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Avoid the pitfalls of tech startup - in three lessons
2009-07-17 by  Judy Shapiro

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In a recent article in Ad Age’s DigitalNext, Warren Lee’s article entitled "What Sank Veoh and Joost? Too Much Cash Too Soon" suggests that young companies raising too much money in a short amount of time is apt to cause them to misuse their cash. This, in turn, ignites a cascading effect of bad business choices leading to near certain failure. In reading his well-written post mortem, it seems as worthwhile to examine successful outliers like Paltalk rather than dissect the cadavers of probable failed startups. Paltalk, as a successful and profitable video based community, is the happy exception in this space and may provide insight on how a successful tech company can thrive. First, it is useful to say I am writing this post on the heels of a very important press announcement we did the other day for Paltalk. We announced that we bought back our VC’s shares at a premium. Yep – during one of worse downturns, we were able to buyout our VC, Softbank, with cash on hand. 2008 was our most profitable year ever BTW. Here is Peter Kafka's write-up in All Things D. So I offer some insights into what can go right in building and growing a successful business: Lesson 1 – Technology bench strength is the backbone of any successful technology business. Paltalk has been doing what we do for ten years (we are the largest video based community with 4000+ chat rooms). We have 9 patents and another 5 pending. We recently asserted our patent rights in a suit against Microsoft, and those rights were confirmed. Now that is a huge advantage. We were first in the group video chat business, and therefore had first mover advantage. So as the market grew, we were well positioned to benefit from the market growth that followed. Sadly, newer tech companies tend to focus way too much on cool graphics rather than on the performance and quality of the application. Lesson 2 – Real business plans are not a luxury but a necessity. By having a real business plan, a tech business can remain nimble yet strong. For instance, Paltalk was the first community platform to recognize the volatility of an advertising revenue model early on. So we built a subscription model that now drives 85% of all of our revenue today. With a proper business plan you can create the secret sauce of elements that helps move your users from free to paid, (sorry folks, but Paltalk's secret sauce is just that – secret). It really makes a big difference if a company knows how they intend to make money going in, rather than making it up as they trot along. Lesson 3 - Depth in management counts. Real business plans emerge when you have real business leaders in charge. In the case of Paltalk, the key senior leadership technology and business teams have driven this company for a decade. That depth is an investment made in early days which is easy to overlook, especially in the meteoric rise of new "web 2.0" technologies. In the end, people need to be reminded that in the pre-Internet days there was one reliable way to make money. You had a vision for a product or service. You scraped together enough money to begin selling as soon as possible. As you grew, you reinvested in the business to enhance the vision you had. That basic, market-driven model somehow became "unpopular" in the Internet boom days where people bought visions of businesses that could be. One would have thought we had learned our lesson back in 2002. But it seems some lessons are not easily well-absorbed.

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Author

Judy Shapiro

Judy Shapiro

engageSimply

Judy Shapiro is an industry veteran with deep marketing and sales experience in the technology segment. Prior to Paltalk, she held senior level positions at Comodo, Computer Associates, Lucent Technologies, and AT&T.In addition, Judy spent 7 years at NWAyer as VP, Account Supervisor managing key accounts including JCPenney and AT&T.This blend of client and agency experience drives her passion in uncovering new marketing technologies and understanding their value to drive business results.Her blog, http://trenchwars.wordpress.com provides insights on how to create business value on the Internet.

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