What Internet Startups Can Learn from GM and Chrysler

Over the past few days I’ve written about startups who put all their eggs in one basket and what it could meet for their ability to continue as a going concern. Today I noted that TwitterMass is up for auction — what happens if you buy the app and then Twitter announces the same offering?

Last night I spoke with a friend and most of the discussion centered around the issues the auto industry is facing today. My friend asked if anyone would have thought five years ago that Chrysler would be in bankruptcy and Daimler would partner with a valley startup. What about GM we wondered – the company has just announced 1,100 dealers will close and tens of thousands will be out of jobs. Oh yea, Chrysler is closing 800 dealerships around the country next month as well.

Am I suggesting that people shouldn’t open car dealerships or create applications on Twitter/Facebook/etc.? Of course not. What I am suggesting is that you do the homework to calculate the risk involved with the business plan. If an application takes little effort, the point of risk calculation is moot. In the TwitterMass example, the app took two weeks to build. If the application was to grow and staff or funding was required, at that point the risk calculation should take place.

The percentage of risk goes down when you can build your application to leverage a technology or platform in addition to your unique offering. In the car dealer business, an example might be offering used cars along with new to minimize risk of losing a new-car dealer license as has happened with GM and Chrysler.