Andrew Hargadon

Wisdom in the entrepreneurial world

There is a strong survivor bias in studies of innovation and entrepreneurship--both in the academic literature and in the stories of practicing professionals. We tend to study the winners, the companies that made it out of the garage and onto NASDAQ. They're easier to find. Even the losers we study tend to have survived long enough to be noticed, which by itself makes them more successful than most new ventures.

When you're business is investing in new ventures--in picking winners--there is some value in studying how you've done that well. There is likely more value in studying what you did wrong. Bessemer Venture Partners has a pretty unique site describing the companies that they did not invest in: they call it their Anti-Portfolio. Every VC firm has such a history--few would acknowledge them publicly.

The first penny...

Josh Kopelman has a great post on pricing models and adoption rates for new internet services, in his blog Redeye VC: The First Penny

Josh expresses beautifully the challenge entrepreneurs face in trying to offer services on a subscription basis (no matter how low). The demand for these services drops precipitously as price increases from $0 to $0.01.

Most entrepreneurs fall into the trap of assuming that there is a consistent elasticity in price - that is, the lower the price of what you're selling, the higher the demand will be. So you end up with hockey stick looking revenue charts that go up and to the right, all supported by an "it only costs $2 month" business plan.

The truth is, scaling from $5 to $50 million is not the toughest part of a new venture - it's getting your users to pay you anything at all. The biggest gap in any venture is that between a service that is free and one that costs a penny.

This is why hybrid business models are becoming necessary--advertising, syndication, brokerage fees. Anything before charging the actual users.