

Entrepreneurship for the 99% - ridruejo
http://steveblank.com/2012/06/04/entrepreneurship-for-the-99/

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casca
Is it just me or does this look like a massive advertisement for Steve Blank's
books and program? That's not to say that the books and programs aren't
necessarily good, but still.

~~~
paulhauggis
Isn't this most blogs? Even HN is in essence a platform for ycombinator.

~~~
larrys
Same with Avc.com

People like things to be subtle though.

They can also read into things that aren't there.

I offered to help someone the other day in a comment (which I did - then going
back and forth with several emails and advice which took time) and was voted
down in the one line offer. I guess they looked at my profile and thought I
was angling for paid work? The truth is I've helped many people but never
asked for payment (although it's been offered.)

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intellegacy
It seems to me that the industries most kinds of 99% businesses enter is zero-
sum, which means helping new businesses only hurts the profit of other new
businesses or incumbents. Ergo I question what value from an overall economic
perspective helping individual entrants to the 99% market holds.

(Here I use as examples the industries defined from the article: construction,
retail, health care, lodging, food services)

For instance, if 10 businesses are started, and there is only room in the
market for 3, then 7 will inevitably fail. It is possible to improve each's
individual odds of success, but to what end? Unless the market these
businesses are in grows, any successfully-started new business only increases
competition for the others. So lets say that we improve the odds for these new
entrepreneurs by educating them. We will also assume incumbents have access to
the same knowledge and benefit equally. If the new competitors all enter the
market together, all we have done is raise the competitiveness level in the
industry, and the odds of failing are still the same.

This is what Peter Thiel discusses in his "perfect competition" argument. (If
you haven't read his CS183 notes yet, please do so. They're insightful).

Peter Thiel likens competition to athletes or soldiers beating each other up.
They compete to win and that is what they know how to do. But in the end there
is only one victor. The rest are losers. And if you improve the
competitiveness level of these athletes, all you have done is make the
competition fiercer. Now that could be a good thing as it could provide better
value for consumers. But the businesses themselves don't benefit from that!

All this program is doing is making more perfect competitors, although what
will probably happen is not all will benefit the same amount, as certain
businesses will learn and apply these lessons better than others. But from a
birds eye perspective, the result is stil the same: the same number of failing
businesses. Even if these new businesses you help succeed do in fact "make
it", they don't increase the size of the industry (barring technological
breakthroughs). They only add more players to a limited pie.

People by nature care more about themselves. Thus they care more about
entrepreneurship rather than innovation per se. Entrepreneurship without
innovation is about beating up the other guy, simply outcompeting him through
energy or maneuvering. Innovation is about doing something better, freeing up
time or resources to do other things, which grows the pie for all.

In summary:

Sure a new business may add value by providing a better service than the
competitor it beats, but the overall wealth pie of this nation doesn't
increase. Encouraging just entrepreneurship without technological innovation
is not that useful from a macro perspective. What we need are new entrants who
change the game via technological or process breakthroughs. These are
precisely the kind of companies that Peter Thiel seems most interested in,
according to his CS183 lectures. And I submit that these are the kinds of
businesses startups should focus on. Not the other 99% which only increase
competition for everyone else.

This is why R&D and innovation are the key to growing the economy. Simply
calling for more entrepreneurs, without a corresponding emphasis on
innovation, is a flawed long-term strategy.

~~~
run4yourlives
I'm more than a little confused by your comment. In several areas either you
or Thiel (I'm not familiar with his thinking enough to know which) are
completely disregarding some very basic economics...

 _It seems to me that the industries most kinds of 99% businesses enter is
zero-sum_

Um, no. Nothing in the economy is zero sum. Wealth is constantly being created
and transferred. I think you are confusing this with the idea of a mature-
market at an industry level, but those markets are almost non-existent because
they destroy themselves like anti-matter.

 _Unless the market these businesses are in grows, any successfully-started
new business only increases competition for the others._

Well, for one thing, if the market isn't growing we are in a recession, and
recessions simply aren't permanent states. Recessions destroy themselves,
because they are simply forced efficiency finders. Secondly, increasing
competition increases pressure to become more efficient and/or innovative,
which in turn drives market growth. The whole idea of helping and soliciting
help in business is an act of innovation.

In short, your initial point - that of a zero sum market - is flawed, and
therefore all your other arguments are too.

Increasing the _quantity_ of entrepreneurs by default increases the _quality_
, because it increases the pressure to compete, and therefore leads to the
very innovation you feel is the real solution. You are arguing against the
very solution you seek.

