Soon, a one-person startup could be worth $1 billion & more

By Roy Bahat

Maybe it is a bit overzealous, suggesting a company could reach $1 billion in value without any fulltime employees. But startup value per person (whether measured in users, or dollars, or some other way) is rising fast. Another way to look at the question: why do companies of more than one person exist at all? Why did we need firms with many employees to produce valuable things?

In the 1930s, the economist Ronald Coase theorised that companies exist because the cost of doing business inside a firm is less than the cost of doing business with parties outside of the firm. Trust, shared culture, more information, and other factors made it so you were more likely to trust an accountant who worked for your company than one who worked for someone else.

So, if the cost of doing business with outsiders falls, firm sizes might shrink –– dramatically. As the quality of outside services goes up, and their way of doing business becomes more transparent to customers, and many companies who work together share a common culture (including communication tools, norms of behaviour, and other patterns), companies might use outside partners for functions they’d have previously run themselves.

Those companies can focus on what they do best – and that advantage might be delivered (as it was in the cases of Instagram and WhatsApp) by a tiny team. Maybe, one day, by a single person. Ideally, a company might want to outsource all the functions where they think “we need to do this, but we won’t win by doing it well.” In the past, that was hard. If you wanted your website to stay up, you had to have a data centre operations team, buying boxes, racking and stacking, operating and troubleshooting and wearing the company t-shirt. Today, AWS and other cloud providers do all that until you’re ready to claim some unique advantage by owning it yourself.

Several successful startups have emerged in traditional “back office” areas – ZenPayroll, Zenefits, Xero, etc. – where the job needs to be done right, at a minimum of distraction to a startup, but where success in these areas is unlikely to make a startup succeed. As this trend continues, the platforms that serve startups can go up the stack to ever more valuable functions, like payments (Stripe) or maps (Mapbox).