Zeroing The Cost

Tim Draper is known for breaking out into song with The RiskMaster.

I was fortunate enough to attend the Kellogg 2009 Private Equity and Venture Capital Conference. The conference's keynote was given by Tim Draper, a founder member of the prestigious venture capital firm Draper Fisher Jurvetson.

What I found most interesting in Tim's presentation was the three things that he looked for in companies that he invests in:
  1. Zeros a typical cost in the business model. e.g. Hotmail removed cost of delivering post, Amazon removed cost of inventory.
  2. Revolutionises some existing business. e.g. Hotmail revolutionised postal mail, Amazon revolutionised bookshops.
  3. Solves a problem.
While the second and third points are not extraordinary, I did think the first point to be fascinating. The reason that the Internet has become the powerful force that it has is because it is zeroing costs found elsewhere. You no longer need to have physical copies of music in the form of CDs etc. The same is true for newspapers, the contents of which can easily be read online. In the meanwhile, Facebook zeros the cost of keeping in touch with people - you no longer need to email or phone someone to see what they have been up to; they update their profile and you can respond as and when you want. eBay zeros the cost of the finding someone to buy your goods. Wikipedia zeros the cost of assimilating vast amounts of information on any topic.

It makes you wonder: how can you take any traditional business and zero its cost in the new media world?

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