Integrating external sites

Like this:

www.Divvy.com
Share items or events, collect money from sharees.

Hi, Meriel. Just took a look at your site, it looks like you've done a good job and you also raise some important issues.

Though I'm eager to hear other folks on the team chime in with their views, I'll provide some additional insight from someone who works in the software industry and has consulted to many startups as they have created their business model or were rolling out their product.

First, I should mention that we are due for the Second Great Internet Startup Shakeout within the next couple years. Having lived through the first one in 2000 (I was in the process of raising money for my own startup when the tech bubble burst), I know how quickly a relatively good economic context can become poor in just a few months. In this case we will go from a poor economic situation to a dire one.

The Ticking Startup Clock

But even without that every startup is in a race against time. Their monthly burn rate is comprised of money that goes toward in-house salaries, external consultants (lawyers, accountants, often programmers and graphic artists, if they aren't in-house) and marketing. Though it has never cost less to create a startup than it does today (see how inexpensively one can get a cloud setup for hosting, for instance), salaries are still a substantial cost. All this eats the startup capital each and every month.

Ad Supported Startups

If the startup is ad-supported, they have to get many eyeballs viewing the site to justify the price they charge advertisers. Typically they can't bring in decent advertising revenue until the site is already relatively successful or there is a lot of momentum that indicates that it will be successful. Right now online advertising is getting hammered as budgets are getting squeezed. True, some money is moving from TV and other media to online spending but that is overwhelmingly tending to go toward established, major sites.

Transaction Fee Supported Startups

Alternately, the startup could employ a transaction charge. Typically the transaction charge amounts to not much even with many transactions — it might be able to pay for the accountant to track it but only wildly successful sites make significant money from transaction fees and today that happens only if they meet the following criteria:

• there are a lot of transactions
• the average transaction amount is relatively significant, say > $100
• the transaction fee is relatively significant, say 10% or greater on top of the credit card fees

One company that meets those criteria is elance.com. PayPal managed to do it with a different set of criteria but that was in an era long ago, there was no one else doing what they were doing and they were well funded.

Subscription Fee Supported Startups

Last, the startup could charge a monthly or annual fee. Meetup.com does this successfully by charging $12 per month if one purchases six months at a time. Right now, however, people are scouring their credit cards to remove recurring fees so the subscription model is getting hit hard.

Some companies attempt to accelerate their revenue by offering a one-time payment option and there is merit to that approach.

It's also possible to attempt a hybrid, like transaction fees and ad fees, and it's conceivable that people might be ok with the idea over time. However, usually users complain that they are seeing ads AND paying for the service via the transaction fee and want one or the other to be removed. This sort of hybrid is a tricky thing to pull off.

A Typical Startup

So let's say a startup has angel funding of $200,000. Getting the product out the door could take only half that if they are very parsimonious and one of the founders is also a software developer. That leaves $100,000 left to run the company while building customers. They must show some success or they will not receive next round of funding.

$100,000 goes very quickly, especially when the revenue for the first few years is basically negligible compared to how quickly money is going out the door. If everyone is on reduced salaries (and the founders are taking nothing, which is common until the next round comes in), they often have no more than 18 months before they are out of cash. And that is if they do little or no advertising. If they do significant advertising, the money goes in a flash.

Compounding the problem is that there is typically a rush of competitors all chasing the same people. My informal count is that there are about a dozen sharing sites all vying for this market. Which one(s) will survive this intense Darwinian selection process? Most will fail. One company might emerge the winner but the sector hasn't really proven itself so it's entirely possible that they all fail, especially with the trajectory I see for the economy. A good CEO will say that this sector's revenues should grow as the economy contracts but there is absolutely no guarantee of that.

Internet Usage on the Cusp of Decline?

My guess is that people are soon going to start disconnecting from the Internet as they look for ways to cut monthly expenses — or are forced to cut due to job loss. We are on our way to becoming that poor as a civilization. Already 40 million people in the United States are on the food stamp program and that is growing monthly, especially as the first crop of people completely exhaust their unemployment benefits with little or no hope of Congress extending them further (99 months). We are all going to be living in radically different countries just five years from now. The states are collectively $180 billion in the red and they can't print money like the Fed so they must cut employees — that's a hell of a lot of employee salaries on the chopping block. The UK has begun that process and Canada and Australia are behind but will catch up.

Many people might connect with their telephone and this is one bright spot to consider. But if poverty rates increase like a foresee even that will be be under pressure.

It's hard for people in the tech field to fathom the possibility of contraction and especially Internet usage contraction but that is often because they are caught in the "humanity always progresses" conversation.

The Partner's Dilemma

Let's say that a company does survive to the point that its revenues match its monthly expenses. How do early partners know which one? The partners are wise to see which company gets traction before becoming partners. The last thing they want is to invest a great deal of effort integrating with a partner and educating their users just to have the partner go belly up.

