America doesn’t have a small business problem. It has a startup problem. | Hacker News Reader

America doesn’t have a small business problem. It has a startup problem.

washingtonpost.com

20 pointsrpavlick42 comments

"It’s easier, after all, to take a risk, quit your day job, and start a new business if you don’t have to worry about getting health-care coverage."

Actually, I think it's the other way around. First of all, countries with national health care have introduced it precisely because is citizens are less risk-tolerant on average. Also, with a bunch of social parachutes such as health care, solidarity pensions and the like, the willingness to risk actually decreases, as there is less incentive to "make it big".

As with most other gambles, greater risk entails greater reward. Reduced risk (read: more comfortable safety net) means more competitors, a more diluted market for startups, and a lower payoff to fewer successes. Convesely, Google rose from America in precisely the quasi-starving artist mentality that makes a startup riskier with a less comfortable safety net. I agree.

Sorry, but I think this is delusional. The fact that I can break my leg and pay for nothing more in the hospital than a pair of crutches to take home in no way is related to what I want to do professionally.

On the other hand, the fact that it could cost some ridiculous amount in the states would definitely drive me to wanting to stay put in a reliable salary position in corporate world.

To play devil's advocate, there are different ways of looking at this. While in theory you're right, I'm not sure startup founders are thinking of their health insurance when they decide to quit their jobs. They are probably more concerned with immediate requirements, like raw shelter, food and utilities. But again, there's several ways to look at it.

I'm from Denmark, maybe the country with the best social safety net in the world. The state pays your medical bills, your school and education (you even get a state allowance to live on while you study), if you lose your job the state will give you money, and so on. You can actually live a whole life with nothing but statemoney.

The startup culture here is terrible, exactly because of this. People become cosy and risk averse because they don't really need to fight, and because there's no need to.

So i think the parent hits the nail pretty much on the head.

That's an interesting correlation that you've transformed into causation.

Actually, a "reliable salary position in corporate world" is actually not -- you could get fired, or even if you don't you might get denied the coverage by your insurance company. In the US, as I understand it, the most reliable way to enjoy a similar level of social protection provided by most European countries is to get quite wealthy, amirite?

> First of all, countries with national health care have introduced it precisely because is citizens are less risk-tolerant on average.

Really? Those countries tend to be much more homogenous than the U.S. Sweden does not have a horde of Mexicans who dearly wish to become free riders.

Forgoing your blatant racism,

http://en.wikipedia.org/wiki/List_of_countries_by_foreign-bo...

Sort by "immigrants as a percentage of national population."

In fact, Sweden and the US have almost identical immigrant percentages. Switzerland, Australia, Canada, New Zealand, and Austria all have higher immigrant percentages than the US, and all these countries have public health care systems.

Look, the demand for a free service is infinite. For an expensive service like medical care, giving it away is very expensive indeed.

> Forgoing your blatant racism, ...

"Racism" is not a general purpose swear word, any more than is fascism. And even if my motives were naked bigotry, Mexican is a political affiliation, not a race. The appropriate accusation would be to call me an American nationalist.

> Switzerland, Australia, Canada, New Zealand, and Austria all have higher immigrant percentages than the US ...

Their immigrants are heavily skewed towards the First World, and screened for acceptability. None of them share a border with a famously corrupt third-world country. (I suppose Canada may quibble. ;-)

If you actually want to learn about the Latino medical theft problem, do some reading:

http://www.nytimes.com/2009/11/21/health/policy/21grady.html...

http://www.cairco.org/econ/econ.html

http://www.newswithviews.com/DeWeese/tom94.htm

> Look, the demand for a free service is infinite

There are few things in life that are as demonstrably false as that sentence.

It's interesting that you think that, since it is quite clear that it is the other way round. The article has data both implying that the US is bad at startups (23rd in the developed world), and suggesting that a lack of medical coverage (as evidenced by a spike at 65 when Medicare kicks in) is a key factor.

A sensible argument against the article might be to suggest reasons why this is the case, or doesn't matter (US startups do better despite fewer being started, 65 is the retirement age so natural to start a business then).

But instead you make up some rationalisation about national character and a desire to "make it big". The only place I see national character fitting in is that despite the extremely adverse circumstances to forming a startup in the US, its still quite good at them because "making it big" is part of the national psyche in a way it isn't in say, France, who don't even have a work for entrepreneur ;)

The US genuinely embrace entrepreneurs and small businesses as a good thing, a valid lifestyle choice and even an aspirational one, and the surrounding business culture reflects that: for example, in the UK it can be very frustrating as a hobbyist in things like electronics since businesses don't want to know, whereas I get the impression that companies in the US are more open to dealing with individuals who may or may not represent small businesses.

