Borrowing Scale

The adage "software startups are cheaper than ever to start, but as expensive as ever to scale" is firmly embedding itself as part of canonical tech wisdom, as what's accepted to be true. I even tweeted about it myself the other day. APIs like AWS that offset initial capex & higher-level programming languages make getting up and running over a weekend easier and cheaper for a small group of hackers. On the other hand, high-priced engineering talent, operational costs, and distribution efforts drive costs up as the product and company scale.

The question I'd ask — will the latter half of this statement continue to be true in 5 years? 10 years? 20? What could lead to a substantial cost reduction in scaling and growing an organization?

Over the past few years, more vendors are emerging as default options for a company when it raises a seed or A that help with the Day 2 problems. Skip the roundabout with payroll providers and banks — just use Deel to build your overseas team. Keep finance and accounting in check from the start with Ramp. Need to sell into enterprise? Streamline a SOC-2 approval with Vanta.

Before, manual effort and labor fixed and massaged these problems, contributing to the costly business of scaling. Now, startups can effectively can not only borrow scale for launching a product, but also building their organizations. These tools won't replace the staff needed to manage these activities altogether, but they do aspire to give employees more leverage.

Furthermore, startups are also building abstractions on the complex, distributed systems required for software to serve millions of users. Okteto provides developers a slick interface on top of Kubernetes, a lower-level primitive for orchestrating applications. Fauna seeks to make a distributed & reliable operational database available through a single API. All of this is an effort to accelerate development velocity and timelines. While this trope probably won't realize for a long time, tailwinds seem to be pushing us towards Chris Dixon's "unicorn of one."

Some additional thoughts:

  1. What are the second order effects of the cost of scale coming dramatically down? An entire investment and employee ecosystem has been built on this premise alone.

  2. I sense security is an opportunity area to add to this list.

  3. Distribution is one area where costs do not seem to be coming down as channels and buyers are inundated. If this is the primary cost driver, perhaps this whole argument is moot.