By Josh Cline
Despite today’s lackluster economy, many companies are still seeing influxes of capital that are comparatively similar to the wonderful days of 1999. While these capital investments may not commonly run in the $50 million range anymore, investments of only $5 to $10 million today generally equate to the much-higher financial loans of fourteen years ago since most new businesses no longer need capital expenses such as corporate-wide Internet services. Thanks to various “software as a service” (SaaS) products, we can all get by with a lot less.
Unfortunately, 2013 also has many other similarities – but negative ones – to the 1990s boom and bust. During the online-shopping explosion in 1999, companies could obtain $20 to $40 million investments with only an idea and a concept. Being that most of the investors were simply looking to jump on the online-shopping bandwagon, much of their cash was being dealt out to junior CEOs that had no major business plans or any specific idea how to become known in the B2C world. Consequently, a lot of this money ended up being thrown away. While it was a scary time for investors, it would also serve as a valuable lesson – but one that many still have not learned.
Jump back to today, when we once again find a similar “bubble” beginning to encapsulate the investment world. As money continues to find its way to companies of all sorts – from mobile-app companies to those that are SaaS to those that fall somewhere in the middle – we are seeing this “bubble” expand at a startling rate. This is a future train wreck waiting to happen because most of these businesses have no idea who they are, what they do, and who actually cares.
Regardless of whether the business is a brick-and-mortar store, a website, or a mobile app, each and every company must specify a targeted mission to accomplish as well as provide a service or product that acts as a solution to a relevant problem. To be successful, it is crucial for an owner of any type of business to understand both basic marketing principles and business fundamentals. Companies must have business plans that outline their exit strategy, understand their audiences, and know their customers’ bases.
Today — unlike in 1999, when companies needed only ideas to obtain investment — businesses do need to have products tested and ready for the market before they obtain funding. Luckily, the contemporary business world has shown that accomplishing such a goal can be done by bootstrapping. Take, for instance, a company called iJewelry (today the website is up, but a different company). I would not be shocked to hear that you have not heard of this jewelry-focused e-commerce website because it did not last very long. Back in 1999-2000, iJewelry received a hefty infusion of cash and immediately sought out a public-relations firm that they ended up paying around $25,000 to $30,000 a month. Even though the company had launched a month before the holidays, it had already found itself going out of business after Valentine’s Day.
Why did they go out of business so quickly? They had no brand recognition, no trust, and no products that provided any value. How can an online jewelry store compete when there are far more trustworthy sites out there such as Tiffany’s? The bottom line is that they can’t – at least not without enough cash to bankroll a comprehensive branding strategy that showcases them every minute of every day on television. And how many companies were able to do so? Only a select dozen or so including names such as Amazon, Overstock, eBay, and Bluefly. Brick-and-mortar stores have the brands to succeed online.
Those looking to compete in the current mobile-app market must look to this as a valuable lesson. Developers and mobile app publishers need to ask themselves, “Am I a mobile application, or am I a business?” Those who said “app” will be trapped inside the investment “bubble” as it approaches its bursting point; these are the companies that will not remain in business for long. Too many mobile-app developers or publishers see themselves today as only a product or service to use and not as a universal business entity that needs branding and positioning. As today’s app market is continuously illustrating, those applications that serve little to no purpose, are nonsensical, or just downright bizarre will disappear — by either dying off without ever making much money or simply letting the free-app model sink them. In this competitive environment, every mobile-app company is still trying to figure out how to monetize, and while this may seem like a huge challenge, the good news is that there are many steps they can take to legitimize themselves and get on track to earning revenue:
These mobile app companies must:
- Recognize that they are businesses, not apps
- Figure out what industry and targets they serve
- Ask themselves: “Why did we create this app?”
- Determine whether one million downloads in a free, freemium, or premium model will brand themselves as established companies
- Consider asking: “Are we a B2C company?”
- If the answer is “yes,” then ask, “How will I monetize?”
- Remember the lesson from 1999: B2C online companies need to spend a lot of money to brand themselves
Then, once a mobile-app business “wakes up,” it will need to make the following decisions:
- What is our exit strategy?
- When are we likely to be acquired?
- Which top ten targets should we focus on to acquire us?
Only when a business walks itself through this process will it then transition from a mobile application to a mobile-application company.
Most B2C mobile-app companies are concerned about their numbers of downloads when they should be concerned about how they are building their business. The 1999 model for websites is proving to be the same one for 2013 mobile-app companies — they have a product, a need they are fulfilling, and a mechanism to fulfill that need. And unless the business is the next Amazon (or, today, the next Waze), the company will need to make itself known by finding the branded Fortune 2000 business that would love the app and your patent and start spreading the word.
Some additional points on B2B2C companies — whether they are apps or Internet-based businesses:
- Take two-pronged approaches: Keep the B2C plans because it provides more validity and helps you to sell for a higher premium
- Create a strong B2B strategy as well to co-brand, white label, or even sell directly
If you question this approach to mobile apps and branding, take out your smartphone, dismiss the gaming apps, and look at the other ones you actually use. Most likely, they will be Facebook, Twitter, LinkedIn, Skype, Salesforce, Dropbox, and various other news and media apps. You may also see medical apps like Medisafe and driving apps like Waze and iOnRoad. Not only have all of these apps provided a solution to a need, they consider themselves a business rather than just an application. It will be these types of businesses that will survive the coming “bubble burst” – those that are too niche or “sexy” will simply disappear.
In a two-year life cycle with funding that ranges from around $500,000 to $700,000, you can build, develop and sell your mobile-application company. But to achieve this goal, you need to build a brand – and to avoid the mistakes made by those companies caught in the 1990s high-tech bubble.