Sara Blakely had 5,000 US dollars and a problem. Getting dressed for a party in Atlanta in 1998, she could not find shapewear that worked under white trousers, so she cut the feet off a pair of control-top tights and wore those instead. Inelegant, but effective. She filed her own patent to save on legal fees, cold-called mills in North Carolina until one agreed to manufacture her prototype, and then drove from department store to department store until Neiman Marcus agreed to stock the product. Spanx, the company that resulted from this rather homespun origin story, is today worth more than a billion dollars. Blakely owned 100 per cent of it for over two decades. No outside investors, no funding rounds.

The received wisdom about business transformation is that it requires capital, and, preferably, lots of it. The successful start-up is the one that closes the biggest Series B; the government that wants to change things must spend generously. Neither premise survives much contact with reality.

Craigslist began in 1995 as a text email that Craig Newmark used to inform friends about events around San Francisco. He turned it into a website in 1996, incorporated three years later, and declined outside investment until eBay took a 28 per cent stake for 32 million US dollars in 2004. It is still one of the 100 most-visited websites in the United States, and yet has never spent much on marketing. It generates hundreds of millions of US dollars a year in revenue and yet its interface has changed very little since its inception.

Mailchimp is a similar story. Ben Chestnut and Dan Kurzius built an email-marketing platform as a side project in 2001 while running a web-design business. For six years they kept it as a hobby. When they eventually committed to it full-time, they declined every venture-capital approach, reinvested revenues, and let the thing grow at its own pace. By the time Intuit acquired it in 2021 for 12 billion US dollars, Mailchimp had never taken a cent of outside investment. Mojang, the Swedish studio behind Minecraft, followed roughly the same path: no capital raised, 50 employees, nearly a billion US dollars in profit, and a 2.5 billion sale to Microsoft in 2014.

The thread connecting these companies is constraint. Without capital to burn, they were forced to make products people actually wanted to pay for, rather than products investors wanted to back. The venture-capital model has produced enormous value, but it has also bred a reflexive assumption that money is the primary ingredient of success. The discipline imposed by having to generate revenue from the outset has a clarifying effect that eight-figure funding rounds tend to dissolve. Burn rate is not a strategy, whatever the pitch deck says.

The penny drops

Governments, at least as much as businesses, confuse spending with competence. The standard political instinct, confronted with a problem, is to announce a programme. Programmes require money, because money is how you demonstrate seriousness. Cheap, ingenious solutions are, as a result, chronically underrated, and under-deployed.

Estonia’s digital government is the canonical example. When the country regained independence from the Soviet Union in 1991, it had almost nothing: Soviet-era infrastructure, a population of 1.3 million, and a telephone network that reached fewer than half its citizens. The government of Mart Laar, the country’s first post-Soviet occupation prime minister, saw this as an advantage rather than a handicap. With no legacy systems to overhaul and no bureaucratic inertia to overcome, Estonia built its digital infrastructure from scratch, designed around efficiency rather than around the convenience of civil servants. By 2000, Estonians could file their taxes online. In December 2024, Estonia became the first country in the world to offer 100 per cent of its government services digitally, including online divorce. The country’s e-Residency programme has attracted more than 100,000 participants from over 170 countries, establishing more than 25,000 companies and contributing tens of millions of euros in taxes. It was built, as Hannes Astok of the e-Governance Academy has observed, by a country with no natural gas and no gold mines, which simply could not afford to run a large public administration in the traditional way.

The United Kingdom’s carrier bag charge, introduced in October 2015, is a smaller but equally instructive case. The policy was simple: retailers with more than 250 employees would charge customers five pence for each single-use plastic bag. It cost the government almost nothing to implement, imposed a trivial administrative burden on retailers, and produced remarkable results. In the first full year of operation, the seven largest supermarkets issued around 83 per cent fewer bags than they had in 2014. By 2020, plastic bag usage at major supermarkets had fallen by over 95 per cent compared to pre-charge levels.

The reason the charge worked so quickly is something behavioural economists have documented repeatedly: making a hidden transaction visible changes how people think about it. Before October 2015, the cost of carrier bags was buried in the price of goods. Consumers did not notice it. Attaching a charge created what researchers at the University of Exeter called a habit disruptor, a small friction that forced people to make a choice they had previously made unconsciously. By January 2016, just three months after the charge came into effect, plastic bag usage in England was statistically indistinguishable from Wales, where the same charge had been in place since 2011. Policy that took minutes to draft and cost nothing to fund had shifted the behaviour of an entire country.

Thinking, not capital

The myth of expensive transformation is not accidental. It serves too many interests. Start-ups benefit from the publicity of funding rounds; governments benefit from the narrative of investment. The alternative, that a 5,000 US dollars pot of savings, a government with depleted coffers, or a five-pence levy can achieve transformational results, is politically uncomfortable and far less newsworthy. It also, incidentally, makes the expensive approach look bad by comparison.

Capital tends to substitute for thinking. Well-funded companies can afford to make expensive mistakes; the discipline of doing without rarely fails to produce either a better product or an honest reckoning with why the product wasn’t working. Governments with large budgets fund programmes that are evaluated generously, if at all. Estonia digitised its public sector because it had no choice. The UK’s 5p bag charge came from a policy unit, not a treasury expansion.

Blakely, Newmark, and the architects of e-Estonia share something that no amount of venture capital can buy: the absence of an alternative.

Photo: Dreamstime.