What the Internet Made Cheap - and What It Did Not

PixelForce Updated 2 min read
What the Internet Made Cheap - and What It Did Not

The internet removed most of the fixed costs that used to decide who was allowed to start a business. Premises, distribution, inventory and a marketing budget large enough to be noticed were once the entry fee. Today a person can reach a global audience from a laptop. What did not change is the hard part, which is finding people who actually want the thing you are building.

What genuinely got cheaper

Three things collapsed in cost, and they are the ones worth understanding because they define what is now possible.

Distribution came first. Reaching customers no longer requires a shopfront, a distributor or a retail buyer's permission. Infrastructure came second: computing that once needed capital now costs a monthly bill that scales with use, so a product can serve ten people or ten thousand without a different funding conversation. Audience came third, and it is the one that changed the shape of business most - it became possible to build a following before building a product, and to validate demand before spending on supply.

The example we know best

SWEAT began with Kayla Itsines and Tobi Pearce, an audience, and a product idea. We built and scaled it from launch to a $400 million acquisition by iFIT - 30 million users across 155 countries, and the platform passed Big 4 due diligence at exit. Sweat with Kayla generated $17 million in revenue in its first year after launch in 2015, and in 2016 it generated more revenue than any other fitness app.

The part worth extracting is the sequence. The audience existed before the app did. The internet did not create the demand, it removed everything that used to stand between that demand and a product that served it.

What did not get cheaper

Attention. When the barrier to publishing falls to zero, the constraint moves from production to distribution, and there is now vastly more competing for the same finite attention. The founders who succeed online treat distribution as a product problem rather than a marketing afterthought - the question of how someone will find this is answered while the thing is being designed, not once it is finished.

Trust did not get cheaper either. A business with no premises has to earn credibility some other way, through evidence, reviews, track record or a person who puts their name to it.

Where this leaves a founder starting now

Start with the audience and the problem rather than the build. The cheapest thing you can do is establish that people want this before commissioning software, and the internet has made that step almost free - conversations, a landing page, a waiting list, a manual version of the service delivered by hand.

The pattern repeats at smaller scale too. Schnuzzle saw a 200 percent return on investment within the launch period and expanded from Australia to the USA, and after we rebuilt littlegren's online store, sales increased 300 percent year on year. Neither required a shopfront.

Frequently asked questions

Not at the start, and building first is the most common expensive mistake. Validate that people want the thing using the cheapest possible version - a landing page, a waiting list, or delivering the service manually. Software is how you scale something that already works, not how you find out whether it will.

Look for evidence of people trying to solve the problem already, badly. Existing workarounds, spreadsheets, forum threads and money already being spent are stronger signals than enthusiasm about your idea. People are generous with encouragement and stingy with attention - watch the second one.

The barriers to starting are lower than they have ever been and the competition for attention is higher, so the difficulty moved rather than increased. Broad markets are saturated; specific ones frequently are not. A narrow audience you genuinely understand is a more workable position than a large one you are guessing at.

Less than you think is necessary, because its job is to answer a question rather than to be the finished business. Scope the first release around the single most important thing a user must be able to do, and treat everything else as a later decision informed by what actually happens.

They are not really separable, but if forced to sequence them, the audience tells you what product to build and the product keeps the audience. The businesses that struggle most are usually the ones that built carefully in private and then went looking for people afterwards.

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