Two tales of internet entrepreneurialism

MIKE O'DONNELL
Last updated 05:00 08/02/2014

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OPINION: One of the charming disadvantages of the New Zealand web space is its pretty shallow talent pool and a correspondingly modest subset of experienced players.

As a result, folks who have been around for a while tend to get regular approaches from early stage and start-up players. In recent times I've had two approaches from fledgling web companies with markedly different ways of attracting capital, sweat equity and governance assistance.

Both involved bright, genuine folk with passion for their ideas and strong visions of where it could go. But I'd only back one of them. I'll call the two companies Alpha and Beta.

Alpha started with a small group of experienced business people with an idea for a web company. While not digital natives, the founders were senior managers in some major companies.

Alpha's business model was about applying the peer-to-peer ability of the web, to open up a new type of fiscal product. Peer-to-peer is where customers and suppliers are directly put in touch with each other, cutting out layers of middle-men, something the web is pretty skilled at. In fact the worldwide web creator Tim Berners-Lee specifically had this in mind when he architected a distributed network where everyone could be a consumer and a supplier. Successful examples include Craigslist, Bitcoin and Airbnb.

Alpha engaged a company to design and build an elegant website, then went about pulling together a platform of specialised advisers including lawyers, accountants, a PR company and some advertising folks. It was an impressive line-up of specialists with well-respected brands.

As a result the start-up had run up bills of close to $200,000, being funded out of the back pockets of the founders. What's more, every time they made a change they had to pay a design company $190 an hour to implement it. And to be clear the site wasn't yet live and they had no proof on concept from live users.

Beta was a different beast. The two young guys who set it up already worked in technology, and started working on Beta in their evenings. Rather than aiming for a mass market play, they targeted a niche and built an online tool that they would find useful in their lives, the same way an innovative mechanic might create a new wrench. They had no preconceptions that this would be the next PayPal or Snapchat: Beta just did a simple thing that folks would find useful.

Rather than fine-tune it or get it looking pretty, they built it with free open source software on low cost Amazon cloud servers. Then they just switched the website on, offered the service for free and told their mates about it. It wasn't pretty, but it was easy to use. They were quick about fixing every bug their non-paying customers found, then tweeted the jingo out of it to let everyone know.

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The Beta team built the site for virtually nothing, apart from their own time. As it got better they introduced a nominal charge which worked out less than the cost of a cup of coffee a day. Demand dropped a tad but take-up stayed strong. From zero users at launch, it had over 2000 users a year later.

The Beta boys decided they might want to go to the next step and got a web lawyer involved. They then started knocking on doors to get enough investors to quit their day jobs, go full-time and wrestle together a governance group. They didn't have too much trouble.

Two different companies, and very different approaches. At a high level there are a few learnings here for those planning on being web entrepreneurs:

1.Get the sausage right before you start trying preparing the sizzle. It's not hard to find people who will take your money to promote or protect your concept, but that's no promise that the business model actually works.

2.Don't confuse usability for design. Great usability will always beat elegant design.

3.You need in-house technologists on your team. The inefficiencies and sheer cost of outsourcing every piece of tech work are crippling and you lose the ability to innovate incrementally.

4.Get the website or online service live as soon as possible. Functioning software being used by real people will eat airware every time.

According to a recent Economist article, over two-thirds of people between 18 and 30 are interested in becoming a web entrepreneur; and yet 90 per cent of those that do will fail within the first year.

Management guru Peter Drucker famously said that entrepreneurship is neither a science nor an art. It is a practice, a practice built around economy. I reckon he would have liked Beta.

Mike "MOD" O'Donnell is an ecommerce manager and professional director. His Twitter handle is modsta and he's not read very little Drucker.

- Fairfax Media

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