Investment and Business Models

Web 2.0 is already showing a little of the exuberance of the dot-com craziness. Yes, the technology is "sexy" ... and it enables better GUI types of features ... and it promotes new modalities of interaction often called "social networking" ... and there are a lot of people doing it. But, it is just a new set of tools. The creativity behind using the tools to provide customer value is the key to making these tools worth using. Changing a look and feel for the sake of using the tool is as bad a decision as shaving your head because your favorite movie star has a shaved head in his (or her) currently released motion picture. Shaving your head in a quick decision may be done in minutes, but it can create months of uncomfortable interpersonal circumstances. What's the payoff compared to the risk?

There are companies seeking funding based on some variant of technologies that loosely fit the Web 2.0 concept. Some are trying to build tools to sell to tool users, competing against Open Source alternatives and the make-or-build decision process of software developers. Some are putting up sites with massive video content that is all the rage today. Can you find your (or your father's) pet rock? While Richard Nixon installed a bowling lane in the White House, setting off a national craze, many people lost a lot of money investing in bowling alleys in the 1960's. Bowling is still fun. Cabbage Patch dolls was an enormous success followed by a calamitous second year when the craze did not carry over. Following a craze, like the dot-com sock puppet business ethic of the "new economy" where you spend more money to make the sale than you see in revenue, can be a devastatingly stupid thing to do. If you are in the "craze" business, then you have experience with the cyclic nature of the products or services that you sell. If you are in a more standard line of business, then you don't want to get caught by the latest business or technology craze. The business model has to make sense in the classical way of forecasting the revenue and estimating the expenses resulting in a net positive that is large enough to allow for unexpected problems and money for reinvested.

The opportunities are out there. Mix the creative with the analytical to find a new opportunity to build a business. Your business metrics must measure the meaningful causalties so that you can tweak the variables to have the greatest effect on the business. If you do this the classic measures will show the business is capable of standing on its own and prospering, whether you are using Web 2.0 tools or not.