Home
This is just a mental exercise. I'm not planning to execute the idea I describe below, but it seems as if it would work.

Suppose I offer all of you a chance to become partners in a business whose only function is to generate rapid, massive interest in new start-ups that would otherwise have trouble getting attention. In return for our help, we'd ask the start-ups to assign small equity positions to our organization. Each of us would share evenly in the spoils.

I (or my minions) would filter through the start-up offers and pick only the ones that appear to have huge potential if the public takes notice. When I mention a start-up on this blog, I'll ask all members to check it out, download the app, sign up for the service online, and talk it up on social media. I'd only choose start-ups that don't charge for the basic offering. And I'd try to pick things that seem relevant to all of you.

You'd be free to ignore any start-up that looked dumb in your opinion. That way you don't have to bend your personal ethical standards and recommend something you don't love.

If this business model works, I would expect to attract an ever-growing population of new members to our organization. We don't want the new recruits diluting our existing equity, so we'll only give the newbies a share of future business, not past deals. The more people in the group, the more power we'll have, and the more equity we can ask for.

There would be a big free-rider problem with this model. There's nothing to stop you from signing up and doing nothing to help. So we'd need a way to check that you participate. Perhaps we need our own app that sits between each of you and the sign-up pages for the start-ups. Or maybe we register all of the user names we use for social media (but not our passwords) so the start-ups can cross-reference their customer sign-ups and "likes" against our list. This part of the idea needs work, but seems doable.

Would this business model work?

 
Rank Up Rank Down Votes:  +38
  • Print
  • Share
  • Share:

Comments

Sort By:
Aug 17, 2013
Your idea sounds like a "business incubator", which - as you hypothesized - are wildly successful. Startups that relied on a business incubator were twice as likely (87%) to stay in business, as opposed those who tried to make it on their own (44%).
 
 
Aug 8, 2013
Most people aren't any good at fake or subsidized reviews. That's why the best thing to do over at Amazon is to jump straight to the bad reviews for they will usually be the most honest.
 
 
Aug 8, 2013
@oOOOo

[Vaguely reminds me either of Bernie Madoff]

How? Strikes me as being more like that Dilbert strip where PHB tells Asok to post glowing reviews of the companys product on social media.
 
 
+1 Rank Up Rank Down
Aug 8, 2013
Vaguely reminds me either of Bernie Madoff or "I'll gladly pay you Tuesday for a hamburger today." Maybe the mich-uber-alles of Madoff with the under-the-radar-ness of Wimpy. Though Madoff didn't return much radar until the inevitable end-game. And the pay-in for this is just idle-hands-on-the-web, so not like that wouldn't be squandered anyway. Take a worthless asset, roll the dice and maybe somebody gets a payout? Ignore the shameless self-promotion thrust out onto the web (how could you possibly measure the incremental difference?) and you have very limited downside. Might want to un-link it from the Dilbert Inc. franchise to control any back-splash potential though.
 
 
Aug 7, 2013
@LayZTigr
@whtllnew

I also like to leave the comments sorted as they currently are.

But I guess, it would be possible to store the last chosen option (ascending or descending) in a cookie and then load the page as required by each user.
 
 
Aug 7, 2013
My head hurts....can you say that again, perhaps in a different language as I don't speak the lingo fluently.
 
 
Aug 6, 2013
@LayZTigr

[[Offtopic] I keep changing the order of comments to Ascending.After all, often people react to earlier comments, and reading this makes much more sense in ascending order. Sure, in descending order you can revisit the page to see if any new comments have been posted. However, I would expect the number of people who read comments only once are far higher than people who revisit the same page.[/Offtopic]

So pretty please (with sugar on top), could you change the default sorting order of comments?]

Actually I kind of like the way these comments are sorted.
 
 
Aug 6, 2013
No, I don't think it would work as outlined. But something similar could.

You're basically incentivizing people to promote a company (product or service) that they may know nothing about and not even believe in. They have no "skin in the game" (a major drawback). And social media is just one small part of the success of such a venture. (Sufficient capital, a good idea, an identified market niche, good execution of the idea are all vital elements. Even in the PR and media realm, social media is only one aspect of promotion and publicity.)

So what might work?

Crowd-funding. I divert a small portion of my income available for investing to Prosper. To oversimplify, someone (a borrower) needs $5,000-$30,000. Could be to buy a car, pay taxes, consolidate debts, or start a new business. Depending on that person's credit score, length of loan (3 or 5 years), and other factors, he can try to borrow it at 6%-30% per annum. The person's information/request is posted for investors to review. Investors can take any portion of that loan--as little as $25 or as much as (I think) 40% of the total. Prosper takes a percentage. The borrower (hopefully) repays monthly, or may pay the whole thing off ahead of time. Some of the loans default, but by spreading out the risk among many loans, the rate of return can be 10%, 15%, or higher.

I'm not hyping Prosper; other companies offer similar programs.

I'd suggest something similar for start-ups. (In fact, as noted above, some of the borrowers on Prosper are using the funds to start new businesses.)

