November 12th, 2008
If you enjoy this article, see the other most popular articles
If you enjoy this article, see the other most popular articles
If you enjoy this article, see the other most popular articles
(written by lawrence krubner, however indented passages are often quotes). You can contact lawrence at: email@example.com, or follow me on Twitter.
You can set up a website for free. And Google has spent over $10 billion on its website. So it is safe to say that most websites cost between $0 and $10 billion. How much will your site cost? There is no way to be certain ahead of time, but we can offer some advice.
All websites fall into two categories:
1.) they offer content
2.) they offer a service
Examples: A blog about computers offers content. A site that lets you put dates into a calendar is offering a service. Many of Google’s websites offer a service: email at Gmail and spreadsheets at Google Docs. If you have an already existing company and you’d like to put up a few pages describing (or selling) your products/services, then you are envisioning a content site. If you’d like to do a magazine style site, then you are still considering a content site.
Different kinds of projects have different price ranges. We can only offer very rough guidelines as to the kinds of prices we’ve seen for previous projects. Talk to us about the specifics of the project you are thinking of and we could probably offer you a better idea of how much you need to be prepared to spend.
1.) A personal or company blog, set up using a free service: $0 (or whatever value you place on one hour of effort). But to keep this going and acquire traffic will probably cost thousands of dollars, at least in terms of your time.
2.) A small company site that has 5 to 10 pages describing the products/services offered by the company. $500 to $2,000 depending on how prepared you are, and also on how clear in your own head you are about what you want. Disorganization and changing your mind are both expensive.
3.) A company site describing the products/services offered by the company, and operated by software that allows the staff at the company to continually update the content on the site: $2,000 to $20,000.
4.) A company site that both describes products/services and also offers some kind of software service. For instance, a real estate firm might allow users to look up listings based on zip code or a manufacturer of skateboards might allow users to design their own skateboard, mixing and matching those variables that can be customized. $10,000 to $40,000 depending on the complexity of the software to be developed.†
5.) An online store that sells digital downloads of songs or videos: $25,000 to $100,000 depending on the variety of prices/royalties you want to support with your suppliers and how much marketing you want to do. If you want original technology for handling the songs or videos, you might easily burn through another $50,000 on computer programming.
6.) A company wiki so the staff can document a particular kind of information – perhaps support information for your customers, or technical info for use by your sales people, or a human resources directory aimed at answering common staff questions. This should be on the low end of $2,000 to $30,000. The biggest variable is whether you need some special, custom feature. If you can use unmodified, off-the-shelf software, you can keep things quite inexpensive. But as soon as you get into custom programming, the cost will sky-rocket.
7.) An online magazine/blog meant to dominate a particular niche: $25,000 to $100,000. For instance, you might want to cover fishing in
8.) An information resource that, to succeed, must be the best: $500,000 to $5,000,000. One fellow came to us and said “I have $20,000. I’d like to build
10.) A completely original idea for a software service that no one has ever thought of: price unknown. There is a rule in software design that the more original the idea, the harder it will be to accurately estimate the cost of the project. Robert L. Glass has written several books on why this is so. Check out his book “Software Runaways: Monumental Software Disasters“.
†Below are some guidelines about factors that will effect the cost of your website.
How does a site acquire traffic?
If you are considering a content site, then the site’s most
Rule #1: a content site, to be successful, needs new material everyday.
Rule #2: do not underestimate how utterly demanding it is to provide new material daily.
Rule #3: if you do not yet have the amount of traffic that you want, re-read rules 1 and 2.
Rule #4: if you find yourself wanting to ask something like “Does the word ‘daily’ include the weekends?” then re-read rule 3.
Rule #5: providing text-based content is cheaper than providing video, therefore, even if you are focused on video, your site will need at least one writer to provide high-quality, professional content that can act as filler between the videos. Or you need a big budget.
Rule #6: flows of traffic on the web have become increasingly rigid and hard to change, therefore more effort (and expense) is needed to acquire an audience.
Rule #7: it is extremely difficult to transfer an offline audience to an online destination. Even authors like Lee Stringer, who’ve spent months on the New York Times best-sellers list, attract little attention when they blog online.
Rule #8: when you hire a writer who has an already existing online audience, you usually capture a substantial portion of their readership.
Rule #9: the previous two rules imply that hiring an online writer who already has traffic is a better way to capture traffic than hiring an offline writer, even if they are a star. Sites focused on sales will generally want to aggregate news relevant to whatever is being sold.
What drives software development costs?
If you are considering a software site, be aware of what drives the costs of software development.