I would say (at least from personal experience) that the funding issue is a bit of an easy culprit (especially since the article highlights three tech companies in the graphic).

In my experience, the barrier to entry for a sufficiently skilled founder or founders is fairly low, as long as one has the skills, and motivation to learn.

But for biotech and other industries, I can definitely see the potential for grants and other support to "jumpstart" these companies.

Precisely. Markets such as social, search, and cloud were the low hanging fruits because they required relatively small seed capital.

The reason why PG is complaining about a lack of truly unique startup ideas is because, frankly, many of the low hanging fruits have been picked. The next generation of fields ripe for innovation (AI, robotics, transportation, biomedicine, energy, space, etc) require orders of magnitude more seed capital. Some of these are on Manhattan project scales, requiring billions of dollars invested for a decent probably of an acceptable return on investment.

Some big spenders, such as Peter Thiel, are paving the way forward with their personal initiatives; yet few organic investment communities exist to support such endeavours. I doubt that such an investment community would spring forth without government support.

Unfortunately, government largesse is a critical issue in most developed nations at the moment, so I am pessimistic of government assistance in these sectors. Thus, we are constrained to our narrow fields of low capital startups for the time being.

I think your observation that "social, search and cloud" as you point out, are extremely over-saturated is especially relevant.

One of my main draws to programming was the extremely law barrier to entry -- a weekend spent with a Python compsci text and Google was enough to get me started on Django.

But even though I have interest in biology, genetics and related fields, I don't see how someone in my position with more time and motivation than money could "break" into the startup world.

Indeed. High capital fields such as medicine are the great entrepreneurial challenges of our time.

Everyone on HN knows of the decaying behemoth that is academic research. It is an unsustainable system built upon a terrible incentive architecture. Graduate students and postdocs are used as cheap labor in a Ponzi scheme, while Principal Investigators have no incentive to engage in difficult, high risk research due to salary caps and tenure. The market failure of academic research is the primary reason for the grinding pace of progress in fields such as medicine.

Again, there are individuals such as Craig Venter who are changing this paradigm, but the sheer magnitude of funding being dumped into the academic research black hole is unfathomable.

Our collective tax money is in the government's hands, and as such, only they have the power to dismantle such terribly broken schemes. I'm not holding my breath.

The solutions proposed here are to increase the number of startups by increasing government spending/taxation and increasing extension of credit/financing.

However, if the goal is to have more startups that are "the envy of the world", then increasing the number is not necessarily the way to do this.

We need to stop harassing those startups that do become successful. Startups by their nature are disruptive in the common sense of the term, and will violate the cozy arrangements made between established businesses and governments.

Two recent examples:

http://www.betabeat.com/2011/05/31/airbnb-takes-manhattan-wi...

http://venturebeat.com/2010/10/26/ubercab-ryan-graves-cease-...

Of course, on a larger scale the government is now harassing Google with antitrust, even though Google is being nipped at the heels by Facebook.

The government also denied the Blockbuster/Hollywood merger in the mid 2000s (http://www.washingtonpost.com/wp-dyn/articles/A2310-2005Mar2...) on antitrust grounds. Of course, just a few years later these "trusts" were blown up by Netflix, which is itself being blown up by Amazon and iTunes.

To have more successes, we need to stop the dynamic in which government goes after successes and tries to destroy them. What we don't need are government policies that encourage more marginal entrepreneurs to jump into the pool.

That is an issue of extremely successful startups making their predecessors "irrelevant." Google eradicated the market and became a de facto monopoly for searching anything on the internet. Netflix entirely dissolved physical movie stores. On the flip side, Gamefly, a similar venture, has not done this - people still buy video games from stores instead of renting them or downloading them.

I agree that some of the problem is the government being a "trust buster" - however, some of it is simply the faultless way the market works. The government makes blanket anti-trust policies which are universal enough that, when one company revolutionizes an industry to the point that it's the only one of its kind, it's caught by policy without really having any bad intentions. Unfortunately this is happening to Google.

http://en.wikipedia.org/wiki/Monopoly

Google does not have a monopoly on search. It's just the dominant player. That said, I do think there's reason for concern about how Google is marketing and integrating their products.

Well, that's why I said de facto monopoly. Legally, no, it has no monopoly. But the point was that it's made other search engines largely irrelevant. With the exception of Bing, you generally can't think of many search engines these days. And Bing only rose to that level (still hasn't beaten Google) through massive ad campaigns and corporate partnership endorsements.