However the startups absolutely need the partnerships to get the traction. It's a lopsided situation far and way against the startup because the partners really don't need to do anything while the startups must sign up partners to bring users to the site. They must do this quickly before the capital runs out or the investors get impatient and withhold further money (sometimes withholding money they had even promised to provide at the outset if things got tough!).

Add to this the extra pressure that existing companies (like Meetup or Craigslist) could add the startup's feature to their existing service thus undercutting the need for their customers to look elsewhere to get a specific task accomplished.

Meriel, I honor the courage and drive it takes to create a startup. It's an experience like no other.

However, from my perspective, it would be most unwise for this project (Transition Drupal) to partner with any startup at this time and I strongly recommend against it. The potential benefits simply do not exceed the risks.

Again, other team members should chime in especially if they see something I've missed in my analysis.

Hi, Meriel.

Your comments are entirely valid however I'd like to point out some things.

"The risk of working with a partner you think has the best chance of success vs the risk of investing so much of your own (and others') time must be considered."

Identifying who has the best chance of success is exactly the problem, though, isn't it? You haven't really provided enough information to go on to assess your financial situation nor do I expect you to. So we don't have a way to assess the likelihood of your company becoming an ongoing concern much less becoming a market leader. From a partner's point of view I would want to know:

• how much capital to you have? what is your burn rate?
• what are your projected revenues and are you meeting your milestones thus far?
• how do you intend to weather the next step down in the economy? And the one after that? And the one after that?
• etc.

"Transition is about mass behaviour change not software development."

Yes — for our mutual customers — but not for the people who have come together to create an open-source project like this. Software development is exactly what we're here to do.

"It took us well over 2 years to get to where we are and it will also take a team of volunteers even longer to do such a thorough job."

Undoubtedly true...but it's not at all clear and won't be until work has begun studying this feature that what you have created is the minimum necessary to be useful to the community. What you've done might in fact be the magic sauce but it's often the case that several key features provide 80% of the benefit and those can often be rolled out relatively quickly.

We should also bear in mind that there is nothing stopping groups from using your service on their own right now. Integrating external services into this project (and thus implicitly endorsing them — to some people it will look like explicit endorsement, however) is the topic at hand.

-André

It was a pleasure conversing with you and thank you for allowing everyone to listen in.

Was just sent an email pointing out this site:
http://www.justfortheloveofit.org

Another sharing service but no money changes hands in their model.

"There are now 20432 members in 142 countries sharing 330244 skills, 64919 tools and 327 spaces."

They enable sharing of skills, tools and spaces.

This was a really interesting conversation and after some thought, I wanted to add a couple of points of my own relating to the post I wrote on requirements after the IA Skype meeting:

• I think an early and ongoing top-priority requirement for our TT network as well as many others in the early development stages is awareness-raising. With meagre or even non-existent budgets, many TTs simply don't have any resources to spare for advertising, outreach and PR. Therefore connecting with potentially large audiences on existing sites, whether those be Facebook-style social networks, or some sort of swapshop site as has been discussed here, would potentially be one effective method of building a larger cohort quickly and cheaply.
• Might there be some benefit to be had from engaging with people like Meriel and others to establish what they could do to develop bridging modules, what we could do ourselves, were we to have more volunteer module developers and what the larger Drupal community may have already done to build bridging modules for some of these sites? For instance I believe there are already LETS scheme modules in existence...
• While these aren't a priority for a beta or 1.0 release, perhaps it's something to add in for a phase 2 site plan?

Chris and Ed: Except for Facebook, I suspect that not many people in any particular local community are members of those services you mention. With just a few exceptions (yelp.com, meetup.com, craigslist.org), my experience is that these services are all struggling to get critical mass in communities. Instead, their membership is comprised of a few people from this town, then a few from another town and so on across the country. Presumably if they stay in business long enough they could get excellent penetration.

Perhaps in the UK these services are doing better than over here?

I think Facebook is a strong possibility because penetration is high. But each of these other possible integrations should be scrutinized closely before embarking on an integration project. I've seen many integrations in my day fail to return value after much money and time was spent.

It would be good to get some idea of how many people are reachable through an integration before starting work. In the least that will help identify which integration to work on first. Establish some sort of methodology to run a potential integration through (assign points?) so that at the end you are able to make a "go, no-go" decision.

Jane Jacobs pointed out that the most effective way she found to organize was to inspire local shopkeepers to tell their clients about the activity at hand. Perhaps that will be the most effective way for Transition communities, too.

Alright mate, yep, that all sounds like a right old giggle.

Seriously though, I think this is a great idea and would help the IA team draw up a first set of Site and Information architectures for the various stages of initiatives.

I've also tried to look a bit deeper into an online PR strategy which I can show you too.