Right now, a small team with no money can start a real online business. If the founders are very lucky, they generate revenue and begin to grow. If they are exceptionally fortunate, they get sold to Google for $1.65 billion. But most of the start-ups we cover on Webware.com will languish for a while in obscurity and eventually die. The problems they are solving are not big enough.
This is one of the reasons that venture capitalists are having a hard time. Many are are sitting on funds of hundreds of millions of dollars, looking for places to put large chunks of that money. But you can't put more than a few hundred thousand into a typical Web start-up without drowning it in funds it can't use. Over-funding a company can kill it, just as surely as starving it of resources.
This is a problem, because if a business can be funded by credit card debt, a competitor can come in and start the same business, and undercut whatever profit margin the first business is relying on to keep the Ramen cupboard stocked. Big businesses have defensive walls around them, and often these walls are built with stacks of money.
These are the businesses that I really like--big plays that take big money and major industry expertise to start. If they work, they change the landscape.
The bigger the If, the better. And these are businesses that the VCs are salivating for. While it's possible for Web entrepreneurs to build nice earners funded only by debt, the efficient start-up economy is pushing the big VC money into energy, transportation, and health care.
But there are interesting Web ideas that require big funding. For example: Earth Class Mail (review). This company takes postal mail, digitizes it, and sends it to customers electronically. For it to work at a large scale, it requires industrial scanners, sorting equipment, warehouses for storage, and so on. You can't start this company in your basement.
See also: RevolutionMoney. Steve Case (co-founder of AOL) is creating a new credit card. Competing with Visa can't be done cheaply.
Or: Powerset (preview). This company is trying to revolutionize Internet search by applying semantic analysis to the same billions of pages that Google has done only lightweight link analysis on. Powerset's method is computationally intense and very expensive.
Are the above businesses great ideas? They might be, but that's not the point. The point is that they are big bets with big buy-ins. These companies will have limited business competition simply because it costs more to play in their leagues. It's companies like this that attract the big venture money--money that's desperately looking for a place to work.
It's great that so much can be done today for so little. But that shouldn't stop entrepreneurs from also going for the really big scores. To win big, bet big.
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