Net Profit: How to succeed in digital business
David Soskin is chairman of two British internet businesses as well as an investor in digital media companies here and abroad and says that his book is 'primarily for entrepreneurs either running internet businesses or considering so doing'. As someone who has been in both of these areas, I was looking forward to learning some of the 'secrets' promised on the back cover.
Soskin sets out to write a book which will give you all the do's and don'ts of building an internet business. He explains how he got into the digital world and then covers what he considers the key themes of starting such a business. At the end of each chapter, there is a good summary of key points, thus saving the time-pressed reader from needing to read the whole book.
The subject is introduced with a history of the web and some early online businesses, notably Amazon, Yahoo! and eBay. There is an explanation of the failure of some of the early companies, such as Webvan and Value America, as either badly run or coming to market with ideas that were before their time. It's interesting to read about Webvan when Ocado has just gone to the market. Soskin concludes that, as in the old economy, adaptation has been the key to success for the companies which have existed since the early days of internet commercialisation.
In my view, the series of chapters on the core requirements for business success would read the same for online or offline businesses. The first of these looks at customers. Soskin suggests the internet offers highly qualified lead generation and we are given great detail on the different markets for which one can find flight prices using Cheapflights. It is an example of the wealth of information that can quickly be found and organised online, but it doesn't help readers to build a digital business.
Soskin does recognise that, for some bricks and mortar businesses, the internet is just another distribution channel. He explains many of the business models for winning customers online - e-tailing (using the internet to create differentiators and access global reach), subscriptions, 'freemium', selling data and selling advertising - and extols the virtues of customer loyalty.
The importance of product comes next and the reader is told that a radical value proposition is needed to be successful online. These 'market-driving' companies don't need to spend advertising money offline, it's argued, as word of mouth will make them successful. This is, in reality, extremely rare - most successful companies have to advertise. Many of the people to whom I have spoken while writing this review haven't heard of Cheapflights - so perhaps advertising money does have some value? Most websites, even with radical value propositions, had to advertise offline to get people to the internet for a particular task, although now this may be possible with online advertising alone. Expedia's $100m spend probably explains much of the difference between it and the thousands of unknown travel websites.
Friends Reunited wasn't a sustainable idea. Once you've reunited with lost friends, why would you go back? Google and Facebook are successes, while AltaVista et al are failures, but if longevity is part of success, we have yet to see.
People are the next key requirement and the reader is told: 'There are no rules.' The Harvard professor's quote, 'hire not for where you are now but for where you want to be', sounds like a good rule. The same is true for not recruiting people exclusively with experience in large businesses and motivating young talent with stock options.
More good rules appear to follow: Think about the location of the business. Outsourcing is common early on. Get good advisers and negotiate on fees.
Cash, and funding, is the next subject. Avoiding overspending and managing cash flow are essential. Think about exiting and plan ahead, as well as considering carefully the choice of investors. Following budgets and only giving equity where necessary are good rules.
Marketing and promotion are the areas where the reader may expect internet secrets. The range of marketing methods is covered: viral, PR, SEO, pay per click, affiliates, understanding social networks, direct emails that avoid spamming and word-of-mouth. I was disappointed to be told that, used well, these could increase site traffic and make money!
Finally, Soskin talks about the potential of the internet and concludes that 'while digital businesses have unleashed the need for a whole new set of skills ... basic business ones remain essential'. I don't see the new set of required skills.
Soskin promises to reveal the secrets, but what is new or different? There are no special features of internet success, just the ordinary business rules. The secret is that there is no secret.
- Sara Murray is the founder and MD of GPS tracking company Buddi