Business Model is in the Eii of the....

So if there's one thing that comes up during investor discussions, and keeps you awake at night, it's whether you are working on the right business model. If not, all the hard work may be for nought. The longer your business has been around, with more results/data to measure, the less excuses you have to not have the business model right.

Fred Wilson's post nailed this home for me over summer, which showed that the majority of companies he has invested in, have had to rework their business model to get a successful outcome; "Of the 26 companies that I consider realized or effectively realized in my personal track record, 17 of them made complete transformations or partial transformations of their businesses between the time we invested and the time we sold."

One of the reasons I have been happy to not take substantial capital into our business in the early days, was we didn't really have the exact 'market ratified' business model. ie one that customers have paid for, with more lining up to do so. To quote A VC again : "Most venture backed investments fail because the venture capital is used to scale the business before the correct business plan is discovered. That scale/burn rate becomes the cancer that kills the business."

When I started looking at what business to start late 2004, early 2005 - it was RSS that most piqued my interest. Using MyYahoo for the first time, starting a blog (with rss) and learning about The Feld Mobius backed companies of Feedburner, Newsgator + Technorati - made me think there was a local business model for RSS. Having spent 1995-2004 in fulltime work largely for large online publishers and consumer companies (ninemsn, sensis, virtual communities) working on large traffic top 20 Aussie websites - also had me not wanting to jump solely on the online advertising train.

Hence the original Feedcorp business model was a hedge of consumer RSS (that being gnoos.com.au - an aussie blog search engine) and Feedcorp - enterprise RSS services, which I developed broad products and spreadsheets for that had services such as Feed Creation, Feed Syndication etc - for publishers. Without really knowing what these products were going to be, or how they would make money. Let alone how gnoos + Feedcorp would interrelate. (other than both being their own Pty Ltd companies, and having the same owner : Red Lion Ventures Pty Ltd, which my cofounder and I owned shares in)

What happened then was the near standard startup experience : It took 3 times as long to ship the first version of gnoos, at 3 times the budgeted cost with 1/3rd of the features it was meant to have (search was meant to be a secondary feature to subscribe and share features which werent shipped) The TechCrunch effect happened after local and overseas traffic, which built investor interest, traffic soared and then dropped, money ran out/low, as investor negotiations continued on.

During this period, no was said to great potential investors who would have funded the life of the business and allowed founders to be paid market (6 figure salaries) as management. But control provisions would have made it almost like a sale of the business, before it had really started. Often when you need financing, the investors or the terms they offer, you know are not right - but may make your short term pain solved. Luckily (prob for both parties) we were able to come out the other side, with our business model much more attuned to the market, while still fitting with our overall vision of blended RSS services for local publishers, and consumers. In this case, a bit more bootstrapped pain allowed us to find the right business model.

On the sales side at this time, speaking to publishers who had noticed our gnoos launch, and thru the standard biz dev portal contacts, what we were meant to do was sell enterprise RSS solutions such as Feed Creation etc. What publishers wanted though was tailored online communities for their verticals. So that is what we started working on for business units of News Ltd + PBL Media.

While these projects didnt make us rich (at all) they did keep the lights on and pay for the maintenance and upkeep of gnoos (whose index of Aussie blog feeds and posts continued to grow and required lots of technical babysitting) Unfortunately it didn't pay for the build out of new features on gnoos, and meant the business became orientated around the 'customer' - The definition being the person who pays us money.

As we grew the business, by sub-leasing office space in more central Prahran where clients and contractors wanted to come (rather than our cold elsternwick converted house office), and we (finally) closed that angel round (12 months later!:) - we started taking on new customers that generated more revenue, but were slightly outside our original scope of enterprise and consumer RSS.

All of this is background to now, in which investors looking at our business model(s)? - have each had different bias towards different parts of the business. We have high net worth individuals as shareholders (but not tech experts) who like the blended businesses, and consider it a bet on "Web 2.0". Newer potential investors have expressed interest in investing in Feedcorp (as it generates the most revenue, and does so from blue chip publishers)

While another who is kicking the tyres is interested in the gnoos enterprise opportunity - which currently supports enterprise customers who using a django/amazonWS framework syndicate portions of the gnoos index (eg travel, auto content) onto an extranet we host, that they can then view live content like an RSS reader setup custom for them.

This investor isn't as much into the Feedcorp community side, as they consider it highly competitive space with services like ning.com, and see it as a way we generated revenue and customers in the 'early days' but post-investment, they view it as non-core to the blog syndication + social intelligence space. Ironically the other investor considers gnoos non-core due to its lower perceived revenue opportunity and potential to beef up costs due to technology upgrades.

So this is what I think about at night : Getting the balance between the money in my back pocket (as you have to always assume an investor deal will not happen and run your business accordingly) and the setting the groundwork for a scaleable business. (that isnt just a web2 developer)

I think the equation is less 2 dimensional, and have been trying to better be able to communicate this. If I go back to my original business model of Feedcorp it was to make money out of feeds and RSS. So even if we dont sell Feed Creation solutions per se, the consequence of us building online community for publishers, is that each of their users that create content that has a public rss feed, which thru gnoos we can index. So in addition to (large topline) revenue from community projects (where there is actually low competition for blue chip publishers in the high end verticals like auto-travel-finance-realestate etc vs the horizontal lowbrow porn based nings), the overall Aussie blogosphere is increased, and we have a more valuable gnoos index. With a model that would scale to other markets with exactly same problems whether that be India, UK, etc

A recent post by Jeff Nolan VP of Newsgator (who have always straddled the enterprise and consumer RSS markets, to their betterment) makes a good case to have a blended RSS model so you can create a true RSS eco-system : "Simply put, attention infers content authority and quality; if you share something I can make an assumption that you found it useful, which we can then use in our attention algorithm. The scoring generated by our attention algorithm can be used to make search more accurate, and it can be packaged as an API that we make available to our partners to enable their services to better filter and sort content. "

For Feedcorp, as well as our gnoos consumer offering helping us understand relative feed and item popularity, our enterprise community projects, help us be able to aggregate high quality and quantity of structured user generated content in verticals of high interest to gnoos syndication and intelligence partners : And we do so, with the help of market leading customers, in verticals where there is currently a dearth of content; The Aussie blogosphere for example, being largely invisible, and also behind the US, has not had millions of people writing structured restaurant reviews like they do on Yelp.com, or share finance tips on Wesabe.com, or recommend travel destinations and accomodation on TripAdvisor.com.

By providing publishers with the structured tools for their consumers to create reviews, click favourite, and share focused recommendations on their blog, as part of a publisher owned community - this when combined with the unstructured Aussie blogosphere found on wordpress.com, blogspot.com, myspace etc - this overall index is what we still believe is a valuable asset to build. When combined with enterprise filtering, and feed syndication tools, and dare I say it widgets and both commercial and non-commercial API's - this to me is this the Feedcorp business model. And the one I intend to build out.... with funding.

The investors that we will hopefully bring to the table, will "get" and in fact invest, because of these interdepencies between the consumer, enterprise community and content syndication/intelligence spaces. It's just getting them to the A-Ha moment, as Aussie investors don't blog or use these services themself beyond a cursory search google level.

It will also probably mean product and clientwise, that projects that do not assist the business in growing the amount of feeds it indexes and then distributes, will not fit into our core operations. Focus, focus, focus.

And there is also that pesky gnoos.com.au site repositioning, away from being a pure (Aussie) blog search engine.. and into a more outside.in/topix meets clipmarks/assetbar type offering.. but anyway thats another post altogether...