Just read something interesting from Tech Crunch…
http://www.techcrunch.com/2009/04/19/reid-hoffman-my-rule-of-three-for-investing/
Got some really interesting insights from my good friend who started StreetSine.
——————-From StreetSine———————
Bro,
I understand what he is saying and agree to it if you’re building the next facebook or flickr. Macham like whatever Google does, it must scale WORLDWIDE.
But building something for niche areas and niche customer segment is a different ballgame altogether. Especially in the Asia Pac region. The geo-political situation, data representation, culture and needs are completely different in each country. There is no economies of scale for your web app. You need to customize it to serve a relatively small population. SG is a small place, and so is Malaysia, or Thailand or HK or even Australia, etc…
When the potential audience is small, the focus will be fundamentally different.
——————-From Me———————
Hmmm… so you are saying… that the business model right from the start one… is only relevant for Singapore Start Ups?
While for the states… community and users are all that matter?
BTW, facebook is still bleeding and is in need of funding… despite over 400 mil revenue.
——————-From StreetSine———————
Business models are far more important in SG (or more accurately, if you’re starting up something niche either in geographical or services sense).
2 things don’t change. One is a company closes down due to negative cashflow or being out of capital. Second is, assuming that the the business finds a sustainable business model, it is often different from the original one that is envisage.
If you put the 2 things together, funding takes a very critical role. Its a fact that the business will have to lose money on a constant basis until the business model is found. So the qn is, how long do you’ve before you will be forced to abandon it?
How long depends on (a) the development cost and burn rate and (b) the confidence of the investor to continue putting money. Now, if you compare SG and Worldwide, the development cost per potential customer is significantly higher due to lack of economies of scale. To put things worse, the confidence of the investor is also lower (or investors are more impatient) due to the smaller potential.
(Note that investor can be anyone, including ourselves)
Bottomline is, niche has far less time to play with compared to facebook. So if you assume business model change takes the path of A (initial conception) -> B -> C -> D -> E (right one), then you had better start with C or D in SG because you don’t have the luxury of waiting for the right model before you’re forced to close down. (Note: business model experimentation and changes take as much time whether you’re creating facebook or SG services)
Therefore, IMHO, getting the business model approximately right (rather than precisely wrong) is far more important in niches where there is no economies of scale.
That’s my thesis 