The English word company means “A group of persons”. I would surmise then that the business entity “company” got its name because it comprised of a group of persons engaged in a common business purpose.
An individual can start and run a company all by herself. There is nothing new about that. What is however changing is just how much that company can achieve with a small team. A few individuals can create a company with millions of dollars in revenues and tens of millions of dollars of value.
The photo-sharing site flickr is one such example. Caterina Fake and Stewart Butterfield created what is today the leading photo-sharing service on the internet with just a few developers. It took in no venture capital and sold itself to Yahoo for an estimated $30-35 million.
An extreme case of a one-man company already looking at a billion dollar plus valuation is a site called Plenty Of Fish – an online dating site. They just hired their first employee – a customer service rep!
There is a long-term trend that is playing out, especially in certain sectors like IT, gaming, media and entertainment – entrepreneurs are able to go much further with very few employees and very little capital. What is common across all these sectors is that what they produce is an “information product” not physical goods and services. And what provides this leverage to innovation and talent is the availability of cheap, simple, pay-per-use technology and the internet as a low-cost channel for marketing and distribution. Open source software, Cloud Computing, viral internet videos and many other things are today changing the rules of the game in industries that produce information products. And this is just the beginning.
How will all this play out? Differently in different industries. The music industry in the west is in the early days of what could be cataclysmic change. The need for capital in the music industry was primarily for marketing and distribution. That need has come down to zero for well-known bands like Radiohead, who create their own buzz. Radiohead has decided to put up its new album for download, without any DRM at all. In an amazing twist, to download the album, you simply pay what you would like to pay for the songs. Even though you can download it for free, most people pay something (figure that out, Mr. Rational Economist).
Obviously, Radiohead isn’t stupid. They have a gameplan. They are betting that the economics of the music industry are better if you give away your music and sell your concerts high. Selling the music at a high price, on CDs and as digital music with DRM, is an exercise in futility. If it was just rogue websites you were fighting you might still be able to shut all of them down. But you just can’t win against peer-to-peer file sharing technologies like BitTorrent.
Radiohead isn’t the only mainstream band having second thoughts about the artist-label relationship in the current structure of the music industry. Madonna, recently signed up with Live Nation a concert producer for both concerts and albums. The deal is quite different from what Radiohead is doing here, but it all points to one thing – there’s going to be a new structure in the music industry emerging soon, and the balance of power is going to shift slowly but surely towards the artists.
In the software industry something similar should be expected. Hosting services, open source software, SaaS and outsourced services – all enable an innovator to think up something new and build it on the cheap. For a consumer internet business, marketing too requires innovative approaches rather than millions of dollars in TV advertising. Enterprise IT still requires capital to build a professional sales force, but even here travel is becoming less and less necessary. Webex type screen sharing technology makes the sales process more productive.
What all this means is that there has never been a time when the leverage to innovation and talent has been this high. A startup essentially is becoming a zero-distortion amplifier for an innovative idea. It thrives or dies on the merit of the idea and its implementation as a product. An innovator with an idea and the skills to bring it to life are all that it takes to make a successful large business.
6 am pacific 
Interesting post!
Although the scale issues may vary considerably across a tenable software business (the early examples here are of services, where the customer creates the content, whereas the argument later is about software business models, which are more complex and need to be more scalable), I especially like the analogy of the zero-distortion amplifier, although I would say that Radiohead’s strategy would work in the brand universe for only those brands, whose signal-to-noise ratio is very high. 🙂 So it may work for established brands such as Radiohead and Madonna but not for the newbies.
Specific to the music industry, it is plain old dis-intermediation and then re-intermediation at work where the least value adding entities (record labels) are being shoved aside. With recording artists such as Justin Timberlake and Jay-Z turning recording creatives and recording infrastructure providers rolled in one, new models are in process of being developed.
An earlier post of mine here:
http://laviequotidienne.wordpress.com/2007/10/02/record-companies-are-dead-long-live-the-musician/
An investor perspective here:
http://global-themes.com/content-now-officially-free/
However the emergent software models are still about picks-and-shovels based monetisation, whereas the customer is increasingly platform-agnostic and end-game-oriented. So much as a hierarchy of innovation does not clearly exist, I think the innovation space is ripe for parametrisation and better definition.
I notice there are some digressions but that is what happens with a post which sets off ideas 🙂
Thanks.
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One man company, ah…what a prospect !
No worry about attrition, office politics, poaching pains and a life without HR pests. No pain of having to accommodate independent directors (that adds no value to the business) in your board, just because the law demands. Since you make it all yourself, you don’t have to spend time correcting others’ mistakes.
I see the only hitch could be commerce. When there’s a one man board, there’s no need for a board meeting. Who will meet who? But most commercial transactions, say, opening a current account, calls for a Board “Resolution”. When there are no discussions, debates or disputes, what is there to be *resolved*?
Yet another is corporate status. A company is an artificial person created by law, has perpetual existence, can sue and can be sued against. This is precisely why Banks and other lending institutions are comfortable in lending to a company than a sole proprietorship or a partnership firm, where the proprietor or partner(s) are personally liable and the entities have no separate identity other than that of its proprietor or partner(s). In other words, directors are insulated against the liabilities of the company even though they have collectively decided at their meeting to its uptake and the shareholders have a limited liability too, only to the extent of sums unpaid, if any, on the face value of the shares subscribed by them.
In a OMC, this whole edifice comes a cropper. The stakeholders’ (Lenders, creditors, customers, agents, franchisees) comforts don’t exist. If the one man dies, the only throat to choke is gone.
Now the question is, how long can you go solo…?
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I was reading the interesting book Dreaming In Code by Scott Rosenberger. One of the key challenges he mentions is on the difficulty in comprehending the tasks and features associated with the development processes. Smaller teams of super smart geeks can hence orchestrate and deliver a focussed product much more efficiently. Most of the Web 2.0 age software ideas you mention here (flickr, youtube, etc) are very focussed, hence making it possible for a small group to execute.
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I think one person or a small team has more chances for sucess in building a dating site and any other site, but this rule takes place when there are no big requirements to software and advertising. In any case, the most important thing is purposefulness and loving the project.
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