Q:I just read that Twitter raised $100 million at a $1 billion valuation. Do you think it's still possible for an entrepreneur to make big money on the web?
A: Absolutely. It's not just Twitter, Facebook and other popular social networking sites that are raking in the big bucks these days. Internet startups engaged in publishing, marketing and e-commerce are making money, too. While raising capital from investors is tough--and nobody's partying like it's 1999--web-savvy entrepreneurs are finding new and innovative ways to make money by using tweets, blogs and other social media tools to connect advertisers with targeted audiences and link buyers and sellers.
In 2003, Brendan Smith and Colin Johnson left the New York City-based e-mail marketing company they worked for to create Motive Interactive, an online lead-generation company, with sweat equity and a small investment of their own capital. The partners then raised $5 million from outside investors to build their own technology platform and expand their business into other areas of Internet advertising.
"Looking back on it now," recalls Smith, the company's CEO, "it's hard to believe how naïve we were. Developing our proprietary technology took years rather than months, and the display advertising market that promised much higher margins was a lot more difficult to penetrate than we had expected."
After retooling the business model and exploring several new revenue streams, Motive raised another $2 million in 2007, allowing it to launch a new technology platform in 2008 and become a full-service, performance-based affiliate network. When the financial crisis hit last fall and the company couldn't raise any more capital from investors, Motive laid off 20 staffers and cut its expenses dramatically. But, thanks to its $2 million investment in technology, Motive has been able to run leaner and meaner and expects to double its sales to more than $20 million in 2009.
While margins are still slim, Smith expects the company to turn a profit for the first time since 2004. "Business is tough, but our long-term prospects are still promising," he says. "The trick is not to run out of cash."
Smith's advice for aspiring web entrepreneurs: "Get a pulse on the industry by reading trade magazines and researching trends. Then take the leap. If you take the risks, the rewards will follow, but you need to have a hard shell and a good stomach to roll with the punches."
Rosalind Resnick is the founder and CEO of Axxess Business Consulting, a New York City consulting firm that advises startups and small businesses. She can be reached by e-mail email@example.com through her website, abcbizhelp.com.