Rule #1: the more customization you need, the more expensive things become
†Rule #2: the bigger the project, the more customization you’ll need
†Rule #3: when programmers invent things from scratch, the number of bugs increase, and the amount of time that will have to be spent beta-testing
Rule #4: if you want original technology, then your programmers will need to invent things from scratch
Rule #5: to control risk, all programmers must live by the “Hit By A Bus” rule, which is, if they are hit by a bus and killed, with a project only half-done, another programmer should be able to easily take their place
Rule #6: the more original the technology, the harder it will be for other programmers to understand the code (creating possible violations of the “Hit By A Bus” rule)
Rule #7: cost, risk, complexity and understandability (of the code) can be controlled by the use of a software “framework”. Some of the popular frameworks for web development include Ruby On Rails and Symfony (written in PHP)
There are two main approaches to marketing a site:
1.) The Big Bang (hire a PR agency, buy lots of ads, make a big splash)
2.) Slow and Steady (produce quality material/service, rely on word of mouth)
Slow and Steady is always more cost effective than the Big Bang approach, so the Big Bang approach† should not be pursued unless you have money to burn and you are in a great hurry.
The success of your website will depend on two things:
In some ways the web is a revolutionary new medium with new potentials and new dynamics, but in many other ways running a website is exactly like running any other kind of business. You must have clarity about what you hope to achieve, and then you must have the discipline to stick to your plan. You should be able to describe the goal of your website in one sentence (and if you can’t, then how will your visitors ever understand what the site is for?). If you are unable to sum up your goals when you are speaking with us, there is a good possibility that you haven’t yet achieved clarity (but we would love to talk to you about your idea – we may be able to help you achieve the clarity you’ll need).
An entrepreneur is in trouble if their description of their idea for a new startup comes out as a confused run-on sentence, such as this: “We’re going to be an agency that puts ads into videos and we’re also going to be funding new video artists with our ad money, because we believe in the possibilities of nurturing these new talents, and we’re going to be an aggregator that accumulates the best new talent in video and our software will offer unique technology to advertisers, such as the ability to keep track of exactly how long each viewer watches each ad.” And yes, this is similar to something that was actually said to us. There are at least 4 different business ideas in that sentence, which is at least 3 too many. (If you have an existing business with many divisions, it is fine to have a site that reflects the diversity of those divisions, but a startup needs to be more focused.)
Clarity controls costs. If you are unsure of what you want to do, you will probably change your mind half way through the project, and that will lead to additional expense.
Imagine you hire a carpenter to build a deck on the back of your house. You tell the carpenter that you want the deck to be 10 by 20 feet, and to be built of oak. The carpenter goes out and buys the needed wood. Now you change your mind, and you tell the carpenter that you want the deck to be 8 feet by 18 feed, and to be built of mahogany. The carpenter has to charge you for all the oak that they bought. Changing your mind is expensive!
When it comes to home renovations, people have an easy time understanding why changes drive up costs. However, for some reason, when it comes to the web, people lack this understanding. It is true that the web is a fluid medium, but still, once work commences, the time invested needs to be paid for. If you hire a web design firm and tell them “I want a simple site that lists the services my company offers” then they will start to build one kind of website. If you change your mind and say “I really need a site where everyone in my company can document their work, so I can track what they are getting done” that is a completely different site and needs completely different code. The work on the first site would be thrown out (but you would need to pay for it) and work would begin on your second idea.
Assumptions to Avoid
Many of our clients have started web projects with (sometimes unconscious) assumptions that, in the end, caused them unnecessary anguish and expense. These are the twelve most common mistaken assumptions that we’ve seen:
1.) I (the client) should be all things to all people.
2.) Feature fetish: “The more features I add, the more popular my site will be.”
3.) If I build it they will come (also know as, “If I have a clever idea, I won’t need a marketing budget, because the site will get mentioned on TechCrunch/Oprah/popular blogs/the local newspaper”).
4.) If one person offers a single piece of off-hand, poorly thought-out, casual feedback, we will immediately re-design the entire site to comply with their feedback. And then tomorrow, when someone else offers some casual, poorly thought-out feedback, we will do the same. And then the next dayÖ
5.) The idea for my site is unique, therefore completing it quickly is urgent. If we are not the very first site that uses this idea, then we will fail. My idea is so good that others will soon imitate it.
6.) Things that move or blink grab my attention, therefore if everything on the page moves or blinks, we will have a truly attention getting site.
7.) Text is boring.
8.) The more unusual and unique the interface, the more interested people will be.
9.) Websites are fluid so any problems that arise can probably be fixed in a day or two.
10.) If my site starts off with a narrow focus, then its prospects for growth will be limited. People will pigeon-hole it and I won’t be able to add new content subjects later.
11.) I can spend my money at an unsustainable rate because 6 months from now my site will be bringing in a huge profit.
12.) I have no experience on the web, but I have uniquely creative ideas, which I think will be enough for me to build a successful online business.
