Posted by: elambend | October 29, 2007

Unsexy Business is Good Business

Carleen Hawn over out FoundRead sat down with Scott Rafer who co-founded Lookery, which is a demographic measuring service for Social Networks. He is actually a veteran of several start-ups, including, most recently, MyBlogLog. Rafer, predicting that a new tech bust was emminant, laid out for Hawn his Five rules for surviving the bottoming out of an economic cycle. Although the context was internet start-ups, most of the rules apply to any industry.:

Rafer’s Rule #1: ‘Un-sexy’ is good business.
Rafer’s Rule #2: Every Silicon Valley business cycle is at most 8-11 years.

Rafer’s Rule #3: Pay attention to politics.
Rafer’s Rule #4: The Cost-per-Click model is not elastic.
Rafer’s Rule #5: The best defense is to play at the bottom from the start, where such deflation in pricing won’t impact your business as much.

Of all the rules, I found #1 most interesting. It may seem strange advice coming from someone from what is still considered somewhat of a ‘sexy’ industry. Hawn explains Rafer’s thinking:

This is a riff on a market principle Rafer picked up from a couple of his ancestors back east: one who ran Rafer’s Kosher Meats; and his grandfather, who ran Rafer’s Army Navy Surplus (both were in business in the 1950s, long before Rafer was born.) The idea here is that there is potential in furnishing a (seemingly) boring business that plenty of people need, but which few people want to do — a.k.a. stuff that ain’t sexy. Which also means you’re likely to have a reliable market for your business, and might not have so much competition — good! In the digital world, as Rafer explains it, the equivalent of the Army Navy Surplus Store translates this way:

“Find a reason for hundreds of thousands of people to send you their useless data. Aggregate it. Organize it. Give it a value. Which means you can monetize it, and you have a business. My example of doing this was MyBlogLog.”

MyBLogLog provided click reporting for 70,000 blogs by ordinary people. Now, 70,000 blogs by Joe-neighbor might seem boring and very ‘unsexy’ to you. But to Yahoo!, the data they represented was worth $10 million. This why Rafer says, “I love businesses that aren’t sexy.”
This kind of logic holds true with my limited experience of those who have done well on the internet. The very few people I know who have created viable cash-flowing businesses on the internet (and eventually sold same), have done so through creating real under-the-radar operations where the basic idea is the collection of information from consumers. Indeed, for one of them, the main source of revenue was not from those who signed up for it’s subscription, but from those who paid for the aggregated information from all those subscribers. Not sexy, but very successful.

This principle applies across industries, Warren Meyer, over at Coyote Blog, gave an example from his time at Harvard Business School: Rockwell Water Meters and a Superconductor Business. The former had stratospheric returns, while the latter never achieved any returns on capital.

Everyday, people find an odd little niche to make a lot of money, while others pursue what is sexy (and what everyone else is pursuing.) It’s good advice to remember when contemplating a startup, a job, or an investment.

HT: The Coyote Blog


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