Foursquare « WSBE Business Blog

How to Write a Great Business Plan: Foursquare

It’s hard to find a great business plan online, much less one that’s been funded. There are plenty of sources for how to write a business plan, but fewer good examples. Of course, entrepreneurs and venture capitalists would rather not disclose how they reached their valuation agreements, or what they estimate are the potential risks and rewards in the marketplace. Often, to evaluate a company’s current business plan, one is left to extrapolate from the company’s public statements.

We recently wrote about Foursquare here on the WSBE Business Blog in the context of evaluating the company’s business model. Foursquare has received a lot of press since then, most notably an article and video critique in the Wall Street Journal. The growing interest in Foursquare led me to question whether Foursquare has a business plan that will see it through the increased competition from imitators.

According to an article by Nicholas Carlson in the Silicon Alley Insider, Foursquare recently (Sept. 2009) received $1.35 million in funding from Union Square Ventures, O’Reilly AlphaTech Ventures and angels. The company released a statement explaining where the money would be spent, giving outsiders a hint at the startup’s business plan.

In William A. Sahlman’s “How to Write a Great Business Plan,” Harvard Business Review (HBR 97409, 1997), Sahlman outlines 4 major topics that must be addressed in detail to convince a potential investor to buy into the startup: The People, The Opportunity, The Context, and Risk and Reward. Sahlman stresses candor and strategic thinking. A well thought out business plan “must unflinchingly confront the risks ahead” and explain “what will management actually do?”

So does Foursquare’s statement illuminate the risks ahead? To a point. The company recognizes that technology rollouts have been less than flawless. Indeed, today’s WSJ review mentions that the Blackberry app is still “buggy.” But the company also seems surprised by how venues are adopting the service as their own. This may not be a good indicator. A sound business plan does not necessarily have to predict the future, but surely it should think several moves ahead about how customers might use the service. How a company delivers value to customers is both at the heart of the business model and the more formal business plan.

It is too early to predict whether Foursquare will become a viable business and justify the VC’s investments, or fade away as an interesting but unprofitable fad. The line between the two requires a clear vision, both in terms of where the company wants to end up, and how it will get there. The jury is out on whether Foursquare has such a vision.

Why Business Models Matter: Foursquare (wsbe.wordpress.com)
Facebook Is Working On A Foursquare-Killer (Nicholas Carlson/Silicon Alley Insider) (techmeme.com)
Foursquare Comes to the Blackberry (blogs.wsj.com)

January 29, 2010 Posted by Chris Buck | E-Commerce, Social Media | Foursquare, Harvard Business Review, O'Reilly AlphaTech Ventures, Union Square Ventures, Wall Street Journal | Leave a comment

Why Business Models Matter: Foursquare

by Christopher Buck

Evaluating: Mashable, “5 Ways Foursquare is Changing the World” (Jan. 16, 2010) (available at http://mashable.com/2010/01/16/foursquare-world/).

Joan Magretta’s “Why Business Models Matter” (HBR, 2002) highlights the distinction between the “business model,” which was a fadish concept during the internet boom, and “strategy,” which is the differentiating factor in a business that compliments the business model and helps it succeed. Even though the internet bubble has burst, business models are not irrelevant – indeed a good business model is fundamental to entrepreneurial success – but, they need to be grounded by realistic expectations. As Magretta explains, “A good business model answers Peter Drucker’s age-old questions: Who is the customer? And what does the customer value?” The strategic analysis, “explains how you will do better than your rivals.”

Foursquare is a relatively young mobile application company which is “fueling the location-based mobile space with unique creativity that competitors can’t copy fast enough.” (Mashable, “5 Ways Foursquare is Changing the World”). Foursquare’s business model is to produce a free mobile application for iPhones and Androids that allows users to gain “social currency” by updating their locations each time they visit local businesses. The company plans on making money off of advertisements and revenue sharing arrangements from the businesses that benefit from the service. Tasti-D-Lite, a New York ice cream company, recently allowed customers to earn rewards points towards ice cream purchases by posting Foursquare updates. The company is the first to do so, but will likely not be the last.

Strategically, Foursquare differentiates itself from competitors like Loopt by injecting a competitive element into the update process. Users can become “mayors” of their respective cities by posting the most number of updates there. Foursquare is more than a geo-location aware social networking service, it is a game as well. That difference has made it the leader in this relatively new type of social/mobile business space. The adoption of Foursquare by local companies as an advertising outlet, and by users as a type of review service akin to Yelp, speaks to the service’s powerful ability for both businesses and customers to instantly share information about their hometown experiences. Foursquare’s business model and strategy are well aligned to provide the company with future success.

Editor’s Note: The preceding is an application of Harvard Business Review’s “Why Business Models Matter,” by Joan Magretta (HBR R0205F, 2002) to a current business article. The “Why Business Models Matter” series on the WSBE Business Blog are original articles from MBA students at the Whittemore School of Business and Economics, reprinted with the authors’ permissions.

Christopher Buck, Esq. is an MBA candidate at the Whittemore School of Business and Economics at UNH, founder of NHCaseLaw.com and co-author of “Civil and Criminal Contempt in New Hampshire” (New Hampshire Bar Journal, Fall 2007).