Much is being said about the uphill battle faced by today’s startups – especially in tech – because of the lack of venture capital available compared to decades past. However, thanks to server breakthroughs like cloud computing and VPS hosting today’s entrepreneurs don’t need anything like the amount of cash that startups needed twenty years ago. In many ways, that mitigates the dirge of capital and frees startups to chart their own courses.
Today’s startups also benefit from a dramatic shift in the marketing dynamic. Whereas in the first boom startups had to use traditional advertising to drive traffic to their sites, today social media and enhanced search engine marketing are dramatically lowering the capital commitment that has to be made in order to establish an initial market presence.
As a result, the entrepreneurial class is becoming less dependent than ever on capital sources, which means that entrepreneurs have more freedom to take the kind of risks that are necessary to develop something truly extraordinary. And rather than having to spend half his time searching for capital, today’s startup CEO can focus on innovation, reinvention, and making his business go.
That changes the marketplace significantly compared to the 1990s when the dream of every tech geek was to come up with an idea that would get funded. (Building a solid company and underlying business principles were secondary; funding was what was important.) The day a startup got three or four million in its angel round was the day the principals got rich and for a huge number of aspiring entrepreneurs that was the end of the race.
Funding was such a goal that one could argue that the pursuit of funding was what caused the implosion of the tech market in 2000. There was plenty of innovation going on. There were plenty of revolutionary products. There was a fundamental cultural change embracing new technology and creating nearly limitless markets that still had a long way to go when the bubble burst. But the focus was on funding, not on building businesses, and the businesses themselves were faulty as a result.
It’s not that there isn’t capital available now. There is. But venture groups tend to take a much more hands-on approach to the companies they fund. They tend to want shorter-term, higher value returns on their investment. And they tend to be less willing to part with their cash, preferring small increments to large infusions. That makes venture funding less attractive to an independence-minded entrepreneur.
As a result, more and more tech innovators seek to build their businesses the way that good companies have always been built: one brick at a time. It’s a slower road to success, and success is often much more humble. But solid businesses create better products, and they tend to value their customers more and serve them better. That’s good news for consumers.
It is somewhat ironic that the companies that have made technology entrepreneurship more accessible are giants in the industry whose inflated market capitalization in 2000 played a role in the bursting of the technology bubble. But they have made cloud computing, VPS hosting, social media, and other tools are available to entrepreneurs, which will forever change the needs and ambitions of startups in their industry.