Calacanis: You have to be a “player”

by Mathew on January 2, 2008 · 21 comments

Amid all the to-and-fro’ing on Techmeme about Twitter and its lack of a business model comes a post from Jason “Mahalo” Calacanis, in which he tells us the secret to building a business model in Silicon Valley. Is it a vision of where the market is going? No. Is it a compelling service with a unique value proposition? No. Is it a twist on some existing service that makes your offering a killer app? No. You have to be “a player.”

In a nutshell, Jason appears to be saying that certain people — such as Twitter founder and former Blogger co-founder Evan Williams — don’t have to have a business model, at least in the traditional sense that their company actually makes money. They just need to build traffic and users until they are so gigantic that someone either buys them or they can create a business based on their huge user base:

“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.*

* Note: if you’re not a player like Ev, and you don’t have unlimited access to capital do not take this advice and focus on building revenue streams.”

So there you have it — Business 101 from Professor Calacanis. Is that the approach Jason is taking with Mahalo? If so, I wish him luck, and I hope that he has “unlimited access to capital,” which strikes me as a somewhat unlikely condition for anyone (except maybe Bill Gates) to find themselves in. In any case, there’s a refreshingly contrary opinion from Don MacAskill, founder of the successful image-sharing service SmugMug.com, in the comments on Jason’s post. Don says:

“I have unlimited access to capital, but I still focus on building my business first and my scale second. The “scale first, then find a business model” route only works as long as you’re in a bubble, like we are now. But if that bubble bursts before Twitter both gets to scale and finds their business model, they could be in big trouble.”

If I were Ev Williams, I would pay a little less attention to Jason, and a little more attention to Don. In other words, focus at least part of your energy on building a sustainable revenue model — or even the seeds of one — now. Don’t put it aside and hope that it will magically appear later. And don’t listen to your Uncle Jason when he tells you that you’re a “player” now, and so you don’t need a business model.

  • http://www.centernetworks.com/dave-winer-dealing-with-twitterdiction allen stern

    nice post – after my post this morning and then jason's – i noted that there's a difference btw those who have large bank accounts and those who don't – seems you agree which is great :)

  • http://www.calacanis.com Jason

    That title is not fair and you know it very well Mathew… however, I applaud your link-baiting skills. :-p

    To be totally clear, I was on the other side of the fence a couple of years ago. Before Weblogs, Inc. I had to build a business based on making money TODAY, not three to five years from now.

    Today? Yes, I'm part of the group that can get a project funded. That's just reality and I'm certainly grateful for it. I also would never apologize for it… if Ev and Marc Andreessen can raise tons of money to build out Twitter and NING over a five year plan that's great… they earned that right.

    If someone new to the game (like me back in the 90s) has to prove themselves so be it!

    You don't have to be a “player” to make it happen, but if you want to take the “build for three years before thinking about revenue” model you better have a track record or a lot of money in your pocket!

    Happy new year,

    Jason

  • http://mmg.rapspace.tv Mick Gee

    Great post. As much as I'm a fan of Jason, that kind of sentiment is so frothy, it's downright scary (at least for anyone who still remembers the original dot bomb era).

  • http://www.mathewingram.com/work mathewi

    Thanks for getting the ball rolling, Allen :-)

  • http://www.mathewingram.com/work mathewi

    Thanks, Jason — but I'm not prepared to admit that my title is total
    linkbait.

    I think your suggestion that it's okay not to worry about a business
    model so long as you are a player like Ev is a dangerous one — not
    for Ev, or for you perhaps, but for others, who might get the wrong
    message and focus solely on trying to build a massive user base,
    hoping to monetize it later.

    In any case, I wish you (and Ev) nothing but the best.

  • http://www.livedigitally.com Jeremy Toeman

    Great post Mathew. I recommend entrepreneurs read The Innovator's Dilemma and Solution books by Clayton Christiensen. In the Solution he keeps reiterating how important it is to have a drive toward profitability…

    In Silicon Valley it's pretty easy for people to be swayed by seeing YouTube, Delicious, and others who got acquired with no revenue models fully baked. They forget the THOUSANDS of startups that failed in the exact same spot.