Google has made other search engines largely irrelevant because it's so good. That is of no concern to me or the US antitrust investigators.

What would be concerning if Google started making it harder for other search engines to come along and challenge its position by offering a better service. Google has done no such thing. It's as easy to challenge Google as it ever was.

What's of concern to me and the US policy makers is how Google is using its position as the dominant search engine to market its other products. Do you see the difference?

Google does do stuff that makes it harder for other companies to compete. bundling many search services and information gathering services(which by their nature help search and the ad ecosystem) might be better for the consumer(and sometimes worse, i.e., privacy, market concentration) but becomes a huge competitive barrier because a competitor has to offer all those services , not part of them.

Are all those bundling moves are best for the consumer ? maybe not.

Is google buying ITA - the flight comparison service gives value to people, instead of google recommending you a great flight search when you search for a flight , and letting providers compete among themselves ? or even showing data from flight search providers directly on the page? i'm not sure it's helpful for the consumer, and it would probably decrease competition in the flight comparison services, or maybe even kill the competition totally.

Is it a legal monopoly, and break anti-trust laws ? i dunno. But don't mistake the law with the reality.

Wait, I'm not arguing that. I agree, Google hasn't done anything to warrant being bothered by the government. Perhaps I wasn't clear, but when I said the government has a blanket policy on trusts, I meant they catch Google without real justification based on incredible flexibility in how they qualify something as a monopoly. If a company is a de facto monopoly that's a good thing, it's superlative and, realistically, not abusive.

Unfortunately, there is a simple yet sinister explanation for the government's interference with extremely successful startups. Startups can only become massively successful by stealing market share from established companies. As you've stated, this has the effect of angering the cozy quid pro quo relationship between established companies and governments.

The root of this problem lies in the inevitable merger of the corporate and political classes. As the lines between these two entities blur, disruption through innovation will increasingly be hindered by new legislation. Corporations and governments are both interested in one thing: maintaining power. Corporations through monopoly, and governments through engineering votes.

Until this unholy alliance is broken, innovation will only become more cumbersome.

I don't see why simply being a startup should give you permission to flaunt the law for whatever reason you deem necessary to be profitable.

IMHO, the law usually exists for a reason. I care about antitrust violations, or data privacy violations. If New York requires hotels to be licensed - which I think is a fair requirement - then I don't see why Airbnb patrons should be exempt from that law. This view will probably be unpopular on HN.

I don't suggest that the US government stop "harassing" startups because ... they're startups, and economy economy economy.

I think you need to find a way to spur wealth creation while still having some rule of law in the country. Tax breaks, government-sponsored venture capital, and immigration incentives are a great way to do that.

The New York law was passed in July and is, shockingly, sponsored by hotel associations. Laws like that don't exist to protect anyone except those with deep financial interests.

Whoever wants to associate themselves with the law doesn't invalidate the merits of the law itself.

I think there is validity to the idea that venues that provide accommodation should be licensed and certified by the government to ensure quality, safety, and accessibility standards. Do you disagree?

Yes, disagree. Yelp reviews, Google search results, and a million distributed reviewers provide a far more robust evaluation system for quality, safety, and accessibility than a centralized, single-point-of-failure government system.

Quality: Zagat's star ratings are superior to anything a .gov agency has produced.

Safety: Chicago Crime Maps is superior to anything the Chicago PD has produced. Among other things, a mild tweak can accomodate self reports rather than just things that the police got around to filing (police officers have a number of incentives to understate crime).

Accessibility: Google Maps ftw. Will tell you if accessible by car, train, foot, bike.

Government agencies can't go out of business (no downside) and have zero incentive to do an amazing job (no upside). It is no surprise that this produces DMV/TSA style mediocrity.

It's not about evaluation. It's about ensuring standards, as I said. Yelp reviews are irrelevant.

Quality: I'm not talking about star ratings. I'm talking about ensuring hygiene and safety (see below).

Safety: I was referring to the need for an authority to ensure that the building is safe for use as accommodation. Are its stairs adequate? Is the wood stable? Are the windows high enough? Is its balcony safe? (for children?) Are there any open boilers or pipes? Is there proper air ventilation? Are there mats in its bathrooms?

These are all questions that pertain to the safety of people staying at the venue. It doesn't matter that you or someone else might be willing to take the risk to save a couple of dollars. That's not how the law works.

Accessibility: accommodation venues should provide facilities for disabled persons as is required by the law. The fact that you run your business on Airbnb should not exclude you from those requirements.

