Looking at the structural impact of technology companies in terms of business and society, we usually focus on issues of scale and monopoly.
It is true that the FAANG companies and the recent winners (Airbnb, Uber) have sought a combination of network effects and preferential access to capital and classic economies of scale to generate tremendous value for their shareholders ̵
At its peak in mid-2018, FAANG alone accounted for 11% of the total market capitalization of The S & P 500 and 38% of the index's annual profit since the start of the year doubled its impact within just five years. The issue of regulation of technology companies – up to the introduction of antitrust measures – has even become a rare point of relative agreement between Democrats and Republicans in Congress.
But the history of technology companies in the 2010s is just a story of economic consolidation and growing inequality? Many of the most successful B2B startups in the last decade have a theme that draws a different picture. By transforming the costs of starting a business, these startups reduce the impact of capital and make it easier for new entrants to participate in the surplus channeled by the secular shift towards tech
A Path to Equal Opportunity: Transforming Fixed Costs into Variable Costs
What do AWS, WeWork, Stord, Gusto
However, they are the same for their customers in their economic purpose. Each of these services incur fixed costs – a server bank, a lease, a legal reserve – and are converted into variable costs. As a refresher, fixed costs remain constant regardless of production, and variable costs are consistent with a company's performance.
When my dad started his software consulting business in the early 1990s, I remember the huge boxes of AIX servers in our home and office tours in central New Jersey before he decided to take the company out to lead out our bedroom. Back then, it was difficult to set up almost all types of businesses because of the high fixed costs. Without AWS or WeWork you have opted for hardware and leasing.
Access to capital, whether in the form of bank loans, savings or friends and family members, was a prerequisite for entrepreneurship.
Today, startups allow you to start and scale almost any business with minimal fixed costs. Would you like to start an e-commerce shop? Start with a free Shopify account and deposit your inventory. Would you like to become a freelance designer? Put a stone on Fiverr and meet customers at a breather that you hire by the hour.
Whether software or hardware or work – building a business is much easier when overhead is transformed into a set of flexible micro services for which you only pay to grow.
Lower Fixed Costs Means Less Capital Matters
Startups that make variable costs from fixed costs make starting a business less capital intensive. This reduces the influence of gatekeepers and aggregators of capital – an influence that entrepreneurs perceive today when starting a business.
It is no coincidence that the rise of B2B startups that fit this theme coincides with the bootstrap movement in which tech entrepreneurs operate with great ambitions elude the collection of venture capital financing because – well, they do not need the money anymore.
It also coincided with a renaissance of freelance entrepreneurship: 56.7 million Americans freelancing in 2018. The fastest-growing segment of freelancers earns over $ 75,000 a year. Freelancers have access to the lifestyle and health benefits of their own destinies, which are not directly recorded but play a role in the economic environment. 51% of freelancers said that no money would lure them into a traditional job, and 64% said they felt healthier and happier.
When capital plays a lesser role in starting a business, access to capital plays a lesser role in determining individuals. More companies are being set up, and the economy is more likely to spawn new Davids that will upset the Goliaths. Economics 101: Lower market entry barriers create markets that compete in perfect competition rather than oligarchic concentration.
Variable costs do not scale, but that's fine
Variable costs have their downsides. A startup with a relatively higher fixed cost share – the profile of the classic high-tech software business – can achieve higher profit margins when scaling. Compare Microsoft or Google, which pay high fixed costs in the form of salaries and servers, but only low cost of delivering their services and a 25 to 30% operating margin, with Costco having an annual turnover of over $ 100 billion but earns an operating margin in the single-digit range.
That's fine. No type of cost is "better" or "worse," but with the option to decide how costs can be structured across a company's lifecycle, an entrepreneur's ability to implement a business idea can be significantly affect.
Founders examine startup ideas – and politicians debating the effects of technology – should pay close attention to how B2B companies have democratised access to entrepreneurship.
The equality of results comes from equal opportunities – and a future in which millions of people can start a business. differentiating and succeeding, based on their ability and value proposition, rather than their access to capital, sounds like a promising illustration of the egalitarian ethos that Silicon Valley seeks to achieve.