How to Promote Startups
aaronsw.com
aaronsw.com
The problems Aaron cites can almost all be blamed on the government. The drug companies, insurance companies, and big city hospitals are effectively state cartels. The AMA and nurse unions are a state guilds. They have all worked together to drive the price of healthcare through the roof. Government zoning regulations and negative interest rates have made housing prices rise at a far greater rate than wages. The decline of the dollar has led to massive investment in commodity indexes, driving up the price of food and oil. SEC regulations make it very difficult for entrepreneurs to raise money from small time investors. What makes you think that the government that causes all these problems is going to wake up tomorrow, and in a fit of competence and good sense, actually fix them? Better idea: abolish the Feds altogether. Without paying taxes to Washington and monopoly prices to state guilds, we could all retire at 30.
One implication of having similar temperaments (http://news.ycombinator.com/item?id=204240) is that a lot of NTs tend to be libertarians. So this site will likely favor a libertarian view.
I agree partially with this. Government regulation in some industries prevent startups from entering (ie health care and medicine). And since the most radical solutions are going to come from startups, no startups will slow down innovation. I also agree that the US is spending a lot of money inefficiently where companies motivated properly could spend it more effectively.
I believe if the house, senate and presidency is democratic that a social net is possible in the next 4 years. Implying that low approval ratings mean congress won't do anything isn't true. If anything it may motivate them to do something like this.
My candidate (Mike Gravel) did: http://www.gravel2008.us/issues
I think the best solution is to allow inequality, but to work hard to prevent wealth from becoming self-perpetuating through political power.
How about forcing hospitals to buy directly from manufacturers avoiding multi-tier nets of middlemen?
I am not even talking about private medical insurance companies and lawyers...
It's clear we can do more to help the poor get health care. Taking money from the rich and our corporations and paying for it is not the easy solution that a lot of people like to daydream about.
One variety of universal health care that has been lauded by economists, even some towards the libertarian end of things, is that utilized in Singapore:
http://www.american.com/archive/2008/may-june-magazine-conte...
Furthermore, to call the current model in the US 'free market' is probably inaccurate, as it's distorted in all kinds of ways, first and foremost because of the strong link between people's jobs and their health coverage.
Sure, more people would start small businesses.
But more people would give up earlier because the landing would be less painful.
The social safety net would decrease the importance of perseverance, one of the most critical ingredients of success.
When "normal" people bail out on a startup, they go find a regular job because they have to. If there was an option to just live at the other's expense, they'd just go on to do it.
Also, the 21% percent of people who say they would start a company, but don't, are probably more afraid of the possiblity of failure than unable to cope with the consequences.
> A study by McKinsey Global estimated the true figure [of unemployed working-age Swedes] —which included those on sick leave, in early retirement, in jobs programs—to be between 15 and 17 percent. Jan Edling, a researcher with the Social Democratic trade union LO, estimated the total figure of unemployed to be 19.7 percent. (Edling's report was suppressed and he was himself offered "early retirement.") The Confederation of Swedish Enterprise said the figure was 16.5 percent. Other studies ranged from 12 percent to 18 percent.
Most Western countries are able to pay large numbers of people to mooch off the state by calling them lobbyists, "diversity coordinators," graduate students, defense contractors, etc. Many people in these categories are probably doing some form of useful work, but some jobs with that title clearly exist to give an articulate member of a politically sensitive group enough money to stay happy.
Also, Aaron specifically uses the term "basic minimum income", and describes a scenario where "you could live off the government-provided income as you got things started."
This sounds like the welfare office becomes your infinitely patient investor. "Well, yes, I've been receiving assistance for 20 years straight, and I'm not disabled. But you see, I've been working on my startup all this time, and I think we're just about to turn the corner!"
So, if the Swedish model is to believed, society would have to cope with, an approximately 7-10% jump in unemployed working-age people living on the state. If you don't think that's applicable, please explain why.
Furthermore, wealth isn't a zero sum game. It's possible that there's some limit to the number of conceivable successful companies in the social networking sphere, but there are a billion other things worth working on. As PG has pointed out, health alone is an like an infinite want.
We want it to be easy for us to fire people, but it should be hard for big companies.
We want other people to pay for our "safety net", to encourage more people to be like us.
Or, why don't we just play on a level playing field instead of legislating a blessed group of people? If starting a startup is really that great, then it should happen naturally, not by having other people pay for our success.
Large corporations have access to the public markets and hundreds of other financing options. Startups need to rely on knowing friends, fools or family to fund initial efforts, and then perhaps squeeze into the insular silicon valley VC environment, if they can successfully justify a multimillion dollar investment. Furthermore, since IPOs are so incredibly painful now, M&A is the only exit for startup entrepreneurs, and so the practically only companies able to acquire others (and thus, hopefully, benefit down the line) are those already linked to the public markets, which are those which are already big.
Large corporations have the risk of making the wrong hires aggregated over thousands of people. Hire the wrong person in a large company, and maybe nobody will even notice. Hire the wrong person in the startup, and the entire company might be sunk.
Large corporations have the ability to massively lobby themselves to other large corporations or the government, encouraging massive kickbacks and corruption. The recent credit crunch bailout is an example of this.
The major disadvantage that large corporations have is that in many areas they're not particularly suitable for creative work. But this is a natural disadvantage. If society encouraged organizations more able to produce useful and novel work, our civilization as a whole would benefit.