Disorganization will cost you. If you hire a web design firm to build a site for your company, then they will need certain things from you, such as the company logo, and a description of what you are selling. If you are weeks late delivering these things, you inflict delays on the web design firm. Often, the contract you sign will specify some kind of penalty for the delays you cause. A common penalty is to have your project moved to the bottom of their priority list – which could delay your web site several months (this is how client lateness was handled when we worked at Category4). While there is some text and images that the web design firm can provide on their own, there is usually some core material that only you can provide – a description of what you sell being a good example. Have your images and text ready.
A gold rush mentality has come to shape expectations of the web. Many people now have the mistaken idea that if they can simply come up with an idea creatively unique enough, they can attain great wealth on the web.
Organizations, like people, can suffer pathologies, and the one we’ve seen most with web ventures is what we call “the endless brainstorm”. While it is fun to engage in a brainstorming session, and while this can be a vital tactic to maintain the innovativeness of an existing business, constantly seeking a new idea can be a waste of resources for a venture that has not yet launched.
We once watched, with a certain degree of horror, as almost $1 million dollars were spent on what turned out to be a year long brainstorming session. Many good ideas were hatched during that year, and each idea was pursued for a few weeks, then abandoned once the first difficulties were encountered. The entrepreneur in this case wanted to find an idea so unique that he would face no competition in the field – but this is not the way the business world works. Generally, any good idea will attract multiple efforts, so competition is to be expected no matter what the basic idea is.
We have a friend who worked at AOL during the early days, and who has since worked with several startups, both successful ones and failures. One of the many good pieces of advice he gave us was: “In a startup, ideas are a dime a dozen. Anyone working at a startup will have 2 or 3 great business ideas a week. The greatness of the idea doesn’t matter. All that matters is execution.”
One of the most common confusions that arises from brainstorming is the desire to build a site that offers both unique technology and unique content. In our opinion, a small firm (less than 25 employees) can either create great content or it can create great software, but never both.
For the last 3 or 4 years we’ve had clients come to us and talk about building up sites using content contributed by users. This can be a great strategy, but you will find it tough to elicit the kind of participation you seek, so if you are targeting a narrow niche, be aware how the population dynamics will work against you. Not long ago a potential client came to us and said “I’d like to build a video site focused on my hometown of
In the whole extended region (
and the surrounding 7 counties), there is only about 500,000 people. Charlottesville
Since your project is focused on video, only those people with broad band connections to the Internet will be able to view your site. And only about half the population has broad-band access to the Internet.
It is reasonable to assume that very small children and many senior citizens will be unable to use your site. Therefore, at most, your target audience will consist of 200,000 people.
If you have some really amazing marketing, maybe 10% of the target population will come check out your site during the first six months.
Assume you’ll have a 50% bounce rate, meaning half the folks who visit you may never visit you again. That is standard. That takes us down to 10,000 people.
Do you want users to contribute material? That is a high level of interaction, and most sites only get that kind of response from about 1% of their audience. That takes you down to 100 people. Can you engineer your business model to work with 100 active users?
No one can accurately predict where the stock market will be in 2 years (otherwise they’d already be a trillionaire). For almost the same reason, no entrepreneur can fully know where their startup will be in 2 years: there are simply too many variables. It is important that innovators be humble about the limits of their knowledge. A fantastic insight in one area can carry you a long way, but it will have to adapt to the millions of small facts that will arise, almost daily, and shape the history of your insight as it passes from concept to reality. If you launch a startup, the odds are against you from the start, and you’re only hope of success is to remain open minded about what might work.
If your startup eventually succeeds, it will likely be for reasons you did not initially predict. You must proceed with the attitude of a scientist conducting an experiment, and when you get back the results, you must not argue with them, but rather, you must adjust your mental model of the world. When Sir Alexander Fleming saw that mold on some bread crumbs was keeping bacteria from growing in a petri dish, he said “Astounding! That mold must be producing some substance that kills bacteria! Perhaps that same substance can be used to kill bacteria in humans?” How many of us would be dead right now if he had rejected the evidence, and said simply “That’s impossible! Mold can’t hurt bacteria! Everyone knows that!” Over the previous 60 years, two other researchers had already noted the lack of bacteria in the presence of certain types of mold, yet they failed to reach the conclusion that Fleming did. An entrepreneur would do well to emulate Fleming’s open mindedness.
Peter Drucker, perhaps the greatest business guru of the 20th Century, once remarked that innovators are often disappointed by the manner in which their innovations become popular. In his 1985 book, Innovation and Entrepreneurship, Drucker relates the story of Alfred Einhorn, who invented Novocain, which then became popular with dentists as a local anesthetic. Einhorn held a contempt for dentistry, since it represented such a small niche of medicine. He felt that Novocain should be used by surgeons for all forms of surgery, and so he waged a campaign against the use of Novocain by dentists. In the end, his innovation was successful despite him, rather than because of him. According to Drucker, this pattern, where a product or service is undercut by the entrepreneur who is trying to promote it, is extremely common.
