The companies that were never fundable are now buildable

When European founders are asked about their companies' progress, headcount is typically one of the first three metrics mentioned. However, this correlation has now broken. Despite this, the way startups are funded and the metrics investors use to assess them have not caught up. Modern teams can now handle a production backend, a rendering engine, tooling, an on-device AI component, and live deployments in multiple countries with a team of under a dozen people.

Five years ago, such a scope would have required a much larger team. This change is not due to engineers becoming more intelligent; it is because the previously time-consuming tasks, such as writing ordinary code and integrating systems, have become inexpensive. This shift does not represent a productivity story but rather a story about which companies are now possible.

When software costs decrease, markets shrink. The category most affected is venture capital's traditionally difficult-to-fund segment: products serving markets of tens of thousands rather than tens of millions. These businesses were not previously impossible to build; they were simply unfundable due to the high engineering cost floor.

Lowering this floor allows such products to become viable, as they can be developed by small teams, reach profitability at a scale that would surprise growth investors, and serve a market for extended periods. However, these companies cannot return funds to investors. Europe is particularly well-suited for this change, not because of sentimentality, but due to structural factors.

Europe has fewer mega-funds, more fragmented markets that reward specificity over scale, and a large number of technically skilled founders who prefer to own a substantial portion of a real business rather than a small share of a speculative one. These factors were disadvantages when the cost floor was high, but they are not necessarily disadvantages now.

The hiring question has evolved. Instead of asking how many engineers are needed to build the product, founders should consider which constraints were ever headcount-driven, as several are no longer the case. Teams that hire to impress investors may inadvertently increase coordination overhead without adding capability, and coordination overhead is a cost that has not decreased.

Investors face a more significant challenge in adapting to this change. Headcount is no longer a reliable indicator of capability, and assessing actual shipped products, production performance, and how the team handles failures becomes more critical. While small teams may struggle with certain aspects, they also lack the necessary slack for unglamorous work.

Completing tasks requires discipline and human judgment, which remain expensive and are now a more substantial factor in determining the success of a company. The key metric to watch is not the number of employees but what a company has shipped, finished, and chosen not to do.