The New Internet Start-Up Boom: Get Rich Slow

The New Economy
It's time to stop whining. The economy might be melting down like a pat of butter on a hot Hummer roof, but for some people — you, maybe? — this could be a very good thing.

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Here's why. At no other time in recent history has it been easier or cheaper to start a new kind of company. Possibly a very profitable company. Let's call these start-ups LILOs, for "a little in, a lot out." These are Web-based businesses that cost almost nothing to get off the ground yet can turn into great moneymakers (if you work hard and are patient, but we'll get to that part of the story).

How do you get started? All that's required is a great idea for a product that will fill a need in the 21st century. These days you'd do best if your idea either makes people money or saves them money.

And launching now will make your company stronger later — you'll learn to survive on fumes until the economy improves. (See how companies have survived bankruptcy.)

That's what John Tayman is doing. He's an author (The Colony, about a former leper colony near Maui) who lives in San Francisco, where I met him; he wrote reviews for a business magazine I edited. Tayman knew little about technology and even less about business. And yet he dreamed of a website that would summarize car reviews from other sources and rank every model of new car. "It'll be like RottenTomatoes.com meets Kelley Blue Book," he explained to me during lunch one day last June.

Tayman said he intended to build the site on the side while continuing to write for a living. He'd work on his new company only at night and on weekends. Oh, yes, and he had only about $10,000. "Good luck with that!" I thought. Ideas are much easier to hatch than they are to execute.

Tayman went to work with nothing more than his PowerBook laptop. A hyperorganized fellow, he quickly discovered a trove of freebies online — instructional manuals and sites aimed at bootstrappers — that walk you through the process from start to finish.

On a website called 37signals.com he learned about the virtues of lightweight programming languages like Ruby on Rails, which are ideal for the project he envisioned. He visited RentACoder.com and Elance.com sites where you can find software developers. He picked up the jargon he needed to describe his project so he could put it out for a bid, and he found his first programmer — in the Ukraine — who agreed to start building the digital scaffolding for the site. Within months, Tayman had a virtual staff of 20 employees working for him in five different countries. "In fact, I didn't even meet the guy who built most of the site until the launch party," he says.

That guy, by the way, as well as a top-flight designer, liked Tayman's idea so much he agreed to take less than his usual fee for equity in the company. See how launching in a downturn works? (See the 25 best blogs of 2009.)

MotorMouths.com went live in January. Tayman figures he has worked about 10 hours a week on it and hasn't spent a cent on marketing or advertising. Growth is modest but steady: nearly 10,000 people visit each week, he says, all of whom get there by word of mouth and via a software "bot" that lets users of Twitter, the popular micromessaging service, request reviews. (See the top 10 celebrity Twitter feeds.)

The cost to Tayman? "Almost $9,800, all in," he said. As for revenue, he just sold his first display ad, for, well, the low three figures. But it's a start: "We've already reached ramen profitability." His math: he spends about $75 a month on server fees and other expenses.

Noodleconomics
The term ramen profitable was coined by Paul Graham, a Silicon Valley start-up investor, essayist and muse to LILO entrepreneurs. It means that your start-up is self-sustaining and can eke out enough profit to keep you alive on instant noodles while your business gains traction.

"At this point, it would be hard for companies to get any cheaper," Graham said. Since everyone already has an Internet-connected computer, "it's gotten to the point that you can't detect the cost of a company when added to a person's living expenses. A company is no more expensive than a hobby these days."

Graham is a partner in Y Combinator, a Mountain View, Calif., company that invests small sums of money in LILO-style start-ups and advises them during their ramen days. The difference between a start-up and a small business, by the way, is that a "start-up is designed to grow — it's scalable," said Graham. Compare a hair salon with Facebook. "Hair salons scale linearly," he explained. "You have to do twice as much work to get twice as much revenue." But once Facebook was built? It grew exponentially.

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