Thinking of Founding a Science Startup? Look to What's Getting Cheaper

April 22, 2008

Deepak Singh recently started an interesting discussion (and follow-up) about the need for organizations that help early-stage bioscience startups in the same way that YCombinator does in the Web space. But having just attended my second YC Startup School, I'm left with a new-found appreciation of the role startup economics plays in shaping not just the startup landscape, but the culture of entrepreneurship that goes with it.

There's a world of difference between the kinds of startups YCombinator is interested in and the kind of startup most chemists and biologists would be in a position to found. As told by Paul Graham of YCombinator, founding a Web startup is cheap, and that changes everything:

There's something interesting happening right now. Startups are undergoing the same transformation that technology does when it becomes cheaper.

It's a pattern we see over and over in technology. Initially there's some device that's very expensive and made in small quantities. Then someone discovers how to make them cheaply; many more get built; and as a result they can be used in new ways.

Computers are a familiar example. When I was a kid, computers were big, expensive machines built one at a time. Now they're a commodity. Now we can stick computers in everything.

This pattern is very old. Most of the turning points in economic history are instances of it. It happened to steel in the 1850s, and to power in the 1780s. It happened to cloth manufacture in the thirteenth century, generating the wealth that later brought about the Renaissance. Agriculture itself was an instance of this pattern.

Now as well as being produced by startups, this pattern is happening to startups. It's so cheap to start web startups that orders of magnitudes more will be started. If the pattern holds true, that should cause dramatic changes.

Contrast the options available for a computer science student with those of a biology or chemistry student.

The computer science student enjoys access to state-of-the-art tools that have been commoditized to the point of being either completely free or very close to it: hardware; hosting; operating systems; programming languages; development frameworks; source code management tools; and, increasingly Web services. More than one multimillion-dollar Web startup has been founded with nothing more than a laptop, a dorm room, some macaroni, a few friends, and a good idea or two.

The life- or physical science student is faced with quite a different reality. Everything needed in getting started costs money - lots of money: lab space; instruments; consumables; a patent lawyer or two; and regulatory approval, both for day-to-day operations and possibly for the product to be sold.

Then there's the problem of time to market. A Web startup can go from nothing to finished product over a summer vacation. Depending on the product being sold, a science startup may take ten years or more to do the same.

This glacial product development cycle leaves the science startup with almost no room for error. In contrast, the Web startup is in a position to start offering a significantly flawed product early on and then iterate until it's perfect.

These contrasting situations go a long way to explaining why bioscience startups tend to be founded by thirty- or fourtysomethings and Web startups can be and are founded by teenagers.

With ready access to cheap means of production, Web startups enjoy many advantages that science startups can only dream of. For one thing, a product can actually be developed before approaching outside investors even becomes necessary. It's even possible to build a profitable Web startup purely from the profits created by selling the finished product.

The bio or chemistry startup, on the other hand, will tend to be dependent to varying degrees on outside investors from the beginning. In some cases, the University hosting a science startup's early-phase research will play the role of outside investor, much to the founders' disadvantage.

What do you get when you combine a need for large sums of money up-front with a need for almost perfect execution? A recipe for failing in business more frequently than anybody else.

We might expect this situation to change if the cost of founding a startup in the life- or physical sciences dropped significantly. It may take a little imagination to see this as a possibility right now. But the process of new markets forming when technolgy becomes radically cheaper is a fundamental feature of captitalist societies that has played out time and again over the last several hundred years.

If a transformation is in store for the economics of biotech and chemistry startups, what could trigger it?

Image Credit: mathoov