Why, as a startup, you've never had it so good.
Now is an amazing time to be an entrepreneur. Startup communities are being built all over the world. You don’t need significant capital to start a new business. Knowledge about how to start and scale companies is more prevalent than ever.
Twenty years ago, the Internet was starting to be used in a commercial way. Today, an entire generation has grown up net native, and people are living their lives online and unaware of a time when the world wasn’t interconnected by technology.
The rapid change and increased availability of technology has radically impacted how companies are started and built. The dynamics around barriers to entry, especially in businesses that have constraints around communication and distribution, have shifted in favor of startups.
This applies no matter where you are located—from Silicon Valley to Berlin, from New York City to Iowa City. The emergence of concepts like the sharing economy, the growth of smartphone use and the accompanying app explosion, and the interconnectedness of many business functions are democratizing the ability to start a new company.
The Cost to Launch Is Approaching Zero
In the dot-com boom (1996–2001) software companies needed several million dollars of funding to buy equipment just to get started. There was no Google to help attract users, there was no PayPal to make payments frictionless, there was no AWS (Amazon Web Services) to remotely host your application, and there was no Shopify to build your e-commerce store.
Just as it was with the early settlers in Alaska, there was no infrastructure to support nascent entrepreneurs.
If you wanted to launch a jewelry business online in 1996, you not only had to have kickass jewelry, you had to build your own storefront and your own payment transaction engine, and you had to attract customers one at a time. Basically, you had to put all the pieces together yourself.
By the Web 2.0 era (2007), the cost to start an online business had dropped to less than $500,000. Much of the infrastructure that you needed existed in some form. By 2012, cloud computing had emerged along with software that integrated most of the supply and demand chains.
Now you could get going with under $50,000. Today, that number is even lower, with the requirement often being a laptop, access to free Wi-Fi at a Starbucks, and a few online services. This radical drop in cost is a result of the rise of Internet infrastructure connecting all aspects of business along with the immigration of billions of people onto the Internet.
The World Is Flat
In 2005, when Thomas Friedman wrote The World Is Flat, the metaphor of viewing the world as a level playing field set a great backdrop to what happened around entrepreneurship over the next decade.
Suddenly, due to technology and the broad spread of information, entrepreneurs became geo-agnostic (i.e., they no longer must live in a certain place to do business). As broadband and mobile Internet expanded around the world, physical location mattered much less.
Today, you can take care of just about everything your business needs from your smartphone or a browser. You can sell to customers anywhere in the world from anywhere in the world. A one person operation with a website and a presence on social media can reach consumers across the world as easily as a large company.
While mass markets are more available, the ability to use demographic and social media data to identify small, specific, specialized markets has never been greater—or easier.
The Path Is Known
When we studied entrepreneurship in the 1980s, before entrepreneurship was a popular word, we were given a book—The Autobiography of Benjamin Franklin or Iacocca: An Autobiography—and told to glean ideas from their best practices. Maybe we got lucky and stumbled across a copy of Jeffry Timmons’ New Venture Creation: Entrepreneurship for the 21st Century.
Times have changed. Today, we have several decades of experience studying, discussing, documenting, and formalizing ways startups are created. Instead of an ad hoc, random, or apprentice-based approach, we now have a scientific approach to creating startups.
While there are different styles, the most common, now referred to as the Lean Startup approach, was created and popularized by Steve Blank through his theory of Customer Development and his student Eric Ries with his omnipresent book, The Lean Startup.
This path has at its core the idea of customer collaboration, which sees founders working with early adopters to shape a product or service that resonates with the customer segment. It is not a new idea, building on the concept of lean manufacturing and the notion of user-driven innovation by MIT professor Eric von Hippel.
The Lean Startup, and methodologies like it, gives us a formalized road map to go from an idea to a startup. It changes the approach from one of overplanning to one of iterative planning in conjunction with feedback from users.
Instead of building things in secret, founders are instructed to go to market early with a minimally viable product, test it with users, and then iterate continuously.
Access to Capital
While the cost of getting started has dropped dramatically, access to capital has increased equally significantly. A founder with an idea for a new business but no money had to go hat-in-hand to those with capital, begging and pleading for an investment.
The process, including presentations, exhaustive explanations, and multiple projections, often failed to achieve the sought-after funding.
Today, a person starting a new business has access to individual high net worth investors, angel investors, and venture capital funds created for the sole purpose of investing in new ideas and new
companies. Accelerator programs, which provide a small amount of capital and a lot of mentoring, help founders hone their early ideas and get positioned to raise additional capital. Online crowdfunding resources, such as AngelList, create an entirely new pool of capital for founders to access.
While founders still must prove the merit of their ideas, their options for funding are greater and the process is generally less convoluted. Furthermore, the balance between the investor and the entrepreneur has shifted.
Rather than being dependent on raising capital to get into the market with a product, you can now quickly get into the market and demonstrate customer demand, which results in an easier path to financing.
The extreme example of this is product crowdfunding, where you no longer need investors to bless your idea. Instead, you can get traction and early revenue before you even build the solution. In 2015, more than $692 million was committed over Kickstarter (the world’s leading crowdfunding platform) to products that were not built yet.
With these positives comes a downside. More people than ever are starting companies. The lack of barriers to entry allows terrible ideas to be pursued. Investing time at the very beginning to understand how to come up with a good opportunity is more important than ever.
This is an edited extract from Startup Opportunities: Know When to Quit Your Day Job, second edition, by Sean Wise and Brad Feld (Wiley, July 2017).
SEAN WISE is an expert on startups and venture capital. He hosts The Naked Entrepreneur, which airs on the Oprah Winfrey Network, and is a prolific business educator, bestselling author, and an international business speaker. He is a partner at Ryerson Futures, a seed-stage venture capital fund and technology accelerator.
BRAD FELD has been an early-stage investor and entrepreneur for over twenty years. Prior to co-founding Foundry Group, he co-founded Mobius Venture Capital and Intensity Ventures, a company that helped launch and operate software companies. He's also a co-founder of Techstars.
The Democratisation Of Startups