I have a theory about startups (companies forming during this recession) that hasn’t been tested yet, so I’ve been reaching out to my network for input — on LinkedIn, Twitter, Facebook, lots of emails, a few chats over coffee, and now here.
First, some background. What has happened in this economy is like the difference between:
- B.C. and A.D.;
- before the Great Depression and after;
- the world of 9/10 and the world of 9/11 and beyond; and
- before the Web and after.
New Game, New Rules
Some people are calling it a “reset,” which it is, only that’s not a big enough word to describe it.Here’s my thesis: In this new world, there are going to be billions and trillions of dollars made in hundreds of thousands of new startup businesses — most of them small with sales in the millions and healthy profits.
BUT….these startups are being created with a new set of assumptions, business models and rules that were unimaginable before.
So my questions for you are:
- What will the new businesses be?
- And what are the new rules?
Looking forward to your reply.
MSPmentor contributing blogger Mitch York coaches executives who are evolving into entrepreneurs. He is a veteran of high-tech media and an entrepreneur himself. Find York — and his personal blog — at www.e2ecoaching.com. MSPmentor is updated multiple times daily. Don’t miss a single post. Subscribe to our Enewsletter, RSS and Twitter feeds.
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I am not sure the rules are any different.
1. Solve a real customer problem or create a new opportunity for them
2. Address a massive market
3. Rapidly refine
The major difference is that capital is much more expensive than it has been in the Internet era (figure that $1 a year ago is now worth at least $1.5, if you have it). There is much less of it and no one wants to part with it. Series A now looks like an Angel round in terms of the amount being raised (and Bs are looking like As)
So, in terms of capital, the world has changed, which means companies must.
1. Prove the technology works and can scale
2. Prove that customers will pay for it (and increase their use of it)
3. Prove the market is large
4. Prove a highly efficient and repeatable acquisition model
The last point is critical and explains why traditional enterprise software and feet-on-the-street sales models are dead. There is no “reset” taking place, companies are just focusing on what’s important.
The companies that are disrupting traditional enterprise software markets with on-demand services are the new economy.
Brian de Haaff
CEO
Paglo (On-demand IT Management)
http://www.paglo.com
follow us at http://twitter.com/paglo
Brian: I think we’re seeing some shifts on the funding front, too.
I’m hearing from more and more people who (A) initially pursued funding but (B) ultimately decided to self-fund because of tight credit markets and (C) are happy the situation worked out the way it did.
The reason: Self-funding can make companies more innovative because they are watching their own dollars and always looking for affordable alternatives to traditional business solutions. Plus, self-funding = freedom/control.
Of course, that’s only one side of the story. There are plenty of positive reasons to pursue funding.
Past economic shifts have shown us that startup companies tend to have the upper-hand since they are built from the ground up to be lean and mean. Larger existing companies have a tendency to become bloated during the good economic times. This always haunts them when things slow down. They end up devoting time to leaning out the business rather than building it – advantage small company. The small startup, in most instances can take advantage of the large company being stuck in mud. We see it time and time again. Small, innovative, and light on its feet company comes out of nowhere and scores.
Paul Barnett
Marketing Director
VirtualAdministrator
Paul: I like your logic but I’m certainly biased, since young media companies tend to be pretty nimble…