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June 29, 2005

It’s a great time to be an entrepreneur

There’s never been a better time to be an entrepreneur because it’s never been cheaper to be one. Here’s one example.

Excite.com took $3,000,000 to get from idea to launch. JotSpot took $100,000.

Why on earth is there a 30X difference? There’s probably a lot of reasons, but here are my top four. I’m interested in hearing about what other people think are factors as well.

Hardware is 100X cheaper

In the 10 years between Excite and JotSpot, hardware has literally become 100X cheaper. It’s two factors – Moore’s law and the rise of Linux as an operating system designed to run on generic hardware. Back in the Excite days, we had to buy proprietary Sun hardware and Sun hard drive arrays. Believe me, none of it was cheap.

Today, we buy generic Intel boxes provided by one of a million different suppliers.

Infrastructure software is free

Back in 1993 we had to buy and continue to pay for maintenance on everything we needed just to build our service -- operating systems, compilers, web servers, application servers, databases. You name it. If it was infrastructure, we paid for it. And, not only was it costly, the need to negotiate licenses took time and energy. I remember having a deadline at Excite that required me to buy a Sun compiler through their Japanese office because it was the only office open at the time (probably midnight) and we needed that compiler NOW.

Compare that to today. Free, open source infrastructure is the norm. Get it anytime and anywhere. At JotSpot, and startups everywhere you see Linux, Tomcat, Apache, MySQL, etc. No license cost, no maintenance.

Access to Global Labor Markets

Startups today have unprecedented access to global labor markets. Back in 1993, IBM had access to technical people in India, but little Excite.com did not. Today, with rent-a-coder, elance.com and just plain email, we have access to a world-wide talent pool of experts on a temporary or permanent basis.

SEM changes everything

Ten years ago to reach the market, we had to do expensive distribution deals. We advertised on television and radio and print. We spent a crap-load of money. There’s an old adage in television advertising “I know half my money is wasted. Trouble is, I don’t know what half”. That was us.

It’s an obvious statement to say that search engine marketing changes everything. But the real revolution is the ability to affordably reach small markets. You can know what works and what doesn’t. And, search not only allows niche marketing, it’s global popularity allows mass marketing as well (if you can buy enough keywords).

So What?

It’s nice that it’s cheaper, but what does it mean to entrepreneuring?

More people can and will be entrepreneurs than ever before

A lot more people can raise $100,000 than raise $3,000,000.

Funding sources explode which enables more entrepreneurs

The sources of funding capable of writing $100,000 checks are a lot more plentiful than those capable of writing $3,000,000 checks. It’s a great time to be an angel investor because there are real possibilities of substantial company progress on so little money.

More bootstrapping to profitability

With costs so low, I think you’ll see many more companies raise angel money and take it all the way to profitability.

Higher valuations for VCs.

And, for those that do raise venture capital, I think it means better valuations because you can get far more mature on your $100,000 before you go for the bigger round.

All in all, it’s a great time to be an entrepreneur.

June 29, 2005 | Permalink

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Comments

Ok, I'm really curious about this. How could you possibly have gotten to a launch on $100k? Please give some more details, otherwise this just seems like an exaggeration. I mean, were you paying anyone in the US? Because $100k will only get you 1/2 person-years.

Posted by: Anon | Jun 29, 2005 11:43:29 PM

another set of good reasons:

* down round financing went from >50% in 2002-3004 to <20% in 2004. all the old crap is finally being flushed out.

* first round financing expanded 2 quarters in a row (Q4/04, Q1/05), and seems to be on the way up. now that the old crap is out of the way new crap can get funding! (ok, so hopefully this time it's not crap...)

* Google's IPO created another major portal that can provide acquisition liquidity for new ventures; so now with MSFT, YHOO, GOOG (and also IAC, AOL, EBAY, AMZN et al), there are a LOT of companies out there willing to buy startups with solid technology -- and thus more optimistic entrepreneurs and angel/VC investors.

* in addition to SEM creating instant traffic, AdSense & other online advertising networks can create provide a new form of instant revenue & monetization for startups (albeit limited in most scenarios).

* a multiplicity of publicly available web services / hosted ASPs are making "mashups" a lot more prevalent, and people can now remix some very cool apps without having to build the entire technology stack from the ground up. folks like Paul Rademacher can be a one-man band & create HousingMaps.com.

the technology DJ's time has come.

yep, gotta agree... time to buy shades :)

- dmc

Posted by: Dave McClure | Jun 30, 2005 2:46:32 AM

I am in hole hearted agreement with you but I have also added my own reasons:

* Simpler services are more successful

* Big is no longer cool

* Better frameworks

Which I expand on on my blog post. I and many other people are trying to bootstrap without Angel Investors, which is something you will see a lot more of as well.

Posted by: Pelle | Jun 30, 2005 3:13:05 AM

Let's not forget the proliferation of broadband in the last 2-3 years...lowering the barriers to adoption for any number of startup's service offerings.

Here in the UK, there's a direct correllation between the broadband ISP price war and the adoption of broadband services and content.

