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The Economic Value of a Business Startup

The Economic Value of a Business Startup

    A hundred years ago, if you had a good idea and you had good execution skills, your odds of making money were also good.  It didn’t matter that someone in another state had the same idea and the same skills. In those days, another state was like another planet.

    Today, no matter how good your idea is, and no matter how well you can execute, there is probably someone who already filed a patent on some part of your idea, and someone with more resources who is already working on it. And thanks to the Internet, anyone can sell just about anything anywhere. And anyone can acquire through the Internet whatever skills and resources they need. So if your product is a hit today, it will be knocked off tomorrow.

    Yeah, yeah, I know. You’re going to mention Facebook and Twitter and a few hundred other startups that are big successes. There will always be exceptions. But in general, my hypothesis is that the incentive to start a business is plunging because the odds are shrinking that you’ll come up with a novel idea that isn’t patented and isn’t being worked on by a dozen different startups right now.

    You’ve seen on this blog that any idea I suggest is met with comments saying someone is already working on that very idea. And I get a lot of private email saying, “Damn you! You just described to the world the secret startup I’m working on.”

    On the plus side, getting a regular job at an existing company is no picnic either. People will always be attracted to start ups because of the glamor, the lifestyle, and the non-zero chance of being a Facebook-like success. The number of entrepreneurs might continue to climb while the potential payoff for each of them trends toward zero.

    The good news is that capitalism is mostly fueled by failure. Most startups fail, but during the process of failing they provide jobs for a lot of people. And most established businesses will eventually fail too. The economy is almost entirely comprised of companies that will fail soon and companies that will fail later.

    The other good news is that the global reach of the Internet means that your potential market is gigantic. On the risk-reward scale, an 80% chance of having a thousand customers isn’t as good as a 5% chance of having millions of customers.

    Given all of that, here’s my question: Do you think the odds of success for the average startup (Internet or otherwise) are trending toward zero, staying about the same, or improving?

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