book applicable for anyone interested in starting a company, we’ve used examples from each of these domains.
Who This Book Is For
We wrote this book with first-time entrepreneurs in mind. However, we have received feedback from experienced entrepreneurs that this book has been helpful to them while thinking through their next opportunity.
As entrepreneurship engages a wider range of younger people in our society, we see a dramatic increase in entrepreneurial activities from high school and college students. This book is aimed at them and is intended to be used as a part of an entrepreneurship curriculum.
This book is for educators, particularly those teaching entrepreneurship and opportunity recognition and evaluation courses. If you are a teacher whose students often ask, “How do I know if my idea is worth pursuing?” then this book is for you.
This book is also for friends and family who support the entrepreneur on her complicated and challenging journey. If you are an entrepreneur, you can use it as a source of dialogue with your spouse, your siblings, your parents, and your children.6
This book is for fans of Dragons’ Den and Shark Tank. If you have wondered how the judges choose which companies to fund, you’ll enjoy this book.
This book is also for investors, especially angel and early-stage investors, as they try to better understand a new business. In the same way that the entrepreneur can use this book to help shape an opportunity, an investor can also use these concepts to help evaluate an opportunity.
Most of all, the book is for all those who have a passion for entrepreneurship, especially those of you who know that only the very best opportunities deserve your blood, sweat, and tears. Ideas may be worthless, but your time, energy, and focus are not. Friends only let friends work on great opportunities.
CHAPTER 2
The Democratization of Startups
Now is an amazing time to be an entrepreneur. Startup communities are being built all over the world. You don’t need significant capital to start a new business. Knowledge about how to start and scale companies is more prevalent than ever.
Twenty years ago, the Internet was starting to be used in a commercial way. Today, an entire generation has grown up net native, and people are living their lives online and unaware of a time when the world wasn’t interconnected by technology. The rapid change and increased availability of technology has radically impacted how companies are started and built. The dynamics around barriers to entry, especially in businesses that have constraints around communication and distribution, have shifted in favor of startups.
This applies no matter where you are located – from Silicon Valley to Berlin, from New York City to Iowa City. The emergence of concepts like the sharing economy, the growth of smartphone use and the accompanying app explosion, and the interconnectedness of many business functions are democratizing the ability to start a new company.
The Cost to Launch Is Approaching Zero
In the dot-com boom (1996–2001) software companies needed several million dollars of funding to buy equipment just to get started. There was no Google to help attract users, there was no PayPal to make payments frictionless, there was no AWS (Amazon Web Services) to remotely host your application, and there was no Shopify to build your e-commerce store. Just as it was with the early settlers in Alaska, there was no infrastructure to support nascent entrepreneurs. If you wanted to launch a jewelry business online in 1996, you not only had to have kickass jewelry, you had to build your own storefront and your own payment transaction engine, and you had to attract customers one at a time. Basically, you had to put all the pieces together yourself.
By the Web 2.0 era (2007), the cost to start an online business had dropped to less than $500,000. Much of the infrastructure that you needed existed in some form. By 2012, cloud computing had emerged along with software that integrated most of the supply and demand chains. Now you could get going with under $50,000. Today, that number is even lower, with the requirement often being a laptop, access to free Wi-Fi at a Starbucks, and a few online services.
This radical drop in cost is a result of the rise of Internet infrastructure connecting all aspects of business along with the immigration of billions of people onto the Internet. Upfront Ventures summarizes this beautifully in the visual representation in Figure 2.1.
Figure 2.1 Falling Cost of Tech Entrepreneurs Launching Product
The World Is Flat
In 2005, when Thomas Friedman wrote The World Is Flat, the metaphor of viewing the world as a level playing field set a great backdrop to what happened around entrepreneurship over the next decade.
Suddenly, due to technology and the broad spread of information, entrepreneurs became geo-agnostic (i.e., they no longer must live in a certain place to do business). As broadband and mobile Internet expanded around the world, physical location mattered much less. Today, you can take care of just about everything your business needs from your smartphone or a browser. You can sell to customers anywhere in the world from anywhere in the world. A one-person operation with a website and a presence on social media can reach consumers across the world as easily as a large company. While mass markets are more available, the ability to use demographic and social media data to identify small, specific, specialized markets has never been greater – or easier.
The Path Is Known
When we studied entrepreneurship in the 1980s, before entrepreneurship was a popular word, we were given a book —The Autobiography of Benjamin Franklin or Iacocca: An Autobiography– and told to glean ideas from their best practices. Maybe we got lucky and stumbled across a copy of Jeffry Timmons’ New Venture Creation: Entrepreneurship for the 21st Century.
Times have changed. Today, we have several decades of experience studying, discussing, documenting, and formalizing ways startups are created. Instead of an ad hoc, random, or apprentice-based approach, we now have a scientific approach to creating startups. While there are different styles, the most common, now referred to as the Lean Startup approach, was created and popularized by Steve Blank through his theory of Customer Development and his student Eric Ries with his omnipresent book, The Lean Startup.
This path has at its core the idea of customer collaboration, which sees founders working with early adopters to shape a product or service that resonates with the customer segment. It is not a new idea, building on the concept of lean manufacturing and the notion of user-driven innovation by MIT professor Eric von Hippel.
The Lean Startup, and methodologies like it, gives us a formalized road map to go from an idea to a startup. It changes the approach from one of overplanning to one of iterative planning in conjunction with feedback from users. Instead of building things in secret, founders are instructed to go to market early with a minimally viable product, test it with users, and then iterate continuously.
Access to Capital
While the cost of getting started has dropped dramatically, access to capital has increased equally significantly. A founder with an idea for a new business but no money had to go hat-in-hand to those with capital, begging and pleading for an investment. The process, including presentations, exhaustive explanations, and multiple projections, often failed to achieve the sought-after funding.
Today, a person starting a new business has access to individual high net worth investors, angel investors, and venture capital funds created for the sole purpose of investing in new ideas and new companies. Accelerator programs, which provide a small amount of capital and a lot of mentoring, help founders hone their early ideas and get positioned to raise additional capital. Online crowdfunding resources, such as AngelList, create an entirely new pool of capital for founders