The Business of Startups Is Business

As the economy slumps, many entrepreneurs are looking past consumer Web sites to focus on products and services for companies

As far as entrepreneur Dries Buytaert is concerned, a startup with smart ideas and driven people has a good chance of surviving, whatever the economic climate. "Make sure you have a solid business plan and you've done your homework and are passionate about what you are doing, and people will recognize your potential," says Buytaert, who in 2001 came up with a new way for people to collaborate online and publish Web content. His idea turned into Drupal, a project that draws together software developers from around the world who collectively tinker with and add features to the content management system made available for free.

Seven years on, as he tries to turn his idea into a successful business, Buytaert isn't taking any chances. He and fellow entrepreneur Jay Batson co-founded Acquia and have raised $7 million to help them in their quest to widen the use of Drupal. More than 700 contributors now work on some 2,000 features for the so-called open-source software, which is used by Sony BMG Music, Warner Music Group (WMG), Forbes, The Onion, Harvard University, Time Warner's (TWX) AOL, Amnesty International, and more than 250,000 other companies to manage their Web sites.

Buytaert is among a handful of innovators who are building businesses and products aimed at other companies and who were identified in a survey of venture capitalists and BusinessWeek editors and readers as some of this year's most promising young technology entrepreneurs. Many of these 30-and-under innovators buck the trend that has lured scores of entrepreneurs to green technology and consumer-focused online services, such as social networks and so-called widgets that let Web users append games, videos, and the like to personal profiles.

"Natural Evolution"

To be sure, venture capitalists are still eagerly funding startups specializing in green tech and the class of consumer-facing online businesses grouped under the Web 2.0 heading. Clean-tech companies garnered $2.52 billion in funding last year, a 79% increase from 2006, according to Dow Jones VentureSource. Web 2.0 businesses raised $1.34 billion, an 87% increase from 2006. By contrast, startups focused on information technology for enterprises raised $1.98 billion, an 18% decline from 2006.

Still, some of the most promising startups are eschewing products that have a faddish, me-too look and feel, attempting to form companies they hope will have a more lasting business model, say venture capitalists. "You are starting to see the Internet and small business become an interesting area," says Jeff Fagnan, partner at Atlas Venture, which this year plans to "fund multiple investments" in companies that cater to businesses. "As certain areas of consumer Internet are becoming saturated, it's the natural evolution."

In the second half of 2008, Acquia will release a new, souped-up version of Drupal software and make it available to companies for free. Buytaert will try to make money through sales of related support services. In December, Acquia raised its funding from North Bridge Venture Partners, Sigma Partners, and 2 Next Page

Before it's here, it's on the Bloomberg Terminal. LEARN MORE