Y-Combinator Demo Day

In: Uncategorized By: Brian Armstrong

20 Aug 2009

Here is a great list of new startups that just came out from the Y-Combinator Demo Day. Definitely worth checking out. It looks better than normal and there is some amazing work being done there.

One thing that struck me from seeing this list: Web 2.0 entrepreneurs tend to forget that you don’t actually have a business unless people are willing to part with their hard earned cash to use what you built. For example, FlightCaster, JobSpice, Bump Technologies, Listia….amazing sites, but I can’t see anyone actually paying money to use these. If that’s the case then it’s not a company, it’s a project. Call it what it is.

RentHop.com and HighlightCam.com I can see people paying for. Why isn’t RentHop charging anything? This idea that you can reach critical mass by going free and then suddenly switch to a paid model has been largely shown not to work – it just upsets your base who feel like you’ve sold out. If you’re going to charge for it, you need to do it from day one. If you aren’t, then don’t call it a business – it’s a charity project where you hope to maybe break even on ad revenue. (Personally, I think RentHop should charge a small listing fee…it’s well worth it and I’d love to see them be successful and expand to other cities.)

RethinkDB.com also looks brilliant, but might work better as an open source product and not a company. They’re going to have a big mental hurdle to clear to get people to pay for it when MySQL is free and always has been.

But overall I’m very impressed and you should take a minute to check out all the companies in the article.

12 Responses

Kevin

August 20th, 2009 at 6:31 pm

I am no expert, but if a website gets a lot of traffic. Can’t it make money from ad revenue?

Brian Armstrong

August 20th, 2009 at 10:00 pm

Hi Kevin,

Good question, the answer is maybe, but it’s really difficult. Some of the highest traffic sites in the world like YouTube and Facebook are cash flow NEGATIVE with an ad supported business model (a fact not many people know). That means they are losing money every single month, largely because of their bandwidth requirements and staff needed to support the sites. The only reason they haven’t gone bankrupt yet is because they have very wealth investors to bankroll them while they desperately try to reach profitability.

PlentyOfFish.com on the other hand is an example of a site that does really well from only ad supported revenue, because it’s just one guy running it and his bandwidth requirements are less.

So to sum it up, it’s possible just much more difficult and you have to keep costs really low. And this is assuming you are able to get tons of traffic in the first place. A lot of people (VC’s, entrepreneurs, etc) are still stuck in what I consider the “old” way of thinking about web businesses, which is that eyeballs are all that matter and you should give it away for free. This is really left over from pre-dotcom bust. More people are coming around now to realize that cash flow is what matters, and to have a successful business you need to actually charge for something. Shocker, I know.

Great video on the topic here if you are interested: http://www.youtube.com/watch?v=0CDXJ6bMkMY

Brian

Cindy

August 21st, 2009 at 4:09 pm

I was trying to register to participate in the forums but it only comes up with a Wordpress login page. Am I doing something wrong? Thanks!

Brian Armstrong

August 21st, 2009 at 6:13 pm

Hi Cindy, something probably didn’t get fixed when I moved it to a new server. I’m actually in the process of phasing the forum out, it didn’t quite work out how I hoped.

College Town Menus (CTM)

August 21st, 2009 at 4:30 pm

Next up,

UniversityTutor.com, Feedmailpro.com, and CollegeTownMenus.com to be featured on TechCrunch! haha

I agree Brian, it’s a project until it generates money. And with that, CTM is still a project in testing =).

I’m not really a fan most of the time with these lists, but there are actually some really good new companies/projects/programs on this list! If I had an iPhone, I’d be all over that FlightCaster app; really great idea.

Brian Armstrong

August 21st, 2009 at 6:17 pm

Yep, not sure I’m gonna be on Techcrunch any time too soon, they tend to focus more on VC backed companies which is something I don’t really believe in. But it would certainly be nice…press never hurts.

Kenton Newby

August 21st, 2009 at 8:40 pm

Brian,

Great post! Totally agree. I think PlentyofFish is an interesting case study, but is probably more the exception than the rule. Right place, right time, kinda’ quirky and got a lot of press (revealing his AdSense earnings and all).

I would much prefer the stability of monthly, paying members vs. ad revenue or being beholden to some large company’s affiliate program.

Case in point, eBay just changed the rules of the game on how they pay out affiliate. Now it’s a PPC model tied to the quality of the traffic you send vs. CPA where you got paid for each auction buyer/new user.

Besides, when you do the math, if you have a solid app/service, you don’t really need THAT many customers to have a viable business, even if the fee is pretty low. Then you can scale it up, sell it, or do whatever else you like…without the need for VC funding (and control).

That’s the route I’m taking now, with Rails, Slicehost and a few other ideas similar to the path you seem to have moved to.

Keep up the good work.

Kenton

Brian Armstrong

August 21st, 2009 at 11:57 pm

Totally agree Kenton. DHH made a great point in that video I linked to above where he said if you charge $29/month all you need it 2,800 customers and you’ve got a million dollar business. Compare that to Facebook with 250 million users and still not cash flow positive.

Great to have another Rails/Slicehoster on here, curious to see what you’re working on when it’s ready!
Brian

Oscar - freestyle mind

August 23rd, 2009 at 7:26 am

I am, like you, hesitant when I see a startup without a solid way of making money. They usually have a great idea and a lot of visitors/traffic, but they struggle to make some money. On the other side, these companies can really make a difference, like twitter for example, so it’s still a good idea to fund them if you have money.

Brian Armstrong

August 23rd, 2009 at 5:19 pm

Agreed…good point Oscar. Twitter has a high valuation. I’m not sure why they haven’t started charging, I think it’s a mistake because it leaves their future uncertain. It sounds like they are considering an ad supported model, or charging businesses to have accounts, etc. Personally I think they should do something much simpler: if you have less than 10k followers it’s free. From 10k to 100k it’s $5/month. More than 100k followers it’s $50/month or some simple tiered structure like that. They’d be cash flow positive in no time.

You heard it here first! :)
Brian

Oscar

August 24th, 2009 at 8:21 am

Hehe, you could send a link to this post to them

Greg Moreno

August 28th, 2009 at 5:22 am

I’ve attended a number of VC-sponsored events where you hear people talk a lot about the importance of business models. What’s funny though is at the end of the day, these same investors/VC/mentors would pick proposals that even the aspiring entrepreneur admits doesn’t have a clear path to making money except getting more eyeballs.

Maybe, there are afraid of passing off that 1 idea that would become the next big thing. Or maybe, this is just how VC thinks – they invest in 10 companies knowing that 8 of them will fail and the other 2 would bring enough money to compensate the losses of the others.

Breaking Free

Y-Combinator Demo Day

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