But despite popular business folklore, you can’t build a successful business based on giving stuff away forever. You can – and should – give out tons of free samples of your product/work/expertise to generate buzz and new customers. You can do this forever. But unless you’re running a charity, eventually an economic transaction must take place. Somebody needs to get paid.

Allegedly, this was the lesson of the dotcom bust…but as usual we all forgot and the ‘eyeballs first’ model is again front and center in the web 2.0 world. We’ll see it again in 3.0, 4.0, and all other iterations.

Wouldn’t it be nice if a successful entrepreneur could stand up and say “This is DUMB”. That, in a nutshell, is the theme of this awesome, FREE, video by David Heinemeier Hansson, the founder of 37Signals and the creator of Ruby on Rails.

It’s nice to dream about becoming the next Facebook or Twitter, but as Hansson explains to Forbes, it can be dangerous for most start-ups to build their business model based on those assumptions.

“Startups these days are getting all the wrong lessons,” says Hansson. “[They think] that all that matters are users, that they should take on plenty of debt from venture capital investments because something magical will come along at some point and everything will be okay. But you can’t make up something in bulk that is a losing prospect to begin with. Isn’t that self-evident?”

There is only one truly effective way to control corporate corruption, and that is through creative destruction. Let the wild men, the warped geniuses, the chip-on-the-shoulder mad entrepreneurs loose on the established corporate world. Let big corporations go bankrupt right and left. Drive out mediocrity with the scourge of innovation. Let new companies emerge, and then go bankrupt when something better comes along. Real genius, as Heinrich Heine once rhymed, pays cash at the bar. The oddball entrepreneurial types don’t cheat. They see life as a game and want to play it by their own rules. They are out to prove that they are smarter than their peers, and to cheat would be to miss the point of the game.

For the average business school graduate, an entrepreneurial economy is a hell, presided over by a devil like Goethe’s Mephistopheles, whose job is to subvert complacency. This sort of economy has its own bubbles and crises, like the dot-com catastrophe of 2000. But that was a minor blip compared to the present mess, because it wasn’t done with leverage.

David also nails Corporate America and the culture of empty “networking” to the wall. I’ve read an enormous amount of research and analysis on the economic crisis, but very few writers are able to get down to the kernel level with such eloquence.

Mediocrity breeds corruption. The business world is crawling with affable, industrious, intelligent people with nothing to distinguish them from ten thousand other affable, industrious and intelligent people, but who very much would like to be rich. Except by winning the equivalent of a lottery or marrying up, their chances of becoming rich are quite poor. They joint a fraternity at college to make contacts, and went to business school to network. They have no friends, only contacts, as their entire social life from freshman year onward has been a struggle to get to know people who might help them. They live in silent terror that they will fall off the corporate gravy train and never have the chance to clamber back on.

These are the people most inclined to cheat, for they know that they have nothing unique to offer the world, and their ascent depends either on luck or unfair advantage. They cheat in every way possible, whenever they have a chance. One way they cheat is to steal from the stockholders by front-loading profits and back-loading risks. That is what destroyed the banking system. At the top of the market in 2006-2007 when risk compensation was stupidly low, bank managers made their return-on-equity numbers by adding leverage on top of leverage. Every one of them knew that it was a dumb and dishonest thing to do, but they all hoped that they would be promoted by the time the problem blew up in someone else’s lap.

Via First Things

But business is still business. Economics is still economics. As a result, there’s an enormous amount of stuff that has not changed – and never will.

Jack Humphrey has a great post on this at Friday Traffic Report. He also hits on the crux the whole “freeconomics” debate.

Really, the only high-value thing we as publishers can charge for with no guilt whatsoever is saving people time. Yet there are thousands who are flat out pissed off that they can no longer sell stuff that used to sell really well, but had little true value, because the jig is up.

Nothing has really changed except that it is far harder to scam people these days. The web is growing up. Business is tougher because it is being reset to normal. Or as normal as it can be on the web.

Jack really nails it with the comment about saving people time. If a person makes $50,000/year, their time is worth about $25/hour. ($50,000/year divided by 50 weeks, divided by 40 hours/week). Obviously some folks a lot more than that, but let’s call it $25/hour.

If you can sell that person something that: a. they want or need, and b. saves them 5, 10, 100 hours…then you’ve got yourself a real business model.

GigaOM Pro is a really neat experiment along these lines. For a $79 yearly subscription, they’re selling access to research reports and “curated” links to great technology content, hand-picked by their analysts and editors.

If you had an enormous amount of time on your hands, you could probably cobble together a lot this stuff yourself. You wouldn’t get access to GigaOM’s proprietary reports, but you could probably get up to speed on, say 75% to 80% of the material just by reading a bunch of good tech blogs.

But why bother if you can pay GigaOM Pro to do it for you? If you’re interested in staying on top of the topics that they cover, $79 is a steal. To justify their pricing, all they need to do is save you an average of 3 to 4 hours a year.

There will always be people who will just never pay for anything – regardless of how awesome it may be. That’s true offline and online. You can ignore those people.

