$160 million in the bank

by Giff on April 16, 2010

I was just catching up on the Chirp conference care of GigaOm when I stopped dead at this sentence,

“With more than 100,000 applications created on its platform to date, it’s frankly amazing that Twitter hadn’t formalized its road map and addressed competition with developers before … [t]hough with $160 million in the bank you’d think the company could have been a little quicker and savvier.

spend-graphI don’t want to comment about Twitter.  I want to talk about money.  Money isn’t a magic wand.  For as much as it frees your business from some debilitating constraints, it can also be extremely dangerous, which I’m sure Ev knows well.  With startups, and frankly anything in life, if you spend money too fast, you usually end up wasting a lot of money and making bad decisions (just look at U.S. spending in its conflicts overseas).

I don’t begrudge Twitter trying to grow carefully.  Frankly, the last company I was involved in would have benefited from raising less money.  It would have hired slower and better, taken on fewer parallel projects, and most likely had more credibility and flexibility with investors when it came time to pivot (although it is hard to say — they were unusual early stage investors, which is a whole other lesson unto itself).  To be clear, there were bigger problems at work than amount of capital raised, but I do think the money exacerbated things by letting the company take bigger, and more, bets which ultimately did not pan out.

Once you get passed a certain level, more money cannot significantly speed up the amount of time it takes to find good hires, learn about your market, or develop key strategies.  Nor can you purchase product-market-fit.

My dream is to have lots of money in the bank, and spend it very carefully, finding that elusive balance between over-cautious and over-zealous.  There are exceptions to caution: if you discover a really great and scalable customer acquisition method, you can pour money into that channel as long as returns are solid (either profitable or delivering on key growth or market-share metrics).

For as obvious as all this is, I am always amazed at how often you hear comments that equate money in the bank with a fast solution to a startup’s challenges.

  • http://www.5o9inc.com/ Peter Cranstone

    Here’s something that fascinates me – the other day Giga Om posted a blog with all the “numbers” about Twitter.nnOne number was missing – Profits from revenues. nn$160m and there are no profits, some revenues from Microsoft & Google (probably for R&D to see if there really is value)nnAnd now after several years we finally learn what the real revenue model will be – surprise – advertising. (Seems like the answer to everything these days).nnThe old rule of thumb is that first you must build an audience and then you monetize. They have the audience. Now comes the hard part. They should have taken a lesson out of the carrier playbook and charged for it from day one. No consumer will ever pay for Twitter now – which means you have to extract value from the metadata. The only problem is finding enough value in 140 characters which doesn’t already contain a couple of # tags and a bit.ly. url.

  • http://giffconstable.com giffc

    I heard once that Twitter was doing more monetization experimentation outside of the US, in markets like Japan, while figuring out what they wanted to do here in U.S. I don’t think Twitter could have charged consumers early — would have been a non-starter — but I do believe there are still plenty of ways to monetize the service. Separately, all the fuss over competition with developers is silly — it is a given if you play in the Twitter ecosystem. In general, I can understand Twitter’s decisions even if I would have pushed monetization earlier. Ning, I think, is a worse case of ignoring monetization too long.

  • http://giffconstable.com giffc

    I heard once that Twitter was doing more monetization experimentation outside of the US, in markets like Japan, while figuring out what they wanted to do here in U.S. I don’t think Twitter could have charged consumers early — would have been a non-starter — but I do believe there are still plenty of ways to monetize the service. Separately, all the fuss over competition with developers is silly — it is a given if you play in the Twitter ecosystem. In general, I can understand Twitter’s decisions even if I would have pushed monetization earlier. Ning, I think, is a worse case of ignoring monetization too long.

  • http://giffconstable.com giffc

    argh, Disqus driving me nuts. My comment: nI heard once that Twitter was doing more monetization experimentation outside of the US, in markets like Japan, while figuring out what they wanted to do here in U.S. I don’t think Twitter could have charged consumers early — would have been a non-starter — but I do believe there are still plenty of ways to monetize the service. Separately, all the fuss over competition with developers is silly — it is a given if you play in the Twitter ecosystem. In general, I can understand Twitter’s decisions even if I would have pushed monetization earlier. Ning, I think, is a worse case of ignoring monetization too long.

