location-based social network (foursquare)

I'm interested in how a company like Foursquare would start up. So let's pretend they are at the very beginning of their idea and they have no money; just the idea. So they write down their business plan and develop the application, now what?

How do they convince companies to join their service, when they don't have any users? How do they get the users to participate when there are no companies to "check in" to? This is sounding like a chicken and egg situation to me. Can anyone shed any light on this?

Same goes for Groupon...

Another thing, how does Foursquare make money by the way?

You probably don't even need a business plan. It's more common than not for an internet startup to feel out their business plan along the way, most likely because of the dynamic nature of any internet-based business. It's easier, and less expensive to pivot the business model of an internet-based business than a brick and mortar business.

The chicken and egg situation is a common problem. Yelp handled it by targeting one specific city and having parties for all the users. Reddit made a lot of accounts to post from in order to simulate an active site, thus enticing others to think it's active and join in. Not trying to target an entire country at once is the most common solution, unless of course you have the marketing budget to support it.

A lot of internet companies don't have a revenue stream in the beginning, they focus on growth instead, especially venture capital backed companies. I'm not sure if Foursquare has a revenue stream right now, but their likely next move would be to target merchants and users for various premium offerings. By providing value to merchants and users they will be able to better differentiate themselves as more than just a game or social network.

What is Foursquare? Beautifully simple, at the outset:

1. The (innovative, in terms of its mode) idea of a check-in - using my location-aware phone to say, "Guys, I'm here!"
2. The (common) idea of a social network
3. The (common) idea of user-generated content
4. The (innovative, in this context) idea of gamification - challenges, badges, bragging rights
5. An extended social group of people who'd like to help serendipity out in their social life

The developers and their friends found it worked for them. It added something in their social life, and was fun even when they didn't connect. And obviously they've pushed out in some new directions. But in terms of actively engaging business owners, that really didn't need to happen until much, much later.

I don't think the Foursquare team necessarily thought their idea was a business at all from the outset. Which is a pretty good way, in my view, to start out. When it was clear that there was potential to scale, it was also clear that there was a great investor pitch to turn a fun app into a true startup.

If you love an idea, have the skills, can spare the time and keep the costs way low, the give it a go, simply for the fun of it. Then, if you tinker but take it not much further, you've had fun and learned something. But who knows where it might lead!

The book Startups Open Sourced has an interview with the Four Square founder (think its the 3rd chapter).

http://www.amazon.com/Startups-Open-Sourced-ebook/dp/B004ZULMR6/ref=sr_1_1?ie=UTF8&qid=1313082296&sr=8-1