Lessons from a failed startup | Hacker News Reader

Lessons from a failed startup

venturebeat.com

103 pointsjasonlbaptiste37 comments

One of the best startup retrospectives I have read. Especially the points about marketing and user acquisition are very relevant to what I what I am doing currently.

"The main failure of PlayCafe was marketing."

Sort of buried at #5, so felt it worth repeating (and conversation here).

Well worth repeating. Most of us here can code a site up, some are exceptional at it. But even getting that initial press to get those first customers can be daunting.

That's one advantage I can see with something like YCombinator -- that initial traffic. It might not be much, but it's a few links from reputale blogs, some visitors and maybe even those first conversions. It's certainly no guarantee, but it is more than my first startup had.

"2. Content businesses suck..."

This seems like a pretty strong argument in favor of some form of DRM. If content creators can't make money, we're not going to have good content.

I don't really see DRM as a good answer. It is usually pretty ineffective, and it can cause problems for your customers.

I'm not really aware of truly effective DRM. DRM just needs to be cracked once for it to be pirated. And there are people who actually enjoy cracking DRM.

I guess server side authentication would work, but that is only if you convinced people to connect to your servers. This is actually pretty hard. Spore seemed like it added value when it connected to the internet. But I am sure authenticity could have easily been verified with less restrictive DRM. And cracked copies were out before retail copies were out, so DRM was a total bust in that case.

WOW is one of the few companies that I don't think has huge problem with piracy. But that is only because you can't pirate the experience of playing with tens of thousands of other people. And even with WOW I was able to easily find torrents of the game and lists of private servers. So even MMORPG's get pirated.

Big companies have thrown millions of dollars at this problem already, and haven't come up with a good solution. So this isn't an easy problem. And I am under the impression that DRM is currently very expensive for companies.

Sure, DRM could be made better. But I think it is kind of pointless. If the authentication relies only on hardware that is under the users control, like a pc, it will get cracked. And you will almost certainly end up annoying your paying customers.

That said, I am interested in seeing how GOO turns out. A DRM solution that lets you legally sell your game sounds promising. And since Stardock built it, it might actually be customer friendly.

Crackable DRM isn't the problem. Casual piracy is the problem. Pretty much any security system can be circumvented; the point of DRM is just to make getting it for free sufficiently more of a pain in the ass than paying for it.

GOO does indeed look interesting: http://www.maximumpc.com/article/news/stardock%E2%80%99s_%E2...

But the reason why DRM will never work is because your average user is not the one that cracks the DRM. The pirates crack the DRM, and the average user downloads it over Bittorrent.

The only way to reduce casual piracy is to convince people that they should pay for your product.

Ok, maybe I'm using the wrong term, but what I mean by "DRM" is anything that inhibits piracy. This can include stuff like when the music industry put those mangled mp3s on Kazaa. Anything that makes piracy less convenient will lead to more people paying for the product.

Even if piracy can't be completely prevented, it can still be significantly mitigated, it's just a question of engineering.

Except that it is actually always less of a pain in the ass to pirate something than to deal with the DRM. DRM punishes the buyers.

Isn't the problem with most of current DRM solutions that they make paying for content equally or even more of a pain in the ass than just downloading it for free?

I don't agree with that... If the only good economic reason for making content is that you love doing it, then we're more likely to content made by passionate people....

Some content maker can make money on TV (with reality shows and the like) or as movies... but when you look at some of the commercially successful shows or movies are they really good content? Can you feel any of the passion of their creators? Same thing for some of the bland music produced by some of the big labels... I like content creator to have intrinsic motivations to create, not to be motivated by the potential rewards they could get by pandering to as many different segments of the population they can...

You're right that content creators should have intrinsic motivation to create... but that's not what the GP suggested. He's suggesting that content creators should not be anti-motivated to create (via problems like piracy, for one example).

Content businesses suck IF you are the one developing the content.

TripAdvisor is a content business and I think they are doing okay. ;-)

Content creators can't make money... yet! Video content is expensive and difficult to produce because it has not become widespread enough for millions of people to actually be doing this.

For example, compare Word Processing to TV editing. Anybody can use a word processor on a PC...now. At the very start of things, a word processor on a PC was a specialised task. As the market grew, things became more automated and a lot easier.

