Last Thursday, I went to a monthly dinner called Startup2Startup that’s becoming the hot ticket in Silicon Valley for good reason. As you might guess from the name, two-thirds of its attendees are early-stage entrepreneurs who come to network and learn from one another; the other guests are investors on hand to offer guidance, tell war stories and, should the entrepreneurs want them, maybe hand out some business cards. It’s a great resource for the community.
The invite-only dinners are led by Dave McClure, formerly PayPal’s head of marketing and today a prolific angel investor and active adviser to a very long list of Internet startups, and each event is headlined by a speaker with advice to offer. At the first meet-up in May, serial entrepreneur Mike Cassidy extolled the virtues of operating at light speed. Last week, the speaker was James Hong, the genial cofounder of popular photo-rating and dating site HotOrNot, which sold for $20 million earlier this year. Hong focused his talk on a dusty old relic called the subscription model. Specifically, he suggested it might good idea for new entrepreneurs — many of whom are relying on ad-supported business models — to start using one.
Hong provided great food for thought, especially considering an unsteady macroeconomic climate that’s already depressing some CPM rates, the cost that advertisers will pay for a thousand views or impressions. HotOrNot itself turned to a subscription model after it watched its 20-cent CPMs fall to 2-cent CPMs.
Out of context, Hong’s points won’t be as useful as they were at the dinner, but I thought some readers might enjoy mulling the few that I remembered.
1.) Ask how you can make your service more compelling. Giving users a taste up front helps.
Hong and his cofounder, Jim Young, gave free users a “taste” by letting them look at personal profiles and photos for free. Users could also express an interest in meeting a special someone on HotOrNot at no charge. The catch: if it turned out that the special someone was also interested, the company considered it a “double match,” and had one of the parties subscribe before making the introduction. (“Naturally, our subscribers were all dudes,” said Hong.)
2.) Free might not translate into more traffic.
Music discovery site Social.FM, whose business model was premised on selling ads next to music searches, is the most newly defunct example of this point.
3.) If your product isn’t differentiated, go free, because someone will undercut you otherwise.
See 99 percent of social networks.
4.) If your product is valuable, don’t dicker with a free model. Go for the subscription model straightaway.
Games publishers get away with this; everyone else seems to have stopped trying. When Hong asked the hundred of so people in the room how many of them used a subscription model, you could hear the unmistakable din of crickets — seriously.
5.) Stay lean and mean.
Said Hong of entrepreneurism, “This isn’t jousting. This is street fighting.”
One last thing: Hong shared several very funny stories about the earliest days of eight-year-old HotOrNot. One of them centered on Yahoo’s Geocities, whose terms of service HotOrNot was violating for a long while but that whitelisted the startup rather than admonish it. Later, Hong gratefully asked some Yahoo executives why it was given a free pass. Their response? “We didn’t want to be the guys who killed HotOrNot.”