Startups are going to save us, relax everybody

In typical Silicon Valley Breathlessness Forbes published an article by Victor W. Hwang arguing the fact the Startup movement isn’t about startups. He argues that it’s actually a movement to free people from the chains of our current economic system. I definitely don’t buy this. Most people start a company for one of two reasons, they find a problem that they have a better solution for than anything provided (or a novel solution) or to make money. Typically it’s a combination of the two. No company in existence is out there not to make money. Companies that aren’t profitable cannot stay in business for long unless you’re lucky and funded by people that thing you will eventually make them a lot of money.

An opinion piece in the NY Times from 1/2/2014 pretty much sums this fact up. You’re replaceable at a startup and likely even more so than any time in the  future of the company. It’s really easy to fire people when you have no money, especially if you are open and honest about how you go about letting people go.

Furthermore, if the startup movement was in fact about bettering the plight of people we wouldn’t be seeing the social stratification that we’re seeing in cities like San Francisco, ground zero for the startup movement. In SF some of the neo-techno-libertarian-elite are upset that they even see the poor people on their streets rather than out of the way like in cities like NYC (he issued an apology not unlike Tiger Wood’s for being a sex addict). Not only are these the people that are involved in the startup movement, but they are funding it. Yes, I know that this is only one person and on the other side you can point to Alexis Ohanian of Reddit fame, which really is doing a lot of social good.

In some ways the startup movement has made it easier for people to be cogs in the wheel. They work long hard hours, large companies like Facebook and Google push and push to get more for less. In many cases this can cause depression and the exact opposite of what the Startup movement is striving for. In fact, the goal of the Lean Startup is to make it extremely easy to ramp up new employees and ensure full coverage if something goes wrong. These companies and products are designed around the idea of building in quality rather than testing or patching it in. Of course, there’s a benefit to the employee in these cases too – they’re free to really explore new problems and create new things without needing to worry about reoccurring problems.

I do believe there are many startup founders are genuinely trying to change our society for the better, but it hasn’t been a frictionless process and will likely only get worse as we move forward. The Sharing Economy, for example, has come under fire from traditional companies, neighbors, politicians, and even members of the sharing economy. While in other cases, such as Zynga, we see companies that are essentially parasites that thrive through creating addicting games and clogging a platform with their notifications (those notifications stopped and Zynga basically died).

It’s important to be skeptical of statements that glorify any portion of our culture. The article that spurred me to write this has a similar tone as many of Thomas Freeman’s, of the NYTimes, articles, fully optimistic, but missing a broader portion of the population and the long term impact. We should be wary of these articles because we’ll end up believing that it’s more complicated to calculate a median value than an average. The startup movement is to help people start companies, some founders are dreamers, some truly try to change how work is done, but they most aren’t truly changing the world in amazing ways. We’ll be fine if reddit, AirBnB, or some other services vanishes. We were when Digg, Google Reader, Palm and any other influential company vanished.

Review of Without Their Permission

I was inspired to begin writing again by reading Alexis Ohanian of reddit fame’s debut book, titled “Without Their Permission” for those that were regular readers and know me are aware of my interest in the startup community, technology, and activism during the SOPA/PIPA days. So reading this book happily fell into many of those interests.

First of all, this book was entertaining. It’s a rather self aware book and in some cases the humor of it reminded me of Drew Curtis’s book “It’s not News it’s Fark” which is a humorous book that really pokes fun at mainstream media. There’s some of that in this book, but it’s much more playful and selfaware of how important the media has been to Alexis’s success.

During my Master’s thesis research I read a lot of scientific studies that looked at the types of businesses, industries, education, and so forth of founders. Which really focused on the technical skills of the founders. This book didn’t. Alexis wasn’t the technical brains behind reddit, he was the “other stuff” that helped make reddit reddit. I believe that this is a fantastic view point to bring to the conversation on start ups, incubators, accelerators, etc… because it’s something that’s missing.

I have to say at first while reading the book I was really annoyed by the line “every link is created equal” because in any network this simply isn’t try. Any unconnected link is equal, but as soon as the Internet is the Internet links become less equal because of interconnectedness of the Internet. At first this prevented me from enjoying the book because I was so focused on this, however after working 8 hours I forgot about it until it was mentioned later. I only bring this up, because a large portion of the book is spent discussing how important networking is to the success of a startup. It became clear to me that Alexis gets it.

