Obviously not all startups can achieve the success of Twitter or others who have been lucky enough to get acquired by a major corporation like Google (YouTube anyone?). Having a business model as early as possible is in most cases is important to the long-term viability of a business. At SXSW last month WebProNews spoke with Matt Chasen, founder of uShip, who talked about this concept.

"When I founded uShip six years ago now, we were very focused on proving out the business model," he says. "A lot of new companies you see are hype driven. They’re all about users, users, users…build a new cool tool, hope to get as many users as you can, and just kind of figure out how you’re going to make money later."

"The key I think for a startup today, and other folks have evangelized this, is to ‘fail quickly’. Figure out what you’re going to do," says Chasen. "Try to find a business model that’s going to make the company money, because without one, you’re not going to be viable long-term."

"If you’re gonna fail, fail quickly, change your strategy, then find another model, and hopefully one will work," he says, calling the strategy of protoyping new businesses "inexpensive and quick."

Do you agree with Chasen that proving a business model from the beginning is the better way to go, or do you think building a cool product and attracting users first is a good strategy? Share your thoughts.

Blockbuster, which operates 7,400 stores in 20 countries, had hoped to close next month on financing that would float them until 2010. Because of lender reluctance and the illiquidity facing the larger economy, however, the company may not be able to meet lenders’ terms. From the SEC filing summary:

The risk that we may not successfully complete this refinancing and obtain the related amendment of certain financial covenants included therein, and/or the risk that we may not have adequate liquidity to fund our operations as a result of not meeting our projected financial results, even if the refinancing is completed within the time and upon the terms contemplated, raise substantial doubt about our ability to continue as a going concern.

This news may be surprising for some, especially considering that just a year ago Blockbuster nearly acquired Circuit City, which went under just after Christmas. In the filing, Blockbuster lays the blame on the worldwide economic downturn and the resulting credit crunch, but also briefly mentions the media entertainment industry “channel shift primarily driven by the emergence of new methods of distribution.”

Words Blockbuster doesn’t want to say likely include NetFlix, Amazon, and iTunes, the perfect storm of which forced the Starbucks of video rental to make radical shifts in strategy over the past couple of years. In addition to online offerings similar to (but not as good as) Netflix, the company eliminated in-store late fees, a source of huge revenue for the company over the decades, and heavily marketed that brick-and-mortar advantage.

But all that, in addition to set-top delivery of movie rentals, points out Ars Technica, meant Blockbuster was just late to the game. Netflix on TiVo, iTunes movies, Amazon’s Video on Demand were already way ahead.

Personally, it’s hard for me to feel sorry for Blockbuster. In my hometown, my father was the first to open a video rental store in 1982. He took pride in his video selection, emphasizing variety over mass quantities of premium, mainstream titles (though he was always sure to buy extra copies of those, too).

So when the chain stores moved in, each offering 50 copies of “E.T.,” 35 copies of “Ghost,” Dad would chuckle about all the great titles their inventories consistently lacked. His store (no membership fees!) became the local alternative for finding movies one would never see at Blockbuster. Nevertheless, in the mid -Nineties, he closed up shop. When Blockbuster came to town, the business started losing money for the first time.

Looking back, it seems Blockbuster ended up making the same mistake he did: stubborn devotion to a business model quickly going obsolete.  Dad’s world was a world of mom-and-pop operations that had survived and thrived his entire life, mom-and-pop shops he’d been running or helped run since he was a kid. (He tells stories of living above my grandfather’s grocery store and being told to keep an eight-year-old eye on the place and run the register when his parents had to run an errand—well before the invasion of Kroger and Wal-Mart). But Dad just didn’t seem to see the coming corporate invasion into small town business life, and saw no reason to change.

Blockbuster, with vastly more resources, bet on the idea that people didn’t want variety, they all wanted to rent the same small set of movies, that they’d pay way too much to do so, even pay exorbitant to the point of abusive late fees.

Plus, back then, those Hollywood premium titles weren’t as cheap to buy as they are now, and consumers couldn’t buy them at the grocery store the day they came out. Premium titles wholesale to the mom-and-pop video store were upwards of $100 per copy. And this was how Hollywood and Blockbuster ran mom and pop out of business to create a more streamlined, centralized approach.

So now Blockbuster’s getting killed by innovative upstarts, new business models, and lack of money. I’ll cry them a river for sure.

They could return of course, if able to secure those loans, and if not, then they might be able to resurrect online, the way Circuit City appears to be planning.

Josh Freese, a drummer whose been playing for offbeat bands since the 70s—Devo, Offspring, Nine Inch Nails—released his second solo album this week and demonstrated the limitless possibilities for those willing to be creative.