>Government agencies can't go out of business (no downside) and have zero incentive to do an amazing job (no upside). It is no surprise that this produces DMV/TSA style mediocrity.

Yep, I'm not going to start an argument about the merits of the government as a concept. I would, however, ask you to compare the state of countries that have a functioning, democratic government, and the countries that don't.

One of the signs of a non-functioning and/or non-democratic government is the wish to centralize everything, all in the name of "ensuring hygiene and safety" (or whatever their subjects will buy).

We get to the nub of the matter. There is not a single disruptive startup that did not break dozens of laws, either in spirit or in fact. It is impossible for them not to as laws are written by incumbents and are not written in the public interest.

Napster and Youtube broke copyright laws. So did Google. Apple's Jobs was a phone phreak. Gates was disciplined by the Ad Board for selling software on campus. And Facebook's creator famously "breach[ed] security, violating copyrights and violating individual privacy by creating the website, www.facemash.com".

Good entrepreneurs don't give a damn about "the rules", or about those whose primary purpose in life is obeying rules or making up new ones. Indeed, good entrepreneurs have a healthy disrespect for the law. But unlike the common criminal, they break the law to create rather than to destroy.

Your assumption is that the legal system is on the side of the average Joe and is protecting their interests against "for profit companies". It is much more accurate to say that a law is like a stationary cannon, which is captured by those with the deepest pockets and aimed at those who would pose market threats to those deep pockets.

Real estate developers who already own property support restrictive zoning laws to keep rents high. Life insurers are the biggest lobbyists for the death tax. Large restaurant chains support food safety inspection regimes that result in reams of paperwork, as they can amortize this cost across more employees.

Stated good intentions mean nothing. Every system of laws will face gaming attempts from day one, not just from "evil for profit startups" but also from corrupt politicians, bureaucrats, and lobbyists.

This needs to be factored into your analysis, as you too easily accept the narrative of "data privacy law" rather than "a law passed to advance the career of so-and-so politician and NGO, funded by lobbyist X, covered sympathetically by journalist Y, and sold to us as a data privacy law".

>It is much more accurate to say that a law is like a stationary cannon, which is captured by those with the deepest pockets and aimed at those who would pose market threats to those deep pockets.

Every law? Antitrust laws? Data privacy laws? Laws that require hotels to be licensed?

If you take issue with a law, then that law is the problem; not the enforcing of it.

Startups should not be exempt from the law simply because they're a startup. There are better ways to spur wealth creation via small businesses than to allow small businesses to flaunt the law when they see fit.

What do you like about antitrust laws? Without government intervention there are no monopolies. How did breaking up standard oil help anyone? They ended whaling, drove the price of kerosene from 100$ to 2$ -- how was this bad for the consumer?

How did all the microsoft antitrust stuff help us? How is hassling google helping us?

I think we're in agreement with respect to the law, the point of the parent post was that instead of hair-brained schemes to increase the number of startups we should reduce useless laws and regulations so that they can thrive.

> Without government intervention there are no monopolies

Can you really justify that statement?

Usually the law that gets broken is obscure and not intended for business in the first place. Social has a risk of running up against privacy laws whose intent is actually to prevent random 7-Eleven or Super 8 employee from recording you and then selling the video or distributing it among friends. These aren't really intended as "business regulations" so much as "ant-douche laws".

This is pretty weak sauce. Most successful entrepreneurs either never break a law or never intend to. The activity of Gates and Zuckerberg barely rate as "mischief", the tech equivalent of letting 20 year-olds drink beer at a college party.

If you're regularly breaking laws in business, it's probably not a tech company. It's probably a restaurant, health services or construction company, where there are immense networks of regulation at every level.

Ant-trust has been on the books so long that the truly ominous examples are simply beyond the pale. For example, Verizon buying out cable companies then locking out Netflix. Or the cellphone providers colluding to divide the market amongst themselves, granting each a safe market share. Level 3 making demands on all of them after buying out some content. Etc.

Generally, though, you're going to be SOL on government regulation as technology's main problem. There really isn't much, especially vis-a-vis more lucrative industries like oil. Wal-Mart probably has more regulatory compliance issues than the entire tech world.

One of the reasons I see startups being more significant for fueling the economy is momentum. A startup with 2 or 3 well collaborating founders without internal conflict is following an exciting vision - there's a certain glorification to beginning the venture on an idea, and being a founder of something new and practical. On the other hand, more mundane small businesses, once established, aren't known for adapting and changing much, so much as fitting into an industry niche and remaining predictable (i.e. a small software brand which isn't superlative in any way, but is stable and profitable).

