The Dreaded Business Model Question and Why Now May Be the Time to Ask It

By Erin Griffith , written on August 22, 2012

From The News Desk

Anyone who's been to a New York Tech Meetup knows two things: One, the 700-some person venue sells out within minutes. And two, you must never, ever ask a demo-er about their business model.

Programming at the popular events (livestreamed to several annex audiences across the city) consist of a group of live demos--no videos--from New York startups followed by a brief Q & A. Any audience member who drops the B-word gets booed.

Whenever this happens, NYTM's managing director Jessica Lawrence explains to the audience why business model questions are banned. There are a couple of reasons. For one, NYTM is about showing off technology. If companies are expected to show up ready to answer questions about how they'll monetize, it muddies the purpose of the event. Many cool and world-changing technologies don't have neatly sewn up business models from the offset--even Google didn't start out knowing it would make search ads into a $17 billion business.

The second reason is that many startups monetize in similar ways, so the answers to the business model question are repetitive and uninteresting. There's the affiliate links model. Or the ads model. Or the more recent native ads model. Or the white label model. Or the SaaS licensing model. Far less world-changing than the technology itself.

You could argue that "innovation first, business model second" is a very Silicon Valley way of thinking. It's like the progressive parents who say strict rules stifle their children's creativity. And whether its a stereotype or true, I hear over and over that New York techies are more business-minded than Valley startups. Part of that could be because founders here are often fleeing legacy businesses like advertising, finance, media or fashion to disrupt those businesses. So, when New York's tech scene was a bit younger and smaller, I can see why the focus on innovation over business model was so important.

However, things are starting to change, Lawrence tells me. The question came up last night at a women-focused demo night co-hosted by NYTM and Rachel Sklar's Change the Ratio at the Facebook offices. Lawrence allowed it, saying that NYTM is starting to reconsider its stance.

In light of the business model criticisms that have emerged from last year's Web darlings like Groupon, Zynga and Facebook, I think it's a relevant time to revisit the idea. If business models for innovative tech companies are all the same boring thing (a same boring thing which doesn't seem to be terribly revolutionary, sustainable or interesting to public market investors), then we should be innovating more on that side, too.

Part of the reason Lawrence has shifted her thinking on the question is because she's heard from new entrants to New York's startup scene that say they don't know which business models even exist. If you read only the tech press, you'd think raising venture money and amassing users automatically equals success. The struggle to back an innovative product into a real money-making business is far less fun to talk about, but it's still an important conversation.

Rather than change tradition at the long-running NYTM event, the group may start organizing separate business model-focused meetups. I suggested an intermission segment like a "What's your business model?" demo from a larger tech company that's beginning to monetize. As New York's tech scene begins to mature, the pressure is on for our tentpole consumer-facing startups like Foursquare or Tumblr to turn a profit. Talking about it never hurts.

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