Josh Padnick’s Blog

Back in the day, say, the 1960’s, starting a company was a really big deal. First, you had to establish an office somewhere ($$$), maybe you had to hire a secretary so you’d look somewhat well-established ($), a phone system probably cost a decent amount ($), and unless you were a service business you probably had some capital investment you needed ($$$$) to get things off the ground in the first place.

I know I’m speaking in generalities here, but let’s say you sold widgets, a physically tangible product that does something for someone. How would you do sales & marketing? Well, fancy parties and networking maybe (more $$$), door-to-door sales (which is both $$$ and time-consuming). And how could you handle support for your product? Well, certainly someone needed to be at the office to field calls or to write back to letters, so there’s at least two people you need.

And what if you had a great idea but didn’t have the money? Well, Venture Capital wasn’t on the scene until about 1960 and even then those guys were game for “disruptive technology”-type companies doing things in semiconductors or computers. So you were basically at the mercy of privately wealthy individuals for funding.

And brand recognition? Well, you couldn’t advertise on Google and fliers were probably pretty expensive to print (I don’t even know if you could go to a 1960’s version of Kinko’s), so you’re basically looking at print ads (more $$$), TV ($$$$$), or maybe radio ($$) but those had their limitations, too.

Basically, the point of all of this is that if it’s 1960 and you’ve got a great idea Good Luck.

Now fast foward 45 years to today in 2006. Okay, I’ve got a great new idea for doctors and the Internet…hmmm, how can I do it? Well, I need to build the software; either I can take the time to do it myself which is increasingly not very hard thanks to the likes of Visual Studio 2005 or if I want to go on the cheap I could even use Eclipse for my development software and pick a platform like Java whose setup costs can be pretty cheap in the beginning.

Or if I don’t have the time or skills to build it, I can hire someone. This still costs $$ but if I really needed to stay on the cheap, I can outsource to India (there are issues here, but it’s an option at least).

Assume I can build my software for $30,000 in cash, opportunity cost, whatever. Then I need to market it — boom, Google adWords ($45/month gets me exactly to the people I need to get to). Oh, and if I make a good product word of mouth is easy because people can just visit my website. Do I need an expensive office to work out of? No, I can work from home and pay for a dedicated phoneline ($45/month; big whoop). Do I need someone to say “Thank you for calling Josh’s New Company; how may I direct your call?”? Sure, that’d be nice; so I’ll outsource that one and pay $75/month for that. Do I need a meeting space for important meetings? Okay, I’ll buy a virtual office where I can get receptionist + meeting space for $200/month or so (these do exist by the way).

And so, for a total of $30,000 one-time investment and maybe $300/month not counting my own salary, I have just created a fully functional enterprise. Now compare that to the hundreds of thousands of dollars needed in 1960 and it’s unbelievable how you start to see that our society is making the cost of entrepreneurship lower and lower.

And that’s not just in software like I’m talking about above, too!

• George Lucas (creator of Star Wars series) thinks that the cost to produce an Academy Award-Winning movie is dropping like crazy.
• Okay, I can’t think of any other examples off the top of my head

But the point to me is that if I wanted to be an entrepreneur way back in the day, it would have been a whole lot of $$$$ and would have taken a really long time to get the company off its feet. Today, entrepreurship is so common that most college graduates when asked what they *really* want to do with their lives say something about wanting to start a company some day (Source: my own personal observations).

I actually consider this a pretty exciting phenomenon because if entrepreneurship is a path toward establishing an emotionally, spiritually, professionally, and financially rewarding career (when sufficiently well planned out), then it’s great that the “barriers to entry” of that path are getting smaller and smaller.

In fact, as one other parallel observation, it seems that most successful entrepreneurs today really hate the idea of venture capital for certain startups (when dealing with non-capital-intensive startups (e.g. biotech is very capital intensive), this author stands in agreement). It really comes down to a very simple idea — it’s just not that expensive to do a successful startup anymore so why dilute your company with outside money when you don’t need that money in the first place?

Joel Spolsky explans this idea much better than I could.

In the end, if you think about what it means for a startup to “fail”, it really comes down to either (a) the founders just throw in the towel, or (b) the startup simply runs out of money. Assuming you’re the type of person that doesn’t plan on doing (a), that leaves “running out of money” as the singular condition that prevents you from continuing to run your business. It stands to reason, then, that your goal in the startup phase of your company should be to limit your expenses as much as humanly possible.

So, the takeaway of all this for me is that, it used to be the case that doing a startup was *very* risky and much less common. These days, though, entrepreneurship is relatively cheap. Assuming you plan things out so as not to spend too much money, anyone who really sets their mind to it and has a half-decent idea can probably make a living out of it today.