

How to Promote Startups - joao
http://www.aaronsw.com/weblog/prostartup

======
boromir
Who is going to implement such a social net? Congress? The same Congress that
has a 15% approval rating and a 97% re-election rate? The same Congress that
is run by K-street? Currently, we spend as much as a percentage of GDP on
Medicare/Medicaid as every other developed country spends altogether on
healthcare. Theoretically, we could just turn Medicare into a single payer
system that covered everyone, get the same benefits as the European countries,
and not even raise taxes. Strangely, no presidential candidate has mentioned
such a sensible proposal.

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.

~~~
jmatt
A true libertarian.

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.

------
pg
Providing a safety net might or might not encourage startups, but it's
misleading to suggest that this idea is somehow in opposition to allowing
economic inequality. To decrease economic inequality, you have to confiscate
the wealth of the rich, not merely give money to the poor. As long as you
allow people to become billionaires, you'll have huge economic inequality, no
matter what's happening at the other end of the scale.

~~~
mattmaroon
They're not necessarily in opposition, but the only payment method that the
universal health care supporters ever seem to come up with is "take it from
the rich".

~~~
pg
If you want to give more money to the poor, the only place you can get it is
from the rich. But the amount you'd have to take to fund universal health
insurance wouldn't put much of a dent in inequality. To get rid of inequality,
you have to explicitly ban being rich, e.g. with tax rates that go asymptotic
at a certain point.

------
mattmaroon
All if his suggestions are great until it comes time to pay the bill for them.
It's rather naive to suggest that universal child and health care and free
college for everyone will make our country so much better without explaining
the very serious effects (many of which we probably don't know) that paying
for all of it will have.

~~~
tx
How about taking 60% of existing military budget and allocating that towards
health care?

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...

~~~
mattmaroon
You're throwing all sorts of wrenches into the gears of capitalism there.
Defense spending isn't us taking money and burning it. It's the government
buying things from private enterprise (largely American) and employing troops
(also American). Same with regulating hospital purchasing procedures, which
the market should regulate itself. You can't know what would happen if you
stop that cash flow or force it to go somewhere else, but you can be pretty
certain it won't be good.

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.

~~~
davidw
Defense spending is the government taking money from everyone and reallocating
it, just like any other government spending (and, of course, in many cases,
it's a monopsony). You have to consider that a "wrench in the gears" just as
much as health care, education or whatever else they spend money on.

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...](http://www.american.com/archive/2008/may-june-magazine-contents/the-
singapore-model)

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.

------
drusenko
Yes, why don't we have the government promote our preferred group of people
while penalizing the others? Let's help startup founders, and screw the large
corporations!

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.

~~~
DaniFong
There are already massive, artificial advantages for large corporations. Large
corporations can bring foreign talent in quite easily compared to startups,
which must constantly battle for the right to keep their employees or founders
in the country. We know this because it's our _#1_ distraction right now.
Being poor? No problem! But we're not even allowed to legally be in the
country without a job working for a company that's not our own.

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.

~~~
drusenko
> There are already massive, artificial advantages for large corporations.

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.

~~~
DaniFong
> This isn't some benefit dolled out by a controlling group...

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.

------
DaniFong
I have to say I strongly agree with this. The personal risks I am taking to
start a company, are a little crazy, and I've had no shortage of people
telling me so. And I know so many people who are waiting for their life to be
settled and stable before they begin. This is one of the main social
influences repressing our potential founders.

~~~
drusenko
Risk is generally proportional to reward. If it was less risky to start a
startup, the reward or chance of reward wouldn't be as great (more people
doing it, less chance of succeeding or of an exit).

~~~
DaniFong
But this isn't axiomatic. Risk isn't always proportional to reward. Sometimes
risk is just pointless risk. Risk can be just one of many factors in how
valuable something might be to the world.

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.

