It’s Harder & More Expensive to Start a Startup & Break Through

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Most people say entrepreneurship and startups are the best way for people to be useful in the age of AI and automation. If we have more entrepreneurs, they say, we can innovate our way out of our jobs crisis. Entrepreneurship is definitely the way forward for some people. But not most.

Conventional wisdom is that it’s never been easier, cheaper and faster to start a startup and break through. With advances in computing power, open source software, Amazon hosting, development frameworks and online communities, the thinking goes, it’s much cheaper, faster and easier to start a startup and break through.

I’m pretty convinced conventional wisdom is wrong.

Unless you’re a top 0.1% entrepreneur like Mark Zuckerberg who will succeed no matter what, it’s actually harder and more expensive to start a startup and break through than before. All of those same advantages that startups have in their favor also accrue to the incumbents. And many incumbents are tech companies, not stodgy old-economy businesses ripe for disruption. These tech businesses have billions of dollars in cash, monopolies on data and network effects to defend themselves. As Steli Efti and Hiten Shah talk about on their podcast, it’s nothing for incumbents to throw $10m and a team of top engineers at a new project the second a new startup breaks though even a little bit.

Look at how Facebook has ruthlessly copied the best features from competition as soon as Facebook feels any threat. Look at Salesforce, with it’s massive war chest, building a new lightweight web CRM that is competing against new entrants to the market.

And if incumbents don’t want to take any chances, they’ll buy these startups for a few million or even a billion, before they have the chance to get to a dominant position. It could be that we’re currently in a cycle where it’s harder to break through. It may get easier again. But I wouldn’t bet on it. Our siren server tech companies are now entrenched and we may be too path dependent to break through.

Photo Credit: NASA Goddard Space Flight Center