The Chicken And Egg Startup
The Chicken and Egg Startup
The issue with a chicken and egg startup is the chicken and the egg. Defined as a startup where instead of a direct path to revenue, the chicken & egger is a multi-step process in the generation of revenue. It is these multiple steps that add an order of magnitude of risk to the proposition of a startup.
For example, a startup that depends on advertising revenue has two steps towards revenue generation. First, the company must create something of value that attracts users, and second, if successful at attracting users, those users must be in sufficient numbers and of the right demographic to attract and generate revenue from advertisers.
Let’s look at two different business models: An enterprise play and a consumer chicken and egg startup play.
Direct Enterprise Example A
Build a product and then attract customers to use that product. Assuming a strong product has a 20% chance of attracting and generating significant revenue to grow and be profitable.
Enterprise Example A = 20% or 1 in 5
Chicken and Egg Startup Consumer Example B
Step 1: Build a product and then attract consumers to use the product or read the content. Let’s assume the same odds of achieving sufficient users as Example A: 20% or 1 in 5.
Step 2: Let’s assume a 20% chance or 1 in 5 of garnering enough users of the right type to attract enough advertisers to generate significant revenue to grow and be profitable
The math: Step 1 20% multiplied by Step 2 20% equals a 4% chance of success or 1 in 25.
I’m not saying that you can’t be the next chicken and egg startup Facebook success. It’s possible. For instance, a company like TouchdownSpace has reduced the first level of risk. The company rents on-demand shared office or conference room space. They need rental inventory and users. In the case of TouchDown space, they have contracts with major space providers that gives them access to thousands of offices in over 25 cities in the US. They’ve reduced their chicken risk to zero.
Their go to market risk is down to one egg step of attracting users in sufficient numbers to build a great company. In this case, the go-to-market risk is equivalent to a simple enterprise model.
…and then they succumbed to founder disputes and execution issues. They are no more.