  • http://www.5o9inc.com/ Peter Cranstone

    Me too – ROFLnnWhat’s the old adage – business model before business plan. This is what happens when you become an overnight success, with no one to copy (Google copied Overture). nnUltimately you have to find the value that someone is willing to pay something for. To me the ROI comes FROM social networking NOT from IN social networking. If I use that as a starting point I then have to dig into that metadata and find the gems and then get someone to pay for them.nnAs for the developer ecosystem. It’s all free – last time I checked programmers still have to pay their bills. Ning – well that’s just poor behavior from people who absolutely no better. It’s really difficult changing a users behavior after you’ve given them the “milk” for free.

  • http://www.5o9inc.com/ Peter Cranstone

    Here's something that fascinates me – the other day Giga Om posted a blog with all the “numbers” about Twitter.

    One number was missing – Profits from revenues.

    $160m and there are no profits, some revenues from Microsoft & Google (probably for R&D to see if there really is value)

    And now after several years we finally learn what the real revenue model will be – surprise – advertising. (Seems like the answer to everything these days).

    The old rule of thumb is that first you must build an audience and then you monetize. They have the audience. Now comes the hard part. They should have taken a lesson out of the carrier playbook and charged for it from day one. No consumer will ever pay for Twitter now – which means you have to extract value from the metadata. The only problem is finding enough value in 140 characters which doesn't already contain a couple of # tags and a bit.ly. url.

  • http://giffconstable.com giffc

    I heard once that Twitter was doing more monetization experimentation outside of the US, in markets like Japan, while figuring out what they wanted to do here in U.S. I don't think Twitter could have charged consumers early — would have been a non-starter — but I do believe there are still plenty of ways to monetize the service. Separately, all the fuss over competition with developers is silly — it is a given if you play in the Twitter ecosystem. In general, I can understand Twitter's decisions even if I would have pushed monetization earlier. Ning, I think, is a worse case of ignoring monetization too long.

  • http://giffconstable.com giffc

    I heard once that Twitter was doing more monetization experimentation outside of the US, in markets like Japan, while figuring out what they wanted to do here in U.S. I don't think Twitter could have charged consumers early — would have been a non-starter — but I do believe there are still plenty of ways to monetize the service. Separately, all the fuss over competition with developers is silly — it is a given if you play in the Twitter ecosystem. In general, I can understand Twitter's decisions even if I would have pushed monetization earlier. Ning, I think, is a worse case of ignoring monetization too long.

  • http://giffconstable.com giffc

    argh, Disqus driving me nuts. My comment:
    I heard once that Twitter was doing more monetization experimentation outside of the US, in markets like Japan, while figuring out what they wanted to do here in U.S. I don't think Twitter could have charged consumers early — would have been a non-starter — but I do believe there are still plenty of ways to monetize the service. Separately, all the fuss over competition with developers is silly — it is a given if you play in the Twitter ecosystem. In general, I can understand Twitter's decisions even if I would have pushed monetization earlier. Ning, I think, is a worse case of ignoring monetization too long.

  • http://www.5o9inc.com/ Peter Cranstone

    Me too – ROFL

    What's the old adage – business model before business plan. This is what happens when you become an overnight success, with no one to copy (Google copied Overture).

    Ultimately you have to find the value that someone is willing to pay something for. To me the ROI comes FROM social networking NOT from IN social networking. If I use that as a starting point I then have to dig into that metadata and find the gems and then get someone to pay for them.

    As for the developer ecosystem. It's all free – last time I checked programmers still have to pay their bills. Ning – well that's just poor behavior from people who absolutely no better. It's really difficult changing a users behavior after you've given them the “milk” for free.