Startup Business Model - infinite partners

Here is my weird idea about startup Business Model.

Facebook, Twitter and most of all other web startups valuation is based on number of users. Then why user don't get cut? What if you give cut to user and you attract more users to site which in turn increase valuation.

eg. start startup and allow all active users to be your profit sharing partner. Whether thats 50$ a year or whatever per user. But that way they can get cut and you get regular users who cares for the site they are using.

It is complex scenario because you need all user valid then only you can send them their yearly check etc.

Whats negative? Has anyone tried that in industry?

It's called MLM. (see pyramid scheme, avon, etc. There are lots of examples of this kind of thing)

The idea is not bad in itself, but I think what you want to provide is a different kind of reward - not just money. Like Stack overflow has provided - give badges, hit points, etc - things that are rewards for ego and pride - but that are not money.

You can offer monetary incentives or promotional items for certain behaviors, but i would steer away from just sharing the whole company.

Dont forget, the more popular the company gets, the more you dilute existing people's stake. Possibly not in proportion to the profits redistributed.

Your premise is invalid: most startups are not valued based on a number of users. They're valued based on future earnings potential. High number of users is related to earnings potential but it's not the only or even the most important factor. The important factor is: do investors believe you'll be able to make money off of those users.

Another invalid assumption you made is that valuation is equal investment. The amount of money invested in a company is only a fraction of valuation. The difference is ROI that investors hope to get.

Furthermore, you assume that there is a left-over investment money. Companies raise money because they have to pay for salaries, servers etc. which are more essential to success that number of people who show up on your website.

Your timeline is inverted. Even if investment are based on number of users, you could only pay users after you've received it, which defeats the purpose.

Assuming that investors are not stupid, they would discount the valuation if they knew about that scheme. It amounts to nothing more than scamming the investors using their own money and clearly you can't hide it.

You're trying to create a perverted incentive scheme that is economically untenable and defeats the very reason business exists: to provide services that people are willing to pay for. If you have to pay your users, you don't have a business.

The problem of paying users to use your site is that people will think that your site is so bad that you need to pay people to come there. At the very least hide the money that is to be paid back, say by providing them really useful content or having some giveaways.

Isn't this kinda like what Mahalo Answers is doing?

I don't agree that this question describes MLM. If he had said users were paid more for how many people they refer to the site, then maybe it would be like MLM. Simply offering every user the same financial incentive for using the site might sound similar, but it's not.

I do agree with the rest of Tim's answer. Facebook and Twitter are valuable because people find reasons to use them and tell other people about them without needing to be paid. If it was just a few million people who all wanted a check, then it wouldn't really be worth anything.

You should check out ProFounder, from Dana Mauriello.

Raise money on profit sharing (instead of equity or convertible debt).

If you look at Current.com and CurrentTV on television (both are the same entity) you will see that they are willing to pay for content, but a small amount if it gets onto their television show and a larger amount if the commercial (for example) is used on other channels also. So, they are sharing the wealth, but I don't know how much it helps them.

So, if you had an idea that involved people making commercials for companies, then you could ask a question along the lines of:
1. What would it take for you to be active in a site like this.

You are now paying for something that the marketplace decides is good or not, and people understand this model.

My grandfather owned a bar that was a top Jack Daniel's seller in his area. I have a deed somewhere for my grandfather's ownership of 1 square inch of the distillery grounds that he received as a premium. That could be an example of what you're talking about.

One square inch of land is a gimmick, but then so is some sort of Twitter profit sharing arrangement that yielded users a 1/50,000,000th of Twitter profits! You'd be better off handing out t-shirts.