Stephen Fanjoy

Jun Loayza is the President of SocialMediaMarketing.com, a company focused on building social media campaigns for companies. He is also the co-founder of Viralogy.com, which measures and ranks your social influence online. He loves to meet other young, motivated entrepreneurs, and can be reached though his personal blog.

During the first Internet boom, the most common business model was probably, “get a ton of traffic, then figure out how to make money” — which savvy readers will note isn’t a very good business model. Often, the way those businesses attempted to make money on that traffic was to use display or text advertising. Making money from advertising is still possible, but it’s no longer as easy as building a site and putting some ads on it. Fortunately, there are a number of business models to choose from.

Today’s social media startups are finding unique ways of generating revenue from the very beginning. Here are a few of the revenue models that they’re using and how you can apply them to your company.

From Wikipedia, the free encyclopedia:

Open Innovation is a term promoted by Henry Chesbrough, a professor and executive director at the Center for Open Innovation at Berkeley, in his book Open Innovation: The new imperative for creating and profiting from technology^[1]. The concept is related to user innovation, cumulative innovation and distributed innovation.^[2]

“Open innovation is a paradigm that assumes that firms can and should use external ideas as well as internal ideas, and internal and external paths to market, as the firms look to advance their technology”^[3]. The boundaries between a firm and its environment have become more permeable; innovations can easily transfer inward and outward. The central idea behind open innovation is that in a world of widely distributed knowledge, companies cannot afford to rely entirely on their own research, but should instead buy or license processes or inventions (e.g. patents) from other companies. In addition, internal inventions not being used in a firm's business should be taken outside the company (e.g., through licensing, joint ventures, spin-offs)^[4

In VC deals, Price Doesn't Matter - But The "Promote" Does

VCs have an unfair advantage when it comes to financings.  They simply have more experience doing deals.

A typical start-up company will do 2-4 venture capital financings before a successful exit (or, conversely, an ignomious ending).  A typical serial entreprenur may lead 2-3 companies in their career before calling it quits (or checking themselves in to an insane asylum).  Thus, the universe of financings that even the most experienced entrepreneurs get directly exposed to is typically 5-10 financings over a 15-20 year career.  In contrast, the typical venture capitalist, either individually or across their partnership, will do 5-10 financings in any given year.  Year in, year out.

Thus, VCs and entrepreneurs are not operating on an equal playing field when it comes to negotiating financings and interpreting the impact of the terms involved.

One area that has always struck me where this assymetrical relationship comes into sharp focus is when there's a discussion around the price of the deal.  Entrepreneurs often mistakenly focus solely on the pre-money valuation while VCs look at multiple knobs in the negotiation to drive to a set of terms that, in total, they find acceptable.  And if they don't focus on the pre-money, they focus on their ownership position after the financing, irrespecive of the amount of capital that was raised.

In my partnership, we've come up with a new term (I think it's new - I don't see it written or talked about much) called the "promote" to help communicate with entrepreneurs the real value behind a particular deal so get them to step back from concentrating only on the pre-money valuation or post-money ownership.

What is the promote?  ...

Here is a slightly abreviated excerpt of Guy's advice on writing a startup business business plan:

1. Write for all the right reasons. Most people write business plans to attract investors, and while this is necessary to raise money, most venture capitalists have made a “gut level” go/no go decision during the PowerPoint pitch. Receiving (and possibly reading) the business plan is a mechanical step in due diligence. The more relevant and important reason to write is a business plan, whether you are raising money or not, is to force the management team to solidify the objectives (what), strategies (how), and tactics (when, where, who). 
2. Make it a solo effort. While creation of the business plan should be a group effort involving all the principal players in the company, the actual writing of the business plan--literally sitting down at a computer and pounding out the document--should be a solo effort. And ideally the CEO should do it because she will need to know the plan by heart.
3. Pitch, then plan. The correct sequence is to perfect a pitch (10/20/30), and then write the plan from it. Write this down: A good business plan is an elaboration of a good pitch; a good pitch is not the distillation of good business plan. Why? Because it's much easier to revise a pitch than to revise a plan. Think of your pitch as your outline, and your plan as the full text.
4. Put in the right stuff. Here's what a business plan should address: Executive Summary (1), Problem (1), Solution (1), Business Model (1), Underlying Magic (1), Marketing and Sales (1), Competition (1), Team (1), Projections (1), Status and Timeline (1), and Conclusion (1). Essentially, this is the same list of topics as a PowerPoint pitch. Those numbers in parenthesis are the ideal lengths for each section; note that they add up to eleven. As you'll see in a few paragraphs, the ideal length of a business plan is twenty pages, so I've given you nine pages extra as a fudge factor.
5. Focus on the executive summary. The executive summary, all one page of it, is the most important part of a business plan. If it isn't fantastic, eyeball-sucking, and pulse-altering, people won't read beyond it to find out who's on your great team, what's your business model, and why your product is curve jumping, paradigm shifting, and revolutionary. You should spend eighty percent of your effort on writing a great executive summary.
6. Keep it clean. The ideal length of a business plan is twenty pages or less, and this includes the appendix. For every ten pages over twenty pages, you decrease the likelihood that the plan will be read, much less funded, by twenty-five percent. When it comes to business plans, less is more. The reality is that the purpose of a a business plan is to get to the next step: continued due diligence with activities such as checking personal and customer references. The tighter the thinking, the shorter the plan; the shorter the plan, the faster it will get read.
7. Provide a one-page financial projection plus key metrics. Do everyone a favor: Reduce your Excel hallucinations to one page and provide a forecast of the key metrics of your business--for example, the number of paying customers. These key metrics provide insight into your assumptions. 
8. Catalyze fantasy. Don't include citations of some consulting firm's supposed validation of your market. For example, “Jupiter Research says that the market for avocado-farming software like we make will be $10 billion by 2010.” What you want to do is catalyze fantasy: that is, enable the reader to make her own mental calculation that this market is big.
9. Write deliberate, act emergent. This means that when you write your plan, you act as if you know exactly what you're going to do. You are deliberate. You're probably wrong, but you take your best shot. However, writing deliberate doesn't mean that you adhere to the plan in the face of new information and new opportunities. As you execute the plan, you act emergent--that is, you are flexible and fast moving: changing as you learn more and more about the market.

"Wicked problem" is a phrase used in social planning to describe a problem that is difficult or impossible to solve because of incomplete, contradictory, and changing requirements that are often difficult to recognize. Moreover, because of complex interdependencies, the effort to solve one aspect of a wicked problem may reveal or create other problems.