I also found this book enjoyable because it is much less self congratulatory about the Internet entrpreneurs than other books such as Makers, the New industrial revolution, Micro Wikinomics and Macro Wikinomics which cover very similar topics and ideas. In fact any time it felt to be getting too overly optimistic Alexis would point out that everything comes from hard work. It’s work that almost everyone can do, but it takes dedication.

Alexis points out a lot of successes that he’s been involved with as an investor, which provide a lot of great anecdotal experience as well as a graduate’s perspective from the Y-Combinator. I think these views are all helpful as we begin to look for more unique ways to fund startups beyond the traditional VC method.

Finally, I enjoyed the section about SOPA/PIPA which was interesting as I was actively involved on reddit and blogging to inform others about what was happening. Some of that included sharing the interviews Alexis did during that time period.

In general this book is definitely a great introduction to a more realistic view of Internet entrepreneurship from a successful founder, a great introduction to many unique startups out there that are very inclusive, and a great introduction to SOPA/PIPA for people that weren’t paying attention.

Get out there and make something great happen.

Ex-Pat Entrepreneurs

This morning on KUT I heard about a plan here in Austin to encourage Mexican Nationals to start companies based in Austin. This initiative is being pushed by the Hispanic Chamber of Commerce and Austin’s IC2, an incubator. I think this is a great idea. This will allow a great cross pollination of ideas between Mexico and the United States. Bringing together people with great ideas leads to more interesting ideas. This is something I really loved about my Master’s program. I was continually surrounded by people with big ideas, vision and energy.

I think that this idea also can help Americans see that people in other countries can have and do have, fantastic exciting ideas that can drive technology, the economy and employment. With our US-centric view of entrepreneurship and venture capital we tend to overlook this. It’s not fair and it short changes potential collaborators, because we assume that Americans have the best ideas.

This collaboration also shows that resources in America can be used to help develop entrepreneurship within a community of immigrants. We have seen some of this with Silicon Valley and the Indian and Chinese populations there, but we have not see it with another community in the US or with a Latin American culture. I think that this experiment will be useful in spreading knowledge and developing future entrepreneurs in Mexico to the south.  It will also likely lead to an increase in entrepreneurship within Mexico over time. It will not happen immediately, but a group of these entrepreneurs will eventually move back to Mexico and will start companies there or at least subsidiaries in their home country. This will produce more legitimate work for Mexicans in Mexico that could offer wages that can compete with the drug cartels and develop a larger business community.

This type of growth is important for Mexico, as it will increase the amount of resources for Mexicans to develop their own businesses. It will increase legitimate pressures on the government to fight corruption and make efforts to reduce the impact on organized crime on the government. It will provide employment for highly capable graduates from Mexican universities which will continue to drive improvement for the country.

Most of this is a decade or two in the future, but there will be a great deal of benefits for both Austin, the Hispanic community in the city and for Mexico. Austin will benefit, because it will continue to grow as entrepreneurs will bring more money in, more jobs and new ideas.

The Mexican nationals will fuel increase knowledge sharing between the US and Mexico and will act as de facto ambassadors for their home country. They will educate people on the real Mexico and show Austines that Mexico has a great deal to offer besides amazing food.

Are democracies or autocracies better with technology Management?

According to neoclassical economics knowledge is a non-rival (I can use it without preventing you from using it) and non-exclusive (available to everyone) resource. This has two impacts on their economic theory. First, the actual impact of research and development is excluded from economic growth and is ignored. Second, that any company should be able to pick up and produce any technology. Both of these points are relatively ridiculous. For two reasons. First, we know that research leads to the formation of new companies. Second we know that most companies cannot produce any product and many companies that produce products outside their expertise fail at it.

From a neoclassical perspective democracies are terrible at sharing knowledge and technologies. Democracies have a slew of laws that regulate access to technology form monopolies for specific technologies if they have something called a patent. Additionally, there are other contracts that can get in the way of sharing of knowledge in a way that is neoclassical. Non-disclosure agreements and non-compete clauses. If you aren’t allowed to discuss a specific technology with other people, it prevents knowledge from spreading and being shared to other companies. If you aren’t allowed to compete within the same industry after you leave a company, it prevents you from using that knowledge in a positive way at another firm.