The ones that matter are the people who are strapped for time and need help with stuff. This is classic Economics 101. Here’s another way to think about it. A lawyer makes $500/hour. His secretary makes $20/hour. But let’s say the lawyer is better at everything the secretary does — he’s faster at typing, more effective on the phone, better organized, and even better at making coffee.

Why doesn’t he just fire his secretary and do it all himself? Because every hour that he spends doing $20/hour work is an hour that he can’t spend earning $500 being a lawyer. If he’s an irrational cheapskate, he might fire the secretary. If he’s rational, he will always be better off paying someone else to do the secretarial stuff. This is an Iron Law of Economics and will never ever change.

Marketing for Nice People is a great course from two very highly qualified internet marketing gurus. But it’s not free. On the other hand, $197 is a very, very small price to pay if it means improving your business or getting a few new customers.

Think about all the things you’ve blown $200 bucks on that resulted in a whole lot of nothing. And think about how much it would cost to take a marketing course at your local business school. The textbook alone probably costs a hundred bucks and change – and it won’t mention any of this stuff.

Low prices aren’t enough. Value refers to a low price in relation to the value of the benefits offered by a product–even something as simple and seemingly undifferentiated as a light bulb. Take this 1930 ad for General Electric’s Mazda light bulbs: “Why take the chance of getting 30% less for your money and of cheating your eyesight by using inferior substitutes?” GE bulbs weren’t cheaper–but they were worth the premium.

Tough times call for frank talk. One of the most striking trends in 1930s advertising was a change in attitude toward talking about value for money. If pre-1929 ads often made it seem as if price were no object, a few years later price was very much the subject–and no apologies. Take this 1937 Colgate Dental Cream headline: “Though it costs only half as much I like it twice as well.”

Value and aspiration can go hand in hand. In the Great Depression, even upscale products were pitched on value. Premium products possessed the kind of “durability” or “reliability” that justified its higher price. Take this LaSalle ad from 1933: “The standard five-passenger sedan is now reduced to $2,245–a price most attractively reasonable for a car of Cadillac design, Cadillac construction and genuine Cadillac quality.”

Value can make lower-priced or mid-market alternatives socially acceptable. One particularly popular tactic was to present glamorous Hollywood stars as users of less-than-glamorous products: “Why should I buy an expensive car when the new Dodge offers such unusual beauty and economy?” says Ginger Rogers in a 1936 Dodge ad. If a Dodge was good enough for Ginger Rogers, and a DeSoto for Carol Lombard or Spencer Tracy, then who were self-conscious middle-class consumers to argue?

The Holy Grail: Save them money. The campaign for the 1937 Lincoln-Zephyr V-12 zeroed in on what passed for fuel efficiency at the time: “This is the car, Lincoln-built, in which a Louisiana owner drove 12,000 miles across country [averaging] 17 miles per gallon. The Lincoln-Zephyr is priced well below its specifications!” Westinghouse fridges touted their Meat-Keeper compartment as a cost-saving device: “One: Saves Food. Two: Saves Time. Three: Saves Money. [And] 10 hours out of 12 it uses no current at all.”

Give them a little something extra. It’s no coincidence that small giveaway items are called “value-adds.” The most famous in the ’30s was Depression glass. Starting in the late ’20s, glass was being mass-produced cheaply for the first time. By the middle of the decade, companies from movie theaters to food manufacturers gave away glass tableware. To motivate repeat buying, they often gave items of a set. General Mills’ Wheaties gave away a “Shirley Temple Occasion Dish, fashioned of exquisite sapphire blue ‘Scalloped’ glass,” while Bisquick offered the “Shirley Temple Child’s Mug.”

via Forbes.com.

via PaidContent

–Risk tolerance: Can you live comfortably with the uncertainty of struggling to make payroll or of missing a paycheck?

–Time management: Can you motivate yourself to work? And equally important, can you motivate yourself to stop and pay attention to your family?

–Salesmanship: Are you an introvert? If so, you may have a hard time selling your wares.

–Loneliness: Are you happy on your own? Many consultants and sole proprietors end up working solo.

–Flexibility: Are you willing to take on menial jobs? Small-business people must rely on themselves for tasks, such as bookkeeping, that corporations have staffs to carry out.

But you cannot afford to ignore internet marketing. That means entrepreneurs are left surfing the Web trying to find reliable sources of internet marketing expertise amid a lot of noise and hype. Of course, there are plenty of internet marketing resources on the Web, but there are 2 problems: 1. It’s hard for newbies to have any idea who’s worth listening to…and 2. It’s hard to get any real guidance without forking over some cash first.

Fortunately there’s a great solution being offered by Jeremy “ShoeMoney” Schoemaker. Jeremy is one of the top gurus on Internet Marketing and he’s offering a free 12-week course on all the basics. It’s a great syllabus: affiliate marketing, SEO, pay-per-click, etc. all of the essential topics are covered. At the very least, you must have a working knowledge of these basic concepts before you can even think about making a single dollar online.

Is there a catch? Sort of. I suppose Jeremy will probably put you on his mailing list and probably try to sell you something else in the future. Because that’s what all successful online businesses do – or should be doing.

But that doesn’t take anything away from the value of the course. You can spend a lot of time looking for this content – or spend a lot of money getting it from someone else who’s far less qualified than Jeremy. Overall it’s a pretty good deal.