Hacker News Reader

I think it's more troubling that small business formation is declining than you think. Small businesses provide a way for smart and hard-working people to improve their financial situation when they don't have other options available to them. Startups mainly help people who could have gotten a 6 figure job to potentially make even more. I'm not trying to criticize startups, but I think it's clear that a society where people can move out of poverty is a better one than a society where people remain in poverty but can move from the middle to the upper class.

> a society where people can move out of poverty is a better one than a society where people remain in poverty but can move from the middle to the upper class

This is a very subjective claim. I would certainly prefer to live in the latter country and so do most people I know (and we do, by moving from Canada to the US in much larger numbers per capita than vice versa).

this is a very limited mindset. Poor people that are not able to move into middle class will in the long run cause a lot of instability. Poverty and level of education are correlated. Living in a democracy with more people being poorer opens the door to populists with short sighted politics (hi Donald)

But, it was not so much poor who ended up voting for Trump. He has same support among middle class and rich. The main predictor is race and secondary smaller is gender, not so much poverty.

One interesting citation that partially backs up both you and the parent - http://fivethirtyeight.com/features/education-not-income-pre...

A 'startup' is a high growth type business, typically funded by VC (or something like that) and has nothing to do with the regular kinds of 'small companies' which are things like restaurants, cafes, contractors, small businesses etc..

The vast majority of new, small businesses in America are not very closely related to our modern view of 'startups'.

No, a startup is simply a business that is in the processing of "starting up" its business activities. Tech, growth rate, etc., has nothing to do with it. SV keeps trying to redefine the word, but the rest of America just isn't going along with it.

I get what you are saying but I don't agree with your pigeonholing of the definition of "startup". I really don't think all startups are high growth at all. I think that high growth startups are definitely a niche, but I don't think that they are what define startups and startup culture.

Even though I see where you are coming from, my view is a little bit more reality based: startup culture is very intertwined with VC and such kinds of investment - and 'by the numbers' - they must be high growth.

Put another way - there is so, so much risk with VC (and such) investment - that the kind of 'regular to medium growth' businesses are actually economic failures for most VC's.

So imagine you have a 'startup' that you grew over 10 years to 100 employees and profitability - even if you made your investors 'some return' - it actually may not be enough return to justify the implicit risk.

So when you adjust for risk ... it's actually not a win. This is something that a lot of founders struggle with understanding.

Anyhow - so my view is - startup = high growth as a matter of pragmatism.

But yes, bootstrapped, mid-growth tech companies don't really fit with the 'small business' profile (aka contractors, cafes) as well so you have a point either way.

"Startup culture" is entwined with VC culture because the notion of businesses wanting to remain in an unprofitable state in perpetuity (i.e., in perpetual "startup state") was unheard of in the past. Most businesses try to move past the startup phase in their first few months or weeks of operation.

At first I thought this comment was right on the money, but then I read the article.

"... the decline in new retail businesses isn’t an acute crisis. More worrying, however, is the decline in high-tech business formation. Tech businesses, unlike corner stores, tend to be high-growth businesses...."

Sonnyblarney, did you read the article before posting?

One big trend I've noticed is that small businesses (startups and slow growth businesses alike) are much more likely to do business with startups. A decline in small business is a positive (not good) feedback loop that adversely affects startups.

Consolidation in many sectors is out of control, not just tech. Finance, media, healthcare come to mind, but it's really endemic because fewer small businesses means fewer customers, longer sales cycles, more bureaucracy to navigate and therefore fewer startups.

Putting this in the broader geopolitical context, government antitrust actions are nowhere in sight. National champions, a la Putin & Xi Jinping, and subsidized state-owned enterprises (SOE) will eat the free market's lunch, in the short run, every time. Economic liberalism is really in a difficult spot because globalization has opened our markets to this kind of exploitation.

> A 'startup' is a high growth type business, typically funded by VC

What you are describing is a pump-and-dump, which actually is the most vibrant sector of the US economy, but that is not a good thing.

> A 'startup' is a high growth type business

No. Not all startups are meant to be high growth but they are still startups.

Then it's not a startup, just a small business. That's basically the thing that makes a small or medium-sized business a startup.

No, what makes a business a startup is that it is in the processing of "starting up" its business activities (meaning those activities which are intended to generate revenue).

Most businesses succeed in making it to that point within a few weeks or months (though not necessarily to a point of profitability).

Nobody considers a new restaurant or gas station to be a startup, man. You can have your own definition if you want, but it's not the one everyone else is using.

That's a strawman.

"A startup is usually a company designed to effectively develop and validate a scalable business model"

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

It still does require "high growth"

It's not a strawman, it's a counter example. Under his definition, a new gas station or restaurant clearly count as startups.

You made a correct observation.

Small business generally has lower productivity than medium and large business. When politicians put their hope in small business as job creator, those jobs have lover productivity.

It's good to have vibrant small business sector, but you can't expect it to bring exceptional growth.

You have data to back that up? I don't know that to be true. I've seen many small businesses that have much higher productivity per employee than that of larger businesses.

Productivity is not a function of 'how much stuff employees accomplish' - it's more like a measure of profits or economic value creation per employee.

So yes, small company employees are 'really productive' in the 'working' sense, but economically, not so much.

Other than at hedge funds and maybe some other very niche businesses (law firms?) ... the megabucks comes at a certain scale.

Low productivity is what creates that growth. Inefficiency is the whole point, as for every $50,000 of inefficiency for a small business, that's another job created.

> The S. European economies suffer from a lack of ability to compete on this basis: the ability for people to work together in large teams to develop sophisticated products at scale. Vast numbers of people don't even recognize the kind of professionalism and specialization required to work in these organizations - and I means even simple things like product management, product marketing, a bunch of basic financial ops roles etc...

Would you mind providing a source on this point? Intuitively I thought of it as a cultural issue regarding work ethics and vacation time. This is a bit surprising to me.

Great point, felt your argument was very astute.

However, really small nit: I think you meant to use e.g. instead of i.e.

e.g. = For example: i.e. = That is:

I could see i.e. working where you used it but I think you intended it as e.g.

Thanks again for your thoughts!

> It's not healthy to equate the two - as the 'startup' scene in America is actually very vibrant, while there may be an issue with small business formation

A very valid and smart observation. I read the subject title and I was like "What????". No country is even remotely close to the US with respect to startups.