The JOBS Act, which was signed by President Obama last week, promises to be a game-changer for small businesses throughout the country. Until now, the door to the capital market has been all but closed to most businesses. Fund-raising for a startup has been notoriously difficult, with roadblocks thrown up at every step. Banks don’t want to hear from you. Venture capitalist or angel investment? Not if you don’t have insider connections! Small Business Administration? All but useless for a startup. And let’s not forget the infamous “friends and family” round of funding they always tell you about at seminars and in business school! Most entrepreneurs just don’t have that type of friends or family, and this type of funding is mostly a myth.
Most small businesses, in fact, are “back pocket” funded, on a shoestring, and cobbled together mostly with smoke and mirrors, and a lucky few make it through and succeed.
Now, we’re at the very beginning of something truly ground-breaking. I recall at the beginning of the “dotcom boom” of the ’90s–most people didn’t know it was a “boom,” but those who were there and took advantage of it at the beginning, went on to create great things, launch successful companies and make lots of money. Although there were a lot of noteworthy failures, a lot of great things did come out of that era, and it changed the very nature of business forever. Crowdfunding will offer a change of that same proportion.
We are today on the verge of another major disruptive trend, which will once again change the nature of business forever. What we have is a “perfect storm” of circumstances, and those small businesses, entrepreneurs and innovators who jump on right now will become tomorrow’s Facebooks and Googles. Just what does that “perfect storm” consist of?
1. The long recession and painfully slow recovery changed the business model for good, and more companies are operating leaner than ever. “Fat” companies are gone forever, and even with an economic recovery, more large firms are finding their operating models work better with slimmer staffs and more outsourcing. This results in an opportunity for smaller businesses that are on the receiving end of that outsourcing pipe.
2. The long recession and slow recovery also put a lot of innovators and executives out of work. The fact is though, people like that don’t stay in the unemployment line for long–and many times, they launch their own businesses. We are already seeing this happen.
3. Cloud computing–this underlying technology allows those small businesses to offer the services mentioned above, at a cost-effective basis, and from any location.
4. Lower cost of start-up. Once again, due to cloud computing technology, launching a dotcom is cheaper than ever. During the ’90s, it may have taken millions, because the data center and infrastructure had to be built from scratch, but today, you can have the same functionality with a few hundred dollars a month.
5. And the final piece of the puzzle in this perfect storm–crowdfunding. The innovators that circumstances have put into the mix, now have the wherewithal to get funding for their creations.
The result is going to be a phenomenal rush once the crowdfunding sites are up and running and the government finally pulls the trigger and says “go” sometime near the end of this year. It’s going to be an exciting time–and now is the time to jump into it.