Web 2.0 Has Made It Easier To Launch Businesses; Keeping Them Going Is Another Matter

imageThe current economy is making it tougher than ever to try to grow a startup — but in many ways, it’s never been easier to launch a new business. Tech platforms like social networks and open-source software have boosted the chances that people with good ideas will get their startups off the ground, even if they don’t know how to write code and haven’t raised a round of funding. Meanwhile, people that do have tech skills can get their products in front of potential consumers directly — no middleman required for distribution (or promotion).

That evolution is the jumping-off point for our new editorial list “Fresh Faces in Tech: 10 Kid Entrepreneurs to Watch,” which will go live on our site Monday afternoon, after our EconAffinity event in New York. It will look at 10 kids — one as young as 15, and none yet of legal drinking age — who have created companies that in some cases are already bringing in millions of dollars in revenues.

To get a read on which trends are having the biggest impact on new-business creation — and to find out what entrepreneurs need to do to make sure they’re set up for the long haul — we talked with three people who have been analyzing and investing in startups for years: George Zachary, a partner at Charles River Ventures; Ben Schachter, formerly an internet analyst at UBS; and Vivek Shah, group president of digital at Time Inc.

Their responses, after the jump.

George Zachary: Zachary has led Charles River Ventures’ investments in startups like SocialMedia.com, GoTV, and, of course, Twitter. Zachary pointed to two developments in tech that had an outsize impact in sparking the Web 2.0 boom: increased use of open-source software and the shift toward “cloud-computing” services (like *Amazon* Web Services). “Startups can create a solid tech base with cheap hardware and a single server; once they get past that, they can rent CPU on demand from Rackspace or work in something like the *Google* App Engine,” Zachary said. “That’s having a huge impact; it’s leveling the playing field because the founders don’t have to put in all this money upfront.”

Ben Schachter: Schacter has been asking CEOs the hard questions during earnings calls and investor conferences for about 10 years. (He joined Broadpoint AmTech as its Internet & Video Games analyst earlier this year.) He said it’s easier to be an entrepreneur now because service providers like *Akamai* and *Amazon* have made digital content distribution easy and cheap. “There’s zero incremental cost for digital goods — whether its a music track, an article or an app — so now anyone can put up a piece of content and sell it to a billion people,” he said. “That makes it much easier to start and reach a massive market.”

Schachter said the cost benefits extend to tangible goods too, noting that “on-demand” retail startups like CafePress and Zazzle had lower costs than their brick-and-mortar retail counterparts.

Vivek Shah: Shah has seen publications like Fortune and CNNMoney.com chronicle the rise and fall of many startups. He said the biggest Web-based change has been in “audience accumulation”: “Traditionally, entrepreneurs were limited to a few obvious channels if they wanted to accumulate an audience and attract advertisers,” he said. “With channels like social media, apps and online video, you have multiple ways to grow a very specific audience very quickly — which is far more attractive from an advertising point of view.” Still, Shah said the days of just building an audience around content or a “feature set” were over. “Even a year ago, strategic buyers were interested in acquiring features and audiences,” he said. “Now that the market’s changed, if you don’t have a way to generate positive cash flow, those buyers aren’t going to be an exit for you.”

The caveat to all this innovation is that it lowers the bar for entry (and competition) across the board. “The startup that utilizes *Amazon* and manages its server costs more efficiently, for example, is going to have the advantage,” Schachter said. Zachary agreed. “If you have a good idea, the reality that you

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