Calacanis on start ups and revenues - bubbles anyone?

"Running a startup is NOT about revenue anymore--it's about critical mass. It's about scale. When you're playing in the big leagues with unlimited access to capital you shouldn't worry about revenue BEFORE you have critical mass."

I like Jason Calacanis. He's been there and done it. And he says it how he sees it. So he's earned his place at the top table.

But I can't help but wonder, reading his post on billion dollar business models for Twitter, whether his time on the West Coast (being a proud New Yorker born and bred) as Entrepreneur in Residence at Sequoia Capital - the blue blooded Venture Capital firm on the Sand Hill Road - has tilted him into Master of the Universe mode.

I actually don't disagree with some of his suggestions for Twitter, and do believe that mass first can be a great strategy for a few blockbuster services. It's more the tone of it - it's breathtakingly arrogant (and likeable for it) and very dot com boom/bust. 'Eyeballs'...

Contrast against this, if you will, 'Worst outlook since dotcom bust' from the austere Financial Times:

"Britain this year faces the most difficult economic conditions since the dotcom bubble burst, according to the Financial Times’ annual survey of leading economists, which shows deepening pessimism about the impact of the global credit squeeze."

Do you think we're busting or booming?
And what do you all think about our economies - downturn, recession, gentle slow down, business-as-usual? Very keen to take opinions.

Comments

[wayne]

I think the guys wrong - I think the majority of people would forget about twitter if a percentage of the tweets were ads. It's a bit of a labour - updating all the time and making the experience a chore would kill it, there's alternatives that don't have ads and it's not like the ads you see in FB home page feed, those you can happily ignore. Ads disturbing me constantly in GTalk would drive me up the wall and away from twitter.

And there's no way I'd sub to that either - it's not like I get anything out of it really, as in say, flickr. I think you lose the historical data too , which kind of defeats the purpose for me so making it less useful by irritating me would be a def turn off.

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[Stephen Davies]

I'm no expert on financial matters so can't add an opinion but I do read a lot on it. This is what I've noticed in recent months:

* Markets work in cycles - we've had a boom period for quite some time now.

* American sub prime mortgages (companies in the States and some in the UK losing billions and billions)

* Some property in the US has lost value by 50%. £140K will now get you a four bed house with swimming pool in Florida

* Consumer debt in the UK and US at its highest it's ever been.

* Northern Rock (nuff said).

* Banks unwilling to lend to one another.

* Gone are the days of 'easy credit' from the banks. One in four people in the UK struggling to pay their debts.

* The world banks (Bank of England, Federal Reserve etc) trying to bail out the likes of regular banks by releasing equity.

* Oil at its highest price it's ever been.

* UK house prices have grown 250% in 10 years - it's not sustainable nor practical. Some people say it's due to demand but why are there almost half a million properties standing empty?

* Lowest percentage of first time buyers there have ever been. (see above)

* All the **proper** financial experts (FT, Money Week etc) are predicting a gloomy outlook for the next few years.

* How much money is the likes of Facebook making through advertising? Enough to justify its $15bn value?

There are more but those are the ones that sprang to mind.

[Stephen Waddington]

Jason Calacanis does sound very dot com bust and you're right to sound a note of caution. But I take comfort from the fact that in the b2c and b2b tech and telco sectors clients are managing budgets on a quarterly basis and reigning in spend if sales aren't on forecast. Different rules have always applied for pre-revenue start-ups and maybe Calacanis is right. Here I take comfort from the fact that VCs are still investing. My prediction is that tech and telco will be okay in 2008.

As for the broader market, the FT article makes a lot of sense - oil prices are sky high, the housing market has peaked and the credit markets have dried up.

[kelvin newman]

Calcanis does also say at the end for most business revenue is more important than scale.

I wonder with the current financial situation whether the downturn is coming. I'll admit the signs are pretty compelling but hasn't there been similar writing on the wall for the last couple of years.

