Who Will Be The Web’s Henry Ford?

The business of Web site construction is ripe for revolution

Back in 1995 when the Web first took off, people began building Web sites for money and a new business was born. Now, almost 15 years later, the Web business is ready to change. I believe it will change in ways similar to how the car business changed in the early 1900s, 15 years after the first cars were built.

Web site construction: like the early car business

In 1903, 15 years after the first cars were manufactured, most were still custom-built, or built in small quantities. Skilled craftsmen and engineers like the Duesenberg brothers created beautiful, fast machines that were also expensive and often unreliable. Small-batch construction kept production costs high, and lack of standardization made parts difficult to test.

It was then that Henry Ford began developing a mass-production system for cars. His company used the latest machine tools instead of skilled craftsmen to create car parts, and the cars themselves were engineered for reliability, not high performance. Quality went up, the price came down, and cars became everyday transportation for millions of people.

The Web business is where the car business was before Henry Ford applied mass production to it. Most organizations’ Web sites are still built by skilled craftsmen, one at a time or in small templated quantities. Because they’re custom-built, these sites are usually very pretty. For the same reason, they’re expensive, with an average cost of $10-30K. Because Web developers are constantly creating new sites, their layouts often break down across different browsers.

Do professional-quality sites need to be custom-built? I don’t think so. I think the Web site construction business is ripe for its own manufacturing revolution.

Building “Duesenberg” sites

Duesenberg cars were the Ferraris of their day. Designed by world-class engineers and built by hand, they employed cutting-edge technology that led the world. These sleek and beautiful cars were driven by Hollywood stars like Rudolf Valentino. Despite all that, the Duesenberg Automobile & Motors Company couldn’t pay its bills and was bought by a larger company in 1926.

Why did the company fail? Because the Duesenberg brothers who started and ran it were, first and foremost, engineers. They built the cars they wanted, not what most people wanted. By concentrating on what was most important to them—high tech—they created timeless masterpieces in small batches that few people could afford.

Most Web site development shops build Duesenberg-type Web sites:

• These shops build mostly one-off custom sites, just like Duesenbergs were hand-built.
• Their production teams are usually led by graphic designers, so the sites they build tend to look great—just like Duesenbergs.

The sites built by most Web firms are also like Duesenbergs in that they’re expensive. Basically, a professional-quality Web site costs as much as a car. Most organizations with less than 25 people in them—the vast majority of Web site clients—can expect to spend at least $30,000 to get a Web site built with the latest technology. If it’s willing to settle for a solid, no-frills “used car”-type site, an organization can cut that to $10-20K.

For a typical local organization, such as a YMCA, $30K is a lot of money. But for a custom-designed site that price is a bargain, and in the design-oriented Web site construction business it goes without saying that a custom-designed site is something no organization should do without. Obviously most organizations agree, or they wouldn’t be paying the going rate to have custom-designed sites built for them, right?

Not necessarily. Every organization needs a good Web site, and right now, they don’t have much choice other than to pay to have one custom-built. I believe that a “Henry Ford of Web development” can provide another choice: high-quality, mass-produced sites that sell for much less than their custom-built counterparts. If this happens, the Web site construction market will expand to be much bigger than it is now.

Why build-it-yourself doesn’t work

The shift to high-quality, mass-produced Web sites has already occurred in blogging. If you want to distribute topical content in an editorial format, you can combine powerful off-the-shelf blogging software with a prefab visual “theme” to get a blog that looks like a million bucks for less than $1000.

But most organizations need more than a blog. They need Web sites with hierarchically-arranged content. Several startup companies see this, and they’re bringing mass-produced efficiency to the Web site business. Outfits like DevHub, Yola, and Wix enable organizations to build their own Web sites. SiteRiser enables them to easily create sites with a world-class look.

Will new-generation tools like these rule the Web site construction business? No. They make it easy to build a decent Web site and incorporate beautiful design, but they still require the people who use them to supply and organize their own content. Very few organizations have the in-house expertise to do that well.

What most organizations need is a high-quality turnkey Web site with a prefabricated structure that allows them to just “fill in the blanks” with their content. They need to be able to “paint by numbers.”

Halfway there

Years ago, some astute Web firms began to realize they could sell high quality Web sites with prefabricated structures tailored to specific markets. For example, CivicPlus provides Web sites tailored to the needs of local governments.

These firms, however, still custom-design their clients’ sites, which raises the cost. An organization that contracts with one of them may pay hefty fees: a $10-20K “installation fee” and $500-2500 dollars per month for hosting. What’s more, organizations that go this route may incur high “switching costs” if they decide to move their sites elsewhere, because these firms invariably use proprietary content management systems that make site content difficult to export.

This business model is halfway between that of Duesenberg and Ford. Like Ford did in the 1900s, it employs efficient standardized construction. But, like Duesenberg, it employs expensive custom fabrication and design.

