I was on a great panel last weekend at the CalTech/MIT Enterprise Forum on the CalTech Campus (www.entforum.caltech.edu). The topic was “Social Networks and the Entrepreneurial Reality: Fertile Platform or Investment Nutworks?” The panel was kicked off with a keynote from Jason Feffer, CEO and Founder of the social networking site Sodahead (www.sodahead.com), and also included Mark Jeffery, CTO of social search site Mahalo (www.mahalo.com), Joe Jason from SK Telecom, Tony Karrer founding CTO of eHarmony (www.eharmony.com) and Andrew Shandlin, Executive Director of the Caltech Alumni Association.

While panelists seemed to agree that while there are plenty of nutty social networking ideas out there, the social networking space in general continued to be a fertile area for smart entrepreneurs and well placed venture investments. After the discussion, I had the opportunity to speak with dozens of social networking entrepreneurs who were looking for some “rules of thumb” to help launch or expand their ventures. Much of the advice I gave was echoed by the earlier panel discussion. I’ll attempt to summarize the main points here:

• Understand the key success driver for most social networks is not your proprietary technology, rather it’s the unique value proposition you are able to create and your ability to acquire and engage users. This is not to say that technology and technologists are not important. You certainly need a team that can innovate, execute and iterate quickly on your site (more on this in a second). However, it does mean you should NOT be spending months building your social networking engine from scratch, spending tens of thousands of dollars to file patents, and delaying your site launch until your technology is 100% baked. One advantage of starting a social networking company today is that a lot of the technology already exists through companies like Ning (www.ning.com), or even through open applications on Facebook and soon through the Google Open Social program. The point is don’t try to recreate the wheel in an area that probably won’t be a long term differentiator for you business anyway.
• Get your site live with real users as quickly as possible. I’ve talked to many entrepreneurs who are spending months, or in some cases years to get their sites “just right”. The problem is that you don’t know what “just right” is until you’ve had a chance to observe real people on your site doing real things. Figure out what the minimum value is that you need to offer your users, and build to that minimum. Then observe and listen to your users as they test the site and then build to their needs. I guarantee your end product will look significantly different than what you originally imagined.
• Understand that investors need to see real traction before they are going to invest. Like songs or films, it’s really tough to tell what’s going to be hit based off of a story board. You may have the best story in the world, but unless you are a multiple time successful entrepreneur or if you can find some “dumb” money, you are not going to get an investment. Spend your time on getting your idea refined, identifying the minimum value you need for users, getting the site launched, and showing some early user traction. User traction can be something as simple as showing a growing number of sign ups or user contributions to the site, but it has to be enough where a potential investor can say, “The model works at a micro level, let’s put in some cash to get it to scale.”
• Leverage existing social graphs where you can. Depending on your business model, this may not be possible or reasonable, but understand that there are some communities out there that have already done the hard work of getting users signed up and connected with each other. Rather than trying to recreate a social networking community and all the interrelating connections, find a way to build an application that works on Facebook or Open Social. A major caveat is that there are limitations to this strategy in terms of “owning the user profiles” and the value that may come from the ownership. Even if you build your own separate network, you may find that the open platforms become a valuable channel for user acquisition and for quick product/feature testing.

Thanks to everyone on the panel for sharing thoughts on these and other subjects.

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