Quite simply put, there has never been a more validating time to be an entrepreneur. I could start by ranting about the impact of social media, citing the three-minute long great depression that resulted from one false tweet on behalf of the Associated Press, but that took place over a month ago. Anyone who remains doubtful that the business world has entered a new age is no longer relevant, and not worth my time in convincing.
Ten years ago, an entrepreneur’s first step in building a business from the ground up would be to attain the capital required to get things going, and (hopefully) break even by the third or fourth fiscal year after operation had commenced. Seeking a bank loan, seducing the vicious realm of venture capitalists, or being lucky enough to stumble upon an angel investor were all common practice. The entrepreneur would pitch their business plan and ultimately the bank, venture capitalist, or angel investor would decide whether the idea was worth the funding required.
Currently there has been a shift away from these methods, as revolutionary as democracy may have been to those living under the rule of an absolute monarchy in centuries prior. Crowdfunding, the process of entrepreneurs acquiring monetary capital to launch their business by appealing directly to consumers via websites such as IndieGoGo, KickStarter, and GoFundMe, provides immense threat to the aforementioned. The reason being is simple: crowdfunding derives from pitching your idea to the would-be consumers and leaving it up to them to either provide you with the necessary funding or not. No interest, no royalties, just good faith in the fact that you will deliver on your value proposition. The free hand at its finest.
The concept of crowdfunding is not entirely new, nor is its practice. Rather famously, in 1884 Joseph Pulitzer used his newspaper, The New York World, as a platform to encourage the public to donate toward construction of the pedestal that the Statue of Liberty sits on today, as the American Committee’s resource pool had run dry. In six months, Pulitzer raised the $100,000 or so required from over 125,000 people. The difference between this example and today’s version of crowdfunding is that it is no longer a pre-requisite to be a media mogul or major player in order to attain monetary capital from the general public, and the resource pool is global with immediate access to view your proposition. Additional benefits include the fact that crowdfunding works as a form of free advertising, as well as an immediate method of business plan validation from your potential customers.
Crowdfunding is becoming an essential building block in the development of startup businesses, yet for many entrepreneurs, the internet has provided an environment in which large investment is not required, as operating costs are minimal to non-existent. The purchase of a domain name (or web address) is roughly in the ballpark of a couple hundred dollars. Popular website generators such as blogspot and wordpress offer the average individual the ability to generate an online presence for free, and without devoting years of schooling toward learning computer code.
To emphasize the impact that the internet can have on cost efficiency, independent bloggers are a perfect example. The popular travel blog A Couple Travelers brought in $4906 for the month of April 2013 in advertising revenues. For the same month, their total operating expense was $400, which was actually spread over the operations of two separate websites. If the operating expense was applied solely to the one website, the operating ratio for this business would be approximately 8%. To look at it from a different angle, their gross profit margin is 92%. This blog is approximately one year old, with monthly revenues showing an increase of 60% between January and April of 2013. Although the total revenue of blogs such as this one are by no means in the realm of Coca Cola, to think that a startup business can operate at such high profitability is game changing.
This is not to say that every Tom, Dyck, and Harry should quit their day job and solely pursue the path of an entrepreneur. However, the thought that funding one’s savings or security plans via online entrepreneurship is intriguing, and perhaps necessary. Although the baby boomers managed to thrive from committing to careers with large corporations, generations who are entering or have yet to enter the workforce will not be so lucky. Although the internet has provided cost savings for small scale travel magazines as previously noted, it has also provided the opportunity for publically traded corporations to reduce their operating expenses and fuel profit margins that would have their shareholders salivating. Of course, these reductions are in the form of eliminating salaries. Why hire customer service agents when you can publish an FAQ section on your website? The security of holding a job with a multi-million dollar corporation is anything but stable.
It seems that over the past couple of decades, more people have watched technology replace their jobs than using it to their advantage. As a result, these people have deemed corporations to be greedy. That is incorrect. Corporations are savvy, and need to be in order to compete and stay alive. However, that doesn’t mean that the average employee’s personal finances must be privy to the cost-saving tactics of the corporate world. In fact, with tools such as crowdfunding and free website generators, it is now far more financially responsible to rely less on these companies and more on your own ingenuity for the purpose of accruing personal wealth. Common corporate benefits such as stock option incentives and long term investment plans remain valuable, and at no point should online entrepreneurship serve as their replacement, but rather exist in conjunction with them to provide enhanced security.
Collecting income on the side, just like crowdfunding, is not a modern concept. Investing in real estate for the purpose of alternative funding is one of the most common methods, but also one of the most risky. A decrease or crash in the housing market, unforeseen expenditures such as the replacement of appliances, and the poor habits of tenants if rental income is pursued are all valid concerns. As previously mentioned, one of the values that e-business provides is low investment and maintenance cost. Thus, it is not a question of whether people will choose to pursue alternative income online, but rather at what pace.
As this practice becomes increasingly widespread, the nature of our global economic system will be altered. Technological advancement and its integration within the world of business is gaining momentum as opposed to reaching a plateau. Relatively new online developments such as the bitcoin currency and its negative and positive effects are debated daily, while teenage app developers in the UK such as Nick D’Aloisio have become overnight millionaires. We will continue to see entirely new sets of tools further enabling businesses both large and small to operate at higher profitability, efficiency, and global reach. As a result, it is likely that there has never been a better time to be an entrepreneur, and it will only get better.
Kyle Foot is one half of coupleofyuppies.com, which provides travel and food advice for all twenty-something couples with a thirst for adventure. He graduated with a Bachelor of Commerce from McGill University.