A Local Revolution?
paulgraham.com
paulgraham.com
Government was much smaller at the time of the Industrial Revolution.
The theory of "regulatory capture" says that government is responsive to those firms that are affected by government regulation and have the money to buy favorable legislation.
Thus, it's much easier for big-dumb-and-slow firms to use government to put roadblocks in the way of startups than it was for inefficient firms to put roadblocks in the way of factory production 200 years ago.
Want to sell wine over the Internet? The established players will make sure that it's illegal for you to do so.
Want to cut a deal with your early stage employees where they get no pay for 6 months? It's illegal in most places to not pay someone a wage. In MA it's illegal to fire someone for blatant incompetence and they pay them their final paycheck on the regularly scheduled payroll 4 days later - you need to hand them a physical check then and there.
Want to buy a bunch of servers? In a lot of locales (MA, again), you have to pay taxes on the assets every year.
Want to sell real estate on the Internet? Hope you're a licensed broker!
Want to write an expert system that generates legal documents? You'd better have passed the bar exam. Actually, wait, even though that was good enough for Lincoln, these days you need to have actually ATTENDED lay school - a mere demonstration of proficiency is not enough.
Etc., etc., etc.
If this is how things are in the free-wheeling US, I imagine that it's far worse in Europe.
I think that people across the globe have what it takes to launch startups. I just think that the legal culture makes it very hard in most places.
In most of these cases, it's not the government protecting existing companies, it's the government protecting the naive population. You won't fire someone after six months of unpaid labor, but someone else will. Your expert system might create air-tight contracts, but someone else will cut corners.
These laws do not exist solely to frustrate you. Part of being in a uniformly free society is ensuring that naive people are not at the mercy of the better informed or less scrupulous. Things can't work any other way.
This untrue, throughout history companies get laws to make upstarts more difficult. There is no reason you need to go to law school or even pass the bar, if the buyers don't think it is a good tool they won't use it.
In fact things can work the other way, you are protected the few who may be swindled (they're clearly visible), but ignore all those who are harmed by the lack of new products. It's very hard to look at the other side of the equation, but it is normally quite significant.
Unless a company already has lawyers on staff, they have no way of determining whether a legal expert system is a good product or not. For that reason, it cannot be a substitute for a living, breathing lawyer. It could certainly be a tool for lawyers, and streamline the hell out of most legal processes, but to treat it as something more is to give up on any lowest common denominator for legal advice. And while this would certainly harm lawyers, it would also harm a great many other people.
The recent mandates on testing toys for lead, has pretty much outlawed small toy producers. You can't prepare food at your house and legally sell it (even if you say this was cooked at my house). The FDA debacle with juice pasteurization vs more modern UV processes.
> And while this would certainly harm lawyers, it would also harm a great many other people.
Once again you make a statement that claim to be true with no real backing. Say 1 person is harmed by this newer cheaper law advice, and 10,000 are saved due to the reallocation of resources to medicine -- this is of course a hypothetical example, but it has just as much grounding as yours.
Not: we need the government to be our nanny. That results in all kinds of really bad side effects, including those illustrated by the person who started this thread.
Thanks Mark
I wouldn't put up a huge stink if the law was "you must pass the bar exam".
However, the law is "you must attend 3 years of law school".
> These laws do not exist solely to frustrate you
Agreed. They exist to decrease the supply of lawyers, thus increasing the price that lawyers can demand.
Frustrating me is just a side effect.
I sympathize with your frustration, but the reason for the prerequisites could just as easily be that they don't believe they can create a test which properly encompasses everything a lawyer should know.
Also, at least in San Francisco, the job market seems to be saturated with lawyers, even before the economy went south.
Actually, there are still a few states where you can join the bar after clerking for a number of years and passing the bar exam.
See, for example: http://www.wsba.org/lawyers/licensing/faq-rule6.htm
One question is why so many things require generating legal documents.
Is this true? Is it really such an open-and-shut case?
In some senses it is obviously true: There were a lot fewer people, a lot fewer filing cabinets and a lot fewer regulations. A lot of the tools needed for our big modern system -- hygiene, communications, literacy -- just weren't there yet. There were essentially no worker protections in the early stages of the Industrial Revolution; there were few environmental regulations. And travel and communications were harder, which made it easier to evade certain regulations -- they say that, as late as the 20th century, movie companies relocated to Hollywood in large part because it was the US city farthest from Thomas Edison's patent lawyers.
