Hucksters, Suckers, and the Cue:Cat

Someone in the Know writes: "Now that it's almost completely over for Digital:Convergence, D Magazine (Dallas) unveiled the investments and the suckers surrounding the Cue:Cat and its creator J. Jovan Philyaw. I especially liked the Coca-Cola executive's observation: "... said listening to Philyaw made him feel like his hair was on fire". This was passed around ex-employees and we all got a kick out of it. The company is still alive, apparently, but not doing much anymore."

Comments

Re:Not every device is worth billions of dollars

[gwernol]

One of the problems that a lot of the 'dot-bombs' have seen is that their product is just fine, but occupies a niche that just isn't a large market. I worked for a company that had a half-way decent product, and the revenue of this product could have supported a dozen people, or even twenty or so. But our CEO (who couldn't add 13 and 7 correctly) was hyped, and thought we needed a 100+ employee company, and millions of dollars in investment, and that we could make billions of dollars. NO. Not every product is a revolution. Not every product needs to have a "225-person workforce" Advice to executives: Don't hire unless you need some work done that your current employees can't handle.

This is right on the money, but remember why the phenomenon has come about. Many, if not most, of the dot bombs were funded by venture capitalists. VCs gamble large sums of money on young comapnies, knowing that only 1 in 10 of them will ever make it to a "liquidity event" (i.e. an IPO or sellout to Microsoft). So those 10% of comapnies that make it have to be worth enough to cover the investments in the other 90% of companies, plus make a big return on the total investment. That, like it or not, is how VCs work.

The upshot is that VCs are not interested in, and won't invest in, companies that aren't going to rapidly (within 5 years) grow to a large size (at least $250 million a year in revenues). The only way to get VC money is to pitch your company as that kind of opportunity. If you go to a VC with a plan to build a small but profitable company, they will politely show you the door.

This is a major cause of ridiculous business plans that have no basis in reality.

If you want to build a small, niche business you can, just don't expect to get VC money to do it - you have to find your seed capital elsewhere; rich friends or parents, huge credit card bills or another mortgage on your house.

Re:Not every device is worth billions of dollars

[RobertFisher]

A lot of the scaling of companies was fed by the desire to obtain venture capital funds, and hence, on the way that venture capitalists operate. A large VC firm might receive say, $500M in funds to partition off to individual investors. They simply cannot manage 5,000 different investments of $100,000 apiece -- once you add up their overheads, and the typical failure rate of a startup, there is no way they could be profitable on such a small scale. So they typically fund a few tens of companies from anywhere from a few million to tens of millions of dollars apiece. The bigger, the better.

Of course, a lot of this had to do with the notion that one had to rush to market to get the most market share, which is an idea that has come to be closely scrutinized today.

Bob