Why you can be an entrepreneur with less capital

Joe Kraus, who among other things founded Excite, has a new blog called Bnoopy where he recently highlighted three cost differences between starting a technology company in 1993 compared with 2004:

  1. The tools to develop software cost nothing now. Sometimes we forget just how much we owe to the free software movement.

  2. Hardware costs are approaching 0. Joe mentiones that Excite could not afford to increase its search index, simply because the disks were EMC arrays and they couldn’t afford to buy more.

  3. Start-ups have access to global labour.

The last point is increasingly important. Here in Europe, I am seeing more and more software startups using labor based off shore, primarily in Eastern Europe, and using it very effectively to create value at a substantially different price point. Of course, competition means that this will soon be the only way to build a company.

Two interesting consequences emerge of this trend. One is that management skills are increasingly important at the early stages of the company formation. The days when a handfuld of developers could launch a new company are laregly gone. Now you need management experience up front day one.

The second is that the role of venture capital is changing. I think we still need to discover exactly how, but now a well-connected angel investor can take a company much further than in the past. Maybe the startup sector will revert to debt financing?