But government-sanctioned monopolies are not a new invention. (That's what the British East India Company was all about.) Enormous tariffs levied on mass-produced goods are not a new invention. Taxes are not a new invention. Gangs of Luddites (not metaphorical Luddites -- the real thing) who break your equipment and sabotage your business model are not a new invention.
Wine monopolies? Here's a book that deals, in part, with how the English ban on French wine imports boosted the English brewing industry in the 17th century:
http://www.amazon.com/War-Wine-Taxes-Political-Anglo-French/...
And here's a Wikipedia article on mercantilism, the dominant theory of international trade for over 250 years, starting in 1500:
http://en.wikipedia.org/wiki/Mercantilism
Mercantilism was all about big-government management of the economy through tariffs and subsidies. But, of course, that was arguably a big improvement over the medieval model: Small-government "management" of the "economy" by private armies who threatened to burn your crops and besiege your house unless you paid tribute.
No, but a reasonable percentage of those convinced that "it's all the government's fault" are going to continue to see it that way no matter what (and get offended when that gets pointed out, apparently). Just like other people think that more government/laws/rules is always the answer. For that matter, I'm pretty convinced of my "radically moderate" views which are somewhere around The Economist's.
Which is why these sorts of discussions rarely go anywhere, even over a beer, to say nothing of short, sharp answers on internet forums.
Of course you are. If you thought they were wrong, you wouldn't hold them as your views, would you?
I was thinking about this, and part of the problem is that these threads often feel like someone selling me something, rather than trying to figure out how things really work. They'd be much more interesting if people "let down their guard" a bit, upped the reasoning, and lowered the propagandizing. I guess it may not feel like propaganda to those involved, but I really like reading comments like mechanical_fish's, which cast a wide eye on things, considering all points of view, rather than people pulling out all the stops to fit the facts to their point of view.
Don't surrender your reason to social contructivism.
Given this, the idea that there could be less (or about the same) regulatory interference of business today is, frankly, ludicrous. For one thing, simply reducing business budgets (taxes) at the rate the government does is an onerous burden all by itself. Arguments can certainly be made that it's a net gain for society, but please do not be disingenuous in stipulating the facts.
That depends crucially on which business you're talking about. Exceptions abound. Consider that example of the mail-order wine business. Do you know how hard it was to start such a business in the days before FDR? There was a lot of "regulatory interference", personified by guys like "Eliot Ness". You couldn't start a wine business in the USA, full stop -- unless you kept it underground. That era also had a devastating effect on our brewing industry that took a generation to recover from.
One could also ask some of the people who run porn sites about the complex history of "regulatory interference" in their business.
And, as we now know all too well, there have been times when regulation of the financial industry was much more strict than it is today. That's not a simple history, either: Corporations and stock exchanges have existed since the 17th century, but their degree of regulation has changed in complicated ways over time.
And a relentless focus on taxes obscures other forms of interference that were more important at certain times, for certain industries. However onerous it is to start a telecom-based company today, it was probably harder back in those days before FDR, when AT&T held a government-sanctioned monopoly over all of US telephony:
http://en.wikipedia.org/wiki/Ma_Bell
In 1934, the government set AT&T up as a regulated monopoly under the jurisdiction of the Federal Communications Commission, in the Communications Act of 1934... by 1940 the Bell System effectively owned most telephone service in the United States, from local and long-distance service to the telephones themselves. This allowed Bell to prohibit their customers from connecting phones not made or sold by Bell to the system without paying fees. For example, if a customer desired a type of phone not leased by the local Bell monopoly, he or she had to purchase the phone at cost, give it to the phone company, then pay a 're-wiring' charge and a monthly lease fee in order to use it.
That the Internet managed to come into existence at all is the result of a complex interplay of antitrust law, the rise of government-funded research under guys like Vannevar Bush, and the Cold War (DARPA, which funded the Internet, was born in the days after Sputnik).
Today, our cable and phone companies also wield virtual monopolies with the help of the FCC. The situation is pretty bad in the USA. But I'm not sure it's significantly worse than it was back in 1940.
