I do a lot of advisory work with startups, both in the general community through Chicago’s largest tech incubator, 1871, and in the more academic world of University of Chicago’s Booth School of Business. Regardless of where the entrepreneur is based, I can’t help but cringe when I talk to a startup team whose business model is relying on advertising to deliver a significant portion of its revenues. It has always felt limiting to me, but it wasn’t until I read this column in the Wall Street Journal that I was really able to put my finger on why it’s a real problem.
In the piece by Christopher Mims, Yatin Mundkur, a partner in a Silicon Valley-based venture capital firm says:
Consider this. The entire market for advertising is around $100 billion a year in the U.S. (Globally it’s close to $500 billion.) Yet the nation’s gross domestic product is more than $16 trillion. That means every venture-backed startup chasing advertising revenue is going after just 0.6% of the economy. Put in employment terms, the ad-related economy employs just a few million people, versus 140 million Americans whose job it is to do everything else.