  • http://www.mathewingram.com/work mathewi

    Thanks, Mick. I agree.

  • http://www.mathewingram.com/work mathewi

    Thanks, Jeremy — I would agree with your recommendation. Both of
    those books are excellent.

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  • http://www.tripharbor.com/blog Stuart MacDonald

    Saying that you can be successful at something without clear means to profitability has to be the stupidest f***ing thing I've heard in a long time. Idiotic. But then, that's pretty much what I've come to expect from Calacanis. And, if you define “success” as getting as I suspect he does – by getting some other idiot to buy you – then I guess he might be right.

    Doesn't make any of it a good business idea though. Sustainability has to be in there in my view.

  • http://www.mathewingram.com/work mathewi

    Couldn't agree more, Stuie.

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  • http://500hats.typepad.com davemc500hats

    absent Jason't characterization of “you gotta be a player”, i believe his analysis is mostly correct… Fred Wilson states it perhaps a bit more gracefully (altho jason probably gets more pageviews ;)

    twitter & other services can be successful by going for distribution first, then monetizing later, if they have sufficient capitalization. some assumptions about value per customer / page view / monetization should be inherent in such a strategy, but jason may not be far off that with some critical mass of users in double-digit millions you can be successful — of course, does depend on how much capital takes to get there too.

    other companies can also be successful by going narrow and monetizing earlier, and this may be more necessary / prudent if less capital available to the business. but the Internet *does* provide a natural platform for acquiring many users quickly, and startup businesses that demonstrate this will be rightly / reasonably valued based on users/usage metrics, assuming customer acquisition costs are low & future potential value is high.

    more specifically: to characterize either a growth or monetization strategy as right or wrong w/o looking at the business details is stereotyping — it depends on the [current / potential] value per customer, customer acquisition strategy & cost, growth rate, capital, etc etc. as with offline businesses, the Internet can encompass a number of business models.

    to wit, you can be successful:

    - selling a few thousand Ferrarris, or a hundred million sticks of chewing gum
    - running a small profitable business from get-go, or Amazon that doesn't turn a profit for 10 years
    - on a subscription model, an ad-driven model, a lead-gen model, or a purchase model

    while going for broad distribution first w/o paying attention to monetization may sound like a bad dot-com 1.0 model, plenty of companies mentioned previously have grown a large business without substantially monetizing the userbase until after making an exit (Skype, YouTube are big examples; Flickr & MyBlogLog are smaller examples).

    this isn't to say you shouldn't be figuring out a monetization strategy, but it may not be first (or second) priority if you are growing well & have reasonable confidence in positive future value / user monetization.

    sorry have i beat this horse dead enough yet?

    - dave mcclure

  • http://www.mathewingram.com/work mathewi

    Thanks, Dave — you definitely gave the horse a good beating :-) And
    for what it's worth, I think Jason and Fred — and you — probably
    have a point. I just thought the way Jason said what he said at the
    end sent totally the wrong message.

  • http://www.davidrdgratton.com David Gratton

    Actually I disagree with you, Dave (and Fred). The assumption is based on rising asset prices based on future monetization POTENTIAL of a large and expensive user base.

    This is fine while VCs are flush with cash, but it will only take one company like Facebook failing to meet some future expectation to make the house of cards come crashing down. So while asset prices climb based on user base, your assumption is true. But eventually someone has to “Show Me The Money.”

    This is no different than silly valuations in the 90s based on BURN rates. Or dare I say the recent housing boom and crash in the USA.

  • http://www.shaunmarkey.com Shaun Markey

    Having just read John Cassidy's “dot.con – the greatest story ever sold”, it makes me shudder to read that some entrepreneurs today believe that building traffic and users is a replacement for revenue. That smacks of the same kind of thinking that gave rise to so many failed dot.com companies in that frenzied era.

  • http://www.shaunmarkey.com Shaun Markey

    Having just read John Cassidy's “dot.con – the greatest story ever sold”, it makes me shudder to read that some entrepreneurs today believe that building traffic and users is a replacement for revenue. That smacks of the same kind of thinking that gave rise to so many failed dot.com companies in that frenzied era.

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