BUSINESS BLOGS
BUSINESS BLOGS
category: business
01 Feb 2009

The Web has proven to represent a great way to do things - big things - for less money.  In the 1994-2007 era, we had this upside down, largely due to VCs appetite for risk and money burning.  So it is interesting to see VC Fred Wilson point out the wisdom on focusing on lower costs and not just higher potential revenues.

As I mentioned in a recent post called “Is YouTube a Closed System That Will Kill Video Ad Tech Vendors?“:

WatchMojo.com has built a library of nearly 5,000 clips, 500 hours of programming, and generated nearly 50M streams since launching in 2006.  An experienced executive at a major media company recently asked me during a call: “are you guys like a big production company that is now moving online?”

Truth is, we basically leveraged a simple website to spawn a production company, and then leveraged the power of the Web’s fragmented distribution system to build a syndication network.

That’s powerful. I view firms like Revision 3 and Next New Networks as potential partners as well as competitors, but as much as I respect what both firms have accomplished (2008 streams: 48M for Revision3, 300M for Next New Networks compared to 38M for us), I also point out that Revision3 has raised and probably gone through $9M in funding and N3 has raised and probably spent much of $15M.  We’ve raised a fraction of that and I think the library we have to show for it is more evergreen and long-term, more valuable.  Regardless of this very last point, I think the key is our low cost model.

From an earlier post I wrote:

The value of a stock, company, asset etc., simplified, is = Future Earnings / Cost of Capital.

As such, to maximize the value of your company, it’s not enough to only keep costs down or to have a high-quality asset, you have to do both. This is basically Gordon’s Model theory applied to video publishing.

This is why these days, the burn rate is everything a company CEO needs to keep an eye on, from an earlier post:

This is arguably the main variable one should consider when joining a startup in a market such as now.

Companies that have raised tens - if not hundreds - of millions in venture capital seem like an oasis, providing a false sense of safety and security… however, once the trailing indicators reach the Board… the Board decides to abruptly scale back costs.  In this scenario, the very same job you accept becomes vulnerable.  It’s bad enough to get laid off once, even worst to be laid off twice.

Lesson: When looking for employment, always consider a company’s burn rate.  In good times, VCs like to aim for the fence and will gladly pick up the proverbial tab without blinking, but once the going gets rough, historically, VCs have a history of ditching the party before the tab is even on the table.

Web entrepreneurs have had some bad coaching over the past 15 years, encouraged to raise too much, dilute too much, spend too much and have too little to show for it.  A lot of that bad coaching has come from VCs, so it is very refreshing to see a VC point out to the real benefit of the Web, which is the ability to do things for a fraction of the cost of traditional offline ways.  That is the real power of the Web, that is what keeps old media executives awake at night.