Never mind the pie-in-the-sky business plans. Forget about the ambitions to change the world. It was all about financial discipline and making money at a conference for start-ups in San Francisco this week.
Instead of cool-looking mousetraps, start-ups that drew the most attention at TechCrunch50 were focused on pragmatic solutions such as websites that save consumers money on concert tickets or help them track expenses.
“The companies this year are extremely focused on building businesses — not just features, not just products, but businesses,” said Jason Calacanis, a conference organizer and the founder of Mahalo, a Santa Monica search engine. “When the economy crashed, people got very focused on the business side.”
The two-day conference, one of the largest of its kind, brought scores of entrepreneurs to the city’s South of Market neighborhood, all with the hopes of drawing the attention and approval of investors, fellow start-ups and bloggers.
In years past, start-ups have followed a well-worn path — inspired by companies including Google Inc., Facebook and Twitter Inc. — of trying to get as big as possible as early as possible, with the confidence that a business model would inevitably present itself.
But in these lean economic times, even Silicon Valley entrepreneurs are keeping their feet to the ground, focused on starting companies to fill specific and often practical needs — with a mandate to prove how they’ll make money from early on.
A similar phenomenon emerged after the dot-coms crashed in 2000 and venture capitalists pulled the plug on scores of start-ups that recited the mantra of a “new economy” in which profitability took a back seat to getting big fast. The rise of the Web 2.0 movement, in which people retreated to their garages and built social networking sites, led once again to the idealistic notion that a small company could have a broad impact.
After an afternoon of judging start-ups on the TechCrunch stage, Tony Hsieh, chief executive of Zappos.com Inc., an online shoe store that was acquired this year by Amazon.com Inc., declared, “I didn’t see anything where I thought, Oh, wow, this could change the world.”
Instead, judges favored companies like StorySomething, a start-up that gives parents a way to customize stories for their children, making them available on cellphones and the Internet. One of the judges on the panel, Microsoft Corp. executive Don Dodge, likened an investment in the firm to buying a lottery ticket — it wouldn’t require much money, and the payoff could be huge.
StorySomething’s business model — like those of many others showing their stuff — was “freemium,” in that it’s a free application, but it charges for some of the more desirable features.
Even more impressive to the judges was Yext, a local-business search engine that surprised everyone with the news that it had already brought in $20 million in revenue. Yext — the name implies it will be the next Yellow Pages — guides phone calls to businesses, transcribes them and then searches the transcripts for keywords that the business wants to know. It charges the business when the call includes an action the business wants — for instance, if a caller to a car repair shop makes an appointment.
“Yext was built first and foremost as a business, not something that attracts eyeballs, or consumers, or entertains people,” said venture capitalist Andy Sheehan, a managing director at Sutter Hill Ventures and an investor in Yext.
In a past cycle, Sheehan had invested in MySpace, before anyone had talked about social networking. Though that investment paid off when News Corp. bought the company, Sheehan said the climate has changed. “It’s a different time and a different era for investing in something more business-related,” he said. “It’s very difficult to make money these days solely on [pay-per-1,000-view] advertising.”
Attendees at TechCrunch50 were particularly inspired by news announced at the opening of the conference: Mint .com, a personal finance site that debuted at the conference two years ago, was acquired by software giant Intuit Inc. for $170 million. Those sorts of payouts reverberate in the dreams of tech entrepreneurs.
Two twentysomethings already on their third start-up showed off SeatGeek, a company that predicts whether prices for tickets to sporting events will go up or down on the secondary market. (Think: Should I buy from StubHub now, or wait until closer to game time?)
SeatGeek started with $20,000 from Dreamit Ventures in Philadelphia and is now hoping to raise $500,000. The TechCrunch50 launch will help with that — and so will the fact that the company, which takes 10% of all ticket sales, also started making money on its first day, which was Monday, co-founder Jack Groetzinger said.
“In this economy, people are more interested in investing in the short term rather than blowing up the world,” he said.
Yet with Facebook — one of the biggest gambles out there, a company that took $240 million from Microsoft before it showed a dime of profit — announcing that it is now operating on a cash-flow-positive basis, no one has completely given up on finding that next big winner.
“It’s never over in tech,” said Mark Jacobsen, managing director of O’Reilly AlphaTech Ventures, who still sees a lot of early-stage investment happening. “We’re still at the beginning of the whole cycle.”