Prohibition was passed in 1919 (under Wilson) and "repealed" in 1934. (The repeal amendment federalized some restrictions that hadn't existed before 1919.)
To build on this comment, I disagree with pg's statement that startups have and will spread somewhat randomly. The biggest defining factor is having a (more) free market in a given place (inc. lower taxes and a /proper/ legal system).
In fact, that's largely why northern Europe had the Industrial Revolution and why most startups are in the US today. Because the US seems to be becoming more statist, that could definitely change.
Thus missing the point.
And not just Congress:
http://pajamasmedia.com/instapundit/76701/
>> their lawsuits tend to destroy startups before government regulation does.
In the broad sense, this is government regulation as well, but with the laws being written to transfer the regulatory function from the Executive branch to the Judicial branch.
When I moved to San Francisco from Chicago, I felt the change immediately. People simply get me out here. They understand why I'm doing what I'm doing. They ask intelligent, insightful questions. They give me invaluable advice. They share their knowledge freely. And they do all of this because they believe in -- and belong to -- the same amazing culture that I now do.
"Um.. yes, actually. I do user interface development. How'd you know"
"Oh, I just moved here from the Valley... I guess I just know the type when I see it."
Weird, but eye opening!
This it the first thing that I've ever read that made me think that moving from MA to CA might be a win for me, personally.
Austin's loss is Silicon Valley's gain.
Also, there were virtually no children, no old people, not many "middle class" people... it all just struck me as very out of kilter.
That's not to say that there aren't lots of good things, or that the area is a bad place or somewhere people shouldn't go, just that it has its downsides too. I got the feeling that it has never really cast off the 'gold rush' mentality: get in, get rich, get out. Sure, some do stay and make it their home (you, for instance), but so many move on that I never felt much sense of community, something that I do enjoy over here in Italy, and have found more of in other towns in the US.
> People in Nebraska aren't worrying about Twitter's business model.
They're busy getting rich with more traditional stuff that they understand:
Very true, but we should not be so dismissive of non-startup small businesses. I'm new here, and have worked at tech startups since I got my CS degrees and started my career a few years ago.
Starting a new business on the basis of a great idea and hard work is nothing new. All around me, I see examples of small businesses being creative within their domain, and they are growing profitable businesses using the same tools we use (in theory: great graphic design, viral/word-of-mouth marketing, accessible customer service, and hard work) without any promise of making it big. These businesses see a niche and try to serve it uniquely.
I appreciate SV and the hungry tech culture as much as anyone, but we're not operating on fundamentally different principles.
There are many more counterexamples. Microsoft (does it not count because it was pre-internet?) was a start-up outside the valley at one point. MySpace didn't start out in the valley. So why skype? because a valley company overpaid significantly for them? (I love skype though, i just don't think they are the best counterexample).
Detroit thought it had all the 'talent' and 'knowledge' in building cars, and then got it handed to them on both sides, cheaper and better from Asia, more expensive luxurious and better from Europe.
No question the valley has investors, and very talented ones at that. As costs for internet start-ups decreases, amazing open-source technologies like hadoop continue to spread, and talent realizes they can excel anywhere, why would the valley continue to as the center?
What will be the draw to keep people in the valley? Angel financing can now accomplish what only VC could a few years ago, and that continues to change. Ideas are not limited to the valley, technology is not limited, for many start-ups their are no physical goods, and when there are, those are created overseas.
So, though Silicon Valley may be the center today, what will make it the center tomorrow?
But if you interpret "startup" as "newborn consumer electronics company" or a "newborn software company" or anything else more generic not squeezed into a web page it falls short: first, the percentage of GDP generated by internet media is miniscule, the whole thing isn't that big, it's a sizable niche in a software development world but not more. For instance, when measuring life in "robotic startups" one may conclude the SV is not relevant, but Boston very much is, and Japan is taking over the world, I'm sure Trevor would agree with some of this.
He notes that the industrial revolution spread quickly because there were geographical areas with middle class populations and cultures that let people keep the large sums of money they made. He also notes that the culture necessary for large numbers of start-ups is not present in many areas.
IMO, we're no way near the railroad stage of the start-up revolution. I think we're in the early renaissance. The valley is like Venice in the 1400s. It's a very localised concentration of merchant traders and a culture of what we now call "modern values", meanwhile the rest Europe is living in the "dark ages". It wasn't until the plague spread across Europe and gave the surviving working classes more influence that the culture started to change. Even then, it's another 300 years before society really starts to change.
