These are the new dotcoms of the new rules economy...
By Tom Foremski - February 2, 2005
There is a new kind of dotcom company that will emerge during Internet 2.0—this current and very distinct emerging phase of the Internet. I’m not sure what to call the new dotcom but I know what it is. It is a company that plays by the emerging new rules of the economy. New-rules companies will decimate established companies in many/most sectors but at varying rates.
(This “new-rules enterprise” concept is something that I will write about as a series of essays on the “new-rules economy.” I’d like to hear back from you, my loyal readers, if you agree with my logic and maybe we can even turn it into a group project that further defines new-rules business models.)
Here are some of the characteristics of a newrules enterprise:
The first rule of the newrules enterprise is that it is new, brand spanking new.
The second rule is it is staffed by a small group of executives that know the most efficient business processes for what the venture will produce.
The third rule is to stick as much open source/industry platform software and hardware onto the business processes as you can, creating a highly automated highly-efficient business venture with virtually free IT.
The fourth rule is to use as much web services IT as possible.
The fifth rule is you do not use venture capital--you and four others throw your credit cards into a bowl and work free for six-months to create the nucleus of the venture. It’s an atomic ventures world. It’s the $40k startup. When IT, and other infrastructure costs are so cheap and available to everyone then knowledge capital becomes the competitive differentiator—who is on your team.
The sixth rule is don’t put anybody on the payroll unless you absolutely have to.
The seventh rule is the venture does not go public, it stays private. It will have private investors/owners and those investors would be paid in dividends. By staying private newrules enterprises are a blackbox corporation. Competitors cannot peek inside because it is private and thus cannot benchmark their business model against it.
The eighth rule of the newrules enterprise is that there will be a lot of intellectual property that is not patented but is kept secret.
The ninth rule is don’t put anybody on the payroll unless you absolutely have to.
The tenth rule, and the most important, is that the newrules enterprise uses blogging techniques and technologies to market research/help produce and sell products and services that near-perfectly match the needs of their customer communities.
. . .
There are more rules of the newrules enterprise…but, I think you probably see what all this means and will lead to…such as: no more need for VC funds and investment bankers (except to balance your checkbook and shine your Bentley.)
I’ll step through the advantages of newrules versus old rules enterprises in the next part of this essay....Also, how the enterprise software market, in its current form, will disappear because its enterprise customers will flail and fail against swarms of newrules ventures.
February 2, 2005 | Permalink | Comment | Category: New Rules | Subscribe to SVW
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Comments (7)
The fifth rule is you do not use venture capital--you and four others throw your credit cards into a bowl and work free for six-months to create the nucleus of the venture.
The eleventh rule is that bankruptcy lawyers will make out like bandits.
Posted: February 2, 2005 4:49 AM
The sixth and the ninth rule are the same: is that to enforce the point ?
I would extend the fifth rule to include some level of angel or seed financing, that allows you to get all the way to a critical milestone: profitability, early take out or a "real" VC financing focusing on growth.
Posted: February 2, 2005 10:30 AM
I would offer that the 6th and 9th rules makes for very bad "employee" relations and a bad precedent for future relations. . .
Posted: February 2, 2005 10:59 AM
Jeff, yes, 6 and 9 are intentionally the same--I wanted to enforce the point because the high cost of healthcare and other employment costs are a huge burden for many startups.
This problem will get sorted out by society/government, but in the meantime, smaller staffs will offer significant competitive advantages.
And yes, this becomes an Angel game not a VC game--we've already seen the rise of Angel groups like TIE and Silicom Ventures and that should continue.
The Angels help flip the venture to VCs...take a look at eASIC as an example...
Posted: February 3, 2005 12:19 AM
I'd add, "avoid brick and morter until absolutely necessary." Work from homes, third places, etc. Keep the money drain as low as possible.
Posted: February 3, 2005 4:16 AM
When we started Five9.com 4 years ago in my apartment in Alameda - I had never even used email before. But I knew 2 things: that software as a service was the future for delivering software to the SMB (and enterprise) and that the call center industry was undergoing a tectonic shift.
We did go for venture funding eventually, but when we decided to go for it, we already had a solid product, top notch marketing and engineering teams in place (all who were religous zealots for the cause) and REVENUES!
BTW - I define "zealot" as someone who quits a $100k a year job for a $30k year start-up position.
And we were working out of a rat hole - literally - as there were both live and dead rats in the rafters above our "office."
When I go to a venture forum in the bay area now and hear "entreprenuers" whining about how they could launch a Billion dollar company "only if we could find an investor..." I want to puke.
There is no better way to get people to understand your business than to show them the money your business is making - and how you made it on a shoestring.
So let me add one more rule - Suround yourself with zealots ONLY early on, and think like you're building a new religion as much as a new business.
Posted: February 3, 2005 2:34 PM
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Posted: February 6, 2005 11:20 AM