Archive for March, 2007
I tend to ramble and spew my thoughts on business, entrepreneurship and technology, but I never really discuss my own business. Now is as good a time as any to talk about what we do and how we do it.
The low-wage or non-professional job segment (think restaurant, construction, retail, hospitality workers…) in the United States represents about 25% of the total job market. It is growing at a faster rate and suffers from extremely high turnover rate. The jobseekers filling these positions tend to have lower levels of internet penetration and in many cases lack the English fluency required to use the mainstream job boards. Because of these reasons they tend to look for jobs the old fashioned way; classifieds, word of mouth and employment agencies (which charge jobseekers up to a full weeks wage up front to find them a job).
This is a serious problem for employers because it means that they are also stuck using 20th century tools to recruit for these positions and missing out on the efficiencies of internet recruitment. At HireWorkers.com we have developed a multi-lingual and multi-platform approach to this issue. Jobseekers can access our system in either English or Spanish (more languages coming soon) and interact with the service via the telephone or the internet.
In the past few months we have registered well over 25,000 jobseekers. Most of them have never used the internet to find work before. By making our system accessible to the job seeking demographic, we are able to empower employers with a system that finally harnesses all of the efficiencies of the internet and provides a recruitment platform that is fast, simple and inexpensive. That is in a nutshell what we do.
It has been an incredible ride so far and I look forward to many more late nights and long weekends of doing what I love to do – building companies and turning industries on their heads with technological innovations.
No one is infallible when it comes to business. I learned this lesson pretty early on when I started my first business. With the naivety of a college student, I approached DVA (my first company) thinking that business was like a mid-term or a final exam, and that success was clearly quantifiable and directly correlated to intelligence and hard work.
Business is impossible to predict, mistakes are expected, and success is a combination of hundreds of variables – some within our power and some not.
With that in mind, it is easy to understand why the masters of business over at Wall Street place so much emphasis on diversification. It is definitely not for a lack of confidence in their abilities. They understand that mistakes are expected and success is impossible to predict; the more they spread out their risk the better the chances of riding the winners.
If risk is difficult to quantify for Wall Street which is dealing with established companies with recurring revenues, proven concepts, large customer bases, and experienced management teams, then it is beyond impossible to project at the start-up level.
Because start-up risk is so volatile and difficult to predict that Venture Capital firms have become masters of diversification. They understand that a portfolio of one or two companies, even if they are the “next big thing” is crazy. Every single day incredible ideas are born and die and professional investors mitigate the heavy risk inherent in the game by diversifying into multiple positions.
So what about the entrepreneurs, us poor souls who invest our live savings, multiple years of sweat equity, 18 hour days, and shattered social life’s all for a single lottery ticket with such bad odds that even the very best of the best of investors aren’t willing to commit even 20% of their resources to?
There is no conclusion to this post, only an open ended question that I am sure my fellow start-up founders can appreciate and relate to. We are so caught up in our own confidence that we are blinded by the realities of the space we operate in.
My only advice is that when starting a business, be careful not to commit yourself to a single aspect of your business. You will need to iterate and evolve, so don’t even start unless you can afford to fail a few times within your business. At the end of the day, this might be our form of diversification.
Josh Kopelman at First Round Capital wrote a very interesting post about monetizing consumer internet services with a subscription model. He maintains that going from free to even one cent is such a large step, that most services should remain free and look for advertisers to subsidize their costs and generate revenue.
This is an interesting idea, and I wholeheartedly subscribe to the notion that charging even one cent is extremely difficult when you have a two tier model. At the same time though, I think the advertising game is a dangerous one for most emerging companies. Most web services currently sell standard advertising opportunities for between $1-3 for every 1,000 impressions. This means that a site with an average of 10 page views per customer is generating about 1 – 3 cents per user. So a company needs to scale their service by 200 times to generate the same revenue as a single customer paying just 2 dollars. That’s like going from 100,000 to 2,000,000 users.
The point I am trying to make is, not that advertising is a bad model, but that there are few web businesses that can attract such large volume of users to have it make sense. Depending on the business it might be easier to maintain a smaller user base and monetize them at 200 times or better than what advertising would bring – even if it means sacrificing 150 times more users.
Josh Kopelman cites Free 411 as an example of a service that grew to 5% of the total market by not charging. That’s great from a growth perspective, but the question remains: are they able to monetize that huge volume even remotely as well as the pay-for-use directories?
I get a lot of business plans sent by friends and acquaintances asking for my opinion and it almost seems like it is an unwritten rule of the business plan to list “first to market” as a competitive advantage. What a myth! Being first to market usually means that everyone else can copy your idea and improve on it, while you undertake all of the risk.
Alta Vista came before Google
Broadcast.com existed way before YouTube
Rio preceded the Ipod
Amazon wasn’t the first bookstore selling online
Friendster was first to MySpace’s second
These are just the examples that I can think of at the top of my head for the technology/internet space. There are hundreds of others. I would probably say that copy-cats have a better success rate than market innovators.
So where does that leave you and your brilliant innovative idea? Isn’t the internet supposed to erect natural monopolies because of a “network effect” and the centralization of information? How do you protect your business if being “first to market” is not enough?
Execution!!! Build out your idea in the best way possible, because even though being the first to market your idea isn’t enough, being the first to own your market is the real key.
The internet absolutely allows for very serious natural monopolies, but to enact them you need to own the market first. Meaning you need to be the top dog in your space, be the Google, YouTube and Ipod of your space. Because only by being number 1 can you enjoy the competitive advantages that come with the network effect.