What I tell founders is not to sweat the business model too much at first.
Of course you have to have a business model eventually. But experience so far suggests that figuring out how to make money from something popular is a lot easier than making something popular.
I get a lot of criticism for telling founders to focus first on making something great, instead of worrying about how to make money.
Pretty crazy stuff. It’s not surprising in the least that people knock him for throwing money at companies without business models…it’s a stupid way to invest money. My first thought’s when I read this was that people would be better of playing poker at a casino than handing over the money to YCombinator for investments, after all the odds would be better.
I’d note Scoble also made a comparison to the gambling side of things, you’re right about that Robert, Web 2.0 can be like playing blackjack (and yes, the amount being invested in Web 2.0 is a lot smaller than Web 1.0, so the crash won’t be as big nor deep), although I’d think given YCombinator’s investments, Craps or Two Up would be better comparisons, given that both games don’t necessarily rely on skill, they are more games of luck, and betting on a Web 2.0 company without a business plan is a game of luck.
But lets think about this craziness some more: Graham argues that the key of any startup is becoming popular, and yet isn’t long tail theory about not being super popular? after all, niche marketplaces don’t have to become 20 metre high gorillas like Google and Apple to turn a profit. Scoble notes again that SmugMug has 150,000 paying customers and is profitable. Hardly a hugely popular site/ service, but it makes money. The key is how do you moneterise the traffic you do get, not the traffic you may potentially get if you’re lucky enough to get to the top of the long tail. Business plans do that. Investing in a company which has no business plan is a mugs game… you’d be better off playing Lotto.