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It's a [ Bad | Good ] Time to Start a Business

My friend Caterina Fake of Yahoo (née Ludicorp) has a list of six reasons why "it's a bad time to start a company":

  1. Everybody else is starting a company.
  2. Your competition just got funded too.
  3. Talent is scarce again.
  4. You can't operate in obscurity anymore.
  5. Web 2.0 isn't all that.
  6. There's too much going on.
David Heinemeier Hansson of 37signals responds with a list of five reasons why "it's a great time to start a business":
  1. You don't need VC diesel to get your motor running.
  2. You can actually charge money for valuable services.
  3. You don't need mainstream tech to make a dent.
  4. You don't need to live in San Francisco to make it big.
  5. You don't need a swarm of worker bees to take off.
In fact, the two lists aren't incompatible at all. As David writes:
Yes, it's a bad time to start a company on VC diesel, using me-too technology, flaunting your non-existing goods, doing tagging because it's cool, and spending all your time partying. Guess what? That was never a good idea.
I had dinner last week with a friend of mine who's a Sand Hill VC, who told me about seeing a business plan from one entrepreneur who had implemented a single feature -- the kind of thing a talented AJAX programmer could get up and running in a day or two by hooking into an existing Web service's API -- and was looking for full first-round funding. The feature wasn't a demo of a small slice of what he wanted to build with his funding -- he just wanted to build services around it. Around a feature. Another entrepreneur came to him with a business plan competitive with an existing service that profitably serves up an interesting fraction of all Internet traffic. My friend asked the entrepreneur how he compared with his large, entrenched competitor. Hadn't heard of them.

Caterina is right. There are too many Web 2.0 companies in the Valley, competing for too few employees, building imitative services, with names out of Star Wars and no clear revenue plan.

Daniel is right, too. There's no excuse for building a me-too company when there are so many great services waiting to be implemented, services for which people will pay, and there's no overriding reason for building your company in the Valley when collaboration tools have come into their own and VCs are willing to invest out of their zip code.

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