It should be possible to convert the borrowed amount in your plan (let's say $50,000) to a percentage ownership in the company. I'd actually structure it so that the borrower would pay off the loan (as with Prosper) BUT a small percentage ownership would be retained by the investors. If the venture succeeded--most won't--that would provide additional continuing income.

Only the people who invested in "Venture A" would receive a return from "Venture A."

However, it also could be structured so that an investor in any single venture would receive a tiny sliver of income from all.

I'm just having a difficult time tying in the social media "buzz" angle. Prosper has an quick check box for investors to post on Facebook and Twitter that they've invested. It'd be easy to do the same, or something more sophisticated here. And it would be in the investor's interest to promote it that way...but I don't really see a good way to base payout primarily on buzz generation.

Hope that helps.
 
 
+4 Rank Up Rank Down
Aug 6, 2013
This is the missing part of "The Shark Tank". I believe the network takes 5% equity of the company for their appearance, but they don't have any mechanism for me to participate. If they allowed viewers to toss in $100, $1,000 or $10,000, for equity into a company, I think it would be much more fun. And, I would bet more ideas would get funded, and hundreds would spread the word.
 
 
Aug 6, 2013
mixed thought on this...

on the YES side-- word of mouth has always been the most successful form of advertising, so this has potential for success in the same way that Amway or Mary Kay does.

on the NO side-- all forms of multi-level marketing [a.k.a. pyramid schemes] struggle with the reality of diminishing returns over time.

So, i think that if Scott's influence is big enough, he and a few early adopters could make a lot of money. But by the time the Bearded Taint decides to finally get onboard, it will just be annoying.

 
 
Aug 6, 2013
Only one way to be sure ...
 
 
+4 Rank Up Rank Down
Aug 6, 2013
I think I see the problem (but perhaps I'm wrong - most breakthroughs are seen as impossible until they work): The amount of equity that could be given to each person would be negligible. Actually, to get a meaningful amount of traction, the number of people would be so large that the administrative costs of an equity offering would probably kill it. The exception would be celebrity endorsements, or viral spread. But these are already proven methods -- as well as "social leaders", SEO, placements, and plenty of other traditional means. I think plenty of channels are already exploiting these methods without giving up equity - or only giving it to a PR firm.
 
 
Aug 6, 2013
But... how do we build interest in our start-up in the first place?
 
 
+5 Rank Up Rank Down
Aug 6, 2013
Scott has suggested business ideas with the blog readers before.

What has come of any of these? Track record - anyone know?
 
 
0 Rank Up Rank Down
Aug 6, 2013
Do it Scott.

The Downside is negligible, the upside, we can change the world!
 
 
Aug 6, 2013
[Offtopic] I keep changing the order of comments to Ascending.After all, often people react to earlier comments, and reading this makes much more sense in ascending order. Sure, in descending order you can revisit the page to see if any new comments have been posted. However, I would expect the number of people who read comments only once are far higher than people who revisit the same page.[/Offtopic]

So pretty please (with sugar on top), could you change the default sorting order of comments?

(If anybody reacts to this comment, my point will be proven ;) )
 
 
+2 Rank Up Rank Down
Aug 6, 2013
I even have an web-app (RoR) which can handle this kind of thing. All we will need to do is tie up the user accounts to LinkedIN/Facebook/Twitter.

To prevent people being arbitrary about it, each user is assigned limited amount of 'virtual currency' which he can use to buy virtual shares in the startups. The number of shares he buys and the amount he bids for will show his conviction in the idea.
We periodically (monthly, qrtrly, 6months, yrly etc) assign more virtual currency (equally) to every user.

We can run analytics to figure out which users are participating, which users are picking 'winners' and which users pick 'duds'....

If readers/Scott are interested, we can run this experiment for fun :-)
Disclaimer: I can only provide the software. All legal kind of stuff need to be handled by Scott and team.
 
 
Aug 6, 2013
Yes, this would absolutely work. We could call it the Dilbert.com bubble. Company A sells 1$M in *stuff* to Company B who sells 1$M in *other stuff* to Company C, etc, etc. And we all get rich.
 
 
Aug 5, 2013
It would definitely work. It's not a ton different from standard SEO practices, except that this is specifically targeting start-ups and you're talking about equity as the fee/salary.
 
 
Aug 5, 2013
I am not so sure. There are already a number of PR firms that work with (mostly venture-backed) start-ups. The social media / word of mouth approach that you outline is just one of several channels that they deploy. Therefore, it seems that your organization would often be a sub-contractor to the broader PR firm, and given that the PR firms do not typically get a meaningful amount of equity (if any), I don't know that a company offering a subset of services would be able to command much of an equity position. When you combine that with the free-rider problem that you mention and the difficulty measuring effectiveness, I think it might be a tough sell.

That said, I see no reason to limit the service to free or freemium business models.
 
 
 
Get the new Dilbert app!
Old Dilbert Blog