And massive benefits for startups. The grass is always greener, of course, and people are most likely to see the advantages on the other side.
> Large corporations have access to the public markets and hundreds of other financing options.
This isn't some benefit that's dolled out by a controlling group, like the government. This is because people are willing to invest money, because they are much more stable. Startups are incredibly risky, and most will fail. If you give a "benefit" to investing in startups so that more people invest, someone is losing somewhere. It's equivalent to a government expense, which must be made up elsewhere.
The fact is, startups have just as many financing options as everybody else: the group of people that are willing to give them money all factors included.
> Furthermore, since IPOs are so incredibly painful now, M&A is the only exit for startup entrepreneurs
Incorrect. Startups don't have to exit, they have just as much ability to grow, become incredibly profitable, and turn into the larger companies, should they choose to do so.
> Large corporations have the risk of making the wrong hires aggregated over thousands of people.
That would be correct if you assumed that the talent pool is made up of mostly smart people, except that it isn't. The talent pool is made up of mostly average or stupid people, with increasingly few really smart people. Hiring thousands of people just aggravates the risk and increases the chances that you will hire even more poor talent (given that there is not an infinite pool of incredible talent).
> Large corporations have the ability to massively lobby themselves to other large corporations or the government, encouraging massive kickbacks and corruption.
Of course, isn't what this article is proposing another form of kickback? Why don't we just eliminate those all together?
> The major disadvantage that large corporations have is that in many areas they're not particularly suitable for creative work.
And that they're incredibly hard to manage, tend towards slow, bureaucratic work, have an incredibly difficult time innovating, are placed under high scrutiny and regulation (esp post SarbOx), and the list goes on.
I, for one, don't envy the position of large corporations at all.
The difference is that the government actively prevents large classes of investments from being made, and the weight of this restriction falls most heavily on startups, which lack the institutional knowledge to navigate such obstacles.
> Startups don't have to exit...
True enough. However, look at it from the standpoint of a bargaining position. Acquiring companies have enormous leverage back they're able to offer people their first few million. If an IPO is easier, then it becomes a more attractive option. This might not affect you as an entrepreneur, personally, but it does affect the market for startups.
> That would be correct if you assumed that the talent pool...
True, but even the most acute startups are vulnerable to mistakes in hiring. And the average quality of hacker at Google or Amazon or Microsoft may even be higher than most startups. The difference in productivity might be accounted for by institutional baggage alone.
> Isn't what this article proposing another form of kickback?
I don't believe it is. A social safety net for everyone is quite different from, say, a multibillion dollar infusion into one industry in wall street, or massive pork-barrel public works projects later abandoned for political motives, or monopolistic support of contractors such as Halliburton, or corn subsidies, or our new reinvestment into Nuclear without a discussion involving wind power. It seems almost completely different.
Eliminating all kickbacks, if I understand the strong libertarian position correctly, includes eliminating things like fire departments. When some theory of values, however intuitively appealing, starts contradicting so powerfully what we have reason to think good, I call question to the theory.
> I, for one, don't envy the position of large corporations at all.
I either. But if startups are naturally more productive, then one should at least acknowledge the strong advantages given artificially to their bulkier cousins.
One of those competing activities is: bad startups.
When we accept the premise that "promoting startups" is a good thing, we are assuming such startups are still a net social positive. In fact, that quality may depend on them failing-fast, attracting investment from greedy investors, and generating enough income in a competitive market to sustain the founders/employees.
With a strong safety net, it is easier to pursue a money-losing, wealth-destroying startup indefinitely -- really just a hobby masquerading as a startup.
A strong safety net also makes it easier to be a painter, or a musician, or a writer... even if there's no paying audience for your work. Perhaps some who do startups now would, with a bottomless safety net, prefer to sit in a cafe all day sipping coffee, blogging, and posting snarky comments about real startups. "That seems easier."
I wonder what the average payoff is though. When the going gets tough, I can easily imagine that the reduced costs of failure cause more founders to bail out.
(This is ignoring that any comparison between the USA and Europe will probably have so much baggage attached as to be meaningless.)
I wish people would stop quoting stats of ALL entrepreneurship and focus on industries. High tech start-ups are much different and 824 times more likely to be high growth then starting something like a restaurant.
But there's far more restaurants in those statistics people love to quote.
Read: Finding Fertile Ground or The Illusions of Entrepreneurship by Scott Shane to understand the reality of entrepreneurship and high tech companies.
The US is where there is more incentive to quit early as it will restore your health insurance and other benefits. In the EU the difference between failing startup/government support and regular job is smaller, so the incentive to fold is lower.
If anything the Euopean system could cause you to hang on to a no hope case for too long as you can make ends meet more easilly.
It's too simplistic to say that a social safety net will encourage entrepreneurship. It will probably enable more people to start up companies, esp in the tech sector, but it will equally lead to more deadwood entering the system.
http://journal.dedasys.com/articles/2008/06/09/startups-gove...
Once my wife gets out of Masters that will all change :).
Thought I must disagree with the universal health care point. The government can help regulate the way insurance companies operate vs give universal healthcare which by empirical evidence is failing in European countries.
Now my quick point on risk: You WILL fail (hence RISK) but sometimes you will succeed. All you need to ensure is that when you fail you can still have enough money to eat. Have a friend who didn't realize this point.