I took an improv class a few years ago from Four Day Weekend. The class was great and I learned a lot about how to communicate with a crowd of people. Then in my google reader I get a link to Business of Software’s Pecha Kucha thing. I think the presentation is meant to be funny, but I’m not quite sure.
The reason I’m not certain goes back to the improv stuff. The book they used is “Truth in Comedy”. The point is that what makes things funny is the truth behind it. The BoS presenter is joking about raising money for a web2.0 startup, doing some crap and then making a pile of money. It’s presented jokingly and the audience obediently laughs (I did too), but part of my mind can’t help but go ‘hmmmm, how far off the truth is this guy?’.
I’ve heard it repeated until blood has shot out of my ears that 90% of businesses fail. I’ve also heard plenty of stories of people that raised a pile of cash, hired a bus load of overseas developers and delivered absolutely nothing. They then went on to repeat the process again. and again. I even know some people like that. What did they do while the coders worked 12 hour days? I really don’t know. Probably played golf or some other lame game like it.
So while the presentation makes a caricature of the process, I’m not sure how far from the truth he is. Investors know going in to a deal that there is a lot of risk in a startup. They do it because the potential upside is (still is) huge. Consider this: “Think Social Media Is A Fad? Think Again..” here is video that makes the point better:
I recently took a class on Internet Marketing (IM not to be confused with instant messaging though). One of the points they made is that the world’s population is around 6 billion. America alone is 350 million. A successful consumer oriented company that focuses on a niche that represents 1% of the overall American population has a market size of roughly 3.5 Million people! If your advertising/sales is able to reach that entire niche and cause 1% of those people to become first time buyers you would sell 350,000 units to that group. A product that sales for $24.95 sold to that group would create $8.7 million in revenue. Keep in mind, you don’t just run 1 advertising campaign at a time, and you don’t run the campaign only 1 time. Further, you sell more than one product. So overtime you reach more people in that market that have never bought from you. The theory goes that once you’ve made the first time sale to a customer that the barrier for the follow on sales is lower. You’ve established trust and the customer knows what to expect (think McDonalds, only better).
Just this little niche could potentially create a business with revenue of 32 million a year* with a staff of maybe 10 people. The cost of running the business might be 5 million a year. Keep things simple and most of the money is profit. What investor wouldn’t hand over $250K to own a piece of that? If it succeeds the $250K investment will be made back in the first dividend check and then some.
So, yeah the presentation is funny. But it is funny not because it is totally made up; it is funny because it is true. But it is even funnier because we are laughing thinking he is making it up to be funny.
*I came up with 32 million because the IMers I know typically run ads for 90 days so in this scenario they would run 1 campaign each quarter resulting in sales of 350K each quarter.