A new model of Web site construction

I believe there is a big opportunity for people who are willing to build Web sites the way Henry Ford built cars:

• Build one standard site platform/structure for a specific market, then sell it many times. Henry Ford did this sort of thing in the car business with his Model T.
• Keep costs low by restricting design choices for that site. This worked for the Model T, about which Ford said, “You can have one in any color as long as it’s black.”
• Use an off-the-shelf content management system that anyone can work on, not proprietary high-performance software that requires experts to fix. The same sort of emphasis on reliability over performance made the Model T beloved by its owners.

For example, a sharp Web firm could build one basic turnkey site tailored to the needs of a specific kind of organization, such as the aforementioned YMCA. It could design several visual “skins” for the site. It could use an excellent open-source content management system such as WordPress to run it. Then it could sell this site to a thousand YMCAs nationwide, at a price each local Y could afford.

Refining the model

In addition to being the Henry Ford of the Web site construction business, there’s an opportunity to be its Alfred Sloan as well. Sloan was the CEO of General Motors who pioneered things like building different car models on the same platform and—most importantly for the growth of the car business—monthly payment arrangements. By introducing these innovations to the car business, he increased the number of people who could and did buy cars.

A sharp Web firm could enjoy Sloan-like success by introducing the same sorts of innovations to the Web business: building different versions of Web sites using the same basic structure, and introducing monthly payments.

For example, it could build one strong YMCA Web site then provide it in different versions: One version, for large central-city YMCAs that tend to have pool facilities, could include a mini-Facebook and an Aquatics section. Another version of the site, for small YMCAs and satellite branches without pools, could dispense with the social networking and aquatics.

What would really grow the Web site construction market, though, would be monthly payments. Right now, a typical organization must write a couple of $5-10K checks to get a custom site built, which means it must send out proposal requests and get approvals. Instead, why not sell organizations high-quality turnkey Web sites for around $200 per month? That YMCA, for instance, would appreciate being able to pay for a new Web site like it pays its electric bill, and might even spring for a $50/month support plan as well.

Who will be the first?

Who will be the first firm to employ this provide-turnkey-Web-sites-for-a-low-monthly-fee business model? I don’t think it will be a conventional Web shop. Their business is building custom sites, and this will lead most of them to dismiss the idea. I think the firm that exploits this new model and expands the market for Web site construction will be a newcomer to the Web business.

The shift from custom-built to turnkey Web sites will play out, I believe, in ways similar to what happened in the market for PC operating systems. The movie Pirates of Silicon Valley depicted this very well in the scene in which Apple’s Steve Jobs is confronted with the first version of Windows.

“Our stuff is better,” said Jobs’ character to the cinematic Bill Gates. “It doesn’t matter,” Gates replied.

Gates knew that artistry doesn’t guarantee success in the software business, and the same holds true for Web sites. If you can provide 90% of what a competitor does at 10% of the cost, you’ll prevail, and that’s exactly what this new model of Web site construction offers.

Working In Bizarro World

Why doing startups is the opposite of a conventional career

“Why can’t you just do a normal job?”

Chances are, if you’re an entrepreneur who starts companies for a living, you’ve heard something like this from family or friends. Because startups are very different from the organizations where most people work, most people have no idea what it is you do all day.

The quickest way to clue people into what startup work is like might be to tell them: “I work in Bizarro World, where everything is opposite.”

When they go, “Huh?” you can explain it to them this way:

Failure is good.

In most careers, failure is frowned upon. At best, it “builds character;” at worst, it means that the bridge you designed collapses, or your patient croaks on the operating table.

Among startup founders and the people who fund them, however, failure is accepted as part of the job. It’s the default setting, in fact: if a venture capitalist funds five companies and only one makes big money, he’s considered a success. In these circles, failure is actually prized as a way to learn important lessons well.

If you’ve founded more than one startup (a startup being defined as a company creating or exploiting new kinds of markets, not a pizza parlor or dry cleaners), you take it as a given that:

1. You’ll fail.
   Starting new companies is a job in which most successful practicioners have failed more than once. Jeff Osborn, who hit it big with his fifth company and went on to make $100 million, tanked four companies and went bankrupt before getting it right.
2. Even after you succeed, you’ll fail.
   Of the entrepreneurs that succeed, quite a few will fail when they try it again. Bill Melton, who launched Verifone (a $500 million company whose machines retailers use to swipe credit cards), saw his next company, Cybercash, go belly-up.
3. Failure is good.
   When Steve Blank tanked a company and lost $10 million in investment, his investors told him, “You made mistakes, but you learned from them. You failed, but you failed good. Here’s more money for your next company.” His next company, e.Piphany, sold for $100 million.

Perseverance is bad.

In the normal world of work, you keep taking the bar exam until you pass. You stick out that apprenticeship until you’re licensed. Motivational speakers exhort you to “never give up.”

