to other applications. The more people move around in Facebook, the more they benefit.

Use Facebook as a conduit to your real business
Facebook has almost 50 million users. You can’t argue with those sorts of numbers. This level of access to so many entrenched users is unusual.

The opportunity is for you to extract a feature from your real business, and provide that feature as a Facebook Application. You can then try to link users through to your real website. If you are building something worthwhile, they will come there with you and you can focus on turning them in to real customers.

The fact is, as a startup you should be focused on building something that is useful on its own. You need to create value that people are willing to pay you for, either with their attention or their own money. Until you can do that, you do not have a sustainable business. You have an experiment, a feature, an idea.

StartupCamp Waterloo – This is just getting started

1732730724_69769af3d0_m.jpgJonas Brandon, David Crow and I made the trip from Toronto to Waterloo last night to attend StartupCamp Waterloo. Despite over 2 hours in traffic on the way there, we were happy that we went. What a great evening.

The room wasn’t packed, but there were just the right number of people there. Things were kicked off with Ali Asara from who took us through the ups and downs of his search for funding for his startup. Ali was incredibly compelling and more than made up for the fact that Albert Lai couldn’t make it in time. Ali, who Toronto recently lost to Guelph, is quickly becoming one of my favorite guys in the startup scene around here.

I had intended to take notes on the evening, but I really just got too caught up in everything. After Ali’s presentation, it was time to have quick 2-minutes demos from a slew of startups, or potential startups. Despite some Facebook Delerium that was coursing around the room at times, which culminated in one startup being told to eschew any thought of making money and to just make a facebook app, there was a really genuine attempt to help each startup in thinking through their business plans and product development.

The startups that presented, that I made note of, were

  • Village Toolbox ? Not yet launched. Wiki and social tools for actual, real-life, communities.
  • CastRoller
  • Zimride – A Facebook App
  • Purple ? Community managed band calendars
  • and his EpochBox idea.

The startup that really got my attention was Village Toolbox. Simon Clark has built a social-software platform for his own community. While the product is in it’s infancy (it didn’t look very refined), and there are quite a few competitors in this space, I think Simon really kind of gets it. A lot of the competitive tools, which we use in my condo are ugly in their own way, and aren’t built with the community in mind. My guess is that there is a lot of room to innovate here, both with the product and with the localized revenue opportunities.

1732730310_b8a7867ce5_m.jpgSimon’s question when he got up was: “should this stay as a hobby, or should I start taking it seriously”. My advice is: focus on the product, keep iterating it in your own community, and put it in a couple of others. Once you get it right, start spreading it out and then quit your day job when you can afford to, but no sooner.

These startups were all very early stage, which will probably be the norm for events like this. There were a handful of more seasoned entrepreneurs in the audience however, and a lot of good advice flowed from them. It would be nice if startups would present some basic market research or target-audience information, because it can be hard to talk through problems without really understanding the end-user.

This is just getting started
By the time the evening was over, people were buzzing. The rapid-fire sessions, which nobody wanted to end, had us all excited. The entire event was very loosely planned, and it went off perfectly.

Startups were invited, the number of attendees was kept low, and the organizers let the audience set the pace. We learned a lot of lessons. StartupCamp is unique from DemoCamp in that it isn’t about demoing cool technology just to show it off (a line that was very fine at times), but instead it is about demoing a startup or idea with the intention of taking feedback, and heckling, from the audience. The entire night reminded me a lot of the first DemoCamp here in Toronto.

Keep the momentum going
So, here is the deal. We are going to keep up our end of the bargain and we are going to be hosting StartupCampToronto1 (watch that page — too tired to fill it in now) using the same model.

Now, the challenge we are sending out to all the other tech startup blogs: Run a StartupCamp in your city. Keep it simple and to the point. Let’s smoke out the entrepreneurs and see what, and who, is out there.

StartupCongress planning continues to take place, but in the spirit of startups, let’s just do it.

Angel financing – Who are angels and what are their motivations (part 2)

When you are making a pitch & ultimately getting angel investors on board with your company, its important to know who you are dealing with and what their motivations are. During a general pitch presentation to a room of angels, you will not be able to know much about who you are pitching to or what each person’s background is. So you will have to keep your pitch suitable for a broad audience. Don’t assume they will have knowledge of the industry your company operates in. As you work with angels interested in investing in your company, you will have the opportunity to get to know them better. This is important to do as you want to ensure their motivations & expectations are in line with what you have in mind.

So at the risk of over-generalizing, here are some profiles of angels & their potential motivations.

Cashed out entrepreneurs that have started & sold their own company. They know how to build and run a business. They may be looking for their next opportunity and want to get involved on the management team or board of directors.

Professional service providers such as lawyers or consultants that provide services to companies. They may be looking for early stage companies to get involved with so they can grow with them and provide increased services once the company gets more mature.

Doctors that may be interested in funding companies that are advancing technologies in their field.

Business people interested in funding companies that help work towards a cause they are interested in such as environmental friendly sources of energy.

Corporate executives looking for early stage companies that can provide a new product or service that can help the corporation they work for.

At the end of the day, all angels are investing since they want a class of investment they can participate in that offers a chance at a high return (with the downside of high risk). However, there are wide ranges of preferences for what role angels see post investment. Some want to be actively involved in helping grow the company while some would rather be passive and be hands-off. It is also important to be on the same page in terms of expectations of exit and investment return. The main point is to ensure you understand your investors expectations and the role they want to play in your company post-investment so you can properly manage to it.

In my next series of articles I will talk about the main areas angels look at when evaluating a company. As always, if you have any questions, comments, or suggestions for future articles feel free to contact me: craig at