No Money In Advertising?

It’s clear that yesterday’s post generated lots of good feedback. Let’s address some of the things we’ve heard back:

• First and foremost, Jeremy Wright who is actually making money in online advertising writes a great post saying that “This ‘No Money In Advertising’ Meme Needs to Die’. To be clear, I never said there’s no money in advertising. In fact, there’s lots and lots of money in advertising. What I said is that the startups that take gobs of investment and need to meet a certain multiple are usually high if they think some wave of the magic advertising wand will get them to the level of revenue they need to justify the money they took. Jackson Fish to a large extent is built on the idea that advertisers will be sponsoring great consumer software and services. So believe me when I say that I strongly feel there is lots of money to be made in the online ad space. And if you can keep your overhead low, then 2-5 million dollars in revenue from advertising is pretty great and the goal of 50 million is irrelevant.
• Adam Hersher points out that if you can generate a business with high profits and low overhead and really do give out lots of the money to your employees you will have a major turnover problem with everyone leaving to start their own similar companies. Turnover can be natural, normal, and healthy for a company and for an ecosystem so I’m not sure it’s a serious problem per se. Furthermore, having the ability to pay the employees so much money that they contemplate leaving and starting new businesses is a problem I would really like to have. And finally, from my limited experience, businesses like that are rare, and I don’t think everyone thinks they could create one just because they have some cash in the bank. More likely, from my perspective, is that if the money is good, the products are great, and the environment is extraordinary, people will stay on because they’ll recognize what a unique situation they’re in.
• On IM (and in his blog) Alex pointed out that there are plenty of startups taking large investment who are targeting big markets. And even though winning is a longshot the payoff is worth it. I agree. And I think it’s great. I have no problem with high risk/high reward. And frankly, there may be some day where we have a product or a service that requires further investment where we would partner with a financing firm. My criticism is of startups that are not being honest with themselves about the real likely size of their business relative to the amount of investment they’ve taken. In these situations the multiple expected by the investors starts distorting the managers’ view of how to grow the business. And a business that might have been solid, healthy, and self-perpetuating, is now trying to scale beyond what’s possible, with often disastrous results.

More later.

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