I always tell my students that they should read the blogs of venture capitalists as a way to easily expand their knowledge of entrepreneurship. Successful VCs are students of new business concepts and the factors that lead to large new businesses. They study ideas and companies from the "napkin stage" through to market traction and scaling. A few VC blogs I especially like for their thorough analysis of issues are AVC, Both Sides of the Table and the posts of Michael Skok.
Josh Ellman has written an excellent post on consumer network companies, "“How will they make money?” is the wrong question". Josh is a Principal at Greylock Partners and formerly worked at Twitter and FaceBook. He cites four factors required to build a successful consumer network:
- Is there a new behavior here that you can see 100M+ people doing? Is the network going to change the way people think about the world?
- Is the product evolving in a way where people are getting more and more engaged and committed over time? Are members adding more and more content over time?
- Will the growth be sustainable? Do new user patterns follow the patterns of early adopters.
- If the product succeeds at scale, can you monetize the key behaviors? If one builds a large network it can always be monetized by direct purchases or advertising.
One of my pet peeves is all the silly new network concepts that have no future. I hope everyone will read Josh's post in its entirety and evaluate their new business idea against the four factors.