Looking at Europe in the 1400 hundreds you might well have thought that Venetian style modernism would be a very localised revolution and that these new fangled "banks" would only ever be established in small areas.
Start-ups are not the "railroads" of the industrial revolution. They are the "banks" of the industrial revolution.
By definition, startups don't last -- they either disappear (either by failing or M&A), or they stop being startups and turn into "regular" companies. But, that being said, I still think that Paul is on to something -- the future model of a succesful company is not a large multinational conglomerate like IBM, Microsoft or Shell, which is too large for its own good and where, like with dinosaurs, it takes ages for a signal to travel from limb to brain and back.
Instead, I believe that the future of companies lie in small, flexible and agile companies which have simple operations and global reach. This doesn't mean that a successful company should somehow prevent its own growth -- but it should grow in small units, sprouting new, smaller companies which operate on their own.
My favo(u)rite example, which proves that this model works, is the Virgin Group, which includes lots of small to medium sized companies which operate in a number of different industries. For a traditional, centralized company such diversity would be a suicide, but in this case the companies are connected by the common brand and its messages.
Take a look at HaiDian/ZhongGuanCun in Beijing, chock full of startups big and small. From my understanding, the reason entrepreneurs flocked there originally was because HaiDian offered huge tax breaks versus the rest of China (for the explicit purpose of developing a high-tech industry).
In my eyes, HaiDian is a huge counter-example for the first point--not forgetting of course that the economic climate in China is one of urbanization unseen since the American Industrial Revolution.
I feel tweaking tax codes to encourage startups won't have its intended consequence, but rather encourage established companies to try to pretend that they're startups. They are much more likely to have the resources to chase tax incentives than a real bootstrapping startup.
1. Innovation over the past couple centuries has not spread evenly. Cities always got a disproportional deal. That is why even today small towns all over the developing AND developed world are still losing people to the big cities.
2. A big part of the high-tech startup concentration seems to be VC clustering. But if startups are to be a truly revolutionary change I hope we get away from the investor model and move closer to the paying customer model. And this would make the valley's regional advantage smaller.
The main advantage of regional hubs is that of social density; easy access to expertise and enough demand for experts that they can survive and thrive.
In practice I doubt any government would have the balls to try thisA few thoughts:
This isn't a revolution if it is localized.
Also, there might be a way to create a government that had the will needed.
It is going to get easier to start countries. Rich individuals like the leaders of Qatar are buying their way into a good university system, e.g. http://www.qatar.cmu.edu/
These two trends mean an empowered individual could start kickstart a startup hub with a clean slate of government. Immigration law, taxes, and other burdens could be removed, making it particularly appealing.
Schools for the kids of founders and university employees would be the hardest part, because we haven't seen an efficient pattern for schooling that is also effective.
If FutureHN can provide both a valleyesque enthusiastic social network and a contact with investors, will the benefits of migrating to S.Valley become less important?
finance -- New York, Boston automobiles -- Detroit entertainment -- LA etc.
There are natural reasons for that: new companies are often founded by execs who think they can do better than the big companies they leave, infrastructure gets built up that benefits all in that given industry, talent begins to congregate in those areas, etc.
I think that different types of startups might be congregated around different geographic locales: biomedical startups would likely flourish near big research hospitals, etc. Service industry startups likely aren't clustered: restaurants, etc.
With technology startups, yes there is a natural clustering in Silicon Valley and Boston, but I think that's because tech startups are fairly new. I hear lots of good things coming out of Chicago, Austin, Columbus, Minneapolis, and elsewhere. It's definitely spreading.
The reality is that in any human endeavour (steel production, summer blockbusters, LCD screen manufacture, grunge, salmon farming, dadaism) there are clusters of activity - they do not preclude the activity being carried elsewhere, but the people who do carry out the activity at the cluster have both synergy gains, and act as a magnet so create a snowball effect.
Obviously the SV is a cluster of excellence for startups. Why is this expected to have a social impact, even if they do represent a new economic phase? (which personally I doubt - the numbers of people involved are just too small). I don't get it.
It's this social aspect that makes me think startups will spread beyond some major centers. The Internet has proven to be great for "finding the others," be it for social/political/transactional kin.