Posted by: Imran Ali | Jun 30, 2005 4:50:16 AM

Our experience at Revieworld and Reevoo concurrs with what you are saying. There is a positive attitude amongst UK investors at the moment. There is a realisation that a lot can be done with little - "low cost model" is becoming a philosphy. Everything can now be measured to maximise the benefit.

Technology (software and hardware) is cheaper but marketing (a huge source of cost previously) can be better controlled utilising the best of the old word off-line techniques combined with modern marketing (adwords, viral, word of mouth etc).

Posted by: Richard Anson | Jun 30, 2005 6:02:31 AM

I mean, were you paying anyone in the US? Because $100k will only get you 1/2 person-years.

That's just not true. You'd be surprised how many people out there are working for peanuts on projects. A lot of people balance their regular work with working on more entrepreneurial dreams, and $100K would go a very long way indeed, especially for the young (and most entrepreneurs these days are younger than ever before).

Posted by: Peter Cooper | Jun 30, 2005 9:31:10 AM

it’s global popularity

>>

its global popularity

Posted by: Emma | Jun 30, 2005 11:18:49 AM

Joe,

I'd love to have you give a talk on this topic, either for the Harvard Business School High Tech Alumni Association, or for SDForum. I know that your schedule is busy, but is there any chance you might be able to carve out an hour or two?

--Chris

Posted by: Chris Yeh | Jun 30, 2005 2:18:14 PM

Interesting article.

i agree with most of what you said except on advertising , search engines will bring you qualified visitors but it will not give you massive reach , and definitely will not make your service popular like what the traditional media (TV , etc) did to Excite.



Thanks

Faisal

Posted by: Faisal | Jun 30, 2005 2:48:39 PM

Yes it is a good time to be an entrepreneur.

I agree that net startups can be done on the cheap, and they should. But wages still cost, and good talent is expensive. Yes, you can offshore some of it, but you have better have a solid core base built before you go down that path. Software development outsourcing is difficult, from the start you've got cultural, communication and timezone issues. Not to mention usually a misalignment of macro understanding of what the product is and how it should function.

I am just curious, if you really believe you can bootstrap the entire operation from start to exit, then why did you take in $6MM in venture? Why dilute your equity more than you have to?

I dont fault you for taking the cash, I would take as much money as I could raise (you never know when/if your going to need it.)



Posted by: John | Jun 30, 2005 11:17:16 PM

Another great way to save on advertising costs is to concentrate on Internet Adversiting. I just posted on my website all about that area after attending a great marketing course.

Check it out here....

http://componentfactory.blogspot.com

Posted by: Phil Wright | Jul 1, 2005 1:12:55 AM

It appears that the people best positioned to startup a new venture on $100k are the ones that are already rich from their previous venture and thus can work for no salary. I've seen it first hand, a friend is starting (co-founding) a company and wanted me to join, and all his partner can argue back at me is, "See all these people working for me? They're all working for just stock because at the last company they all made a million dollars." Great for them, super. But I didn't (yet), I want a salary. Does that mean no startups for me?



Posted by: Duane | Jul 1, 2005 5:46:44 AM

I am surprised at the comparison drawn between Excite and Jotspot. No offense, but to me, a search engine is a hell of a lot more algorithmic, tuning and systems work than a customisable wiki is!

Posted by: Ashwin Bharambe | Jul 1, 2005 8:21:25 AM

I agree that it is a great time to be an entrepneur. Aside from the lower cost of equipment there are more avenues to sell products and more ways to market your products. With proven marketplaces like ebay and amazon.com, many people are starting their own small business to supplement their income whereas 10 years ago, a lot of these things were still grey area and were only for the strong willed. Word of mouth marketing has never been better. With the advent of blogs and popdcasting, getting a post on one popular blog can spark a firestorm of sales and increased visibility.

The internet now is not just the latest "new" thing, it's just another outlet, which means that people have become more comfortable with it that has allowed them to embrace starting an online venture.

Posted by: adam | Jul 1, 2005 8:39:50 AM

much of this has been in place for some time. yahoo was bootstrapped with free software...in 1995. cheap hardware too. david filo was way ahead of his time, he was doing "cheap" when it was actually novel and often disputed (you can't do this without sun boxes!). i credit him for the cheap revolution.

also note that these conditions draw many more players into the game and reduce margins. when it costs $0 to start a business, you can likely expect $0 returns.

Posted by: b7j0c | Jul 1, 2005 8:44:52 AM

@Ashwin:

"I am surprised at the comparison drawn between Excite and Jotspot. No offense, but to me, a search engine is a hell of a lot more algorithmic, tuning and systems work than a customisable wiki is!"

That may true for some wiki projects out there, but it's not true in the case of Jot. If you had taken more than a cursory look at what Jot is doing, you would have realized that it is more than a "customizable wiki". It's a large-scale hosted service that is a platform for building applications.

Posted by: Paul | Jul 1, 2005 8:54:21 AM

Hello Duane,

I do not think so. Here in Canada, I can leave with 15k$ CND a year (small accommodation, no car, some food and a monthly subscription for a place to train). Could you? If so, you can easily bring 15k or 20k a year with small consultant contracts that will take only a part of your working time during a year. The other part of your working time could then be use to start that dam startup :)

I do not think that the problem is cash, but much more one of work, hard work and patience.

