Flipping is not a business model

I’m getting ready to grade the final projects for my tech strategy MBA class. One of the projects is about a Web 2.0 company seeking a business model — a common problem.

Near the end of the presentation, one slide summarized the revenue model options:

1. keyword advertising
2. promotional services
3. freemium
4. sell the company

With the last point, I hit the roof. (Figuratively — I tried to be patient with students no matter what they say.) This is wrong, wrong, wrong!.

Sure, it’s wrong conceptually, theoretically, legally. Getting an investment is not the same as generating income.

But it’s also wrong from a business standpoint. Yes, the founders and VCs get what they want — but the founders have failed to solve the fundamental problem of their business.

Perhaps someday Google will be able to monetize the $1.7 billion they paid for YouTube; there are certainly going to be cases where the acquiring company has economies of scope (or distribution channels or negotiating leverage) to pull off business models that wouldn’t work for a stand-alone company.

But for every YouTube, there’s a MySpace (bought by Fox), Bebo (AOL), or Skype (eBay).

On the one hand, it’s hard for stand-alone tech companies to get established and compete against diversified and integrated tech giants — whether Apple, Cisco or Nokia. On the other hand, the idea that entrepreneurs should seek an exit prior to creating something of lasting value is part of the “born to flip” mentality that was briefly in vogue during the past decade.

So I think there are a few students in one MBA course at one university who are getting the message. Let’s hope that others do, too.

Ultra-bootstrapping

TiE Silicon Valley is hosting a session next week on what it calls “Ultra-bootstrapping”:

Wednesday, April 14, 2010
TiE Institute - Ultra-Bootstrapping: Building a Start-up without funding.

Event Host
Murrali Rangarajan, Director, TiE Institute

Keynote Speaker
Naeem Zafar, Berkeley-Haas Business School, founder Concordia Ventures

Panelists
AG Karunakaran, President and CEO, MulticoreWare, Inc
Murrali Rangarajan, Director, TiE Institute & Managing Director and Founder, Business Accelerator, LLC

For those who don’t know TiE, it was founded in 1992 in Silicon Valley by Indian-American entrepreneurs, but now has more of a South Asian orientation (with us Euro-Americans also welcome to participate).

The description of the event doesn’t sound very “ultra”, but just the normal definition of bootstrapping:

Learn how to manage your Business Operations tightly to run on minimum cash. Lead from the front. Build your team with the right values. This session will be ideal for professionals starting out, for entrepreneurs who are at that critical growth stage and for team members.

Still, I support anything that encourages and disseminates best practices in bootstrapping to current or prospective entrepreneurs, and hope people will attend.

I probably won’t be able to make it because I’m scheduled to be traveling on business, but I’ll look for it on the TiESV video archive.

37 years ago: Motorola’s first cellphone

A wonderful blog called “Today in History” runs a series of historic engineering firsts. (An RSS feed is of course available.)

On April 3, 1973, Motorola made the first phone call on its cell phone. The event is now remembered due to the indefatigable self-promotion of Martin Cooper, the point man for Motorola’s engineering efforts in its rivalry with AT&T. (My original dissertation topic was the development of the US mobile phone industry in the 1970s and 1980s, so this backstory is familiar territory that I captured in a book chapter.)

This example demonstrates the problem with the whole “this day in history” view of technological innovation. While AT&T began deploying mobile phones in the 1940s, Douglas Ring of AT&T invented the cellular phone idea as a way to reuse scarce radio frequencies. However, AT&T and then Motorola spent decades fighting TV broadcasters at the FCC to gain necessary spectrum.

Cooper and Motorola certainly deserve credit for envisioning the cellphone as a handset (even if brick-sized) rather than a carphone. But there were many milestones in the AT&T and Motorola demonstration systems from the 1970s until the FCC granted permission for the official launch in October 1983.

The previous blog posting also demonstrates the limitation, with April 1, 1976 remembered to be the founding day for the Apple Computer Company. The Apple I was an interesting circuit board, but the mass-produced Apple II (a complete computer with a case and keyboard) in 1977 is perhaps a more significant milestone.

The blog is inspirational to any aspiring engineer — existing or nascent entrepreneur — for summarizing major milestones in technological innovation that provide business opportunities for established firms like Motorola, startups like Apple, or even an occasional college professor like Charles Townes (inventor of the maser).