GenuineVC David Beisel's Perspective on Digital Change

December 20, 2005

In the context of Don Dodge’s and Dare Obasanjo’s conversation about flipping a web startup to one of the major internet players (Google, Yahoo, Microsoft, AOL), Greg Yardley writes about the “build-to-flip” mentality which seems to be circling these days:

“But if you’re deliberately planning to quit your day job and start a business from scratch, why go with a zero-revenue model that’s going to be sold for $50 million tops when you could pick a business model with the potential to generate some really, really serious cash?

With all the Web 2.0 competition out there, the chances of your built-to-flip start-up selling to Google or Yahoo or Microsoft are slim. Instead, take the time to find a compelling revenue-generating model – run correctly, it’ll require as little or less VC than a built-to-flip one, and the upside is an order of magnitude greater. If you’re going to take the risk that comes with entrepreneurship, don’t ask yourself what you need to do to get sold to the usuals – ask yourself what you need to do to bring in some serious money.”

There is a very legitimate argument that the sole initial focus of a startup should be developing a viable product first. And if a company delivers true value, a revenue (and business) model will subsequently follow. Many of the startups we are currently seeing are consciously following this route, which is understandable.

However, I completely agree with Greg’s assessment that there is danger in completely concentrating on the service (after this initial phase) at the expense of any revenue attention whatsoever. There are certainly some out there with a “build it and get bought” mentality which Greg challenges above. However, my suspicion is that some startups aren’t thinking about revenue not because of this mindset, but rather because of the team’s genuine and relentless passion for the product itself clouding the vision.

Whether in web services, enterprise software, or other technology-enabled service, the trick is to find the right balance between devoting resources to pressing sales/distribution of the product and development of the next rev. It’s certainly not an either/or proposition, and my opinion is that unabashedly ignoring revenue is a high-stakes game. I’m excited when I meet entrepreneurs who want to build a great business, not just a great product.

Of course, if the right acquisition offer comes along in the meantime, by all means, hit the bid. But don’t count on it.

  • Peter Caputa


  • eric goldstein

    While i totally understand and respect your emphasis on business model, i don’t think it’s necessarily the case that companies that aren’t focused on revenue generation are looking to flip.

    With Clipmarks, we have spent very little time focusing on business model. We’re pretty comfortable knowing that it will be some sort of contextual advertising on our site, but we don’t want to quickly implement a boilerplate, generic solution. Rather than taking the time to brainstorm and consider all available options/solutions, we’re devoting all of our resources to creating a product that will become a long-term platform for connecting with information, sources and people. Should we accomplish that, i have little doubt that the business model and revenue generation will follow.

    The other thing i’d say is that there is a huge difference between not knowing your business model and not implementing your business model. To not know it is scary. To not implement it right away may be smart.

  • eric goldstein

    So, i just re-read your post and totally need to amend my comment. You stated quite clearly that “There are certainly some out there with a build it and get bought mentality…However, my suspicion is that some startups aren’t thinking about revenue not because of this mindset, but rather because of the team’s genuine and relentless passion for the product itself clouding the vision.”

    Basically, my comments were just wrong. Can i use the fact that it’s 1:23am and i’ve expended a whole lot of energy today pursuing my passion for making clipmarks better :)

    Seriously, apologies for the initial response. Nice post as usual!

  • Chris Yeh

    As a consumer, I’m glad that people are focused on building products without regard to monetization.

    As an entrepreneur, I don’t like to build anything without having some idea of how I’m going to make money that doesn’t involve invoking the Google AdSense underpants gnomes.

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