The startup ecosystem is an interdependent system of startups, support organizations, investors, service providers, and others working to support startup growth and success through the provision of guidance, capital, and other critical resources. Each of these components is critical to the success of individual startup ecosystems all across the country and the growth of the overall U.S. startup ecosystem.
Advancements in how startups build their companies—through the services provided by other startups and technology companies—have played an outsize role in this success. Startups no longer need to build every basic part of their business and instead can focus on developing their innovative ideas. Startups rely on dozens of services and tools—many times for free or at low-cost—to perform those basic business functions, like payment processing, web hosting, or customer service. These tools help startups compete and have reduced the cost of launching a startup by at least three orders of magnitude in just the past two decades.
Research from the Computer & Communications Industry Association (CCIA) Research Center and NERA Economic Consulting has demonstrated the value of these services for startups and small businesses, and underscored the threats of legislation to their availability and price. Startups could face increased costs as customers of the companies covered by the legislation because the legislation may increase costs for covered companies and limit covered companies’ ability to offer free and valued services to startups. Those incremental costs to startups could amount to $3,000 per employee per year, according to the research.
Moreover, regulatory compliance–induced cost increases disproportionately harm startups more than other businesses because they are small, have limited funds, and often don’t yet have positive free cash flow. As a result, startups have less room to maneuver in response to cost increases than established firms. In addition, regulation-induced cost increases for key tools create barriers to entry for new startups, as a startup needs more funding sooner in order to pay for such tools and bring its product to market.
In this report, Engine and CCIA seek to unpack the tools that startups are using to build, launch, and scale their companies. Through a survey of startup founders and startup support organizations, and reviewing the tech stacks of a sample of companies in Engine’s network, we outline the services startups are using and their impact on the ecosystem. For startups, this report provides a helpful cheat sheet to the tech tools available (often for free or reduced prices) by laying out the tools other startups are leveraging to build and compete. For policymakers, this report demonstrates the interconnected, interdependent nature of the startup ecosystem, and underscores how policy changes can reverberate through the ecosystem even if they don’t directly cover startups.
Find the full report here.
