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"Obviously the spread of computing power was a precondition for the rise of startups."

If you live in San Francisco (or are visiting) you can visit the USS Pampanito - a retired WWII submarine.[1]

One thing I think you will notice is the manufacturers plaques attached to every little piece of equipment in the submarine ... every one of them the plaque of some tiny little supplier that you have never heard of. Some little Detroit Turbine Supply Company or American Radio Corporation of Maryland ...

Seriously - every single component has a label on it from a firm you have never, ever heard of.

I guess I don't have a deep knowledge of military procurement and supply circa 1942 (or whenever) but it sure looks like startups to me ...

[1] http://www.maritime.org/tour/index.php

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Good observation. Paul's definition of "startup" seems to be "company that grows explosively to a massive size/valuation in a short number of years". The sort of businesses you cite seem to fall under the "small business" moniker, and would probably be one of the mouse-sized companies he referenced in the essay as one that tried to avoid trampling by the elephants of BigCo.

Here's the specific part in question:

" People did start their own businesses of course, but educated people rarely did, because in those days there was practically zero concept of starting what we now call a startup: a business that starts small and grows big. That was much harder to do in the mid 20th century. Starting one's own business meant starting a business that would start small and stay small."

Hmm so explain Fairchild and Intel and all the spin out companies in SV.

I don't know what you're talking about. I didn't write the article. I just quoted the guy where he laid out the definition or his understanding of the term of « startup » which IMO is in line with the current common and broad idea of startups in that they're a special breed in the small businesses category that possess specific qualities that make them rather distinct from other business ventures and establishments.

That part is a bit questionable. Educated people starting small companies that grew big is not something new in American business. Not even educated people starting small technology companies that grew big. It's possible there has been a quantitative change, with it being more common now (I'd need to see numbers to be convinced of that, but it's possible). But "practically zero concept" prior to the 1980s?

Actually, the rate of new business creation has been falling ever since the 80's. According to [0], “Unfortunately, new firm formation has waned since the 1980s, and the recession accelerated the decline."

[0] https://www.washingtonpost.com/blogs/on-small-business/post/...

Hewlett-Packard, founded in 1939, in a Palo Alto garage. By academics. They were educated at Stanford, go figure.

>Starting one's own business meant starting a business that would start small and stay small.

And what's wrong with that?

Besides it being false of course.

If anything it's more sustainable and more productive (as these business MAKE something, don't just eat VC dollars or at best sell ads) than today's "startups" model, which is based mostly on a speculative bubble + ad money.

All the thousands of major companies, from IBM to Bell and from HP to Apple, Boeing, McDonalds and Kodak, and countless others in all lines of business started as small and grew from there.

It's a perversion (and counters the rest of PGs rhetoric) to narrow startups to "companies funded with VC money for a few years to get enough users/eyeballs in the hope that they can be sold for a few billions" which is more or less the modern kind.

Or start small, grow to a modest, profitable size, and be sold. A friend of mine recently retired (in his 40s or 50s) after selling his high-end catering business for a few megabucks.

Yes. "FU money" is a surprisingly low amount compared to what some startup owners think they need to make (and suffer the lower odds for it).

>And what's wrong with that?

I think pg would likely answer "Nothing". Whenever he brings up that sort of entrepreneurship, it's generally to showcase the rarity and timescale with which these small businesses (IBM, Boeing, GE) got huge in a time before the internet.

I'd agree that the Internet hasn't made big businesses get any more substantive, but it has allowed them to get bigger faster.

Like Fred Koch, Post and Kellogg, Hughes, JP Morgan, and Du Pont?

I guess a difference would be that now you don't need employees.

Multiple studies have shown that startups are dying in the USA. The great era of startups in the USA was in the mid 20th Century. At least since the 1970s, new business formation has been dying:

http://econweb.umd.edu/~haltiwan/dhjm_jep_5_17_2013.pdf

http://www.brookings.edu/~/media/research/files/papers/2014/...

