#1: The key ingredients got cheaper

Every startup, no matter what industry they’re in, has
an income statement with roughly the same line items –
payroll, marketing, technology and such. Ten years ago
each of these line items would have cost a fortune to
fund. That meant a startup company needed tons of
capital in order to even make a dent in the marketplace.
This created a large barrier to entry for new
competitors.
However in the last few years the price of each of these
key ingredients has simply plummeted, which in turn
has significantly lowered the barriers to entry for
startup companies.

Take a look at how each of the line items that used to
break the bank for startups has changed:
Technology is a commodity. Software has gone open
source (read: free), connectivity and hosting are dirt
cheap and you can buy a fully functional PC on eBay
for $100. Even the ridiculous costs of long distance
telephone service have become a thing of the past (we
love you Skype!) You can legitimately take care of all
the technology startup costs for a company for about
$1,000. Sweet.
Marketing became performance-based. We can
thank Google and Overture for this one. With the rise
of cost-per-click and search engine marketing we saw
the rise of performance-based marketing that allowed
companies to pay for ads that worked, not just for ads
that ran. Now a startup can begin attracting customers
with a marketing budget of just $100 and grow from
there.
22 year olds don’t make $100,000 anymore. The
young, energetic talent that we all relied on to build the
infrastructure behind all of our great ideas no longer has
a rock star salary. The days of the HTML programmer
making $100k and taking his dog to work are over.
Now that work can be done for $10 per hour – or less.
Capital is less necessary. When the price of just about
everything plummeted, so did the need for lots of
capital. The problem with capital is that it takes time
and energy to raise. Now that same time and energy
can go into actually starting the company, not funding
it.

When you add all of these ingredients together you get
an interesting combination. All of a sudden startup
companies can get to market quickly without having to
raise lots of capital to do so. This breeds more startups
and it breeds them a lot faster.