Admitly I'm no economist though

[Ged]

I can't think of any factor likely to dig the economy out of its market correction. But that's fine, it will allow new ideas to come through, punish inefficient industries and spur innovation (like when cut price IT gear formed the basis of more sensible dot.com services, along with free wi-fi in coffee houses). It's now time to listen and look out for the new, new, thing.

[steve cater]

Should we ever take what an economist says as a certainty, given the difficult nature of trying to predict the future..? I think that the more people comment on us being in a state of economical decline, the more likely this is to happen in some sort of self fulfilling prophecy.

[Will McInnes]

Thank you all for your comments - interesting to watch how this unfolds I guess.

[Trevor]

I believe Twitter are already prepping mobile users for ads. We already get "Have you tried..." messages after short tweets. I doubt anyone would even notice if these were replaced with "Twitter thinks you'd really like a Starbucks Eggnog Latte about now."

[Will McInnes]

@Trevor - Interesting. I guess it makes sense to start with the most expensive (to Twitter) service to deliver - that is, covering the free SMS.

What 'have you tried' messages have you had?

[phil herborn]

What about the idea that some industries will continue to prosper while other industries feel a squeeze, I am sure there are complex interrelations at play, but not everything has to go up and down together does it? (I don't know btw)

But lets say all industries in the UK are slipping into a recession, but spend in online advertising including platforms like Twitter is increasing, does that not mean that you still have a chance to make billions out of something that has a mega-audience waiting for a little subtle advertising?

[Will McInnes]

Oooh yeah Philbo - good point. Kinda reinforces Ged's suggestion that downturn will "punish inefficient industries and spur innovation".

Yeah bwoy, I totally buy that. We started the good ship NM in the flattened landscape of post-dot com bust, and I'm absolutely confident that we'd do just fine again - and like you say Phil, different sectors perform differently during downturn. Pharma, utilities and defence are famously recession proof because their consumers still need the products.

As such, I think you're right Phil: we in digital are more 'needed' or valued today than many of our less fortunate marketing cousins. I wouldn't wanna be in DM during a downturn (or in fact, at all, ever, anyway!).

BRING ON THE BUBBLE. YEAAAAAhhhhhh. Fight, fight, fight...

[Sam Michel]

I read Jason's post, then got really angry, then calmed down.

It's classic dotcom-bust thinking. I'm already getting the shivers from all those Web2 start-ups that are relying entirely on the "build it and the advertising will come". The majority are in for a nasty surprise.

He does mollify his initial statement by suggesting this isn't the route for most companies, but I wonder which statement has the most impact?!

2008 is certainly going to be an interesting year. I reckon it's going to be really good for digital businesses, as the economy slows, traditional companies will pile online and those already there will get more sophisticated. Hopefully ;-)

[Paul Fabretti]

Another point to remember is that the leveraging of "social media", especially via word of mouth is actually a far more effective way of reaching an audience than conventional, more expensive promotional methods.

As such, would it be unreasonable to think that the agencies involved with this area of marketing would in fact prosper rather than merely survive, an economic downturn?

We are the future...ish.

[Will McInnes]

@ Paul Fabretti - 'We are the future'. Now that is a motherfucking slogan. COOL. Gonna get that tattoo'd on my eyelids, and whenever a client queries the price I will slowly close my eyes, keep the closed for a good 10 seconds, slowly open them again, and confidently push the paperwork towards them, nodding powerfully and smiling like an ancient Chinese paddy farmer. :)

@ Sam Michel - love it Sam. You're right, it is going to be a great year for us in digital and clients, as other commenters also agree, will cut elsewhere before tinkering with their precious online.

[phil herborn]

Willbo... re the tattoo on the eyelids... never laughed so hard at a blog comment ever! :)

[Paul Fabretti]

@will Fucking awesome mate! A real Jerry McGuire moment - can just see myself in front of clients.

@phil herborn same here phil. PML!
Rock on guys!