Here is the abstract of that last study:

"Business dynamism is the process by which firms continually are born, fail, expand, and contract, as some jobs are created, others are destroyed, and others still are turned over. Research has firmly established that this dynamic process is vital to productivity and sustained economic growth. Entrepreneurs play a critical role in this process, and in net job creation. But recent research shows that dynamism is slowing down. Business churning and new firm formations have been on a persistent decline during the last few decades, and the pace of net job creation has been subdued. This decline has been documented across a broad range of sectors in the U.S. economy, even in high-tech."

And here is the start of the first:

"The pace of business dynamism in the U.S. has declined over recent decades. The decline in business dynamism is evident in a pronounced declining trend in the pace of both gross job creation and gross job destruction. An important component of these declining trends has been the decline in the firm startup rate. The decline in the startup rate has yielded a significant decline in the share of employment accounted for by young firms – this share has declined by almost 30 percent over the last 30 years. "

And please, please, please note that a country can have an incredibly dynamic, innovative industry, but that nation can still be in long-term decline. See here for details:

http://www.smashcompany.com/business/if-the-usa-is-the-most-...

Are those studies equating "starting a small business" with "startup"? Paul Graham only uses "startup" to refer to business that start small but grow large is a short time, as he says in the OP article itself (and elsewhere). If you equate those two ideas, you won't be able to talk clear about this topic.

When he refers to "the spread of computing power" he seems to be talking about software startups in particular. But when he says "The ultimate way to get market price is to work for yourself, by starting your own company" he is either talking about every imaginable form of business, or he is talking complete gibberish. If everyone goes into one sector, the economy would soon suffer an abundance in that sector, and a relative lack in other sectors. So his point is either true of any business that one might start, or he has no point at all.

There are "tech startups" that serve lots of "non-tech" sectors of the economy. One of the major beliefs in SV is that this is going to happen more and more, with companies making tech that augments or replaces entire sectors of human work. There's obviously a ways to go before this will be possible with some areas.

It's not unreasonable for everyone to go into one sector, and then for that sector to eat the entire rest of the economy (a la a16z's "software is eating the world" investment thesis). Imagine that software is an innovation akin to assembly lines. If you started a company in 1840 that used assembly lines, you were going into a very specific industry: textiles. If you started a company in 1890 that used assembly lines, it could be one of dozens of industries: textiles, steel, oil, tobacco, meatpacking, etc. If you started a company in 1930 that didn't use assembly lines, you were insane and destined for failure.

What's happened, historically, is that as a technology diffuses into new ways of doing things, old industries simply die out, and then the new industry differentiates into replacements for it. Specialized production in the middle ages was divided into guilds (many of which are family names now): you had smiths, cobblers, bakers, butchers, weavers, etc. When the industrial revolution happened, there was simply "industry"; it was only later that this differentiated into the steel industry to replace smiths, the meatpacking industry to replace butchers, the textile industry to replace weavers, etc.

Similarly, when software got started in the 50s, there was only the "software industry". Now, 60 years later, it's differentiating into search, social, messaging, e-commerce, developer tools, homesharing, adtech, fintech, ridesharing, delivery, etc. And it's likely there's more to come: if I had to locate us in the history of the industrial revolution, I'd say we're around 1890 or 1900. At that point, the great industries of the mechanical age (mass-produced automobiles, airlines, plastics, radio, television, recorded music) had yet to be invented.

Yes.

This concept of small manufacturers that excel in their niche has been the oldest business model in history.

Especially in Japan and Germany many companies have existed for over a millenium like that, and even today half of the made profits are by small, (50 people or less) companies that are hidden champions.

You probably never heard of http://www.walterwerk.com/en/, but they’re the world’s leader in machines that produce ice cream cones.

As you said, it’s not just since computers that these companies existed – they’ve existed for centuries.

But what is different this time is that for the first time investors are trying to invest in these small businesses, and try to make a huge profit out of them.

That seems to be just small businesseses, not startups. Startups either go Facebook or go bust, they're not created to stay stable at small scale.

> Startups either go Facebook or go bust, they're not created to stay stable at small scale.

Nonsense. Plenty of companies start out as small companies and suddenly find themselves on the upwards slope of a hockey stick, others start out as aiming for that hockey stick and end up being 'just' sustainable businesses.

