Shanti’s Dispatches

This is something I wish more people understood, at least when you’re talking to them about your startup or startup idea. “Dunkin’ Donuts’ CEO Jon Luther says his company is helped by its rivalry with Starbucks: “[It’s] created an awareness for the category, and we’re benefiting.”

The chain’s success illustrates a little-advertised truth of business. Too often the financial pages read like the sports section, filled with winners and losers. Reality is more complex. In many markets, business is not a zero-sum game, and competitors create opportunities.

Full Article. Via: 37 Signals

Too often you tell someone what you’re doing, and even if they don’t say it out load (sometimes they do), they’re thinking it. “Oh, you’ll get crushed by X.”

There are way too many examples to list here of underdogs or new spins on ideas that took off and crushed (or simply carved out a niche) formerly owned by a dominant 400lb Gorilla in a space.

Reading Founders at Work only reinforces that point.

Just a few examples (though the landscape has changed since then) from the book:

Early spreadsheet market: First pioneered by VisiCalc, which got crushed by Lotus 1-2-3, which eventually got crushed by Excel.

Early OS/PC market: IBM’s game to lose, of course. They got owned by Apple, who eventually got owned by Microsoft.

Just goes back to my mantra on small business and startups:

When Kiva first launched, I sensed a bit of skepticism from people who I talked to about the idea/website.

Since launching one year ago, Kiva.org has:

• Become the most trafficked website in microfinance with over 250,000 visitors
• Raised $430,000 in loans in $25 increments from more than 5,400 users
• Provided capital for 750 micro-enterprises in 12 developing countries
• Grew its partner network to 14 partners in Africa, Asia, Eastern Europe, the Middle east and Latin America
• Achieved a 100% repayment rate on 28 completed loans thus far. Kiva expects the long term repayment rate to match the 97% microfinance industry average.

Via Kiva’s press page. PBS Frontline also just did a special on Kiva. Hopefully it’ll be up on YouTube eventually, so you can see Kiva in action.

I’ve lent $100 so far. And dang, it feels good to be a micro angel investor.

I guess this post was making the rounds this week while I was busy coding up a storm. Ironically, I was implementing a billing system so that we can charge cards at Sprout.

Hello. It’s never a good time to start a company without the intent of making money.

You don’t have to make a lot to begin with… Overture started by making pennies (literally) and went on to be acquired by Yahoo for $1.63 billion.

Evaluating Business Ideas

Whenever someone tells me about a new business idea, the first thing I ask about is the business model.

Here are some simple business models

- Buy widgets at $2, sell them for $4. (Wal-Mart)
- Offer a free, limited service to attract clients. Also offer a premium service and charge for it. (Sprout, 37 Signals)
- Blog about interesting things, sell advertising. (Weblogs Inc.)

It doesn’t take a rocket scientist to do some back of the envelope calculations to figure out how much dough you can potentially make with your business model.

If the model gets much more complicated than any of the above… I’m usually a little skeptical about its potential viability.

When to realize you’re in a Web 2.0 circle … you know what

99% of the population has never even heard of Web 2.0. Even in the tech industry in non SF Bay Area cities. (you’d be surprised)

These people:
- don’t have a gmail account, nor do they even know it exists (they are still using some crappy hotmail 2mb limit acct they opened 4 years ago)
- don’t read blogs
- especially don’t read TechCrunch (let alone know what it is)
- have never heard of Ruby on Rails
- Ajax? are you kidding? they think it’s a cleaning detergent

I’m not a part of the whole SF Bay Area thing (yet), but we do need to keep some perspective here… Pets.com isn’t going public again like it’s 1998. A few lucky (+ highly-skilled & passionate) guys in their garage got bought out for $15-30 mil. The rest of us have to actually bring in the Benjamins, with uhh, you know, paying customers n stuff.

Me-too companies… What’s the bfd?

Commenters on the Caterina post belittle all the ‘me-too’ companies coming out of the gates. I don’t really know what ‘me-too’ means exactly… Yes, there are some ‘me-too’ companies, but that’s really just a sign of competition and innovation.

The weaker ones will be weeded out, though, when hosting only costs $10 a month, what’s the bfd? Throw some AdSense on there and you’re all set.

Of course, if you’ve taken $5M in VC and your business model is “throw some AdSense on there,” well, you better have a lot of targetted content + traffic. They only make so many Yahoo/Google acquisition lottery tickets.

Eric Hodel dropped some more configuration goodies in this post about how their setup is configured to push out 2M + daily page views on 43 Things and their ever-growing network of sites.

CachedModel seems like it’ll make implementing MemCached dead-simple. Right now, though, our DB Usage in Mailroom* isn’t the bottleneck in app performance.

Armada looks interesting, too.

Andrew is doing an incredible job on tricking out our backend systems at Sprout. I’ve had to wear many hats at startups before, including system administartion ++, and, I’m very thankful we have Andrew on board here.

[1] Mailroom is SproutIt.com’s first in a suite of webapps for small businesses.

I have mentioned The Business Experiment before here previously.

Robert May has posted a lengthy explanation of some of the issues they are facing as they attempt to incorporate their first venture.

Why can’t we incorporate like a regular startup?

Most regular startups incorporate as a C corporation. The rules governing this were laid out in the securities acts after the market crash of 1929, to protect investors. Ownership in a C corporation is considered a security. It is illegal to advertise securities for sale under most conditions. As a general rule, securities must be registered with the Securities and Exchange Commission. However, there are several ways around this . Unfortunately, we don’t meet any of the requirements, except the ones that still require a disclosure document (i.e. a $15,000 preparation). We could get an exemption if

a)we keep incorporation to fewer than 35 people

b)we keep all the owners in the same state, and the total value to less than $1 million

c)every owner is an “accredited investor,” meaning a net worth of $1million or more or yearly income of 250K

Read more here

In less than 30 hours, I’ll be moving on from my current employer.

It’s been a fun little ride, but other opportunities have presented themselves and it’s really just the perfect timing for me.

I’d like to give a big shoutout to my pals here at the office — Thomas, Ed, Jim, Ron, Scott, Eric and the whole gang. Sorry I won’t be continuing with ya’ll, but Ruby on Rails, web app development, and early-stage startups are where my heart lies at the moment.

Starting Small, Finishing ….. ? with Sprout

I have the domain name StartSmallFinishBig.com, which I haven’t decided quite what to do with yet. Maybe a small biz blog, or local small biz networking group, who knows.

The thing I dislike about the term small business, though, is that it can:

1) Imply that what you’re doing is small. When clearly small teams can do big things.

Never doubt that a small group of thoughtful, committed citizens can change the world. Indeed, it is the only thing that ever has. - Margaret Mead

2) Imply that you’ll always be small. This is obviously not the case, but the picture I have of a “small business” is one in which the owner is struggling very hard to get things off the ground.

That first 1-2 years can be incredibly difficult and many (or most - I think like 80%) do not make it.

I hazard to guess that two years of struggle, stress and just barely making ends meet … is not the reason small business entrepreneurs went into business for themselves.

The Ideal Small Business

My ideal small business would be 100% automated, or backed up by a dedicated team of on-call support reps. So that, you know, I could take 2-month long vacations in Fiji and the Virgin Islands. Then stop off in Vail for a nice little snowboarding session.

E-mail and Internet access would be used to login and see the latest stats — how many new clients had signed up or how many new sales were made. (Oh, another $2,236 today, w00t!)

So, small is just a state of mind. It’s a stepping stone. That’s all.

The Big Act - Sproutit’s Weblog

You can follow along with our journey over on The Big Act - Sproutit’s weblog on small business, technology, our software and doing what you love.