Now you may think this is a joke and you may giggle after reading the incredibly easy 5 steps. However after you read the steps be sure to look at the case study of how one company followed the steps, loses money, and is now worth $6 Billion.
5 Easy Steps
- 1. Create a Product or Service that people want (hereinafter “Stuff“)
- 2. Give Stuff away for Free
- 3. Keep track of how many people accept your Free Stuff
- 4. Make money, lose money, it doesn’t matter
- 5. Go Public
Case Study : Pandora
I know what you are thinking. That’s crazy and could not possibly work, right? Wrong. Case in point Pandora. Pandora is listed on the NYSE:P and loses money. However it is worth $6 Billion. Here is how they followed the above 5 steps.
- 1. Pandora is a “…personalized internet radio.” aka cool Stuff (from Pandora’s site here)
- 2. “Pandora is free personalized internet radio.” note it is Free (from Pandora’s site here)
- 3. Pandora releases audience metrics every month (here are the March 2014 metrics)
- 4. Pandora is not profitable, they lose money, some choose to make money and some choose to lose money in my 5 easy steps but in this case they said “we’re cool with a $6 Billion valuation, let’s just lose money”
- 5. They are public under NYSE:P
Do These 5 Easy Steps Work in Every Industry?
Unfortunately no. Let’s look at three examples.
Example 1: Beverage Industry. You could create a new soft drink and give it away for free. Like Pandora you could put advertising on your drinks. If it is delicious and people drink your free drinks daily then you are worth billions, right? Wrong, it does not work in the beverage industry.
Example 2: Housing Industry. You could build homes and give them away for free. Like Pandora you could tell the new home owners that there will be one box next to their house that only you can put advertisements in, in exchange for the free house. If they are nice homes then people will accept them and you are worth billions, right? Wrong, it does not work in the housing industry.
Example 3: Car Industry. Make cars and give them away for free. You have the home addresses of the new car owners so you can send them advertisements. If they are nice cars then people will accept them and you are worth billions, right? Wrong, it does not work in the car industry.
What is the Takeaway From This?
If you give away stuff for free and no one wants it, then you are worthless. But public markets reward those that give away stuff for free and is accepted by a lot of people as long as it is an internet based company, or at least has “technology”.
So follow those 5 steps, I have a feeling we will see multiple IPOs this year of companies following these 5 easy steps. I myself would like to give it a try.