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.