By: Nathan McCall,
Bennett Reeber, and Victoria Liew
In today’s economy with
more and more startup businesses constantly trading ownership, it has become
more important for startup teams to understand what it takes to make a business
appealing to potential buyers and venture capitalists. We can see this trend
with high profile websites such as Tumblr and Instagram, both of which have
been purchased for over $1 billion each within the past 2 years.
A few of the factors necessary to building an
attractive brand include knowledge of your customer, a unique model, passionate
development, and exposure. According to Jayson DeMers: “Finding the right
branding approach requires first understanding the target market.” [1] In the
case of Instagram, the developers knew their target audience very well. They
were able to identify that the majority of their users were mobile phone users
so they built an interface that catered to those needs. Also according to
DeMers: “Creating an identity within a niche doesn’t demand a revolutionary
idea. It simply needs to have one special thing that separates it from the
competition” and “[a] successful brand is the ability to reach consumers
through multiple channels.” [1] This especially stands out with Instagram
because the product they are providing doesn’t do anything revolutionary, but
by allowing people to easily share photos and apply stylistic filters, they are
providing the same features in a new way. Couple this with the fact that by the
time of its sale the site had over 30 million unique users and one can see why
a company such as Facebook might value this company as high as they did.
One startup company which knew what it took to
strike it rich was Tumblr. Recently acquired by Yahoo, Tumblr created an
attractive interface which allowed users to express themselves through the
process of “blogging.” Tumblr, created by David Karp, is currently worth over
$800 million. With this startup company, Karp knew who his target audience was,
and what he wanted to promote. He drew up a catchy design and outlook which
would be aesthetically pleasing to bloggers, while allowing them the freedom to
design their blog in whatever way they felt reflected themselves the most. In
Tumblr’s case, the fact that each user’s blog reflected who they were as
individuals created the uniqueness and no blog was identical to another. This
proved valuable to Yahoo! who acquired Tumblr this past summer for $1.1
billion. Interestingly enough, in an interview with David Karp, he stated that
he wasn’t “expecting to sell the company this year, but a really remarkable
opportunity presented itself”.[3] “When companies aren’t purchased solely for
their engineering talent, a couple of equations come in to play “possible
calculations were used to determine a valuation. The first requires exploring
how much time and effort it would take to build the product from scratch and
attract new users. The second is potential cash flow.” [2] With Tumblr, the
site itself doesn’t generate a ton of revenue, however the value for Yahoo!
lies in Tumblr’s roughly 140 million unique blog channels and over 85 million
posts created each day. Through the acquisition of Tumblr, Yahoo! is providing
itself with millions of additional users, which is necessary at a time when
products such as Yahoo! Groups are losing market share to alternatives such as
Reddit, Facebook, and Tumblr itself.
Above are just a couple of examples of the
dynamic economics that surround startups and web-based businesses today. The
development teams and executives behind both Instagram and Tumblr managed to be
highly profitable and were able to develop a brand that became highly desirable
and successful.
In conclusion, with
expanding online and mobile markets, it is easier than ever to create something
small online that could turn into a multimillion dollar company. With
precision marketing and advertising, a large target audience receptive to what
you are offering, and the desire to succeed, you too could create the next
Twitter.
[1] See “The Top 7 Characteristics Of Successful Brands” by Jayson
DeMers, http://www.forbes.com/sites/jaysondemers/2013/11/12/the-top-7-characteristics-of-successful-brands/
[2] See “Disruptions: The Logic (or Lack of It) in Appraising
Start-Ups” by Nick Bilton, http://bits.blogs.nytimes.com/2013/04/07/how-deal-makers-put-a-value-on-start-ups-disruptions/
[3] See “David Karp: Why I Sold Tumblr” by Issie Lapowsky
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