This whole start-up naming thing denies 125 years of objective reality. You can't start a scalable company deliberately any more than you can reliable write an evergreen book. Time will tell what you've got, not your label of it.

Amen, brother.

It's odd to me that people assume that just because you've got a small business you won't jump at a market opportunity that could lead to something bigger...even Apple at one point was just a few folks selling stuffed PCBs and doing drugs.

But wait, some people start a pizza place or a grocery store or something similar. Those kinds of businesses are definitely new businesses, and people who start these kinds of businesses is what was traditionally meant by the word "entrepreneur".

But startups are qualitatively different - they are usually started with the express (and usually only) purpose of growing very large, very fast.

Call them startups or not, but we definitely need a term for the kind of company that behave in this "go big or go home" fashion, and startup is the generally recognized term for it.

Sure, but a start-up is more of a determination after the fact than something you decide to build. The only reason it works out for YC is because they start so many companies that a few of them due to the expected distribution end up being home runs. They still influence things as much as they can in that direction but there are absolutely no guarantees and quite a few of the go-big-or-go-home companies end up going neither big nor home, they end up being normal companies.

So unless you're willing to apply the start-up label only after the fact to the successful companies you're going to have to be a bit more inclusive than to just use it to describe Facebook, dropbox, google, Uber and AirBnB.

> But startups are qualitatively different - they are usually started with the express (and usually only) purpose of growing very large, very fast.

No, that's the exception. The rule is that start-ups were started to be companies like any other. At some point during their life span they found a groove that supported the property of very fast growth (almost always these are companies with some kind of network effect) and then retrospectively applying your criteria you can call those companies start-ups.

Anyway, no need to believe me, you can simply prove me wrong by deliberately starting a start-up that will scale. I'll bet you 1:50 that you won't make it.

The hard part then is this: your company has a fairly good chance (10% or so) to become just another company. Now supposing this is the case, will you then follow through on your 'go big or go home' slogan and go home and kill that company? Or will you do what everybody else does in that situation and just run it and milk the cow?

And even pizza places or grocery stores can end up scaling way beyond the original aim of the founders. McDonalds is a nice example.

If you want a single word that identifies companies that are growing very large, very fast I'd suggest this one: lucky.

The Steve Blank definition of a start-up is "a startup is a temporary organization used to search for a repeatable and scalable business model."

It's possible to form other successful businesses of course. But I like the way this definition calls out the scalability as an important factor. It doesn't make you point about betting against it working any less valid though.

Another angle is that the label "startup" is being applied retoractively to companies that, at their beginnings, were in no way similar to contemporary startups. I can't picture the founders of Google, Apple or Microsoft frequenting "startup events" of their time, spending time on figuring out valuations, or "growth hacking" strategies, or drinking beer together and dreaming out loud of the world domination they're going to achieve. From what I remember reading, the founders of those companies simply did the work and were focused on it. They didn't dream of taking the world until they already found themselves in the groove, being half-way into orbit and already after first stage separation.

Contrast that with what we call startups today - companies that deliberately attempt to be that "evergreen book", trying out every trick in the book to force themselves onto growth path. They live within an ecosystem, a big part of which is a mutual adoration society, with additional large layers of parasitic actors trying to suck out some money and status by just hanging around. And surely a good strategy was found - hence contemporary standard business plan of bullshiting customers with half-made shell of a product to quickly reach the point of getting acquired. It seems to work better than "just" starting a company, at least for the founders. Not necessarily for the world at large.

In a way, I think that early Apple and Google had more in common with a pizza place than with a contemporary Instagram clone.

I agree with a lot of what you wrote, but I do disagree quite strongly on your first (main?) point, as I understood it.

You wrote: "[...] a start-up is more of a determination after the fact than something you decide to build."

I totally agree with your point about companies normally not being able to "grow fast", and I agree with you that luck is a major factor. However, I think you're wrong in saying that people don't try to deliberately build "grow-big" companies.

Believe me, I'm a proponent of building small-growth "bootstrapped" companies, and I've had many conversations with founders about going that route. The vast majority, who had it in their heads that they wanted to be a startup, were deliberate in pursuing "grow-big" strategies. As one easy example, almost every company that raises VC money is either implicitly or, often, explicitly, chasing a grow-big strategy.

