Remember when it was common for streakers and others to run out on a field ?  Happened all the time. Why shouldnt it?  You run on the field. You get chased. All the while the TV cameras point at you.  As you run, you are already imaging the props you are going to get from all of your buddies. Sure you are going to get tackled by some security guard at some point. Maybe you even get clotheslined by a lineman. Then you get arrested and you pay your fine. But when you get home. Its all smiles and beers while you watch the replay over and over. It may the only chance you ever got to make SportsCenter.

Thats the price to pay for fame back in the 80s and 90s.  Getting tackled and  a fine.

Then one day the TV networks made a conscious decision to stop showing streakers and other runners that interrupted our games. They recognized it only encouraged them.

In this decade of digital media and internet everywhere, you dont have to run out on the field to get noticed.  You just sue someone or you accuse someone of doing something.

It doesn’t matter if its true.  Just put out a press release announcing the suit. This is America. You can sue anyone for anything. Maybe you have to pay for the lawyer. Maybe the lawyer does it on retainer or for the PR value. The bigger the Celeb. The more the PR. The more famous you are. Celebs should be used to this stuff.  Its just the price of fame, right ?

Of course the claims don’t have to be legitimate. In the USA the case may be tossed out of court.  It may be laughed out of court. But the minute it hits the AP, its online and its news forever. Not only is it news. it takes on a life of its own. Bloggers talk about it. Bloggers talk about the bloggers talking about it. Bloggers talk about the bloggers who are not talking about it. The bloggers who are not talking about it, talk about it by talking about why they wont talk about it.

Hats off to ESPN for not talking about the lawsuits that are out there simply because they are being filed. Its today’s version of the guy running out on the field. If the media that actually has more than 15 readers ignore it, we just might see a lot less of it.

Business is a very simple concept.  You have to pay your bills.  If you have anything left over, you get to smile and spend it as the principals of your business see fit. If you don’t have enough to pay your bills, you either have to raise money to cover the deficit, file bankruptcy and try it again, or go out of business.Simple.

There are no other options. Sure, you can sell, give or throw the business on someone else and make it their problem, but that doesn’t change the math. If(totalcashin<totalbizcashout)=You are now officially a consultant. No exceptions.

No matter what kind of business you have, you absolutely, positively must have a revenue strategy.  No revvie, no survivee.

In the digital world not everyone, particularly those in Silicon Valley, seem to understand that. There seem to be two kinds of startup companies. The first understands this concept and knows going in exactly what they are going to sell, to who, what they hope to sell it for, their hoped for margins and just as importantly, who will sell it and how. When they model their business, they model the least expensive way to get into and stay in business with the focus on reaching profitability within months rather than years.  They aren’t modeling in an exit strategy. They recognize that any company that is profitable gives them choices. They can meximize their ownership percentages. They can pay themselves an amount commensurate with their profitability. They can go public. Or they can sell.  Profits provide choice.

The 2nd kind of startup relies purely on financial models to justify their future revenue streams.  They create a company hoping to generate enough volume in whatever it is they hope to sell around, traffic, users,  whatever. The goal is to then find a way to monetize all the volume or to execute on an exit strategy. They spend a ton of time playing with spreadsheet models. They are experts at plugging in CPMs, pageviews, unique users, sell through rates.  They also know how to list “comps”. Companies that they hope to emulate and if they have only some subset of their success will more than generate enough revenue to fulfill their exit strategy. They are projection warriors.  Perfectly reasonable, right ? Right, if you understand the reasoning of the people who fund these types of startups.

Venture Capitalists (VCs) tend to fall in love with concepts.  They have the same problem that NBA GMs and Owners often do in evaluating players.  We both see our last success in the promise of our next opportunity.

Entrepreneurs who start companies with the required, expected and motivating stars in their eyes usually forget  the  VC model for funding these types of companies. What’s the Venture Capital funding model ? Fund 10, hope the 1 or 2 winners more than makes up for the 8 or 9 losers.  That’s right. Most VCs expect to have at least an  80pct failure rate.  Which in turn means that 9 out of 10 of the entrepreneurs behind these types of “make it up on volume’ companies will end up as “consultants” .

On the flipside, if you talk to any company I have ever invested in, the only thing I care about are profitable sales. What are you selling?  How hard are you working at selling? What are your revenues ? Why are you paying yourselves a salary rather than a commission ? What unique initiatives are you working on to generate sales TODAY.

When I invest in companies, I expect 100pct of them to be successful and grow and QUICKLY be profitable.  I may  not hit many homeruns, but I sure hit a lot of singles and doubles and rarely strike out.

Whats the point of all this and how does it apply to success and motivation ?

If you are an entrepreneur and looking at starting a company, its VERY easy to put off the hard part.  Which is generating sales for your company and making a profit.  Believe it or not, its  far easier to go out and raise enough money so you are “in the game”. You can raise the money, start the company and take your chances.  If you run out of money, you can raise more. Until you can’t. At which point you enter the world of consulting, having learned from your experience.

On the flip side, if you want to start and grow a business that you retain control of, put money in the bank from  and can make a long term commitment to, then always remember that sales should be the first thing you focus on when you wake up in the morning.  Profitable Sales to happy customers is the best path to making money. If you go to bed at night thinking about how to sell more and how to make your customers happy. You probably are in a good place.  If you go to bed and wake up thinking about how to raise money to stay in business, you might as well get the new business cards and think about what your new consulting blog is going to look like

When a topic is fun. Its fun. So why not write some more about it.

