As part of my vow to help others in transition, I met with two entrepreneurs yesterday who quit their jobs at a previous internet company to start a social media application company and were looking for advice.
The company currently provides strategic advice and creative and technical services to companies in the social media space. They have several large clients who rely on them for their work with others ready to put them on retainer. So they have moved from concept to clients and are positioned to bring on more clients and grow the business.
When I asked one of the founders what business he wanted to be in, he said he didn't want to be an agency. Rather he wanted to create intellectual property and monetize it. In layman's terms, he said he wanted to create applications and earn money from the applications from licensing, virtual currency transactions, advertising and more.
I pushed back on him telling him that only the largest companies will be able to create scalable businesses around social applications. The prices paid for social media advertising is low. Competition is high. Applications take time and money and expertise. Many of the niches, like games, are hit businesses that require the constant care for current applications and the launching of new applications. Lastly, I told him he'd better be prepared to raise a lot of money to fund the ideas and it's not the best time in the world to be raising money for pre-revenue application companies.
Many entrepreneurs and VCs I know speak about service companies as if they were the third rail. Service companies like ad agencies have low sale multiples, they are dependent on the founders and they are not scalable, the argument goes.
Don't be afraid to provide amazing service. Don't run from servicing your clients. Providing a valuable service and getting paid handsomely for it is not a four-letter word.
I see it over and over again. Entrepreneurs saying "I want to be this" or "I don't want to be that." During this tough economic time, check the mental baggage and preconceived notions, clear your mind and be open to being with what you and your company are best at. Providing a great service, making good money and controlling your destiny is not a bad way to go.
