The Underlying Impact of the “Apps” Phenomenon on VC-Backed Software Startups

5/6/10

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added this problem that the shiny object attracting top talent today may no longer be the promise of building massive wealth through stock option accumulation, but rather the instant gratification and “fail fast” modality of self-publishing apps. Even a mediocre developer can strike upon a super-popular iPhone app idea and be basking in the glow of massive user adoption, notoriety among peers, and even cash flow, very quickly. How do you compete with that? VCs had better start figuring out how to create work environments that appeal better to developers’ intrinsic motivations than the unreliable extrinsic motivator of stock options, especially after a wave of gloom like the one that hit our industry over the past two years.

Apple’s dual innovation of the iPhone device and the App Store distribution model combined with an economic blight upon software companies and their investors, the massive shift in time that users are now spending staring at their palms instead of a desktop or laptop screen, and the momentous influx of new platforms like the iPad and Google Android enabling even more opportunities for apps developers, have all come together to create a perfect storm in the venture capital business which will spell the demise of many VC firms and the less efficient VC-backed startups. It will be interesting to observe the new landscape after the economy completes its recovery and the waves die down again.

The silver lining to this circumstance—at least from the entrepreneur’s perspective—is that whether you’re talking about a one-man self-publishing apps shop or a five-person “software company,” thanks to the widespread availability of SaaS-based platforms—from development platforms to telephony and accounting platforms—it has never before been this easy or this quick to launch a company on absolutely minimal funding. Even three years ago, it was difficult to imagine a significant software company launching on so few resources and without first surviving the gauntlet of getting at least some angel or VC funding.

This is indeed the most exciting time we’ve ever witnessed for entrepreneurial software developers. Their future is so bright that sunglasses vendors are lining up outside their apartments and incubator facilities to sell them some stylin’ new shades.

Ron Wiener is a six-time serial entrepreneur and an angel investor, best known for founding Earth Class Mail. He is currently “Chief Mechanic” at Seattle incubator Venture Mechanics. Follow @

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  • http://bcviewer.com Paul Irvine

    quite right Ron, the landscape has changed again. App store has highlighted it, but its by no means the only avenue. I’m seeing 5 to 10 downloads a day for web software, with almost zero marketing. It doesnt sound like a lot, but it adds up. and now more than ever, a single developer with a decent idea, can bring a product to market with virtually no investment at all. Its a new world where VC’s are not even players. My very best to you,

    pi

  • Memphremagog

    Yes – small software teams can now create small businesses better, faster and cheaper than ever before. Some can create a nice wealth engine for themselves. But, if they want to be part of something greater and do something that creates a major enterprise, they will still need cash, executive talent, and maybe even the guidance professional some venture capitalists provide.

    It is always great sport to trash the VCs (and sometimes they really deserve it!). But it simplistic and wrong to say they don’t have a role to play in the right circumstances, or that software developers don’t need them anymore.

    As always, the issue is to match your funding source to your business and your aspirations.

  • http://www.covario.com Arnel Leyva

    Incisive and strategic analysis — you seem to have identified and explained the zeitgeist (so happy I got a chance to use that word in public) of the current Internet market. As a career product manager for small- to mid-size startups and growth companies, I like to consider myself on the side of the ‘creatives’, though it’s my job to tell them how NOT to develop products for other engineers and instead do so for the other 90% of the population. So just as in previous technology markets, the most successful apps will be developed by a two-person team comprised of a creative engineer and creative marketer who use just enough process to get a compelling product to market quickly and inexpensively — every Wozniak needs a Jobs.

  • http://www.personalmedicine.com Natalie Hodge MD FAAP

    What great perspective, Interested to learn more about your model and incubator. We have been bootstrapping and self funding for years and now that we have come into customers, complete product and revenues, the Venture route looks riskier and riskier. It’s a matter of the right money at the right time from the right people and overall decreasing the risk of the company as we move forward. The notion of a small team that continues indefinitely in lean mode, which plans to KEEP the company for the long term is very attractive to us as founders. Last months Fast Company notes many lean ” virtual businesses” which generally are in the ecommerce space, which operate out of virtual offices, with independant contractors, utilizing basecamp, web ex, and sharepoint. We are products of Steve Blank and Eric Ries customer development and lean teachings, and plan to run the company lean indefinitely as we add process and implement our customers.

    Natalie Hodge MD FAAP
    http://www.personalmedicine.com
    ” Your Doctor Comes to You”
    About Us http://bit.ly/ceWSh6

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