I rarely ever see anyone talking about this online and it’s key. The advantage of operating an online business is the low cost structure. I see more and more companies lately that appear to fly in the face of that wisdom. They start up with large staffs and high operating expenses. To me, it’s counter-intuitive and I think these companies should learn to operate profitably, before they seek more capital.

The ease which capital is raised lately is incredible. More and more people have been able to find funding for dubious projects. You wonder what the point is. If the company hires some employees, rents office spaces, and burns through the money, they’re no closer to profit than when they started.

I think the really successful online companies know that you have to keep your expenses low as part of your basic business model. There’s no other advantage to operating online. I guess scalability is one of the big concerns, but scaling up a money loser only helps you lose money faster. It’s a vicious cycle.

People don’t like losing money. So if new startups bomb, the money will come out as fast as it goes in. Time will tell if there really is a bubble going on, or if some of these ideas end up getting critical mass soon.