Better the second time

Internet entrepreneurs are getting smarter, the second time around…

The new generation of Internet entrepreneurs make a lot more sense to me than the Net entrepreneurs of the dotcom era ever did.

For one thing, they’re avoiding venture capitalists.

It’s a dirty little secret, but VCs and investment bankers have destroyed as many businesses as they’ve helped and when they do succeed in getting a company to the starting line (the IPO), they generally take a slice that’s way out of proportion to their contribution.

Thanks to the recent buying spree by companies like Google, Yahoo and News Corp, Internet entrepreneurs can now get their big pay day by selling direct and avoiding the stock market and VCs altogether.

Becoming a public company is not all that it’s cracked up to be. Sure, sometimes it results in a fantastic increase in net worth, but even when it works – and the success rate is low – there’s always a price.

Interestingly, Sam Walton’s wife, one of the richest people in the world and a member of THE world’s richest family was once quoted as saying that she regretted the day Wal-Mart went public. Why? Loss of privacy. Loss of control.

Once you’ve got six figures coming in passively every year, adding to that amount – even by millions – doesn’t change your quality of life.

As the owner of LL. Bean said to an investment banker who wanted to take his catalog public years ago: “I can only drive one car at a time and eat three meals a day and I’m already doing that, thank you very much.”

Bankers don’t show up to help. Their reason for being it to help themselves to a piece of your pie with minimum risk to themselves. That’s their business model.

Today’s Internet entpreneurs have a lot of aces up their sleeve that can help them avoid VCs and other vultures.

1. Development tools like PHP and MySQL have cut the expense of building a platform dramatically.  Back in the “good old days,” web programming was all custom made and the cost to develop ideas, even simple ones, was exponentially higher.

2. Hardware prices have crashed too, so to speak. Need a terabyte of storage? According to Flickr co-founder Stewart Butterfield quoted in a recent Financial Times article, that would have run you a quarter of a million dollars just five years ago. Today, you can get the same thing for a few thousand bucks.

3. It’s a much bigger market. When the web first got off the ground as a commercial medium in 1994, there were a grand total of 3 million web users world wide total. Now there are nearly 100 million BROADBAND users in the US alone.

So what do you need to get going?  Some money (raise it yourself), some technical skill (or the ability to find it) and a great idea.

Not just a good idea. A great idea.

This is where many of today’s Internet entrepreneurs are tripping up.  I’ve counted over seventy-five YouTube clones so far. And those are just the ones I’ve stumbled across.  I’m sure there are many more. In fact, I bet as you’re reading this, someone is launching a new one.

The ease with which new Internet entrepreneurs can launch a new idea is a double-edged sword. It means the “me too” brigade is going to be huge for all the obvious, high profile ideas.

My advice? Targeting the mass market the way Flickr did and YouTube is doing is a high wire act.  If you win, it’s a spectacular win, but the road is littered with wrecks.

A much safer bet is to focus on a niche market, one that’s big enough to create a healthy pay day, but not so big as to attract 101 unimaginative, but potentially disruptive competitors.

There are literally thousands of off-radar marketplaces. You can find them if you dig and good research combined with a “lean and mean” approach to starting your business is, as always, the surest success formula I know.

– Ken McCarthy

P.S. For over 25 years I’ve been sharing the simple but powerful things that matter in business with my clients.

If you’d like direction for your business that will work today, tomorrow and twenty years from now, visit us at the System Club.