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Web 2.0 champions don't champion business plans

Ironically, financially savvy individuals with solid Web 2.0 business plans of their own are enriching themselves by supporting business plan deficient Web 2.0 start-ups.
Written by Donna Bogatin, Contributor

It is fitting that YCombinator’s Paul Graham did a feature interview with Michael Arrington’s TechCrunch. The two entrepreneurs have a lot in common: they both are making money by promoting Web 2.0 start-ups lacking business plans.

It is ironic that two financially savvy individuals with solid Web 2.0 business plans of their own are enriching themselves by supporting business plan deficient Web 2.0 start-ups.

Graham reconfirmed to TechCrunch his disdain for start-up business models, as I recount in “Graham on Web 2.0 investing: VCs are no angels”:

What I tell founders is not to sweat the business model too much at first. The most important task at first is to build something people want. If you don’t do that, it won’t matter how clever your business model is. Of course you have to have a business model eventually…

I get a lot of criticism for telling founders to focus first on making something great, instead of worrying about how to make money.

Graham also took pains to distance himself and his YCombinator from MBA driven investment philosophies. In a comment at the post, Graham noted what he considers an “inaccuracy” with the TechCrunch headline:

Though the intro calls me a VC, that’s not really accurate. In the business, “VC” has a very specific meaning. VCs run funds, like mutual funds; they invest on behalf of the investors in their funds. At Y Combinator we invest our own money, which makes us closer to angel investors. VCs and angels have very different personalities.

VCs are mostly MBAs, while angels are generally tech people.

TechCrunch immediately republished the story with a heading which is apparently more to the subject’s liking.

YCombinator describes its seed funding philosophy to start-ups:

We care more about how smart you are than how old you are, and more about the quality of your idea than whether you have a formal business plan.

Graham put forth his disdain for both business plans and MBAs in a 2005 piece “Hiring is Obsolete”:

The main cost of starting a Web-based startup is food and rent. Which means it doesn't cost much more to start a company than to be a total slacker. You can probably start a startup on ten thousand dollars of seed funding, if you're prepared to live on ramen…

The conventional wisdom among VCs is that hackers shouldn't be allowed to run their own companies. The founders are supposed to accept MBAs as their bosses, and themselves take on some title like Chief Technical Officer.

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Graham’s YCombinator has recently been in the spotlight for a failed start-up it invested in, Kiko. Kiko did not have an MBA at its helm; the YCombinator funded online calendaring start-up had its “hacker founders” running their own company, as Graham proselytizes.

Kiko may not have been backed by MBA VCs looking for a quick, high-return turn over of their investment, but the young founders “managed” their “hack” with a similar short-term payout perspective.

In “Web 2.0 dreaming: get rich quick, or fail trying” I discuss the almost “slash-and-burn” type thinking suggested by the Y Combinator investing philosophy:

The Y Combinator Funding Application for Winter 2007 implies a rapid sell-out strategy for applying “start-ups:

Which companies would be most likely to buy you?

If one wanted to buy you three months in (March 2007), what's the lowest offer you'd take?

I cite the Kiko founders on their desire for a quick sell-out in “Eight sure ways to get in TechCrunch deadpool”:

we thought that the release of Google Calendar might be good because it would push one of the other big players into acquiring a calendar application to compete. 30boxes had stated that they didn't want to be bought out so, as the #3 player, things were looking hopeful. Things didn't pan out, but that's okay. None of us were ever had a Lexus on hold.

The young hackers called it quits, however, restless to grab on to what they deem to be perhaps an easier way to the Lexus:

As you might have noticed, we haven't been actively working on the site for a few weeks…We are selling Kiko because we want to have time to work on other projects as a development team. We had a project in mind we just didn't want to wait on :)

Will the Kiko team quickly give up on their next project as well? YCombinator is already touting the second time at bat:

it's probably the most outrageous startup idea I've ever heard. It's good to see those two haven't lost their appetite for risk.

The two aren’t really risking much; Graham repeatedly asserts what he believes is the genius of his “no-money-down” Web 2.0 start-up philosophy:

There's another encouraging point here for the new generation of web startups. Failure is not a disaster when you're very light. The total amount raised by Kiko in its existence would be about six months' salary for a first-rate developer. There's a good chance they'll recover most of it by selling their code. They only had one employee besides themselves. So this is not an expensive, acrimonious flameout like used to happen during the Bubble.

John Battelle echoes Graham’s enthusiasm for lightweight, disposable Web 2.0 start-ups. I cite Battelle in “Web 2.0 amateur entrepreneurs: failure to succeed”:

one of the really cool things about Web 2 is that you can keep making new companies, see if they work, then disassemble them and try again

TechCrunch cheerleads daily on behalf of twenty something software developers rapidly prototyping cool Web 2.0 apps. According to TechCrunch, it is: “dedicated to obsessively profiling and reviewing new Internet products and companies.” TechCrunch is not obsessed with the commercial viability or long-term sustainability of new Internet products and companies, however.

TechCrunch covered Kiko last year with two posts on September 1:

POST 1: Online calendar solutions are launching quite regularly now - see Trumba and Hula for examples. But while Trumba is charging $40 a year, and Hula is an open source project, not an application that we can just use, Kiko seems to be free, simple to use, and ajax based. At least, I can’t find anything on the site referring to a fee.

I haven’t been able to test the product because when I try to create a user account a I get an error, and the demo link on the home page doesn’t seem to work. Since they launched only yesterday, perhaps they are getting a bit more traffic than they expected.

When it’s working and/or I’ve had a chance to talk to the founders, I’ll write a full review.

For now, Kiko promises to work like a “native application” - click, drag, drop, etc., and to put everything you need on a single page dashboard.

POST 2: Kiko, an ajax calendar application, is working now and we were able to grab a screenshot. First impression: Kiko is a usable calendaring application with nice sharing features. Try it.

TechCrunch’s profile of Kiko does not address the commercial viability or long-term sustainability of the start-up. The next time TechCrunch considers Kiko is August 16 of this year to announce “Kiko Flatlines.”

Business 2.0 recently dubbed Michael Arrington “one of the rising stars of Silicon Valley” citing his “$60,000 in ad revenue every month.” In “Web 2.0 short sellers: Arrington, Calacanis” I cite Arrington on his grandiose Web 2.0 financial ambitions:

I'm hoping everything crashes…Then I want to go buy all the big blogs.

Arrington shrewdly develops his own prospects for a Web 2.0 financial empire success. The TechCrunch foundation of his empire, however, is content to champion cool new Web 2.0 apps without championing their need for viable business plans.

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