Just got through
reading this article on Appirio in Forbes online.
Essentially Forbes holds Appirio up as the new paragon of startup thrift. The founder’s taken such overhead reducing steps as:
1. No physical office space except for a rented cube.
2. A team distributed throughout the country, mostly in low-ish cost US states like Arkansas
3. The company owns no hardware. Everything is by the drink from Amazon ECC
4. The company spends no money on PR. Everything is word of mouth.
For all this, Appirio is able to bid for projects at 20% less than competitors (which seems like an underwhelming cost advantage after all that fasting) and often does fixed bids.
O.K.
Let us all agree that being thrifty is good.
Let us also agree that advances in technology and business practices allow startups to run leaner and meaner than they could have 7 years ago.
But some of Appirio’s stuff is just shortsighted, and by the way, it’s been tried before.
Consulting/software hybrid businesses. So many failures in this regard it’s hard to count all of them. ICG Commerce comes to mind as one good example.
Fixed fee consulting projects. This works when you’re a small company but falls apart as you grow because of underbidding which either burns out consultants or creates perverse incentives to under-deliver to clients so they might hit the target budget. Cambridge Technology Partners is a good example.
No physical office space, just a distributed team. A nice over-head saver but typically these sorts of companies have very little cohesion and turnover becomes rampant, especially as you get into crunch time on one of those fixed-fee projects that you underbid. A notable failure example here would be Gemini Consulting that tried to go 100% virtual with just one physical office in New Jersey.
No hardware. Well, this is a matter of degrees in my opinion. Clearly the old days of buying hundreds of thousands of dollars worth of Sun servers is over. But are you so hard up you can’t spend $10,000 on a couple of Dell boxes? Or at least some dedicated servers from a hosting company? The difference is a couple of hundred dollars a month for some added consistency and reliability. Isn’t a business worth at least this much?
No PR. Hard to argue with this one, I don’t recall ever getting much value out of the money I’ve spent on PR.
It seems like every startup era, the business press profiles some startup that takes the current zeitgeist to the perverse extreme like some sort of fad diet.
I recall articles in 2000 during the dot com boom where they’d profile a startup that raised $20 million in the series A and bought a Superbowl ad the next day. Get big fast and build the brand immediately. THAT’S the future of the startup.
A few years later I was reading articles of startups that threw everything to India except a skeleton crew in the US. Quotes from VC’s saying “I’m not interested in any business plan that doesn’t have an India strategy.” Go to India. THAT’S the future of the startup.
Now it’s “buy nothing, own nothing, hire no-one” future of startups.
Every era a number of businesses get weaned on the new fad diet, but just like fad diets, they typically last for a couple of years before becoming dysfunctional and flabby.
P.S. - From when I started writing this post we're apparently already moved onto the new "
don't fund anyone over 40" diet.
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