We’ve all heard about Instagram's sale to Facebook: 13 employees. 18 months of work. No revenues. One billion dollars.
I suspect that there are thousands and thousands of would-be entrepreneurs plotting how they can build the next billion-dollar exit with no revenue, a few folks, and only 18 months. I know they’re out there -- I’ve already heard from several.
With that in mind, I thought I would use today's column to offer my counsel to those would-be entrepreneurs who want to be the next Instagram. In full disclosure, I want you to know that I really know very little about the consumer Web services business – but many of the folks who are certain that they can replicate an Instagram-like business don’t, either.
I am a three-time digital tech entrepreneur whose companies have all been business-to-business technology and service providers, primarily supporting the advertising industry. But, like the actor who plays a doctor on TV, that won't stop me from offering my advice on consumer Web services. Of course, I've been backed twice by Brad Burnham and Fred Wilson of Union Square Ventures, the first-round funders of consumer services like Zynga, Twitter, delicious, FourSquare and Tumblr, so I will use that pedigree to justify my advice.
Here are four easy steps to your Instagram exit:
1. Create a really cool consumer Web service that is so much fun, everyone who uses it wants to use it more and more -- and wants to share it with all their friends.
2. Capture hundreds of thousands of users in a few months with only a few hundred thousand dollars, and no money spent on marketing.
3. Create network-effect scale, driving regular, passionate usage among 30 million people on a single mobile platform (the second largest) in one year with only $7 million.
4. Port your product for deployment by the largest mobile platform and raise enough money ($50 million) to become the Web’s leading photo service. This could ultimately threaten the core business of the world’s leading photo-sharing and viewing site, which is preparing to go public at a valuation purported to be between $80 billion to $100 billion.
Think that’s hard advice to follow? It is. Instagram is a very special company, probably one in a hundred thousand or million. It is valuable not because it has spent so much money, but because it has built such a large and passionate user base that is going to get a lot bigger very fast.
For would-be entrepreneurs trying to find an easy way to riches, I would like to borrow something from my father. He used to tell me that he knew of a foolproof exercise system to get into world-class shape in only four minutes a day: run a mile in that time.
The lesson from Instagram is that it’s all about the product. If you can create something that 30 million people can become passionate users of in a year and a half, it doesn’t matter how much -- or how little -- you spent to get there. It could be worth billions.
What do you think?