Fans can get a single for free, download the whole album for $7, or get a CD/DVD for $15. Those are the conventional offers, obviously. But from there, the packages get extra special. For $50, fans get autographed discs and tees, and a thank you phone call. Freese is sold out of the $250 package, which includes signed drumsticks and lunch with Freese at the Cheesecake Factory, providing the fan will be in the LA area.

There are $500, 1000, $2,500, $5,000, $10,000, $20,000 and $75,000 packages. The big one wins the signed memorabilia, a 5-song record about their life, one of Freese’s drumsets, a shrooms cruise of Hollywood in a Lamborghini that belongs to a guy from Tool, and Freese will be their personal cabana boy.

Now that’s innovation. No suits needed.

Long Live Free: How Free Makes Money

The RIAA doesn’t have a lot of friends these days, even from the traditional bandwagon – Radiohead and Trent Reznor are the latest to abandon their labels to foster better relationships with their audiences.

While the recording industry is busy filing lawsuits, it has ignored the relationship aspect of selling – it’s often a good idea to have your target market like you – and acts as though production costs aren’t significantly lower in the digital media age. Downloads cut out the costs of manufacturing, distribution, and, thanks to the socially viral element of the Web, even advertising.

Hence the reason Apple’s Steve Jobs has repeatedly told them to shove it when they’ve wanted to raise iTunes download prices by a factor of three. The low overhead of online business is what has led to some analysts placing 100 times revenue values on certain well-read blogs.

Major newspapers are learning this valuable lesson, too. Publishing 2.0 eliminates much of the cost associated with printing, which is (presumably) the reason to charge for content in the first place, generated advertising revenue notwithstanding. The New York Times is one of the latest to remove the monetary barriers to its online content.

You’ll have to register instead, though, to give the advertisers the demographic information they crave – even if there have been entire (if unsuccessful) petitions in the past to drop those registration pages. London-based Financial Times was less generous, allowing 30 free pageviews a month with registration.

Two Laws of Online Content

1.    People don’t want to pay for it.
2.    People don’t want to tell you their life story to get it, either.

That’s because Internet users, like humans as biological beings, are inherently selfish and lazy. That’s not a swipe at humanity, just the reality. People want their content free with a certain immediacy – damn the advertisers.

The NYT was making about $10 million in subscription fees, but has gone the registration route instead, believing they can surpass that number with advertising revenue – basically the broadcast radio and television model that has worked for the better part of half a century.

So we know that "free," as a business model, works to generate revenue – if not, then all those PR flacks out there are wasting company time and money handing out schwag-bags at conferences and public events.

The Law of Gimme-Gimme

People will take anything as long as it’s free, whether or not they need it or want it*.

The latest speculation is that News Corp. mogul Rupert Murdoch is looking to loose the content bonds on the Wall Street Journal. Some think he’s a fool if he does, arguing that quality content demands payment. But two things we do know: Murdoch has made a lucrative career by not being stupid; and see the First Law of Online Content above.

What Small Businesses/Publishers Learn From the Big Guys

1.    People visit content if the cost of doing so is low (registering) or nil in terms of time, money, and/or effort.
2.    Freeing your content, bringing it out from behind walls helps ensure more search engine traffic and pageviews                 (which is, of course, salable to advertisers).
3.    A happy visitor is a return visitor.
4.    You can sell two products at the same time: pageviews to related advertisers; your own, unique product related to             the content on the screen.

The Conundrum

Depending on what you’re selling online, the "free" business model may not make sense to you. It’s easy for publishers with no printing costs to say advertising and search will get you to the next level, but what if, like the RIAA will argue, you have a tangible product? Free won’t cut it.

Again, this depends on that which you’ve based your business. Radiohead has a new CD and it can be obtained for free. It’s more of a donation model, but they have larger packages for sale that includes artwork, lyrics, and even vinyl records. They’re banking on the up-sell, as well as concert ticket sales.

But you can also use free content as a promotional vehicle, so long as it’s not obvious search spam that will get you penalized or dropped from search results altogether.

Blender company Blendtec is probably the best at utilizing the new media to generate sales. The "Will It Blend?" series on YouTube and Blendtec’s homepage is a creative way to do entertaining product demonstrations.

Or maybe you sell vacuum cleaners and parts. You can build a content structure around that without giving away your product, of course. People are always looking for cleaning tips, or maybe they don’t know how to repair a snapped belt. You can be their source for that while avoiding being labeled as spam, and promoting your product at the same time.

Whatever you’re doing online, it will require certain things. Be creative, be open, be necessary, be useful. But above all, be free.  

^{*This law does not apply to content, but to more physical products — nobody likes spam or splogs.}