~~~
drusenko
Well, I should have said risk is correlated to reward. While wealth might not
be a zero sum game, if 5x the number of startups existed that exist now, it
would just be harder to be successful on average. I'm not saying that's a bad
thing, but it's different than what is out there and probably a worse scenario
for everybody that is willing to take the amount of risk required today.

~~~
DaniFong
I'm not so sure. In many respects it's been easier for us (in these first few
months) _because_ of startup culture, which might not exist if we were five
times fewer.

------
philh
>While there's much less of a culture of entrepreneurship and only 15% of
Europeans think about starting their own company, nearly all (14.7%) of them
actually go ahead and do it.

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.)

~~~
dmix
The average entrepreneur makes less money starting a company then they would
of getting a job at an existing company.

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.

------
bbgm
I am conflicted on this issue. On the one hand, I believe in a situation where
perseverance and risk taking is rewarded. On the other, it is true that many
people with bright ideas do not go the startup route because they have family
responsibilities or something similar that holds them back.

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.

------
edw519
Beware, the social safety net can be a 2 edged sword.

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.

~~~
aaronsw
I'm not sure I understand this argument. When startup founders bail out, they
typically go and find a normal job instead. Why would a social safety net make
this any easier?

~~~
rglullis
Because not everyone is a smart and talented overachiever like you. Some of
them just want to find themselves in a comfortable situation, with the least
amount of work necessary.

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.

~~~
llimllib
To support your argument:

> 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.

* <http://reason.com/blog/show/126884.html>

------
davidw
Since he brought up a number "European" policies, I felt qualified to say a
few words on the subject myself, but it got sort of wordy, so I posted it
here:

[http://journal.dedasys.com/articles/2008/06/09/startups-
gove...](http://journal.dedasys.com/articles/2008/06/09/startups-government-
help-and-hindrance)

------
gojomo
One reason people pursue startups is to achieve so-called "FU money". A strong
safety net gives everyone at least a minimal version of "FU money". So at the
same time it makes risk-taking easier, it might remove a major incentive for
risk-taking.

~~~
davidw
Barely getting by, but with decent health care might be ok for some people,
but not for most.

~~~
drusenko
Barely getting by without working, I think, is a much different version of
"barely getting by".

~~~
davidw
In any case, it wouldn't work. How long would people tolerate a significant
percentage of people just plain mooching off the state? I don't think that
would work anywhere, Europe or US. Even in European countries that provide
that kind of assistance, you're supposed to be at least looking for a job, or
in training, or be seriously disabled enough that it's clear you wont' work
productively.

~~~
gojomo
Operative words: "supposed to".

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!"

~~~
davidw
"Supposed to" means they do have people in place whose job is to prevent
fraud. It's surely not possible to prevent it entirely, but if you're just
sitting around working on a startup, I think they'd probably catch on.

~~~
gojomo
Given Aaron's example, such behavior isn't "fraud" anyone needs to "catch".
Using the minimum income to help you work on a startup, no matter how silly or
hopeless, is notabug, it's a feature.

~~~
davidw
I think that Aaron's idea is 1) unworkable, 2) politically unfeasible in the
US, and 3) doesn't even reflect what countries like Sweden have in any case.

------
gojomo
A serious problem with this thesis is that in addition to making good
profitable startups easier, a strong safety net makes many other competing
activities easier, too.

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."

~~~
davidw
A "strong safety net", if done right (his minimum income suggestion is a bad
idea in more than one way), doesn't mean people can just keep going forever.
They can still fail, and fail fast, just that some of the "black swan" type
risks with disproportionate downsides aren't a worry. Risk/reward calculations
should be about looking at foregone opportunity costs (which are certainly
significant for most capable hackers) rather than at "oh ####, my daughter
needs an operation, and there's a problem with the insurance".

------
GrandMasterBirt
My biggest hold-back from forming a startup has been Health Insurance. The
pre-existent condition clause will pretty much ensure that I can't get my own
health insurance, and leaving my 15 month old without insurance is just
unacceptable.

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.

