A story about a web-site start-up
I was consulting (well, helping) a friend and an idea he had for a website. He showed me a typical website that sold a unique item — each item had a price, picture, description, etc. next to it (no, it wasn’t E-Bay). For each picture to be placed there, the web site stated that it would cost $30 per picture, per month. There will be thousands of pictures on the site. At $30 per picture, this translated into $30 million dollars in annual revenue (just from having a picture on a web site!!!).
So, I asked him the following before we got to his idea (because it was hard for me to believe his numbers):
1) Don’t you think, if this little company was bringing in $30 million, just by putting pictures on its site, a larger company wouldn’t scoop it up?
2) Do you think that a 3rd party company (a company that has pictures of its products on the site), that has over 1000 pictures on the site, is paying $300,000 a month to have them posted there?
3) Don’t you think that this website offers a “group” discount to major advertisers there? Like $1 a picture?
Then we got to his idea:
4) What are you going to do that is different? He responded with, “I will charge $20 and everyone will come to my site”.
That’s it. Needless to say, I sent him in a new direction with the following instructions:
a) Call one of these companies that are advertising on the site and ask them what they pay per month to be there — he did and found out that it was $500 a month or the $30 a picture, whichever comes first.
b) Find out if the web site gets a commission from referring a sale through the site — he did and the site does get a commission
c) What value are you bringing, beside the price difference?
This was the key point and actual turning point of his business model — he wanted to share his wealth of knowledge and charge for it, and by putting pictures of products to sell on his site, at a cheaper price, he would get people to buy his knowledge.
He is now pursuing the path of building a cheap website, listing and showing thousands of products (cheap to him is under $10,000 or free) with no database behind it (he will enter each picture and relevant information manually) so that people can find out information about the product he wants to sell, his knowledge.
I appreciate and applaud his endeavor, but, with many reservations. To make a company grow, or for that matter, to even get it off the ground, some investment of moneys must occur.
As usual, he does not want to spend any money and is having a college student design and implement a web site. He will enter all the information manually and believes that he can do it in a timely manner. He is setting up his business for disaster, if not outright failure (can you imagine entering on a template, thousands and thousands of product pictures, their descriptions, their prices, etc. and keep doing that every day as products are sold and replaced?).
With a little thought and effort, he could easily build a website with his knowledge posted on it — not all of his knowledge, but, enough to hook the reader into wanting to know more so that they will pay for it. There are many web sites out there that do this, and do not put it behind another marketing/selling mechanism.
But, either due to lack of certainty in his knowledge or because he believes he can steal all the other web sites customers by offering a cheaper price, he is doing just that — trying to get all the other customers to come to his site because it is $10 cheaper — and please remember, this is being done with no firm business model, no marketing plan (would you pay for your product to be on a web site knowing that it won’t be advertised?), and no moneys put into the company to make it grow.
By the way — in follow-up, he has come to realize that he will have to invest at least $50K to make the company and website that he wants. Do you want to invest? Call me and I will introduce you.