NYT Article Asks Whether It’s a Good Idea for Investors to Pump Tens of Millions of Dollars Into Startups With Half-Baked Poorly-Conceived Ideas
[Via Daring Fireball]
Claire Cain Miller, writing for the NYT:
Two of Color’s photo-sharing competitors, Instagram and PicPlz, exemplify the lean start-up ethos. They started with $500,000 and $350,000, respectively, and teams of just a few people. As they have introduced successful products and attracted users, they have slowly raised more money and hired engineers.
Color, meanwhile, spent $350,000 to buy the Web address color.com, and an additional $75,000 to buy colour.com. It rents a cavernous office in downtown Palo Alto, where 38 employees work in a space with room for 160, amid beanbag chairs, tents for napping and a hand-built half-pipe skateboard ramp.
The difference between Instagram/PicPlz and Color isn’t just how much money they needed to get going. It’s that Instagram and PicPlz are easily understood, clearly appealing concepts. It’s easy to see what they do, and why one might want to use them. Color is just a mess. That they raised a ludicrous sum of money proves only that fools and their money are soon parted.
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A 20th Century company gets lots of venture capital, hires lots of people and creates, usually by committee, its vision tof a product, hoping that the market place will like it. It has little clue whether its vision is appropriate or even useful. They spend months if not years working to reach their vision, costing investors millions. Their vision must be almost complete before the world sees it, right or wrong. Their development cycle is too long for any other course to really work.
A 21st Century bootstraps itself with just a few people who have internalized their vision and who work to get a working prototype of that vision out, and then work to adapt that product to what the market wants/needs. They spend weeks but never more than months to create and market its vision. Then, based on feedback from the marketplace, they recreate their rapid development cycle to move closer to perfection.
Color has raised $41 millon for a product no one really seems to like. They have grand visions but their first attempt is simply not making it in the marketplace. How in the world can they ever recoup that $41 million?
Instagram started with $500,000 and got its vision in the marketplace quickly. It had over 1 million users in just 10 weeks. There are now over 3.75 million. Millions of people who would be ready to download updates or the next new thing. They plan to monetize by providing fun add-ons but are also looking to the community they are creating.
The numbers are probably much larger now but think about how the investors might easily get back 10 times what they invested versus Color and their investors.
Instagram, due to the lean structure a 21st Century company can attain and to the rapid development cycle it can use, is the clear winner here. By the time Color has finally come out with something that others might use, Instagram will have adapted and be onto the next new vision.