With the rapid expansion of
online businesses in the late 1990s and early 2000s, a lot of people with
brilliant technical and programming skills but limited business experience
began creating websites that they believed would be an effective license to
print money. I got to work with some of these folks during my time with the
Small Business Development Centers program from the SBA, and almost inevitably,
the founders of the company had created an amazing product or service, but had
never considered how they would get paid for their work. Most net citizens at
the time would not pay for content, and selling advertising on the site was
difficult unless you could prove that the advertisers would be able to generate
actual sales off those specific ads…
Even today, it remains
difficult to get people to pay for online content unless it serves some
function they can’t get in the real world or just steal off of any of the
various pirate sites. Selling advertising is still a possibility, of course, if
you have millions of visitors each day, but the presence of sites like YouTube
and Facebook make that harder for a small business to achieve, not easier. Most
internet advertisers today will only pay on the basis of verifiable “click-throughs”
– people who saw their ad on your site and clicked on it – and some won’t even
pay for that traffic unless it results in a verifiable sale. This has led to
some to some desperate and often far-fetched approaches…
Consider, if you will, any of
the Internet businesses that will allow you to use their basic services for
free, and then attempt to get you to purchase an upgraded version or add-on
features for the free version (or occasionally both) – the so-called “freemium”
services. Pandora is probably the best-known example, but I can list dozens of
others; one could actually see any of the media sites with a “paywall”
arrangement as using the same tactics (e.g. newspapers that will allow you to
read 10 articles a month off their online site, after which you have to pay). Some
of these have met with limited success, but even something like Pandora, which
provides a service to recording artists and music holding companies as well as consumers,
has struggled to stay operational, and with the appearance of the App Store it’s
increasingly difficult for anyone else to sell software…
My experience is hardly
universal, and even the published research isn’t entirely clear on this point,
but it has always seemed to me that this particular strategic failure comes
about because people immersed in the challenge of building a new product or
service aren’t usually thinking about the strategic aspects of the new business
that their invention will create. Even within the business community itself, the
kind of long-term strategic planning that is one of the staples of the
management function is not widely appreciated by our colleagues from other
disciplines. After all, why would anyone want to spend their time working on a
musty old business plan, articulating the strategy that will make their business
a success, when they could be coding, drawing, animating, welding, soldering,
polishing or shipping their products? Or, for that matter, tracking sales,
balancing the books, paying the vendors, managing the other stakeholders, or
investing the proceeds? But unless there is some method by which people will
give us money for doing whatever it is we are doing, the whole thing is a
hobby, not a business – and it won’t last any longer than our hobby budget does…
Of course, failure to create
an adequate business plan is a strategic failure in its own right – but that’s
a discussion for another day…
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