YouTube and such are only a few years old. The software to make producing content really easy is not there yet - so there is still a lot that needs to be done manually. This software will improve and content production will get cheaper.

It's still going to be expensive to deal with actors, sets, animators, etc. I doubt better software is going to cut into the main portion of the cost of making a movie.

This model would lead to a lot of reality shows and things like that. Maybe machinima if it ever catches on.

Actors are cheap, you know. People with name recognition are expensive, but the actual acting is pretty cheap. Sets and animators can be replaced by software. Think stock sets, stock backgrounds, 3d programs that allow you create sets based of standard objects.

Reality show is the direction the industry is going in. People prefer reality! Seeing real stuff or stuff that appears real is way more entertaining than acted stuff.

>Actors are cheap, you know. People with name recognition are expensive, but the actual acting is pretty cheap.

In other words, actors that people actually want to see are expensive.

>Sets and animators can be replaced by software.

That may be true in the future, if filmmakers ever get the open source ethos and create a large library of models that covers most situations. Otherwise, anything short of strong AI is not going to replace the artist.

>People prefer reality!

Some people do, some don't. I don't. If everybody did, there would be nothing but reality programming.

Reality programming is quite a stone's throw from reality

I doubt that their TV game show had a pirating problem.

Yeah, probably not. I was mainly thinking about this paragraph:

"I would advise any entrepreneur or investor considering content to think twice, as Howard Lindzon from Wallstrip warned us. Content is an order of magnitude harder than technology with an order less upside; no YouTube producer will earn within a hundredth of $1.65 billion. This will only become more true as DVRs and media-sharing reduce revenues and pay-for-performance ads eliminate inefficient ad spend, of which there is a lot. The main and perhaps only reason to do content should be the love of creating it."

The situation just kind of sucks if you ask me.

Content businesses suck because 1. it's hard, and 2. everyone thinks they can do it. Which explains all the bad content out there, a lot of people are unwilling to pay for professional production values out of ignorance.

But if you can find a way to stand out from the cruft you can charge quite the premium.

DRM usually leads to unusable content. Better solutions would be easy micropayments, bundling, etc.

You don't need DRM to sell content.

You do if you want to make a lot of money at it.

File sharing is easy and getting easier.

Why pay for anything when you can easily get it for free?

http://en.wikipedia.org/wiki/Public_good#The_free_rider_prob... lists possible solutions for the free rider problem.

Nothing that's helpful for content providers in general, if you assume that it's impossible to enforce copyright.

"Intrinsic value" would work for some content providers (an indy band composed of guys with day jobs), but it's not going to work to make an expensive blockbuster.

If its impossible to enforce copyrigt, content becomes a public good.

Why should dominant assurance contracts not work?

A movie costs millions of dollars to make. Good luck finding enough public-minded cinephiles to pay for them.

Dude. Dominant assurance contracts look ingenious. I had never heard of them before.

http://lists.canonical.org/pipermail/kragen-tol/2005-June/00...

And once you raised the money with the dominant assurance contract, you can even outsource the creation of the public good in question with social policy bonds [1].

[1] http://socialgoals.com/blog/spbs600words.htm

Anyone else think he was valuing his time too highly?

If you think you can add 1mm to the value of your startup by working 12 hours a day 7 days a week for a year, then your time is "worth" $230/hour.

Also, considering what someone with a similar background could earn working full time for an established company (especially factoring in benefits), $50/hr is fairly conservative in terms of opportunity cost.

Opportunity cost != time valuation

Why not?

Because the VC is not paying you at a market rate for what your time could be. They are funding you because they think you will be successful. If you are successful, your ultimate outcome will be a multiple of your "market rate" over three years. Therefore, your hourly rate should be reduced.

I can not follow your logic. I never had VC investment, but I did not even think the VCs pay you. Even if they did, wouldn't you access your value by the expected outcome P(failure)0+P(success)10 billions?

It also doesn't matter, because I still think the opportunity cost equation holds. If you decide now to become a waiter instead of an IT consultant, it costs you 70$ an hour to be a waiter (assuming waiters earn 10$/h and consultants 80$/h). I don't think there is a way around that.

It seemed rather low to me. If a "startup worker" is x times more productive than a normal employee, wouldn't it also make sense to value his time x times higher?

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