Gosh this column is muddled. It's no wonder there's a problem. If you can't think clearly about an issue it's highly unlikely you're going to be able to shed light on it.

Startups are businesses that make something people want that are highly scalable.

So no, "startups" and "small businesses" are different things. Your dentist has a small business.

At the same time, it's very possible to make something that people want and simply have no desire to scale. That's what I'm seeing for a lot of American startups. Yes, there are all the wide-eyed younger folks who are out to imitate Zuck and be the next Facebook, but for every one of those there are a hundred people out in the hinterland who aren't out to conquer the world.

Why? Lots of reasons. First, people who change the world get punished. They get punished by competitors, by the government, and sometimes even by the popular opinion of the people who use their startups. Why make yourself a target?

Second, a disruptive startup's relationship to the government is far from clear. Is AirBnB an appointment service or a hotel service? Do the guys that offer ride shares run a taxi business? Or a bulletin board? The government, over time, has come up with thousands of little boxes that businesses are supposed to fit inside. Depending on which box you fit in, various rules apply. What this has done is create lots of stovepipe business systems. So when a business comes along that crosses many boxes, which ones apply? A lawyer can help here, but she's just going to be able to offer an legal opinion, not protect you from possible problems.

Third, there's the big business overhead hit. There's a huge difference between 3 guys in a garage and 3 thousand guys in an IT center. You need all sorts of administrative resources for the IT center, and lots of training for management on how to act. That doesn't come overnight, and you don't get there without taking a productivity hit. Now, if you're Google and revenue figures give you the slack to know you're going to be around for a while, you take the dive and go through the hassle. But if you're some fly-by-night, just-getting-started business which might have a huge staff for just one year and then disband? You can't make the overhead numbers work. I can't go out and hire 3 thousand guys to build my human-powered recommender engine for next year. It'd take a year or more of scaling just to approach that level of staffing. And even then I'd probably screw it up. All those laws to make sure "big business" behaves properly have an assumption that the business is an ongoing concern -- they have lots of money and lots more on the way. That assumption is not always true.

Finally, even if you had an idea to conquer the world, do you really want to be an executive? You can be a Derek Sivers and have all the money you want and the lifestyle you choose, or you can spend your time managing bureaucratic systems and endless people problems. Does that second forty million spend any differently than the first forty? The idea of what it's like to be a business overlord and the reality are vastly different things. The smart choice for many might be to ditch the fast-growth and large-scale scene entirely.

I constantly see wonks who understand little bits and pieces of the startup scene -- that young, fast growing startups count more than small businesses in general, for instance -- yet miss out on huge chunks of what's really happening. They offer to tweak the existing environment by adding still further complexity, thinking they are helping out. They are not. There's not a lack of people creating business opportunities that are scalable. There's a lack of people wanting to scale businesses. Totally different thing.

>> There's a lack of people wanting to scale businesses.

Isn't this the role of experienced managers: join the business at a point it has shown possibility to scale(and big profits) and make the scaling happen ?

And if you've got a successful and growing business you could manage to hire a good manager to do this ? or there's a lack of people who are fit for this task ?

You would think so, wouldn't you?

This is a bigger discussion than I have time to do justice, but there's an entire field of business books around the "valley of death" -- this huge hole that businesses go into and never come out. It's not a linear-scaling thing. 10 people aren't just 10 times harder to manage than 1. The reason you see lots of 20-50 person IT shops is that they never made it out of the valley. There's this huge consulting field dedicated to helping businesses who get stuck here. (Whether they actually help or not is up for debate). For instance, if you have 500 people, you'll have a full HR staff full of people becoming experts in various areas of corporate staffing law that affect you directly. If you have 100, you don't have the funds for those guys yet you are still affected by the same laws. It's that way for a hundred things -- the overhead is okay if you are big but unmanageable if you are crossing the line between small and medium.

If you have enough acceleration, yes, you can bulldoze your way through. Just start writing checks. Google and others did this. But it's not like server scaling where for each bit you grow you can just add more management. Wish that it were so simple! Instead there are these regulatory plateaus you reach where it's an entirely different world past that. Then there's just the issue of scaling a lot of people working together, which gets harder in an exponential fashion. None of this is fun -- and what it does is stifle all the companies without the huge accelerations.

> ... IPOs under $50 million have plummeted since the 1990s.

IIRC it costs around $10M to run an IPO, thanks to a mountain of financial regulations. Regulations that have had little apparent effect on large scale fraud.

Some states charge high fees to start a corporation. If you just want a place to park the IP for a bright idea, California charges an $800 per year franchise tax.

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