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Do it for less...

I've written a lot over the last few days about the issues of too much money going into a company so its only fair to highlight the other side of the equation... do it for less.

The NY Times has an article today (no subscription required this week only) about web companies that have been started on less money - in some cases a few thousand dollars.  One of the examples quoted is Meebo, the web based IM company in Palo Alto.

Meebo eventually took venture money but only after they had established a few proof points for the business - they proved out the technology and validated that they could acquire and retain users.  Now they are widening their footprint and I'm sure, thinking about ways to monetize their user base.

The point is that the capital required to get an Internet company up and running these days can be modest.  Cheap hardware, cheaper bandwidth and high quality open source software have made a huge impact.  The flip side is that the barriers to entry for competitors may be non-existent or very low.  It's hard to think of other business areas that are as inexpensive to enter as the Internet primarily because the Internet enables low cost distribution and low customer acquisition cost (for those ideas that simply click! with users).

The same NYT article also has a long thread about the mismatch between early stage investing and large venture funds - but as I said before, it's not just about the money, it's about the help.  A smaller fund lets the venture investor spend more time with the company and make smaller upfront investments to prove out the business.

Comments

Stu

Erik, completely agree - but like YouTube and some others (including Google), the monetization came after there was volume to monetize.

It's a different strategy for sure but some venture firms seem to focus on it effectively while balancing "get volume" but don't "get big too fast" - avoiding expenses getting out of hand before the revenue begins to offset the burn.

Thomas

The one point that many of these articles seem to miss is the value of the founders' capabilities to program these types of toys themselves. If one were really to start this type of business, they would have to pay programmers several hundreds of thousands of dollars to create the apps. In this case, we're coming off a time period 2001 - 2003 where there were A LOT of unemployed web designers, programmers, tech execs, etc... They valued their time at zero and spent time dreaming up these new Web 2.0 applications. (And let's be real, these are not companies, they're applications. We'll see the whole 'feature v. company' issue raise its head as some of these start-ups mature.) Anyways, you now have a much more robust employment economy in the valley and there are fewer techies that value their time at zero. Therefore the cost to start one of the these companies today is much higher than a couple thousand bucks. Unless, of course, you can do the programming yourself...

Erik Schwartz

I think Meebo has proven a few proof points of their product, I don't think they've proven anything about their business yet.

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STU PHILLIPS
MENLO PARK, CALIFORNIA

Intense Brit, lived in Silicon Valley since 1984. Avid pilot, like digital photography, ham radio and a bunch of other stuff. Official Geek.

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