It’s been a while since I posted - but I felt the need to chime in on all the discussion about Geography and how it relates to your startup — and to online media in general.

Ross Mayfield (bottom of the post) asks Dick Costolo of Feedburner:

So Dick, let me ask you one question that I think you are in a great position to answer, at least to keep you going. How does an Internet entrepreneur overcome not being in the Silicon Valley? I’ll bet it is more than being on a plane all the time.

I’ve been a tech entrepreneur in Chicago for over 10 years now and I get that question a lot. I didn’t understand the focus on it 10 years ago and I don’t understand it now. Don’t get me wrong, everyone sees the obvious in that there is more capital and talent and entrepeneurial energy in Silicon Valley than anywhere else — but that is far from saying you can’t start a business anywhere else. Especially now in this day and age.

What do you need to start a business? You need the idea — you need to be able to build a team — you need to acquire customers — you need to be able to establish partnerships — and you need to be able to attract capital. All of these are easily done and getting easier here in Chi-town. On the team side — thanks to web 1.0 we have a slew of internet veterans running around from companies such as Performics, Participate.com (my old business), Spirian, Tunes.com to name just a few — in addition to a ton of people who have worked in both advertising as well as media (think Tribune, SunTimes, Crain’s). Plus we have five world class universities in Chicago or Evanston.

On the customer side — Chicago is not lacking for either big customers or media partners either — and we have an incredibly supportive business climate here where Chicago based businesses want to help other folks from Chicago (yes, this is true).

The area where we definitely were lacking in before was the whole networking game - 10 years ago you flew to the Valley at least once if not twice a month — plus you attended 5 or 6 tech conferences a year. But nowadays, with all the new collaborative technology out there — i can see what VCs in the Valley are thinking by reading their blogs and reading BuzzTracker Venture Capital — I can track the technology news by going to BuzzTracer Technology. And by commenting on these blogs and using new services like MyBlogLog you can really start to develop new relationships online.

As Ross himself said in a later post:

You can’t argue that the interpersonal Silicon Valley cross pollinates within a culture of sharing, and the result is fantacular. But half of what makes this work is our ability to collaborate in creating something new, but the other is how we can bring it to the world as an edge that cuts across. Look, we kick the world’s ass in marketing technology, so much so you expect it. If it comes from here, odds are you will be a fan. Until favor tips to a new marketing engine the valley will remain.

But innovations brought to market really could happen everywhere and nowhere.

The point is it easier than ever to start a business somewhere else. And in Chicago — while it is undoubtedly more difficult to attract Valley VCs — there are plenty of top tier VCs who will invest in a business here. Plus — the Angel environment is outstanding with a ton of available capital from very successful business people.

My question is never why Chicago? But why not? Why not start a business where YOU want to start a business? And if you do want to be in online media — we have a pretty fantastic confluence of journalists, advertising, and new media execs.

What do you think?

I co-wrote this whitepaper back in 2000 with my last company, Participate.com (yes I like the name) — and I think it still has merit and relevancy today as publisher try to “crack the code” on driving viral customer acquisition behavior.

I putting it up today in light of Fred’s post on MyBlogLog and my comment:

These guys have cracked the code on how to deliver Return On Community — people join and participate in communities to be seen and to be recognized (I will make my 2000 whitepaper available on my blog later today) — what MyBlogLog did was allow people to be seen and recognized faster than anybody in the business as well as make it super easy (lower the “cost”) to participate — you don’t have to comment, or think of something clever to say, you just have to register!

Genius. I also think we’re moving to a world where without these kind of value added services publishers will be very reluctant to cede valuable valuable real estate. So I think these type of services will be the new cost of entry for any kind of ad network.

Congratulations Eric!

Have a read — keep in mind it was written almost 7 years ago — and let me know what you think!

Click here to download Return On Participation

There’s been a confluence of events in the past week or so that continues to support what we’re seeing and doing in the web publishing space.

First, Evan Williams announced the formation of Obvious Corporation, to create a network of web-based services, each with a distinct purpose and brand, but sharing a set of principles and leveraging technology, attention, and good ideas where it makes sense.

Second, Reddit announced a sale to Conde Nast. Particularly interesting was that Reddit only raised about $100K.

Third and finally, Charles River Ventures announced a seed fund for startups where they would loan $250K for the right to invest in future rounds.

Lots of folks have commented on these, notably Josh Kopelman and Fred Wilson.

So it’s clear that the barriers to entry in this space are low, capital requirements are very low to get started, and as always these are attractive business investments.

The one point we would add to this discussion is we believe the lifetime need for capital for many of these businesses is also very low. We hear a lot of entrepreneurs telling us they “want to build a $100MM business” and they are looking for large amounts of capital to get there.

Our approach is much more pragmatic:

1) Be as frugal as possible in building the business. Be very smart in how you build your site, how you hire brand and design consultants, and how you build your technology (use very inexpensive and/or open source stack)

2) Cash flow your business as soon as you possibly can

3) Use free cash flow generated to re-invest and grow your business from there

What this means in practice is a) make sure your ongoing costs are as low as possible so you can cash flow at relatively low CPMs — you won’t be able to sell ads directly till you get to a certain traffic size anyway b) don’t invest in an ad sales force to start unless you are at the beginnings of scale (over 1MM uniques, probably 15MM page views per month). We see a lot of business plans that want to hire a direct sales force out of the gate; we like to hire reps one at a time and use free cash flow generated to invest in more reps.

The key is to create a business that generates a reasonable amount of cash that gives you as an entrepreneur options. For many businesses, we think that $0.5 to $1.5MM invested capital gets you there. The problem of taking $6MM is if you use it to build a business that generates $1MM in cash a year no one will be happy — not the entrepreneur and not the VC.

This does not apply to all opportunities of course — each one is different and a good VC will add tremendous value — our only point is to think about what the likely probable outcome and endgame will be as you decide on a financing strategy.

If it is *highly probable* that you can quickly get to cash flow positive quickly with a little bit of cash, we would generally recommend that approach.

Thoughts?