When I first read Drucker’s book I found it hard to believe that an entrepreneur would actively sabotage their own innovation. However, having now spent several years working with startups, I’ve seen that it is, indeed, a common pattern. Many entrepreneurs starts websites at least in part because they consider themselves uniquely creative and insightful, and they want the whole world to see them as they see themselves. The website they launch proves them wrong: their insights are proven false, what works in the end is something unexpected. For instance, in 1992, when Bo Peabody launched Tripod, he was thinking that the site would offer content aimed at college students. His idea failed. The company was saved because some of the programmers at the company had started a side project that allowed anyone to create their own web pages. This then became the future of the company. In his book, Lucy or Smart, Peabody says it is important to be smart enough to know when you are getting lucky. And then, you have to be willing to accept that luck. This takes humility. What’s needed in an entrepreneur is emotional resilience, the kind of strength that allows for openness to the unexpected.
Twice now I’ve seen an entrepreneur sabotage their own website because it became successful for what they felt were the wrong reasons. This emotional resistance to success is nearly always inspired by one of two factors:
1.) The success is with a small niche. The startup was suppose to grow till it was larger than Google, and success with a small niche is, therefore, extremely disappointing. The niche might be big enough to potentially generate several million in revenue, but it won’t ever be enough to catch up with Google.
2.) The success is of a conventional type and, therefore, the entrepreneur regards it as boring. Perhaps the site was suppose to pioneer an altogether new style of interaction among humans, and instead the part of the site that becomes popular is of an old type – for instance, the blog on the site becomes highly successful. The entrepreneur is then disappointed, maybe even angry, to be the owner of a boring success.
Here then, are some fatal traps to avoid. Without open mindedness about the type of success you may encounter, your startup is doomed. And without humility about the limits of your knowledge, your startup is doomed.
Except for when we were working at Category4.com, every client we’ve worked with has offered us equity in their business. So far, we’ve always turned these offers down. If you have an idea for a web startup, and you’d like our help, I imagine that you too might be thinking of offering of us equity. You’d be injuring your own best interests if you did so. Offering equity means that you’d like enter into a business partnership, and business partnerships are a bit like marriage. Suggesting such a union to people you’ve just met is a lot like proposing marriage on a first date. First of all, it suggests desperation. There is nothing wrong with that in itself – we’ve all read stories in Inc magazine of a venture started with too little money but which succeeds against the odds. However, second of all, and much more seriously, it suggests that you are not thinking very clearly.
A business partnership means that we need to take an interest in every aspect of your business, including all of the flaws. This can be brutal. This is not a good way to make friends.
Recently, an older gentleman approached us with an ambitious idea that he could not finance himself. He already had a successful operation providing hospitality services to movie companies that film on location in
As it turned out, we were lucky not to form a partnership with this person. We later discovered he was struggling with issues arising from a past history with alcohol, and even though he’d been sober for 20 years, he was still exhibiting some of the behaviors that had sabotaged him before. Incidents such as this are the main reason we are wary of taking equity. But here is the thing – you should be wary too. What about our flaws? What about the stuff we get wrong? If you are offering us equity when you hardly even know us, then you are trusting us too much. And, to us, that indicates that you are not thinking clearly about the risks that your venture will face.
People should know each other at least a year before they think about forming a partnership together. Web startups routinely break this rule, and I suppose that is fine if the company is built to be flipped – that is, you assume that you’ll cash out in a year anyway, so you don’t have to worry about other people’s flaws -† there won’t be enough time for those flaws to come back and haunt you. However, as a general rule, business partnerships should be for people who know each enough that they can trust each other. Even in those scenarios where the company is built to be flipped, you’ll find that having one wrong person on your team, as an equity holder, can significantly hurt your chances of selling the company.
We have worked on sites that had budgets under $1,000. We have worked on sites that have cost $250,000. We have long associations with a network of professionals which allows us to quickly assemble an agile team with exactly the skillset needed for the construction of your website. Whether your site needs graphic designers, computer programmers, videographers, writers, marketers, photographers or system administrators, we can bring together the talent you’ll need. We can even give you some rough guidance about which situations you’ll need a lawyer for. We are especially able to help web-focused startups whose initial 6 month budget is between $10,000 and $100,000. We can also help with existing sites that have so far failed to attract an audience.
For every rule we’ve written here, we can think of three qualifiers. If you’d like to hear how the subtleties might apply to your web project, contact us. We are willing to meet once for free, to give you our honest feedback about your idea.