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Entrepreneurs everywhere
October 17, 2005
Peter Rip, managing director of VC firm Leapfrog Ventures, has an insightful post on what he calls the Web 2.0 Entrepreneur Bubble. As the components of digital computing and communications get ever cheaper, the investment required to start up a software business falls ever lower. (Om Malik today talks about "virtual companies" that conduct "most of [their] business through cellphones, Skype and AIM.") Combine that with easy access to inexpensive capital (seemingly the new American birthright), and you've got the recipe for another boom - and bust - in Internet startups.
That's what Rip sees happening now. A lot of people, intoxicated by Web 2.0 hype, are rushing to launch new ventures. Unfortunately, many of them are pursuing similar, and usually flimsy, business models. Rip suggests that all would-be entrepreneurs ask themselves two simple questions: "How will you sustainably differentiate yourself? What will you do when 15 other similar sites appear in the next 12 months?" Don't assume, in other words, that low entry barriers make it easier to succeed. It's exactly the opposite. Where there are low entry barriers, there are also low barriers to competition.
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Comments
This is correct but hardly worth noting.
One of the great things about the free flow of captial in the US is that new ideas do get funded; the corollary of this is that bad business models, even faddish bad business models, don't survive and everyone moves on.If there's any danger, it's that VC from HBS'06 make the same mistakes as HBS'99. But another great characteristic of the USA is that VC get to make mistakes. Some go on to be librarians, or school teachers in The Bronx, or better VC than they were before.
As things go, Web 2.0 hype isn't that dangerous . To be honest, I worry more about dull CIO's keeping Microsoft fed because they lack understanding of open standards.
Posted by: Sam Hiser at October 17, 2005 03:11 PM
Nicholas,
I wrote a critique of sorts (is it really?) on your view of diminishing returns of software: The Best is Yet to Come. Just thought I'd let you know.
Filip
Posted by: Filip Verhaeghe at October 17, 2005 06:21 PM
Seems like the business models least affected by the hype are the ones based more on location than on technology. Like, you know, a lemonade stand. :)
Posted by: David at October 18, 2005 12:44 PM
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