Too Many Startups?

I recently applied to an incubator program (like Y-Combinator) where I would get a small amount of funding, 4 months, a mentor and office space to further build out the company I started this past year. The application process itself was a learning experience, and I moved on to the interview round which is an exciting opportunity. This opportunity made me think about the incredible chance that my generation has to start companies without requiring tons of money or connections. Over the past month I have started a company for less than $3000, met an incredible team of advisors, several who I initially met via email, and spoken with over 90 representatives of my target market. None of these things could have been done without the internet – it has truly lowered the barriers to starting a company.

I think in general, lowering such barriers is a net positive. That’s what we are trying to do at CloudFab, lower the barriers to producing custom physical products. However, there are also issues that come with these lowered barriers. Today, almost anyone can start a company (or at least test if one is viable) with little money or technical knowledge. Services like WordPress and Hostgator allow people to host websites without needing much of the technical knowledge that was previously required.

Is this a good thing? Overall, I think yes. Unfortunately for many promising startups, I think that with the amount of startups that can and will crop up in the coming years, it will be much harder to get recognized and develop a customer base. I could see StartupLand becoming a lot like the blogging community – tons and tons of blogs, most of them not worth reading, and a few good ones that garner most of the readers and attention. Seriously, just go to any post by a prominent blogger and read some of the comments. Not only are they monstly inane, but click a link going back to each commenter’s blog and you will usually find a poorly written blog about either “changing the world” or “quitting your day job and living the life of your dreams”.

I think with the proliferation of startups, we are also seeing more and more startup imitations. Realistically, how many location-based deal startups can there really be? Outside of Groupon, which has obviously killed it so far, there are at least 3 other companies that I know of who are pursuing the exact same business model – not to mention all the subculture-specific deal sites that have cropped up. For example, I recently got an email asking me to “Like” a University of Pittsburgh deal site. No thank you.

In my opinion, there are only so many deals that people can be hit with from so many sites. For the non-Groupon and LivingSocial sites, the participating business will likely not see a great ROI on their investment (actually, such deals lose them money), and will stop participating. Without the large user base, the imitation startup will fail because it can’t provide for the businesses that allow it to exist. Group buying is not the only area where you see copycat startups – there are tons and tons of new companies trying to capitalize on the trends of local, social, game mechanics, group buying, etc. It makes me wonder how much new, cool stuff could be created by people who have the smarts and the guts to work on forming a new company, but who choose instead to work on a less compelling problem that has already been solved. I loved this article, specifically the following quote: “The best minds of my generation are thinking about how to make people click ads,” he says. “That sucks.”

There is a lot of truth to this statement. I can only imagine how much more innovation and good could come from smart, driven individuals who chose to work on hard problems rather than figure out how to increase social media or ad purchases by 0.7%. But because these companies are so easy to form, we will be seeing a lot more of them over the coming years – hopefully not at the expense of innovation.


Edit: This is exactly what I am talking about –