Also, as pg suggested in an earlier essay, vc is only growing less necessary for many startups. The shrinking dependence on vc, and the social lubrication of the Internet suggests more startups will bloom in all sorts of places.
To address the randomness of the revolution, I sincerely hope someone out there is developing some kind of portal to find all of these neat tools being developed. There are several YC apps in faq.html that, when put together, give many people no reason to really have any desktop software at all.
Just as an example, let's say a school teacher uses her computer for email, web browsing, managing files, photo editing, and maintaining her second grade web site. Gmail, (some browser), dropbox, snipshot, and splashup/weebly would be all she needs.
If all these websites were somehow organized in a way that said teacher can easily find them, then I think a 'startup revolution' would be more likely: people could go to a central website to browse for startup that meets their needs.
I question this assertion. I'd bet a single Google engineer who makes a 1% improvement in adsense targeting can create more economic value than most startup founders.
I would argue the contrary case to Paul's; I think that Silicon Valley has slowed down growth. They make it a lottery that you can win with having a cool, quick hit. The money in the valley has little love for hard problems and a lot of love for fads, much like record producers.
And I wish that at least one of the 100+ companies that have come out of YC were IPO bound. I tried to hint that we were of that mindset when we had applied, no cigar. I'm not really sure why YC continues to advance sites which seem to go against their own "Derivative Idea" rule for why startups fail (e.g. this round: a group bookmarking site, a themed video site which piggybacks on YouTube). It would be interesting if YC decided to have one round where they choose nothing but "hard problems" with huge potential.
When we hit it, dbul, you and I can put this together. Deal? :-)
What about the Pearl Delta and Shanghai's Pudong district? Both seem to be smashing successes.
There are two very different types of startup.
I don't buy that there is a hard distinction between different types of startups (or even between startups and small businesses).
Any small business that tries to grow will create a differentiated offering. An ice cream shop might promote a special flavor, a restaurant will develop a certain vibe, a furniture company will create signature ergonomic chairs, a web form company will create an awesome UI, etc. The amount of uniqueness of the offering can be plotted along a continuum. When it passes a certain point, we call it a "tech startup".
The special thing about Silicon Valley is that it attracts a ton of many smart, talented, ambitious people. Therefore the offerings of their businesses tend to be very novel and differentiated. The supply of brilliant innovators is limited so it is not necessarily possible to replicate this everywhere (but I am guessing the world is very significantly under performing its potential).
Edit:
Perhaps another way of saying this is:
1) A startup is a small business that attempts to scale by developing a new technique (that technique can be a product or a way of doing operations).
2) Different sectors of the economy have different opportunities for developing new techniques. It's harder to develop new techniques in agriculture than in software.
3) In the absence of high transportation costs, industries tend to cluster ( autos in Detroit, entertainment in Hollywood, finance in New York, energy in Houston, education in Boston, software in Silicon Valley).
4) Silicon Valley has a cluster of industries that natural have a high level of new technique development (software and electronics). Therefore Silicon Valley has many startups.
That said, now I'm not sure I buy my own argument. Silicon Valley seems to have the most innovative companies in every industry. In addition to software startups, there are energy startups, automobile startups, etc. So Silicon Valley really is a cluster of companies that specialize in innovation. Perhaps the thing that limits the spread of Silicon Valley magic is that there are only so many innovative people, and only Silicon Valley has been able to attract a critical mass.
Also, I think you ignored that VC is becoming less and less important. And as it gets less important, the big funding hubs will become less important. I see a future of micro-equity and the big hits coming out of everywhere.
Also, the hubs have a horrible self-delusional feedback loop. Once you get an entire environment that thinks the same way, these feedback loops are inevitable and you spiral into silliness, e.g. Twitter.
It will be more like a culture barrier. For a culture that has no sense of custom satisfaction, the user interface for e-commerce will never be as good as Apple or Amazon. We as technologists sometime forget a lot of our assumptions are based on our environment.
The first half is correct, but not the second half. A few examples: the software that runs on spy satellites, the software used to design stealth planes, the software used in sigint, "smart bomb" guidance systems, the software used to design nuclear weapons, etc.
I'm currently working for what I consider to be a startup in a small town in the UK. We're making software that is applicable to a specific industry, and the industry is very hungry for it. I'm currently the only programmer.
