We live in a magical time if you’re an entrepreneur. Thanks to technology, it’s never been easier, to start a company. It’s never been cheaper, either. Let’s face it, every business today is an Internet business. Try doing business today without a website and you’re toast. How will customers find you if you’re not ranking highly in Google? In fact, not only can you not neglect the Internet, but actually having a physical presence can be a huge loadstone on your business. Just look what happened to Borders and what's happening to BestBuy as Amazon eats their lunch. Guess what? Amazon is a software company.
One of the great things about starting an Internet company today is that a lot of the things you need to build an Internet company are free. Thanks to open source, the software that runs your webserver (apache, nginx) is free. Database software (mysql, postgres) is free. Operating systems (linux, bsd) are free. Even the software that powers your shopping cart (oscommerce, zencart) is free. Email (gmail) is free. Voice over IP telephony (skype) is mostly free.
And what’s not free is cheap. Domain names are cheap, your Internet connection is cheap, cloud computing is cheap, payment gateways like Paypal are cheap. Buying ads to promote your business on Google or Facebook is also cheap. Even if you don’t understand how any of this stuff works, you can now hire freelancers to put it all together for you... for cheap.
Virtually all the software I use in my business, Freelancer, is open source and free. We only need to pay for a few things – Amazon’s EC2 cloud computing for our hosting, Akamai for our content distribution (which big websites use to be fast on all points of the globe). Apart from that we pay about $10 a year for our domain name! In our office, apart from our desktops, there’s no network infrastructure. Our file server is a dinky little storage device we bought for a few hundred dollars from the local computer shop. Everything is in the cloud. You could burn down our office and it would have no effect on our business. This is a business that is mission critical, supports almost 11 million people and has paid out hundreds of millions of dollars to workers around the world.
Today, you can literally start a company off the back of a credit card. This is why there’s been a big transformation in venture capital in Silicon Valley over the last few years. When I started Sensory Networks back in 2001, a typical first round financing for a software company was around $5 million. By comparison, the new breed of early stage Silicon Valley investor, "super angels" and "technology incubators" fund early stage software companies today a grand total of around $20,000! Why? Because $20,000 will pay enough to put four guys in a room and feed them noodles for a few months. That gives you enough time to take your idea, talk to a few customers and get a website or mobile app up. Turn that website on and suddenly you can reach two billion potential customers overnight. Why? There's now two billion people on the Internet. If you have a product or service that’s any good, you can potentially take off at an unprecedented speed.
Across its entire portfolio, YCombinator has invested a total of about $15 million in 716 companies. At last report the total market capitalisation was estimated to be around $30 billion. That’s the capital efficiency of the Internet business model.
The speed at which Internet companies can grow is also mind boggling.
Facebook went from zero to a billion users in 8 years. Twitter went from zero to 500 million users in six years. Cityville, a little game inside Facebook, went from zero to 100 million users in 43 days. That’s right, 43 days. Around 96% play for free, but a few percent are willing put their credit card in to buy items in the game, like a virtual tree or cow. Those few customers generated Zynga, the developer of Cityville, close to $50 million in revenue in the first six months after launch. In 2011, only four years after it started, Zynga generated around $1.5 billion in revenue – yes billion – from a few silly games in Facebook. Supercell did a Zynga again in mobile gaming, going in three years from zero to $2.4m a day in revenue.
Never before in the history of mankind have you been able to scale revenue in a business so rapidly.
Even really simple ideas can grow big on the Internet if you get the offering right.
Zappos.com is a website that just sells shoes online, but offers exceptional customer service. In 10 years it because the biggest online shoe seller in the world, generated $1 billion in revenue, and is now owned by Amazon. Groupon, while struggling to figure out a long term business model, is basically the latest version of those ages old coupon booklets you used to find stuffed in your letterbox. It started only four years ago, and is worth $13 billion today. Another online coupon site started by two Australians, RetailMeNot.com, only took $30 and a weekend to set up. It basically provided a pretty looking online directory of discount coupons. It’s a simple idea, simple to setup and cost nothing to get going. They bootstrapped the business and five years later they were doing $30 million in revenue. They sold not so long ago for $90 million to a US company.
With the speed at which some new companies are growing revenue, we might one day soon end up seeing a company generate a billion dollars in sales within its first year!
So what are you waiting for?