I completely agree that the vast majority of companies end up not being able to grow big, and have to decide between becoming a small company and "milking the cow" as you put it, or closing the company. This doesn't mean that they didn't set out, in the first place, to build a "grow big" company! In fact, you can see that this is true in the way that so many of these companies choose not to continue the small business, which could be profitable, but instead choose to fold the company instead.

In fact, reading the writings of YC, or talking with most honest VCs, will easily prove my point - they constantly tell you they are aiming to fund companies striving for $1b+ valuations, and they're fine with 99% of the startups they fund not getting there as long as 1% succeed. They are quite explicitly optimizing for "grow big" strategies.

Btw, I'd like to point out nl's comment below about Steve Blank's definition of a startup, which I always thought was the absolute best definition. A startup is an organization in search of a business model. When someone opens a pizzeria or a software consultancy, say, they're not searching for a business model - they're just executing one. But VC-backed "grow big" startups are very explicitly trying something new.

EDIT: Just to make sure we're not arguing over definitions - I'm claiming two things:

1. That what people, especially on HN, mean when they startup is a company pursuing a "grow big" strategy, and deliberately so vs. a non "grow big" strategy.

2. Regardless of 1, I also think that the majority of modern-day companies (let's say founded in the last 20 years?) that have grown big were deliberately started with the intention of growing big, ala Amazon, as opposed to say FB or Google, which wouldn't fall into this category. I'm less sure about this point, but it is a factual question that we should probably be able to answer.

VC-funded companies, almost 100%.

I was thinking exactly this. How many articles are we reading about extreme VC preferred stock, raising such high valuations that the only option is to go public after the first months. Raising so much money on terms that you require a big exit.

"But startups are qualitatively different - they are usually started with the express (and usually only) purpose of growing very large, very fast"

Usually a startup is understood to be any venture in search of a sustainable businessmodel.

To grow very large, very fast requires only lots of capital. A lot of companies have confused a large capital investment with a sustainable businessmodel and gone bust soon.

He's not debating the merit of fast growth vs taking it slow, he's just pointing out terminology.

pg's 2012 essay http://paulgraham.com/growth.html suggested using the term "startup" for hypergrowth-oriented company, and the term "small business" for slow-and-steady approach.

Both types exist, deserve to exist, and are nown to end up at a different place than the original goal they had in mind. But using suggested terminology saves us from the replay of the same argument over and over.

Seems like it might be a kind of survivorship bias. A hundred years from now, will people look at our era as one with a rich ecosystem of startups, or as one dominated by a half-dozen Facebooks and Twitters?

How many startups from 1995-2001 are still around that took seed-money and a few rounds and then stagnated (newer took off) since 2001? How many small companies (self funded) survived from the same timeframe? Startups have usually a goal IPO or get bought or the disolve themself after some time - right?

The point is that Bob's Bearing and Brass Knob Corporation, even though they did contribute some parts to the submarine (a) probably failed shortly thereafter and (b) probably wholeheartedly intended to become the next General Electric.

No, I've worked for several small businesses over my 35 years after college, and none of them aspired to meteoric growth. I think they're the lions share of new businesses, but consistently overlooked because the media is interested only in businesses with meteoric growth or products that become the next new new thing.

I think the willful blinkering of business interests toward only the .001 percent business that's exploding RIGHT NOW is a greater contributor to the fragmentation of business today than the fading priorities of WWII ever was. The idolization of the Gambler on Wall Street (or in SV) has misdirected our priorities away from respecting those who seek to build a sustainable business where normal people want to make a sustainable living. Now the prevalence of jobs at yet another ephemeral startup or large corporation awaiting it's next merger/buyout has greatly destabilized the workplace, much less made the job of corporate leader/ visionary/ innovator next to impossible. Instead of creative invention, corporate CEOs now focus instead on cost cutting destruction, and Wall Street applauds.

I wouldn't call that fragmentation so much as disintegration.