Im guessing that write now some kid is writing a facebook clone, that probably uses FaceBook Connect and tell his or her friends that it will be just like FaceBook, except that you have to be in school.  You have to use a .edu email address in order to be able to take part in this new social network.

No parents.  No grandparents, no aunts or uncles out of school. Your boss from McDonalds cant peak, and best of all, when you graduate, those same people wont be able to see any of the stupid pictures you posted when you were drunk.

Of course the irony is that this is exactly how facebook got started. You had to have an edu email address until a few years ago.

In the world of free, today’s products are tomorrow’s product features. You have to keep growing and growing so that your advertising revenue covers the company’s growing expenses and expectations rather than accepting the product lifecycle and using it to your financial advantage.

Here is a question for you. Which choice would have created the greatest return for Facebooks Investor’s, staying focused on the .edu subset of users they started with, or being on the growth treadmill that has required them to raise who knows how many hundreds of millions of dollars ?

Great catch from the folks over at TechCrunch. In their post “What the hell happened to the free version of Google Apps” ,   they take note that Google is doing everything possible to channel new users of Google Apps to the paid version.  This apparent shift in Google strategy regarding free raises some interesting questions:

1. Google is building a significant reseller channel.  The channel is responsible for selling into corporate accounts.  Obviously resellers of Google products don’t want to compete with free from Google. Which raises the question, “What is the better platform for selling into corporations, the web or direct sales ?”. 

2. Is Google now following the MicroSoft lead ?   It may well be that we have seen a bifurcation of the free model between corporate and consumer sales.  Free has its place with consumers, but where does it work and prevail with corporations ?  MicroSoft has long been a proponent of online products being free for consumers, but charge the hell out of corporations every chance you get.   Google tried to fight this model for a long time, merely dipping its toe into selling into corporations.  Are they now pulling an about face ?

3.  Has Google realized that at least in the corporate market (B2B), if you live by free, you die by free ? That the rising expectations of support and product enhancements by corporations never end and are expensive to live up to ?

Are there examples of companies who have been able to survive with an exclusively free model in the B2B space ?

The problem with companies who have built their business around free is that it is far from free to remain successful.

The more success you have in delivering free, the more expensive it is to stay at the top. The more success you have, the more important it is to management to remain successful.  The more important remaining successful is to management, the more money they will spend, the more chances they will take, the more infrastructure they will build, the more people they will hire.  All of the things that will prevent them from staying lean , mean and flexible. All of the things that distract them from innovating within their core competency.

Lets look at the rule that eventually KILLS all freemium based content plays:

There will always be a company that replaces you. At some point your BlackSwan competitor will appear and they will kick  your ass. Their product will be better or more interesting or just better marketed than yours, and it also will be free.  They will be Facebook to your Myspace, or Myspace to your Friendster or Google to your Yahoo.  You get the point.  Someone out there with a better idea will raise a bunch of money, give it away for free, build scale and charge less to reach the audience. Or will be differentiated enough, and important enough to the audience to maybe even charge more. Who knows. But they will kick your ass and you will be in trouble.

For Google, who lives and dies by free, we dont know who their BlackSwan company will be. But we all know it will happen don’t we ? The only question is when. Of course Google knows it as well. Which is exactly why they invest in everything and anything they possibly can that they believe can create another business they can depend on in the future.  They are spending incredible amounts of money in search of the “next big Google thing”.  When their BlackSwan competitor appears, they won’t be in a position to compete with the newly presented model, particularly if its free based because their ecosystem has bloated to the point where they can no longer create anything for free.

Google is not unique. The same happens to all companies based on free.

The same will happen to Facebook, Twitter, pick any company who lives off of free.

Its not that they can’t make money offering free. They can , have and will. The problem is that they know that its literally  impossible  to be the king of the mountain forever. But that won’t stop them from trying. And that is exactly what will kill them.

Their better choice would be to run the company as profitably as possible, focusing only on those things that generate revenue and put cash in the bank.  More importantly, when you see your BlackSwan company appear and you know they will kick your ass, rather than ramping up to try to compete, get out. Sell. Or maximize cash and pay your shareholders every penny you have.

Like every company in the free space, your lifecycle has come to its conclusion. Don’t fight it. Admit it.  Profit from it.

Which is exactly what MySpace should do.  Rather than trying to reinvent itself to compete better with Facebook, they should do the exact opposite. They should try to optimize whatever monetization opportunities it has. Cut costs to the bone. Maximize revenue per user. Think purely in terms of business.  Squeeze every nickel out of it that they possibly can, knowing its going to die a long, slow death.  Meanwhile, they have the opportunity to take that money and invest it where they think some young company is preparing to become Google/Facebook/Whoever’s black swan.  They can invest alone, or along side others. It doesnt matter.  What does matter is recognizing that they have a better chance of beating Facebook by investing in a company they think can pre empt Facebook than by trying to reconfigure MySpace to be that company.

When you succeed with Free, you are going to die by Free. Your best bet is to recognize where you are in your company’s lifecycle and maximize your profits rather than try to extend your stay at the top.