Just being a web startup shouldn't be good enough for you


A few weeks ago I posted my thoughts on what being a startup should really be about.

I know some people don’t like posts like that, because it goes against the "you rock!" back-patting mentality of a room full of entrepreneurs. But it seems just having a website is often good enough to get all the congratulations you want.

Of course, I love cheerleaders.

People who connect startups to people they need to know and who they can work with. Anyone can tell you that when I like a startup, I love them. I make phone calls, introductions, and provide whatever help I can. I never get paid for it, I just do what I can.

The truth though, is that being a web business is a lot different than it used to be and the formula is changing. You can no longer just be the online-version of a bookstore or anything else. You have to compete on the web with other retailers, service providers, and products.

Just because you can do something on the web doesn’t mean you should.

It is easier than ever to get things started and to manage the costs of being a web startup, but it is harder than ever to get distribution. The Facebook App mania and the mass migration to the iPhone give you an idea of the thirst for distribution that developers have right now. If you get to the distribution channel early, and you build something that is perfectly timed, then you can win in the short term.

In the long term however, aggregators arise, and distribution gets consolidated. This same race is the one that killed movie producers decades ago, and indie game developers more recently. As Jonas pointed out, managing costs is only a small part of the equation.

Building something on the web is still the best place to do it.

  • The web reduces costs.
  • The web gives you direct and wide distribution.
  • The web gives you more opportunities for scale.

But as I pointed out, those things do not come as easily as they used to, and all of the stories and advice you have heard in the last 10 years have a timer on them. They are quickly becoming irrelevant.

People put a premium on speed right now, it is called Shiny Object Syndrome and it has been very real both in the market and with entrepreneurs. Building on the web is no longer going to be about being first and being quick, it is going to be about being better and being reliable.

Don’t get caught building something because it is quick, easy, and the distribution is free.

Those aren’t good enough reasons anymore.

Week in Review

Seed State of Mind

Seed investments into cohorts of startups (think: Y Combinator, TechStars) are popping up across Canada. And there is sure there is to be more to come…

On the tail of the ExtremeU class of three in 2009:

  • Assetize enables social network users to monetize their accounts.
  • Uken creates highly addictive social games.
  • Locationary aims to be the World’s place database.

Bootup Labs has announced a class of six for January 2010:

  • Blast Ramp is collaborative distribution platform for companies that sell and ship consumer products.
  • Compass Engine helps developers create the next generation of location based games.
  • FoodTree brings the community and transparency of the farmers market online.
  • ReadFu brings contextual summaries for every link.
  • Status.ly is a device-independent lifestream aggregator with focus on personalized customization and filtering.
  • Zedmo lets you find events and social topics. Discover “channels” according to location, popularity, or topic.

It is great to see these initiatives taking shape, if not a small exodus of founders would continue to head south in search of more fertile startup pastures. Case in point: Toronto’s Christopher Golda and Mike Montano, who were recruited to participate in Y Combinator, created BackType, and received Series A funding from True Ventures.

As exciting as this investment activity is, the question remains: is it sustainable?

In terms of ROI, seed stage investing is notoriously difficult. Run the numbers yourself Johnny Appleseed: small amounts of capital + dozens of companies to manage investments in + just three months to build something = lots of work – uncertain returns. The challenges are compounded if the ecosystem lacks investment capital for follow on financing, in which case these projects might die on the vine.

So here is hoping that in 2010, and I strongly believe this will be the case, Angels continue to step up to the plate to bankroll months 4-12 and VCs make a triumphant return to Canada.