Entrepreneurs, angels, and the cost of launch 30 Jun 2005
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Joe Kraus from JotSpot has a great piece on how the last ten years has reduced the price of doing a startup from three million to a hundred thousand dollars for him. That’s definitely an interesting development and Joe is highlighting the right trends. But since Joe is coming from a company launched on angels and running on VC ($5,2 million, no less), his side is only one side of the story.
As part of a debt-free company that didn’t need angels to launch and is operating on revenues instead of VC, I naturally have a somewhat different perspective. I think the most interesting change in this economy is what can be done with little or no explicit investment at all. The products that emerge from the constraints of prior commitments. Like being a student, working for clients, or being just a regular old employee.
Now that all the fixed costs are gone, you’re left with the requirements of time and passion. While those resources (or at least one of them) can be bought by setting up shop and saying “we’re doing it”, they can certainly also be had outside the typical startup atmosphere. And I think that story is actually a lot more interesting since its not just lowering the costs of an existing model, it’s throwing it out and opting for a new one entirely.
As mini-investments from VCs and angels become the next big thing, I hope more crews will think hard and consider whether they could do without. Look at the project that costs $100,000 and figure out how to make it cost $20,000 over the shoulders of three guys. Do it out of your own pocket and you’ll be forced to reckon with constraints earlier and more intensely.
Constraints drive innovation and getting your idea out in the wild in two months instead of six will likely do you a world of good. A month or two out the gates, you’ll have a pretty good idea of whether you “got something” or not.
If you do, you’ll be self-sustainable shortly, and won’t need the external cash (neither the $100K to launch nor the $5.2 million to run). If you don’t, you better turn down the life support cash and come up with another idea that’ll put you in the first game.
Taking cash shouldn’t be a necessity, a goal, or a celebration. Once we change the social aspirations around the last two, our culture will have caught up with the economics.