What looks like the probable course for us (and probably for other people like us - people starting up software dev stuff in smaller areas), is that once we've sold what we're working on right now, we'll probably move on to doing more interesting things, and form a small software development house of sorts.
What we're doing right now would be utterly impossible without the internet, if only due to communication-over-distance issues.
I think that the stereotypical "startup" is just the start of what we'll continue to see as more and more people realize that they can make their livelihood online. What I'm doing doesn't fit the stereotypical startup mold, but is the type of thing that I think we'll see more and more of, assuming nothing majorly bad happens to the internet or society in general.
http://startup.partnerup.com/2009/04/08/complete-list-of-q1-... http://startup.partnerup.com/2009/01/06/complete-list-2008-w... http://startup.partnerup.com/2008/01/02/2007-acquisitions-we...
Of course, SV would dominate, but I wonder by how much. It'd be REALLY interesting to see it as a ratio to total startups started, but I think that'd be a harder # to come by.
I think startup success is fueled by how many people have the desire to start something up and access to early-stage funding. The Valley clearly dominates the latter, but it seems (anecdotally) that hackers who want to spin something up are becoming more commonplace in non-valley locations.
My impression is that PG has unintentionally suggested that the current state of high housing prices and less Venture Capital could easily reduce the Valley's role in the startup market. The way for other cities to capitalize on this is to convince smaller, upcoming companies to move "back home", or not relocate to the Valley in the first place. As some commenters have pointed out, other states may have legislation that is less inviting to startups, and these should be repealed.
Ultimately, startups will probably flourish wherever smart, ambitious people want to live, as long as the government treats them well.
It makes sense for the film industry to be concentrated in hubs because of the huge expenses in each film. It does not make sense for startups, because such expenses don't exist, and the need for connections, while important, is not critical.
So, though the trend may look like it's going towards major hubs for now, over time this will normalise itself as those players who are not able to go to the startup hubs will fragment and create successful companies all over.
There will be few major hubs for technology startups - but they won't be ever as concentrated as hollywood - simply because there is no need for them to be so.
Within US, Stanford is today a great research university but it was not so in 1945. Great luck like the combination of cold war spending and the idea of steeples of excellence by Terman made it happen. Uni. of Florida or ASU may be today aspiring to greatness, but they are fighting the 'locality' of research universities. Maybe some random events will help them out.
Do you mean Oxford, Cambridge, UCL?
Oxford & Cambridge are not 1 university, there are a lot of different colleges.
If you're going to look for an environment that has "movement" of ideas and people, the environment has to be conducive to this. California has done well, but might strangle itself on commuting costs, the lack of infrastructure and the costs of living there.
It'll be hard for states to favor new vs. old businesses, but there's 50 of them out there, and a number of them will probably give it a go at some point.
I think the point that people like the google founders were many many times more productive than their equally-smart employees counterpat is important, but I think the same contrast can be found on people working on their free software projects compared to people working on their day-job projects.
I personally think that things like free software will have much more impact in the future economic revolutions than the concept of "start-up".
* sorry for my weak english :/
Now if they only had ocean access... :)
I can say that there is a very open and supportive start-up culture here (Boulder & Denver metro). Tech Meetups and LUG groups are pretty active; the new-tech group based in Boulder routinely overfills 300-seat auditoriums and is expanding to handle the traffic. Most tech folks here have the mentality of wanting others to succeed, no matter if it is with our own companies or with a different one. We are happy to share knowledge.
Sorry no beachfront though, you'd have to settle for the best mountain sports anywhere.
It's kinda helpful to look past your own borders sometimes. There's a lot more lint in the world than just in your own belly button.
Anyway, you may say that the intellectual revolution of the enlightenment was local, it started in Italy and remained there for a while, some century I think. But this is not a start up revolution, it is a technological revolution, the revolution is not the start up culture but the advances made in communication technology. As such it is not any different than the industrial revolution as far as the importing of technological aspects is concerned. Nor is it any different from a power plant, every nation must have internet and with Italian internet comes Italian Google, which as it happens I think it is libero.it although that might be more like yahoo than google. So perhaps now the start up culture is localised to silicon valley, but I doubt it will be long until a silicon valley appears in London or Rome or Berlin.