Friday, June 19, 2015

Twenty Five Years Gone - Startups in 1990 and 2015

Well, it's been an interesting few months. I've been gearing up to my first major business launch for a while, a mere 25 years since I started my first company.

Back in 1990 I was told to wear red for our threadbare Christmas party at the multinational ad agency where I'd been working and instead walked out to the bar over the road, handing in my notice in the process. It was the last straw for someone who is by nature unemployable.

Since graduating in Radio, Film & Television I had been a runner, a special effects film editor, a cameraman, a financial PR exec and a marketing exec in five short years. It was clear that I wasn't very good at working for other people.

But a young 25 year old with a couple of grand in the bank, no property and no rich connections starting a business in one of the world's most expensive cities did not seem to be a stupid proposition to me at the time. So, with blithe disregard to the difficulties, I won some business as a film maker, found that some high profile marketing clients such as The Law Society and the Police Federation would follow me and set up a company that would see me veer from the low of hiding in the toilets of our Covent Garden offices from bailiffs sent by the taxman to selling out to one of the world's largest ad agencies.

Being young and naive has its benefits and its downfalls when starting a business, but when you're young you know no fear and anything is possible.

So, twenty five years later, starting a new business again, what has changed ? Well, pretty much everything. Back then all my business came from mates, often over a pint or two in West End pubs. We also did a lot of things other people didn't do, like multimedia, so there was a scarcity value to our offering. Back in those days you could actually provide a service with little or no competition. We didn't have a company - partnership seemed just fine, and were a bit (ahem..) haphazard in our dealings with the taxman. But we survived to sell out to a plc a few years later.

For my latest venture, I created a company (online), set up the accounting system (online), opened a bank account (online), built the website (yes, you guessed..) in under a few hours. Using a couple of my most trusted techies we had the system up and running in a few weeks.  What would have taken months can now be done in a fraction of the time. But this comes with costs. 

It is far easier for anyone to find a good designer and programmer now using online marketplaces. With a bit of imagination anyone can conceive an online business and get it to market in a few months. So the reality is that you will have competition.

Once upon a time building the product used to be the difficult step, but the challenges now are in selling into a marketplace where all the rules have changed with intense competition.

Twenty five years ago it wasn't difficult to find individuals with the ability to pay six figure sums for a product or service. Today, purchasing is consultative and involves endless rounds of presentations and proposals even for very small projects. And the value of projects has diminished as well. For example, back in 1990 starting a TV channel in the UK would have cost tens of millions, now we launch global channels for customers for hundreds of pounds. We live in a dollar to cents world.

The alternative to the direct sell model is to take the online service model whereby products and service are offered at the fraction of the price of traditional delivery by commoditising them and placing them online. Inevitably you have to offer a free 'taster' and this becomes a numbers game. In the old model you could win ten clients each paying a six figure sum and have a decent business base.

In our new, online world you need a hundred thousand customer paying a tenner each to get to the same place. And in order to get hundreds of thousands paying you need to get millions using the free version.

To find this mass of customers there are new models - first of all you have to pay the Google tax - there is little alternative if you want to build mass audiences online. So, you end up with an acquisition cost per customer. In the old days we used to issue paper press releases sent by post to trade magazines. Today you blog and tweet in the hope that you will be heard in the maelstrom of online noise out there.

Success and failure becomes more binary.

And you will have competitors, no matter how innovative you are, and those competitors can come from anywhere in the world, including low cost economies where their overheads are miniscule compared to a startup in London or NYC or from Silicon Valley where they will be backed by tens of millions up against the value of your second mortgage.

Servicing your clients once you have won them is also a totally different proposition. The old model was to take them out to a boozy lunch once every few months (you've seen Mad Men...). And even if you did lose a client, it was unlikely that the news would go beyond a small headline in an industry mag. Today customer support is an unremitting 24 x 7 x 365, global and unforgiving. A small blip or a difficult customer, even one using your free service, can trash your reputation and everything that you have built overnight.

Of course there's a lot that has improved in twenty five years. You can manage your accounting, tax, development, delivery and support online from anywhere in the world. It is much easier to make money while you sleep, or just work to your own pace.

But the major difference I believe is that it is now far, far harder for a startup to succeed due to low margins, global competition and, ironically, the ease of setting up a business.

So, how is my latest startup doing ? Well it's early days, but you can judge for yourself at www.vidcoding.com and by following https://www.iptvtimes.net.