November 30, 2011

A Nation of Appkeepers

Napoleon insulted England as a nation of shopkeepers, but of course it turned out that such widespread entrepreneurship was anything but a weakness.
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Why was is possible for so many shopkeepers to be able to operate successful businesses at small scale? The business fundamentals are the same whether the shop is baking bread or selling candles: startup capital is low, access to credit is easy, and ongoing expenses like rent are affordable. The shopkeeper didn't need to expand nationally or globally to be successful in their own life, they just needed to do a bit better than their expenses. But in so doing, they realized a life better than factory employment.

In our perspective of online services, we tend to think "enormous": Amazon, Facebook, iTunes, and Google. Huge amounts of data and processing centralized around a few dominating vendors. This has been true for many preceding years of information technology: Microsoft, Dell, Intel, SAP, Oracle, HP, etc. Developing commercial software and hardware was such a large investment that enormous scale had to be reached in order for the business to be profitable.

But something very different is happening with entrepreneurs today.

Take a look at the 125 finalists in the Mass Challenge, the worlds largest startup accelerator located in Boston. These businesses are generally not the next aspiring Facebook; they are serving very specific customers, solving very specific problems, and often catering to local markets. Many of these startup companies are actually manufacturing product or providing local services, but often are combining these with an online app that might be the key to creating a viable business.

Cloud computing is starting to have a profound impact on the nature of startup businesses.

Today, a startup software developer doesn't even need to buy server hardware or test equipment. Everything they need to develop, test, launch, and operate their business is available online, rented, affordable, and without a large investment risk. Even marketing costs and access to customers can be highly targeted, efficient, and effective. All of a sudden, a business that could not have been possible because the potential scale of the business would not provide an adequate return on investment, is now viable, at a modest size.

Like shopkeepers, the new appkeepers do not need to create a gargantuan business to be personally successful, they just need to be marginally better than their expenses. With low startup costs and afforable operating costs, and shared resources such as incubators and accelerators, we are seeing an explosion of business creativity. But don't expect another Amazon. Expect a nation of appkeepers.