The problem of capital

Every business startup encounters the same problem at some point: the problem of money or to be more precise, where to get it.

A startup by convention is defined as a business that aims to create and sell its own product/s, but such a business needs resources to just survive while everyone is still developing the product. These resources are what business and management types like to call “capital”. (Just a bit of sarcasm there, folks.)

Here in the Philippines, the general trend (from my own unscientific observations) for successful startups is that the founders are usually already rich to begin with or are backed by a rich family and thus don’t have to deal with the problem of capital as much as others. The government has done quite a lot to try and help SMEs and micro-enterprises such as provide tax breaks or even loans to those who want to enter particular industries. Unfortunately for us techies, the IT industry isn’t on the list.

Besides the lack of institutional support, we don’t have much of a VC culture to really talk about. Local business investors – as far as I can see – are not willing to invest in any high-risk ventures such as a software company despite the potentially high rewards. I read somewhere that the VCs in Silicon Valley have already understood how to handle this risk and I believe their approach makes sense and should be emulated if we are to even hope that we can start something similar here. Although the rate of Internet startup success is very low, even if just one of their investments hit it big, it usually hits big enough to more than make up for the ones that don’t make it.

How do we deal with it? By taking on client work. The problem here is the very basic concept that the more time you spend on something, the less time you have for something else. Time spent on clients is time not being spent on your own product. In an interview at Pinoy Web Startup, Luis of syndeo::media admitted that although their ultimate goal is to operate solely on their own products, they’re spending 95% of their time on client work just to get by. Although I’m sure that was just a rough estimate, if we were to calculate that in terms of a 40-hour work-week per programmer, that would work out to just 2 hours of work on their own products every week. (Of course we can probably safely assume that as in most startups, work-weeks aren’t exactly fixed at 40 hours every week.)

While I won’t question their approach (we here at Admoo Labs also seriously considered this approach), I must admit that it feels like a waste to be doing that when the real work towards your ultimate aim ultimately accounts for only 5% of your time but the truth of it is, there’s very little choice for a lot of us. We need the money.

Everything would be so much simpler if we had more funding sources in the region like Y-Combinator and its many clones

RailsConf 2007 Keynote Videos

The keynote videos from RailsConf 2007 are now available online. Get them here.

DHH’s presentation is available here. DHH made a live demo showing REST and made a mistake. He said he wanted to show how easy it is to debug in Rails. I say the same thing when something goes wrong in my live demos. :)