Saturday, May 06, 2006

Finding the right business model for your technology business

I love this aspect of the early formation stage of any business - finding the right market and b-model for your business.

Is there any steps we can followup?

First, there are lot people who are stragtegists who can come with lot of possibilities. Its a kind of thinking, also coupled with years of experience looking at different business models that worked or failed for other companies in the past. VCs usually do this well, mostly in pointing a parallel business and how a particular b-model failed for someone.

My friend Richard Seltzer is a genius in this, he was an Internet Evangelist (actually that was his title) at Digital when they came up with Altavista. He later wrote the book on "The Altavista Search Revolution". He gets charged about any web idea and can brainstorm wild possibilities.

I've come across many strategists during my early startup days, who were all consultants.

If you look closer, you'll find most of these consultants have certain type of business and b-models that they deep down believe, maybe because it worked for some other client or because of their background.

For example, when we came up with Coola technology as being capable of allowing mobility of granular information between a web based system (over HTTP) and any application on the Palm, coming from a software background, building web applications, I first thought of web businesses as our customers and the optimum deployment as a hosted ASP solution. My partner and CTO has extensive experience in databases and loves integration with different systems in a corporate world. So he build a robust server with its own APIs to integrate into several different type of technologies on the backend.

We came across a VC who had experience in emails who suggested that we offer Coola over email so one can add a Coola signature and get addresses synced into a Palm over Coola. We were driven on an execution spree and managed to implement all of it.

I strongly believe that any business should insert itself into the existing eco-system of players to build some sustainability. So, we partnered with every possible player in the mobile space. We launched an API for our Palm client and worked with every single player to integrate it with their Palm application, eg Palm readers, Palm image viewers, Palm Database Apps all could talk to Coola client on the Palm.

On a sad note, when we closed Coola after 3 years, everyone of them had to release a new version of their software removing Coola client calls :-(

I have seen several clients from BBN Planet/GTE Internetworking where we used to brainstorm with every player who wants to build a web site for their business like Time Warner's American Lawyer Media, Starwood Hotel group, Cabletron etc. Then we built the site, launched, measured results and adviced on keeping on changing the b-model.

So, I have come to appreciate a new way of coming up with business models for new idea which marries strategy with execution.

Here is my first attempt at building a list of consideration to find business models for tech ideas.

1. Ask yourself "what is my fixed and what is my variable" in my business. This will help to understand what is the core part of your business that you want to build as your core IP and competitive advantage in the long run.
For example, if we look at a photo site like, is their fixed the technology for sharing, operations of printing quality pictures, or the community they built with loyalty to come back as repeat customers.
If they decide the community is their fixed, that will help decide to be a destination site, add the burden of customer aquisitions, and help plan activities around building loyalty to such a community (this part shutterfly hasn't done). If on the other hand they decide their technology and fulfillment is their fixed, they'd work on the UI to lock in visitors (which they've done a beautiful job) and can go about signing partnerships with the portals to do co-branded deals to bring in customers and can even partner with Google groups to allow existing groups to use their site for sharing photos within their community etc.

2. Insert yourself into the existing eco-system. Find partnerships, technology integrations, co-marketing deals, but make sure its all revenue generating for both parties, otherwise it won't stay for long.

If you look closely at the news, you can see how Google became famous because Yahoo chose them as their search engine when Yahoo didn't have one. Today Yahoo and Google are competing for AOL and every other key players partnership to tie themselves some sustainability into the web eco-system.

Beware of revenue sharing deals when you cannot clearly calculate where the revenue is coming from. We had signed for Coola with and spent a lot of time with web business who wanted to do rev-share deals when either couldn't see where real money came from.

Its easy to get carried away by examples of large players and how they have grown with revenue share deals, but think critically about the customer paying you, for your small business to you or your partner and why.

3. Every idea given to different teams will make different businesses. It depends on what core competencies exist in your team. Where is your strength? Are you server or client side people? Do you have competency in awesome content play? You can always hire people with other skills, but where is the core of the top guy who is going to drive all this?

4. VCs always ask for a rounded team and beam if you have team and advisors from the vertical you are targeting.
You will have to know the nuances of the vertical you are targeting, so experience in that segment will go a long way. So, even if several verticals are possible when you brainstorm and do a blue-sky scenarios, focus on the one where you have real experience in your team and can execute.

5. If you know your fixed, its great to dream, don't let it hamper your fast executon in the near past.

I love this quote:
" Every morning in the jungle a lion and a gazzelle wake up and start running. The lion will survive only when it runs faster than the slowest gazzelle,a gazzelle will survive only when it can run faster than the fastest lion"

In the startup world, its not the greatest idea that wins, its the one who runs the fastest.

My partner Shirish likes to add puns and extends the quote "Every morning a vulture sleeps late knowing whether the lion or gazzelle survives, it will have some food to eat".

I am yet to see a startup example to see where a business can become a sleeping vulture :-)


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thanks ade

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