The 'History' page of the Gorman [precision magnetic coil winding] Machine company is a fascinating read. http://www.gormanmachine.com/history.htm

There used to be many thousands of such manufacturing-based small businesses in America. They tended to stay focused on their competency or branch out tentatively into related products, flexibly grow and shrink to meet demand, or sometimes get acquired. But I don't think many of them planned to become the next General Electric.

Facebook or bust. If this is the definition that we're expected to accept, I will say that as a consumer and human being, I prefer interacting with and being a part of small businesses more than startups.

It would seem this definition paints a startup as a proto-bigcorp. If the prevalence of big corporations is not a cycle we want to repeat, would we not favor businesses that do not intend to become big corporations?

For employees: salary/responsibility growth, bigger impact more quickly

You might be right about the customer side, that non-"startups" are more likely to be around in 5-10 years, which makes a difference when investing in a new, mission-critical area of your business (e.g. replacing email server)

Oh, but most startups are not trying to become big corporations. They're trying to be bought by one. This is the "get rich" part of the startup get-rich-quick scheme. Which is even worse for customers, because you can at least somewhat trust that a successful wannabe-big-corp will at least try to still sell/maintain their original product for a while.

I strongly disagree. As an entrepreneur and a mentor, to me a startup is just a new business that is pioneering something new.

Most new businesses are replicating an existing business model. E.g., if you open a new corner store, it's probably going to end up being like every other corner store. If you're starting a games company, you're probably going to end up like a bunch of other games companies.

Startups, on the other hand, are tackling something deeply innovative. That means early on you have to optimize for learning: understanding customers, iterating on product, seeking product-market fit. It's a very different set of behaviors for the entrepreneurs than the normal new business.

I think you're thinking of venture-backed startups, which require a large enough amount of high-risk capital that nobody will fund them unless they expect to be worth $100m+. But there are plenty of smaller startups that are self-funded or bootstrapped. They can be perfectly stable at small scale, although many of them do choose to grow substantially.

"Startups either go Facebook or go bust" For me, this reflects the problem with the current Startup mentality.

'Startup' has come to mean too many different conflicting things.

You're describing what I would call a "VC backed startup", where you'll either get big or wither away.

The other end of the spectrum (for people here) would be something like a Bootstrapped Technical Startup. Where you're trying to build a cashflow positive business leveraging technology in some way.

The definition of a startup is a reoccurring theme here and I'd really wish pg would reference it every time he uses the term. For him, a startup = growth [0], and as you can tell by this quora answer[1], not everyone agrees with that.

[0] - http://www.paulgraham.com/growth.html

[1] - https://www.quora.com/What-is-the-proper-definition-of-a-sta...

"Startups either go Facebook or go bust, they're not created to stay stable at small scale."

I started rsync.net with the intention of staying stable at small scale.

It's worked out so far.

Congrats! (Seriously). This just means it's not a start-up.

You've created a false dichotomy, leaving out a major "Startup" class: get acquired. There are also many other options.

"Startups" in this context exist to get VC's an acceptable exit.

Interesting. That reminds me of the fact that, after WWII, US domestic producers, to a far greater extent than today, satisfied the US domestic market for all kinds of products. (I think this was largely due to the literally bombed-out industrial base of some US competitors.)

And that amounted to a large number of jobs which are no longer available to US workers.

This idea:

"Obviously the spread of computing power was a precondition for the rise of startups."

seems closely related to the concept behind the book "Design Rules" (2000, isbn 978-0262024662). Here's a summary from the book flap:

"[The computing industry] has experienced previously unimaginable levels of innovation and growth because it embraced the concept of _modularity_, building complex products from smaller subsystems that can be designed independently yet function together as a whole. Modularity freed designers to experiment with different approaches, as long as they obeyed the established _design rules_. Drawing on the literatures of industrial organization, real options, and computer architecture, the authors provide insight into the forces of change that drive today's economy."

https://scholar.google.com/scholar?q=related:L9DylaW-KYkJ:sc...

You can extend this point to the first wide-ranging standardization efforts. Those plaques and part numbers were mandated to facilitate not openness, but interoperability.

https://en.wikipedia.org/wiki/United_States_Military_Standar...

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