In the bizarro world of startup business, you persevere at your peril. After a year or so, you have to answer a tough question: “Will this company I poured my heart and soul into go anywhere, or will it become a Zombie Company, kept barely alive through tremendous effort while eating the brains of the living?”

Experienced startup folks say that “the best entrepreneurs know how to fail fast.” If your baby doesn’t show you something special in its first year or so, the smart move is usually to drop it like a bad habit.

Dysfunction is an advantage.

In a fascinating essay about the personal qualities of startup founders, a venture capitalist is quoted as saying, “Almost all my CEO’s came from very tough childhoods. It was one of the characteristics I specifically looked for. It’s why all of you operated so well in the unpredictable environment that all startups face.”

Learning disabilities seem to be common among startup founders as well. I can’t tell you how many entrepreneurs I’ve met who have dyslexia or were diagnosed with something like “attention defecit disorder” in school.

Grad school is worthless.

In most professions, graduate school is prized: the more you have, the more you’re worth. In an increasing number of professions, such as counseling, it’s a prerequisite. In big consulting firms, an MBA is a given.

In startup circles, the conventional wisdom is that an MBA is pretty much worthless. Entrepreneurs with lots of formal education in other disciplines tend not to value them. Students at prestigious schools such as Wharton and Harvard say that an MBA doesn’t help entrepreneurs much, and even some b-school professors agree with them.

At the same time, startup-minded people are flocking to entrepreneurial educational programs run by marketing mavens, incubators, and even publishers that bear little resemblance to any MBA curriculum.

You’re an outsider.

If you’re thinking about founding a startup company, you’re probably white, well-educated, and come from a middle-class background. You may have grown up in a dysfunctional family, but you most likely never felt like the cards were stacked against you, or that you were a second-class citizen.

When you embark upon a career in startups, that can change. Unless you’re ensconced in an area like Palo Alto, CA where startups are common, or enrolled in an incubator program with lots of other startup folks around, you may be in for a novel experience: being an outsider.

Startup work can be tremendously exciting, but it’s also a demanding, grinding proposition. Few people will understand why you put yourself through it. I remember talking to a gay friend of mine about how I don’t have a whole lot of choice about whether to pursue entrepreneurship. It’s who I am, it’s what I do, I explained. It’s not something I chose (”Should I work at Goldman Sachs, or create a new company?”), it’s something I gravitated towards. Then I began singing the blues about how few of my friends and family really understood that. “Welcome to my world!” he told me.

As an entrepreneur, you may also be an outsider in the “normal” business community. I realized this during the first Internet boom, when I pitched my company to prospective investors at the Richmond Venture Forum in Richmond, VA. The Forum wasn’t so much about venture investment as about providing the city’s bankers and lawyers with an opportunity to get out of the office and venture beyond their private clubs for lunch. I watched a Chinese engineer with some interesting technology try unsuccessfully to get the attention of these folks as the sound of clinking silverware drowned out his presentation. When it was my turn to present, I got the same treatment as few in the audience bothered to look up from their lunches. I saw then that they’d never do business with me because I wasn’t “in the club.”

Mapping the bizarro world

Do you work in the world of startups, and have points to make/stories to tell about how it’s the opposite of the conventional world of work? If so, please feel free to put ‘em in the comments below.

Cultivating Prosperity

How growing local companies builds a strong local economy

It seems like most cities think economic development means persuading big companies to relocate/open offices in their area. But to spark economic growth, growing local companies works much better. With some smart “economic gardening,” a city can create secure, lasting prosperity for its citizens.

Here’s why growing local companies is a great way for a city to pursue economic development:

It creates more jobs.

When a city “wins” in its effort to bring in a large company, what is it winning? Often a company that can’t produce many new jobs because its market is mature. Richmond, VA, for example, may have benefited when Philip Morris moved its corporate headquarters there, but how many new jobs will that create? The company’s core business—tobacco—is declining, and a big chunk of its revenue now comes from selling off parts of itself and buying companies that do business elsewhere.

Local startups create jobs much faster than established companies. Most startups fail, but the ones that survive add jobs at a rapid rate. Hardwire, a company founded in 2002 in little Pocomoke, MD, now has 40 employees and revenue of almost $30 million. One of its products is super-strong steel fabric used to reinforce bridges; as the U.S. conducts long-overdue infrastructure maintenance, Hardwire’s market will continue to grow, and Pocomoke’s job base will grow right along with it.

It creates more wealth.

The people who own and run large, national companies such as Wal-Mart and Wells Fargo are far removed from their regional stores and offices. The profit generated by these local facilities is sent to them, and the local community retains very little of it, if it gets any at all.

