Check out this quote from a Time Magazine article entitled The New Internet Start-up Boom: Get Rich Slow (Props to Derek from 37signals for posting this on SVN):

At no other time in recent history has it been easier or cheaper to start a new kind of company. Possibly a very profitable company.

The article goes on the highlight how one guy joined a growing wave of businesses springing up that are going to market inexpensively (and sometimes profitably).  Now, I studied entrepreneurship in college.  My training was centered around creating a business plan, raising capital, and pitching your ideas to potential investors.  In fact, the coursework was desinged to simulate the risk of starting of a business by requiring seniors in their last semester to risk graduation on one course: an A or F class which hinged entirely on a presentation to a panel of business executives during the final week of school.  About 30% of my class failed, which meant they had to awkwardly call mom and dad to tell them that they should cancel the hotel room for graduation weekend because they would not be able to get their degree for another year (the class was only offered once a year).  My how the rules have changed.

Let’s cover the rule change.  Old rules for starting a business:

  1. get an idea
  2. write a 50 page (or more) business plan
  3. pitch business plans to angel investors or VC firms until someone gives you money
  4. Build product
  5. Pray that your plan works before you run out of money

Proposed New Rules for starting a business:

  1. Figure out what is valuable to a business (hint: look for pain points)
  2. Offer a service to fix that pain and thus add value
  3. Translate that service into a product
  4. Charge customers to use that product on a reoccurring basis

In my opinion, starting a new business by offering a service is smart for a couple of reasons: 1. it makes it easier to get close enough to clients to really understand the product they would find valuable and thus be willing to pay for; and 2. services will provide cashflow while/if the product is being adopted in the market.

Also, I want to emphasize that I don’t intend to negate the importance of planning within the new rules.  The ability to plan and manage a project are arguably more important, actually, because you will hopefully be working with several clients at once on your services business while at the same time building a product in your spare time (at least that is what we are experiencing at Elias).  It is just a different type of planning.  For a more detailed perspective on the topic, I highly recommend Guy Kawasaki’s Reality Check.