Cost Breakdown – Technology Development vs. Marketing

December 13, 2006 at 2:57 am 2 comments

I recently received a question regarding the breakdown of start-up costs, specifically technology development versus marketing. This obviously varies business to business, but the topic is interesting nonetheless.

I am pretty young so I feel foolish talking about the way it was, but from what I understand the most significant cost that a technology start-up faced as recently as five years ago was the development of a proof-of-concept application. However, thanks to the “flat world” we live in today, the proliferation of open source development tools, and the commoditization of hardware, creating software or web-based applications is cheap.

At the same time, the cost of marketing has not dropped. I might go so far as to say it has increased. There are so many more messages being transmitted to the average consumer, that to get the same effectiveness as $1,000 delivered 5 years ago, one would have spend significantly more. Google has added accountability to the industry, but it hasn’t made it cheaper.

And just to clarify, because I know some of you will ask, the internet does lubricate the wheels of viral marketing, but please read my thoughts on the subject to understand why I don’t think this lowers the marketing cost for most businesses.

So the cost of development has gone down and the cost of marketing has gone up. Why is this important? Because it means that the larger expenses no longer come at the beginning of the start-up cycle but towards the later part. This means that entrepreneurs don’t have to take money up-front and can wait to have a fully working service before launching. It means entrepreneurs can build value for less and keep more equity. It also means that more and more seed stage funds will emerge providing smaller sums of money than they used to. All of this is happening not because starting a business is cheaper, but because the cycle of costs has changed.

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Entry filed under: Start-up.

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2 Comments Add your own

  • 1. Fred Wilson says it best… « Startup-CEO.com  |  December 21, 2006 at 3:39 pm

    […] A great post by Fred Wilson explaining the differences in cost between a start-up today and six years ago.  Some points are similar to my previous post on the subject. […]

    Reply
  • 2. kabababrubarta  |  March 27, 2007 at 12:15 am

    Cool! kabababrubarta

    Reply

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About

Exactly one year ago I set off on the most exciting journey of my life; I started Emerging Demographics Inc (the parent company of HireWorkers.com).

Along the way I was selected as one of the top 20 young entrepreneurs by BusinessWeek.com and the 21st coolest young entrepreneur by Inc. magazine. I have also appeared in ABC7, Telemundo, NPR, and been quoted in StaffingIndustry.com, WorkforceManagment.com, Entrepreneur Magazine, and various other publications.

Over the next few months I will recount some of the stories and lessons learned from building, developing and creating a business from scratch.

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