Making Money in Technology
After the Bubble, page 13
Bulking As a Business Strategy
During the Internet boom, there was much talk of “first mover advantage.” First mover advantage was used
to justify growth at any price. As a strategy, this lead to customer acquisition regardless of the
metrics of customer acquisition costs and returns.
With hindsight, this can be seen to be unsound in most cases. (There may be an occasional situation
in which a “do or die” charge at becoming number one is the only way to go.)
This leaves us with many companies that have burned through a ton of cash, and whose only real
assets are the customers they acquired and some intangibles. Can these businesses survive? Maybe--if they
realistically take stock of their situation, go on a rigorous diet by downsizing, and find offerings that
customers are prepared to pay for.
Business Plans and Business Models
It is said that successful technology business models either create monopolies or help break them.
From this viewpoint, investors and management should understand the competitive landscape, the value
proposition of the company, the competitive advantages, and potential barriers to entry (either in front
or behind).
It is also clear that all the business plans in the world won’t help if management doesn’t understand
the customers. Who ultimately will be the users of your technology, and what problems does it solve?
(If there is no problem, and no real-world pain, then the product is dead in the water.)
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