FOWA: Turn Your App into a Business
Ted Rheingold, the founder of the Dogster and Catster social sites for pet owners, advised delegates at the Future of Web Apps on the teething pains that attend turning a simple gimmick or tool on the web into a full-time job.
Dogster and Catster were born from a very simple idea: they’d let people make websites for their pets. Going from that to a business seems to be an incredibly complicated step. People start talking about the need to have a logo, a business plan, premises, a stock program, a launch party, titles, etc. etc. But, Rheingold maintained, only one thing actually matters: generating revenue.
In this Web 2.0 era, there’s lots of talk about new business models but the truth is that there is no new economy. At heart, dogster and catster, for all their social media credentials, are very similar to magazines. They make money by selling advertising, from subscriptions and from merchandising. This is a very old type of business. Nearly all web businesses are the same, to a greater or lesser extent. While web businesses might be able to disrupt some existing markets, they are not inventing a new economy.
This means that you have to do what normal businesses do. One of the most important of these is to learn your market. Rheingold attempted to introduce classified sections to his sites for several years. But it emerged that the users didn’t want to buy or sell that way. He advised developers never to get emotionally attached to a particular feature. If users don’t want it, then it should be changed or removed.
Web entrepreneurs are often working on their own, and it’s very important for them to get advice. People within your industry can often understand best what it is you are trying to do, but people who are not - people whose experience and skill-set is very different to your own - can often provide the most significant insights.
It’s important for web entrepreneurs to learn business finance, something that they often seem loathe to do. You need to be able to understand your bank statement, and also to learn the basics of forecasting revenue and expenditure. Rheingold quoted a Silicon Valley VC, who said "if a dollar falls into a toilet, dive after it." Spend as little money as possible. There are lots of things that you don’t really need until your business is making substantial profits. The launch party and bespoke suits can wait until later. If you get venture funding, it can be hard to remember this, but the significant number of web businesses that have run out of money before their revenues could make them self-sufficient shows that this is a bad mistake.
A web business should be selling for 80% of the time. This is often alien for developers and designers and may mean that they’re not actually well cut-out for creating such an enterprise. If this is the case, then you should consider getting a business partner who is more commercially minded. It’s possible to hire salespeople, but a business partner will have more commitment and passion. Apparently, there are statistics to show that businesses started by two people are significantly more likely to survive than businesses started by a single individual. Ultimately, your web business needs to behave like a business if it is to remain one.
The Dogster and Catster sites receive 1.3mn visitors a month and sell advertising at $6cpm. In the questions, Rheingold revealed that one reason the sites have been successful is that they chose to sell their own advertising direct to pet supply companies and other clients. Rheingold said that he thinks it would have been very difficult to manage if they used a network such as Google AdSense to generate revenues. It might work if you have many millions of visitors each month, but that isn’t likely on niche sites like his. On the subject of hiring employees, Rheingold noted that this is very difficult for start-ups. The ups and downs of such a business might mean that you are faced with the prospect of laying them off again after a few months. Also, the existence of a team means that your time isn’t necessarily freed up by their existence. You have become a manager in addition to the development, design and customer service jobs you already had. Employees take as well as give.
Picture credit: Stephanie Booth