Time to start a business or not? - The Jason Calacanis Weblog

This was good article ...

Jason,

Interesting article, but I disagree with a few points.

I would say it's a bad time to start a business if you're a businessman - it's a great time to start a business if you're a technologist who can start building a product in your spare time.

I think you're dead wrong on VC funding and on charging money for services. Way too many undeserving companies are going after VC funding, and I for one think that's one reason why the ship will sink. If you can build a sustainable small business by investing your expertise and time into building a product without taking outside money, you're much better off than taking a few grand or a few million to develop a product that might not pay off on the same scale you've invested. If you invest the minimum amount of sans-VC money and the maximum amount of time you can afford, all of your positive cash flow is profit (and furthermore, it's YOUR profit, and you don't have a board of directors bitching at you).

If you're building small useful tools a la 37signals it's unreasonable to think a big goliath competitor fueled by millions in VC is going to try to steal your cake. It's rather silly to get VC funding to build products to compete with 37signals, for a few reasons. First, I think VC funding on the web is for assembling a team to develop a product from scratch, not for blowing on advertising or for products that already exist but want to "go big". Advertising on the web has it's uses to be sure, but the current web atmosphere doesn't require you to spend money to get the word out. Look at Newsvine. As far as I know, it's mostly spread through word-of-mouth via blogs, digg, podcasts, etc. Second, 37signal's products are small in scope - low investment, low profit (compared to a goliath such as your company weblogsinc). It's just bad business to think that by investing a ton in a competing product to a 37signals product, you're going to make proportionally more profit. You can't always widen a target market by force. Sometimes you have to be small to make a profit in a business.

Now, you might argue that the big VC-funded goliath is not interested in charging and instantly turning a profit, but is looking to be acquired or to get the advertising formula done correctly. Advertising is fine, and it's really the same thing as charging. I think people are willing to pay a small fee instead of paying indirectly via ads. Obviously not as many, but I don't have a problem with having a small company. As far as acquisitions are concerned, I think that the expectation of being bought-out is the single biggest reason why all these VC-funded companies will fail. If you can't cash in without being scooped up by Google or AOL, then why would AOL or Google wan't to acquire a company that is only going to lose them money? Obviously there are reasons they acquire (to plug myself, I wrote an article on Newsvine about it here), but for the most part, it's just being silly to build an M&A business.

M&A businesses are crap, and they're pushed by businessmen. 95% of them will fail. But small businesses like 37Signals, like Shaun Inman's Mint, and even digg when it first launched, that made by technologists in their spare time without massive funding, have a very good chance of success.

And as far as competition, I'm not scared of it whatsoever. I'm building an app right now that will have one or two major competitors when it launches, but I could care less because I think those products are crap. And besides, I'm only wasting MY time by building it, not spending other people's money who expect me to make them rich.

And not to sound like a parrot, but you really shouldn't post your own stuff to Newsvine. Obviously you don't need the traffic because you're Jason Calacanis, but there is good reason behind the rule. Plenty of people on digg game the system to drive traffic towards their site to promote their product. The idea behind the rule is to protect journalistic integrity. If I was Sony, or AOL, or Microsoft, I would love to game Newsvine to drive traffic and buzz to a new product. Just like in papers like the New York Times, gaming Newsvine to promote a product or site is not allowed. I'm not saying that was your intent with this post, and I certainly believe that some self-posts are okay, but I think the rule exists because the grey area is quite large thanks to things like google ads.

Anywho, sorry for the long-ass comment.

Cheers.