The larger a national company grows, the worse this problem can get. Its super-wealthy owners associate only with other super-wealthy people, and begin to hoard wealth in an attempt to surpass their neighbors, “keeping up with the Joneses” on a grand scale. They take vast amounts of money out of their companies, while paying local workers a pittance. To boost the value of their holdings, the people who lead large national companies sometimes even prey upon local communities.

By contrast, firms with local roots tend to pay their workers well, respect their customers, and put much of the wealth they generate back into the community. A good example is Ausherman Development Corporation in Frederick County, MD. A family business that has done very well, it now sponsors the Ausherman Family Foundation. It’s currently building a community center to help people in one of Frederick’s poorest neighborhoods join the middle class.

This sort of community investment is important to building a strong local economy, because it strengthens local markets. More middle-class people in a community means more people with money to spend, which in turn means more and better customers for local businesses. That’s why Massachusetts, with its relatively large middle class, has a much stronger economy than highly-stratified Mississippi.

Firms with local roots also tend to stay put. Adolphus Busch started a small brewery in St. Louis in 1864, and the company he founded—Anheuser Busch—is still headquartered that city today. Intel was founded in Silicon Valley in 1968, it grew to do $38 billion per year in global business, and it’s still there. Even after these sorts of companies “go public” and become beholden to shareholders all over the world, their communities still benefit. The Washington DC-based startup incubator Launchbox is staffed and funded in large part by cashed-out employees of DC-area firm America Online.

It can play to its strengths.

Helping local companies grow is a very different proposition from bringing in big established firms. To do it, a city must rely upon its own resources, and to do it well a city must use them efficiently. This requires answering the questions, “What are our particular strengths? What do we have that other cities don’t?”

For example, let’s look at Frederick, MD again. If I were involved in economic development there, I would encourage “green” industry, but if a local entrepreneur wanted support to build wind turbines I’d politely decline. The natural place to do that is in places like Detroit that already have heavy industry expertise and infrastructure in place. If a local entrepreneur wanted help building the next Google, I’d be similarly skeptical: the city lacks a top-notch research university of the kind that typically spawns leaps in computer technology.

Frederick’s traditional strengths are in agriculture and building trades. German immigrants brought advanced agricultural techniques to the area in the 1780s, and its farms are still cutting-edge: one employs robotic milking machines. Frederick’s school system includes an excellent vocational education program that turns out skilled young tradesmen ready for apprenticeship. More recently, because the National Cancer Research center is located right in town and Frederick is close to the National Institutes of Health in Bethesda, the city has developed a strong biotech sector. Why not play to these strengths and encourage “green” industry in promising fields such as organic farming and home energy production?

Could a local biotech firm work with local farms to develop and test a new generation of organic insecticides? Could the city get a satellite campus of the University of Maryland, which has strong engineering programs, and team up engineers with tradesmen to develop home solar heating/cooling systems that are cheap, effective, and easy to install? These are ideas worth exploring. By leveraging its native advantages, Frederick might be able to create its own nation/world-leading companies instead of merely providing labor for others’.

It becomes more dynamic.

Many cities consider big office parks to be the epitome of economic development. But regular office and retail space, such as that in downtown buildings, works fine for local firms. Only big national companies need and want to occupy big office parks and big-box warehouse retail stores, with their accompanying huge parking lots. If a city uses its land to build them, it creates sprawl, which kills economic vitality.

Business is like material in a nuclear reactor: if you spread it out, activity slows, and things cool down. But when a city concentrates its businesses in a confined area, things heat up: the amount and variety of economic activity increases. For example, Boston, MA and Charlotte, NC are similar-sized cities, with populations of around 5-600,000 people. But Boston, with its densely-packed urban core, is one of the richest cities in the world. Charlotte, a sprawling city of a few skyscrapers surrounded by vast expanses of suburbs, is not.

Concentrating business makes cities more dynamic because:

1. It helps people with similar interests get together and talk.
   Frederick, with its dense downtown, provides an attractive place for biotech scientists to meet at informal gatherings like BioBeers. These sorts of events, like Hewlett-Packard’s Friday beer busts, play a big role in the formation of new companies.
2. It helps local merchants.
   The more businesses within a given area, the more local retailers and restaurants can exist to serve them, and the more people who can earn a good living in these establishments. There’s a reason why there are lots of bustling delis in downtown Manhattan, while suburban office parks spawn only a few isolated lunch counters.
3. It attracts productive people.
   A good example is Markos Moulitsas, founder of new media powerhouse Daily Kos, who turned down a lucrative but conventional legal career in order to work on the Internet. After his Web site took off, he searched all over the country for a place to settle his growing business and family. He picked walkable-mixed use San Francisco. Why? Because the sort of people who start, run, and staff growing companies typically want to live in the sort of “new urbanist” communities that concentrating business makes possible.

Growing local companies is a great way to build a strong local economy, but how does a city go about growing them? I’ll write about that in an upcoming essay.