Buttons, Money, Lint

What does it take to bake a business?

Startups need things. Lots of things. You can't bake a company with a recipe alone. You need utensils, ingredients, an oven, a mixing bowl, and some counter space. A complicated recipe might even require an assistant chef. Some of these things are easy to find. Some of them are more elusive and expensive.

Luckily, startups have something they can barter with to acquire these things: equity in a potentially appreciating asset. In any good transaction, the startup will trade some of that equity for something that will accelerate its appreciation. The startup gets what it needs, the other party gets an instant increase in theoretical value and a shot at a real-life profit. For years, entrepreneurs and investors have been trading these things back and forth. The trade has traditionally taken the same form: Investor gives money to startup, startup gives equity to investor. This works out OK, because money is one of those things startups need and, with enough of it, they can buy all the other stuff.

But, how much sense does it really make for cooks to leave the kitchen to go shopping? Nothing is baking while the cook is at the store. Nothing is getting mixed. The oven isn't even pre-heating. That equity isn't appreciating. There are probably two types of entrepreneurs: those who will spend more and make quicker decisions so they can get back in the kitchen and those who will take their time to find the best deals. Since time is money, both are a waste.

But there is a bigger problem for real startups than for our analogous cooks. These cooks might make a trip to the store to buy ingredients before each baking project, but they wouldn't buy a new rolling pin or a new bread pan every time, and they certainly wouldn't buy new cabinets and appliances for each new loaf of bread. But this is exactly what happens in the startup world! Investors' money goes to buy new computers, lease new office space and buy new furniture for every new startup they fund. They spend money recruiting and re-locating new staff and paying lawyers to draw up new legal entities and operating agreements.

Luckily, a new breed of merchants have shown up, ready to barter with a new currency. Rather than simply trading money for equity, we deal directly in the tools and ingredients, eliminating the trip to the store so the cooks start mixing faster. Better yet, some us have learned to trade in the use of our counter tops and ovens (and even our assistant chefs), rather than trying to trade those items themselves. By reducing overhead, re-using staff and space, and recycling designs and code, we get businesses baking faster, and create a whole lot less waste.

 

 

 

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