Take care,

Salutations,

Fred



Posted by: Fred | Jul 1, 2005 9:55:22 AM

I couldn't agree more. Now is a great time to be an entrepreneur. I have been using Rentacoder, adsense, adwords, and SEO to build and market content online.

So much infrastructure is available today that used to be prohibitively expensive and difficult to build. I can accept payments using the new Paypal payments API, and I can promote my sites in a few minutes using adwords and other advertising programs.

It does take some money and know how to get started. If you're a business person with a great idea, it's still fundamentally difficult to translate your vision for the business (a web site, a community, a lead generation system, etc.) into a product specification that engineers on services like elance and rentacoder can implement.

That said, the cost of getting things up and running is fundamentally several orders of magnitude lower than it was just a few years ago.

How do you get running on $100K? You have most of your development done offshore using services like rentacoder and elance. You hire contractors offshore as well as students to help write the content and marketing text for your sites. You buy hosting at low cost from any of the many hosting providers (so you own no hardware). You promote your site or sites via advertising and organic search (SEO).

It truly is a great time to be an entrepreneur.



Posted by: David Feinleib | Jul 1, 2005 10:37:35 AM

"So much infrastructure is available today that used to be prohibitively expensive and difficult to build. I can accept payments using the new Paypal payments API, and I can promote my sites in a few minutes using adwords and other advertising programs."

this is a decent way to build a small business, a second income etc., but thats about it.

"How do you get running on $100K? You have most of your development done offshore using services like rentacoder and elance."

this is just clueless. no 24/7 web service can live without oncall staff who know the code. i don't care if they are in sunnyvale or bangalore, you need someone on payroll who can solve mission critical issues asap. oh yeah you can outsource your colo, but they aren't going to fix your mysql bugs.

all of these comments in any case revolve not around general entrepreneurial activity but setting up small-time websites. duh! this has been cheap for a long time. also 99,999 people are your competitors, once again this approach is great if you want to make $20k a year reselling purses.

tell me how i do advanced materials, alternative energy, biotech etc on the cheap.

Posted by: GrumpY! | Jul 1, 2005 2:07:53 PM

Right on! I've done a variety of podcasts with entrepreneurs and VCs in Silicon Valley and Joe's points are echoed by many. This is the new model and YES it's great for entrepreneurs. My company was funded entirely by myself and customers. We paid nothing for technology to get the business off the ground. Open source is changing everything every day.

John Furrier

Founder of PodTech.net

Joe - "Lets Podcast"

Posted by: John Furrier | Jul 1, 2005 2:09:15 PM

Joe,

I'm with John on this. It'd be great if you could create your own podcast for business development stuff and talk about your trials through excite as well as with jotspot.

After starting my company, I have found that I have loads of info about "what not to do" when starting a business when my friends think about jumping into the foray.

Good luck to everyone that have started or are thinking about your own ventures. Its rough out there but HIGHLY rewarding.

Posted by: adam | Jul 1, 2005 2:32:16 PM

Hey Joe - my apologies, i didn't mean anything negative by my comment on SVN. It was meant to be a metaphor. I love Jot Spot. you guys are doing great work. I don't think there is anyway you could be doing Jot Spot with just 3 people.

Posted by: ed Fladung | Jul 1, 2005 3:00:26 PM

Nice post.

Add to the list:

Employees who've done it before

We take 10s of cycles off of projects these days because we have a core group of people that have built similar technologies before. The hardware/software costs have diminished a lot, but so have the personnel costs. Some of the time savings is because they have better tools. Most of the time savings is because they are walking along well-worn paths.

Cheers,

John

Posted by: John Girard | Jul 1, 2005 3:25:42 PM

See a similar article by Utah entrepreneur Paul Allen at Connect Utah magazine: http://www.connect-utah.com/article.asp?r=1050&iid=34&sid=4

He gives 8 similar reasons why now is the best time in the history of the world to start a company.

Posted by: Richard Miller | Jul 2, 2005 10:26:45 AM

I definitely concur that it's an opportune and excellent time to be an entrepreneur and\or a startup.

In our case, we're defying odds in spite of the fact that we're located in a region of the world most people assume has

1)No innovation

2)Low penetration of technology.

My company, NEO(New Enterprise Objects), is a budding startup specializing in levaraging mobile technology to explode the enterprise and provide an efficient distributed collaboration infrastructure.

Currently, 100% of our staff(5 members) are either consulting or employed full time. All time spent coding ,having meetings or strategising is derived from what I fondly call, "the night shift", where the real hacking begins.

In addition, none of us is being paid any salary but is fueled by

1)The vision

2)The increasing value of the startup and our stake\stock in it.

Who could have thought that a startup in an LDC could be accelerating in the enterprise space with very little capital (even much less than you've indicated above) and no full time employees?

This truly is a wondeful time to be an entrepreneur.

Posted by: Nicholas Ochiel | Jul 5, 2005 9:33:59 AM

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