How do social network business plans differ from ordinary startup business plans? After working with clientswho had drafted business plans for social networking websites, I realized that it made sense to look at unique features of these businesses. The following is a discussion with fellow SCORE counselors Robbin Block and Charlene Gervais, who have also worked with such clients, about how a social network-centered business plan differs from a more traditional business plan. In addition to their activities with SCORE, Robbin runs BlockBeta Marketing and Charlene is a serial entrepreneur whose most recent venture is Aviation Vacations. Note: By “social network business plan” I mean a plan to create and run a niche social network as a business, not a plan to promote your business using social networks.
Unique Aspects of Social Network Business Plans
Peg: All businesses need a focused and well-researched niche. But too often I see social network business plans for big vague markets.
Robbin: What is really important is to find a group with a high affinity. That common interest will focus the niche and also give the network’s members a reason to be together. That will drive membership and usage.
Charlene: No one is going to come in at this point and supplant Facebook, so I agree with the importance of niche. For example, there is a social site for pilots and aviation enthusiasts, MyTransponder. I also think a revenue model for the niche, or some idea of one, is important up front. But the founder of Y Combinator thinks the most important thing is to quickly and cheaply establish a following, and the revenue will follow.
Peg: There should be three marketing plans to focus on different constituents: prospective members ongoing member engagement, and advertisers, sponsors, partners.
Robbin: Yes, each will derive different benefits from participation in the site. Ongoing engagement to drive usage is essential to keep the network alive.
Charlene: Agree, all these should be included.
Peg: There are three big expenses when creating a business-oriented social network —
1. Software development and customization, where large cost overruns are common. Charlene comments “and time costs, too.Start-ups may want to consider a technical co-founder.” 2. Marketing and advertising costs are substantial, either paid ads or significant staff time for social media activities. Says Robbin: “Yes, takes a lot of resources once the site is created; not unlike many content/revenue-generating websites actually.” Charlene notes “Also PR is big expense in this area.” 3. Content. Robbin adds “Don’t forget that there’s a big labor cost in creating, maintaining and managing content, even if it seems like it’s mostly user-generated.” Robbin: “Major costs depend on how serious an endeavor this is. There are tools already in existence for building a social network fairly easily, i.e., Ning or SocialGo. However, they aren’t custom and have their limitations. Using them could be a good way to test the concept and build an audience before spending a ton of money on development. And by the way, development isn’t easy at all. It helps to have someone on the team who really understands how it’s done.”
Peg: Revenue streams are problematic for a social networking website. Even the big guys like Facebook and Twitter are still trying to figure this out. Here’s a link to recent data on best revenue sources from social media, but most social networks I see plan on revenues from advertising, membership fees and sponsorships.
Advertising using ad networks require traffic minimums which may take a year (or years) to establish. Pay per click ads are another, but click-throughs on ads are very low in social networks. Robbin comments “Very difficult to make any money this way.”
Membership fees are difficult initially. Can charge for upgraded features. Robbin notes “It’s possible.”
Sponsorships work but are difficult to get before the site is established. Robbin is skeptical “Not much different than advertising.”
Robbin: “Revenues are VERY problematic. Most social networks are venture-funded at the moment. Facebook just started making a profit recently. However, there are niche sites, say like TheKnot that are more like an online magazine, that probably have a better chance at profitability. But of course, it’s all about getting eyeballs, which can take a long time or never happen at all. On the other hand, look at a site like LinkedIn that probably makes most of its money with employment ads. There needs to be something in the model beyond ad revenue that makes it work–something intrinsic to the service offering.
“Other revenue options: software licensing, if you have something proprietary to offer, say to an enterprise customer; you could sell aggregated data; sell product, i.e., branded goods (think T-shirts and the like, where affinity is important)… in other words, it’s much more difficult to get a pure-play social network to pay out. Create a business, then wrap social into it.”
Charlene: “Freemium service (basic service free, upgrade for a fee) works great with companies that actually have a useful service like Dropbox or Pandora. Very difficult with social media.”
Peg: The dot.com era of abundant funding for promising ideas is long gone. Plan to obtain funds from friends and family until the site has a well-established user base and revenue streams. Here’s one Chicago VC’s advice on funding social networking websites.
What do You Think?
What are unique features of a business plan for a social network? Do you know of a good online prototype? Please leave me a comment.
Links to business plans for social networking websites
Online Outdoor Community Plan Gale Business Plans. Includes sections on business plan, market approach, financial strategy, launch plan, organizational structure, business challenges. I am not necessarily recommending this plan as a model, but it is the only published plan I could find. Note the plan calls for 10-12 million to launch, so this plan is probably from the dot.com era. Turns out there is a websites outdoorsman.com, with 9,500 unique visitors a month. Don’t know if its launch was based on this plan.
SCORE business_plan_for_a_startup_business_july Generic SCORE business plan template in Word.
Click to learn more about social network business plans.