Refurbished Hardware Powers Startups & New Companies
"Young Firms, Old Capital"
A paper published in the Journal of Financial Economics, by Song Ma, Justin Murfin, and Ryan Pratt has brought to light the important correlation between company age and capital age.
The findings stem from a huge dataset of 1.56 million transactions, comprising the sales and leases of new and used hardware - specifically 70,000 models tracked by serial number.
Capital is Circular
Where used hardware is unaffordable, and credit is strict, startups and new companies are few and far between. It is the proximity to older companies that enables new companies, with the availability of cheaper, used assets that allow startups to start with lower initial costs. This relationship is magnified by the easy access and quick shipping of goods in the global market.
Refurbished Hardware Scales Faster
New companies with an abundance of used hardware available not only make initial investments sooner, and continue to do so in the following years, but upgrade to new hardware faster than competitors without access or investment into a healthy used market.
Startup Hardware is Old but Cheap
The average age of used hardware at a startup is nearly 10 years old, with a sudden drop of 10% shortly after, with cascading drops and resets at a company age of 5 years and 10 years.
It could be inferred that these 'resets' are investments into higher tier hardware that is older than recent acquisitions but much more powerful.
When 'new' hardware is considered, in addition to whether there are financial constraints or not, the average machine age for a startup is still 5 to 6 years old.
New Hardware is Only a Generation Gap
The difference in machine age between a financially unconstrained company and one with financial constraints is roughly 1.5 years, converging as a company approaches 5 years old, resetting, and then converging again at 10 years old. Machine age is roughly on par once a company has matured to 15 years in age, varying onwards.
Refurbished Hardware is Affordable & Accessible
The modern supply chain enables capital to be distributed with little expense, in quick time, and to most places - bridging the initial overhead costs of a startup or new company. The proximity of businesses is also important as distance will impact response time and callout costs where aftersales technical support is required. Used hardware purchased through an Authorised Reseller also ensures that the capital is of good quality.
Sources
- Ma, S., Murfin, J. and Pratt, R. (2022) “Young firms, Old Capital,” Journal of Financial Economics, 146(1), pp. 331–356. Available at: https://doi.org/10.1016/j.jfineco.2021.09.017.