These laws have been put into place in our democracies to ensure proper protection of technologies for firms. It’s designed to prevent the spreading of tacit knowledge from company A to company B. As a company this is incredibly desirable. Without these protections some research would be worthless to conduct. Knowledge spill-overs would cause prices to fall to cost or lower as firms compete for market share. It’s great for consumers, but bad for firms.

So what happens in China? Well according to Make it in America, China requires many firms to hand over their Intellectual Property to the Chinese state. What ends up happening after this is that the Chinese government sells the information or gives the information to one or more Chinese company. These companies tend to be made up of former employees at the company that made the product before. This allows tacit knowledge transfer to the firm and a fast ramp to compete directly with the inventor of the technology. The knowledge is freer in China than it is in the US because of this. This increases competition and may be impacting the cost of goods like solar panels.

In a way this type of behavior forces companies to compete based on the actual costs of the technology. This is what is expected in the neoclassical theory. All prices will eventually drop to the marginal cost of a product with near zero profits for the producing company. In a perverse way, this is a “freer” market than ours because it comes closer to the non-rival non-exclusive knowledge base.

In my next blog, I’ll discuss this topic more.

Technology Incubators and You

So, I had a discussion on faccebook that went from discussing the cost of labor for a dutch bike mechanic (€40 for about 15 minutes for work to install wheel (i did it myself in 30 minutes instead of paying that)) to a discussion about technology incubators. It got me thinking about incubators and how people think of them. Technology Incubators come in a variety of forms and while many are attached to universities there have recently been a few where they are unaffiliated and some 18 year old kid makes one. But what is an incubator? Well, at the most basic level an incubator is a place that allows a firm to grow from an idea into an actual business. When it graduates it’s at the stage where it’s making enough money to support itself, or it has gotten Venture Capital (VC) backing so it has enough money to expand to a larger facility.

My first experience with an incubator was the Machine Assistance Center (MAC) at the University of Pittsburgh where I did my undergraduate. I thought it was the coolest idea. It was this old warehouse that was converted into separate mini-factories with a few different companies in it. The rent was free or dirt cheap, and there was equipment, like lathes, drill presses and a 6 axis CNC machine. The firms were able to rent time on these tools to create their product, make new prototypes and train new employees. The university also used these tools to train community members on how to use them to gain new skills for employment. Eventually these firms were making enough money that they were able to move out of the MAC get their own place and set up shop there.

I know that in Pittsburgh there are at least two other incubators. I’m sure there are more. Carnegie Mellon started the other two I’m aware of. However, these ones are software based start ups. So these firms have very different needs than physical product based firms. The Innovation Lab at Eindhoven University of Technology, in Eindhoven The Netherlands, where I’m pursuing my master’s degree, has a different model than either. It has spaces large enough for firms that need to manufacture products, but it also has a lot of offices for consultation firms as well. So, there are many different models for an incubator and non are exactly the same.

Ok, that’s great, why should I care about these things? Well, it matters because some of these are tax payer subsidized or were created through your tax dollars (Tax Euros? Just doesn’t sound right). Earlier this year Obama started the win the future campaign, which put a couple hundred million into both VC, public groups and incubators to help reduce the barriers to entry for new companies. Many policy makers believe that these incubators or hubs of heavy start up activity could spawn another Silicon Valley, or greatly boost the economy through job creating companies. Sadly, most of these companies actually only employ a few people and don’t become huge firms like we’d like them to be (Clarysse et al, 2005). However, this activity still can help the economy of the region to some extent.

So what do we do about it? Well, I plan on studying these and their impact for my master’s thesis, so we’ll see what I find. I probably won’t post to much about it as I might try to publish a paper about it. However, when I do that I’ll write about my findings on here. Until then, I say we should be supporting these incubators. Lowering barriers to competition will eventually lead to new products, services and lower pricing. That’s what we, as consumers, want right? Besides, I want to start a company some day and I’d like some help in getting me to the point where I can get VC funding 😉

Here’s an article about the “Win the future” campaign from when it was first announced:

Clarysse, B., Wright, M., Lockett, A., Veld, E. Van de, Vohora, A. (2005) “Spinning out new ventures: A typology of incubation strategies from European research Institutions”, Journal of Business Venturing. Vol. 20 pp 183-216