Startup 2.0

An eye-opening aspect of starting Bruliam Wines is witnessing the dramatic increase in available resources and the corresponding decline in capital required for a startup. When we started Sagient Research almost ten years ago, we spec'ed out a website design and sent it out to a handful of firms to bid on the project.  The winning bidder came in at $50,000, which we thought was reasonable.  Two weeks into the project, they revised the bid to $300,000.  No explanation was given other than the project was going to be more complicated than they thought.  Well, we fired them immediately and decided to go it alone.  We hired our own programmer and have maintained at least one programmer on staff ever since.  On the hardware side, we attempted to use outside hosting services but even the biggest hosting services were slow and unreliable in the late 1990's.  We ended up buying our own server and today maintain our own small farm of 16 servers.  Keeping these services in-house required a high initial capital investment and continues to require great time and effort to maintain.  But, having everything in-house gives us a competitive advantage.  We can fix mistakes and change, add, or update our products much faster than any of our competitors, thereby increasing our customer loyalty and retention.

However, little of that tech expense is necessary for many new startups today.  With Bruliam, we run our blog with a free software program called WordPress.  We hired Pro Blog Design to create the look and feel of the site and we use DreamHost to host the site.  We even turned to GoDaddy to register our domain name and host our e-mails (what can I say, I'm a sucker for their commercials). 

Total tech start-up cost?  About $1,200. 

Total time?  About 6 weeks for the site design from start to finish.  Everything else was instantly available over the web.

What does this mean?  It means that there are fewer barriers to entry for new businesses.  Now anyone with a good idea and a little entrepreneurial spirit can launch a new product or service and, more importantly, create a market (local, domestic, and international) for what they are selling.

That said, the Internet is not a business model; it is a delivery and marketing mechanism.  Most of the original dot-coms failed to understand this premise, and even today many of the Web 2.0 companies still don't seem to understand it (yes, I know FaceBook is cool; it also loses hundreds of millions of dollars a year).  Business is still about creating a product / service that people want or need and deriving revenue from that product / service with high enough margins to cover costs and make a profit.

In our case, the cost of delivery and marketing is less than one half of one percent of what it was ten years ago.  So it stands to reason that with much lower capital expenses and overhead costs, our profit margins should go up and our chances of long term success should exponentially increase... long as our wine doesn't suck. 

But that's a post for another day.


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