So I'm not contesting the truth that it sometimes has serious heavyweights writing for it, I'm just baffled by that fact. It's like if you found out Gore Vidal had been writing for Good Housekeeping.
Let's say I see a big incumbent who's UNIQUE selling point is 'we have everyone's private photos. people have to come to us if they want to see their friend's photos.'
I start threatening them.
They pay and buy us.
I get rich. The incumbent gets to keep everyone's photos.
At what point in the above do we not have a business model?
Oh, you mean it can't possibly WORK! Except that it just did.
Well, I'm sorry, but something that just worked obviously did work.
Out of curiosity - what percentage of real, viable business plans do you think are "easy"?
Seriously though. While not easy, it is 100% repeatable - it is one of the great ways to build a business. (Actually, regardless of whether the incumbent buys you out - their investors or those who regret being investors migth instead.)
I'd imagine they vary based on the business plan. I think what others are trying to say, but you don't seem to want to hear, is that while many business ideas are say, 20% to succeed, this particular business plan is <1% to succeed.
The whole point of a "model" is that it's repeatable and definable. "Getting acquired because they fear us" isn't a business model.
It is absolutely possible to undermine the business model of a company like Facebook by winning a marginal piece of their business away from them.
Economists are so fervently engaged in trying to eliminate cash-flow/economic/business cycles because deficits have non-linear consequences when they manifest.
With that, instagram had only one possible exit strategy to execute and they did.
> Nature and capitalism share a structural characteristic: both require equilibrium or over-production to self-sustain. Any sustained deficit and the organism or economic entity suffers catastrophic failure.
What does this actually mean in the context of this discussion? What does this have to do with anything?
> It is absolutely possible to undermine the business model of a company like Facebook by winning a marginal piece of their business away from them.
Nobody is denying that Instagram were a threat to Facebook. What people are saying are that the chances of becoming a threat are incredibly small and very much based on luck. There were many other well-executed apps that did not achieve the same success. That, and combined with the absence of a genuine business model, is why people mention the similarity to a lottery ticket.
> Economists are so fervently engaged in trying to eliminate cash-flow/economic/business cycles because deficits have non-linear consequences when they manifest.
Please explain to me what this means. What does it mean for a deficit to have a non-linear consequence?
It means building a site like instagram, with zero revenue, can be very profitable if it competes with a revenue-generating site like Facebook. It is also repeatable.
Re: Lottery Ticket
Survivorship bias is not the same thing as playing the lottery even if the statistical probability of success launching a start-up or winning the lottery was identical. Instagram successfully built the technology, acquired the user base and sold to someone who found them valuable.
I don't think luck has anything to do with building a company. Bad luck is how losers explain their losses rather than learning from the loss.
Re: Non-linear consequence
You borrow $1,000 and service is $10/mo. The basic loan covenants would define a default if you can't pay all $10 in any single month according to schedule. That means $9.99 service of the debt gives the creditor legal capability to seize the entire collateral--business.
Fixed operating expenses can be viewed like debt service in that the economic entity breaksdown when all expenses can't be covered.
If the profit margin goes to zero, a company is still running, but extremely vulnerable to random economic volatility.
No, but it is one of the best reasons to be acquired, far far above 'they acquired the team for the talent, and shut down the project' and 'they acquired us to get our customers (aka buying growth)'.
The collective We have been led to believe that we must make something original to be great. Don't make another social network, too tough. Don't do what Instagram did, it's too (pick your reason) risky / saturated / lucky / etc.
The thing is, entrepreneurs have no reason not to shoot for the moon, recreate everything. Why do we resist? The big name funds probably won't invest for fear of cannibalizing their current holdings. Think about that next time you hear a VC or read their commentary (or any commentary for that matter).
Being bought because you're shiny? Not a business model. To say Instagram has a business model is to insult every hacker/doer/entrepreneur who is actually trying to build a real business.
Remember that failed Terms of Service agreement as mentioned in the article; the one that allowed Instagram to own everyone's photos? (Memories.)
It went like this:
"...Some or all of the Service may be supported by advertising revenue. To help us deliver interesting paid or sponsored content or promotions, you agree that a business or other entity may pay us to display your username, likeness, photos (along with any associated metadata), and/or actions you take, in connection with paid or sponsored content or promotions, without any compensation to you...."
Do you realize the "stock-photo" potential Facebook would have had by selling limited rights to say a photo of Johnny Depp smoking a Gauloise cigarette, or Gwen Stefani in high school drinking a diet coke?
Maybe that was the "instagram" business model as seen by Facebook?
In fact, most musicians that I know are rightly insistent on being paid for their performances and are suspicious of promoters and agents who are eager for them to gain exposure by playing for free.
Edit: Essentially there is a continuum of risk/reward between
* Consulting or creating a small and stable business (or, say, playing as a session musician)
* Buying lottery tickets.
I just don't think that people are always aware of where they are on that scale and it doesn't seem right to give people false impressions of where they and their ideas stand. Yeah I do sound like a grumpy sod :)
Similarly with startups, if someone is only motivated by a huge exit then they won’t last through the years of low-success and failure that precede building a moderately successful business. Individual who succeed in these careers get some satisfaction out of the process and the small successes along the way (e.g. performing before ten people in a bar or having one potential customer get excited about your new product).
My story is the total opposite... Where giants squash and step on the little guy innovator.
See thread I posted below https://news.ycombinator.com/item?id=5661273
Lets look at the investor list: Seed was Baseline Ventures and Andreessen Horowitz. A-round was Adam D'Angelo, Jack Dorsey, Chris Sacca, Baseline Ventures, and Benchmark Capital. Then there was Joshua Kushner, and John Lilly.
Wait, who?
Adam D'Angelo - Quora founder. More importantly, "He was chief technology officer of Facebook, and also served as its vice president of engineering" . Top 25 TopCoder participant, respect.
Jack Dorsey - Twitter and Square founder
Joshua Kushner - son of the real estate mogul Charles B. Kushner and brother of Jared Kushner, owner of The New York Observer
We already know one of the founders went to school with Zuck. Cant find citations now, but it was in an online interview.
So it sure helps to be school buddies with Zuck, have ex-Facebook CTO and Zuck friends as investor, and new media (twitter) and old media (kushner famliy) owners as well.