~~~
_delirium
I don't have a problem with most of that explanation, but am somewhat
skeptical of the last point. I don't think there is necessarily a linear
relationship between quantity and quality that holds in all market regimes,
across the whole range of possible states. Dynamical systems (such as markets)
often have tipping points where things get wonky, so it'd at least require
some empirical evidence that that isn't the case.

~~~
run4yourlives
I'm talking about markets on the whole, not any particular business.

Let's say you have 5 players selling car tires. There are 1000 cars in the
area, and only one brand of tire to buy. For the most part, these 5 players
compete on something other than price, since the market is mature. They have
20% of the market each.

Let's introduce 3 new players into this market. They bring nothing new to the
market per se, but by default they get some sales (maybe they are closer to
the car owner's homes, maybe they have a hot chick at the front desk). Nothing
major, let's say they share 10% of the market overall, and the 5 incumbents
lose 2.5% of their sales each.

The incumbents panic and look to counter this threat, and one of them happens
upon the fact that if you change the formula for the tire a little, you can
get a 50% increase in performance and a 20% increase in lifespan with only an
extra 5% in manufacturing costs.

Now everyone scrambles: Some into R&D, some into improving customer service,
some into death. The overall value of this market increases, because of the 5%
increase and corresponding price increase... inflation, if you will.

This innovation happened _completely and only_ because of the dreaded
saturation of the market you are complaining about. The quality of the noobies
is irrelevant, since the incumbent did the innovation. Point is the innovation
happened, and wouldn't have happened without the new entrants creating
pressure through competition.

~~~
_delirium
Sure, I understand the idealized theory; it just doesn't match what actually
happens in most complex systems (take fluid flow, for example, where
increasing pressure increases flow rates... until a critical threshold at
which flow becomes turbulent). I don't think markets are well-understood
enough to apply this idealized theory without empirical evidence that
assumptions aren't violated. It's not _a priori_ clear to me that there don't
exist situations where increasing market participation leads to decreased
market efficiency as friction effects or internal market dynamics start
dominating.

~~~
run4yourlives
This is not a theory - it's exactly what happens.

Even a case where an innovation decreased market efficiency (of this does
happen - all players would love to have a monopoly), the trend is for the
market to work towards increased efficiency.

I'm no hard-core libertarian, but unless you have outside interference in a
market - big tire 5 use government to mandate a tire-selling license that
presents a barrier to entry - or one of those markets that lead itself to
creating natural monopolies, this is the way things work.

~~~
_delirium
That's just an assertion based on idealized economic theory; not _evidence_
that things work that way in particular situations. In particular, you haven't
explained why there are either _a priori_ or strong empirical reasons to
believe that greater market participation never produces adverse effects.
Evidence from nearly every other complex-systems discipline, ranging from
hydraulics to meteorology to ecology, points in the direction that such "well-
behaved" systems characterized by general relationships, valid in all regimes,
are quite uncommon; and instead "phase-change" type thresholds at which
behavioral regimes change are the norm.

~~~
run4yourlives
>greater market participation never produces adverse effects

I never said it didn't.

I said greater market participation increases innovation by default,
regardless of the quality of said participation. You are the only one equating
the behaviour of the markets to being either "good" or "bad". The reality is
that these are not concepts the market understands or cares about.

Innovation can and does destroy entire markets all the time. But unless you
feel innovation itself is horrible and we should be writing these arguments
with typewriters and cabling them to each other, you simply have to accept the
reality that innovation will occur all the time in every direction.

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_delirium
In a certain practical sense, aren't "the 99%", i.e. people without any
significant cash cushion, precisely the ones who _can't_ as easily take this
non-VC, lifestyle-business route? If you need to pay rent and buy individual
health insurance, it's a lot easier to do that if an angel or VC is fronting
enough money to pay you at least a modest salary.

~~~
run4yourlives
I'd venture 90% of all new businesses have nothing to do with VC money.

In fact, my hunch would be that most are started with personal savings and
family money.

~~~
ams6110
I agree. The VC-funded startup is for the most part found only in the tech
sector. You will never find a VC funded pizzaria, auto-repair shop, carpet-
cleaning company, etc.

~~~
_delirium
That's true, although most of those businesses' founders also don't have much
of a choice: they aren't turning down a 6-figure pizza-delivery job or
eschewing pizzeria-angel funding to open their own pizzeria. They just don't
have much of a choice but to open it on their own and try to scrape by,
sometimes borrowing from relatives, living with parents, getting "free"
healthcare in the ER, etc.

I think it'd be a much less attractive choice if you were in an area like tech
where you _do_ have the option of a well-paying job or funding, though.
Lifestyle businesses are still attractive in tech, but only if you're somewhat
better off, either coming from a better-off family, having already had one
minor success on a previous business, or spending some time in a lucrative job
/ consulting career that let you save up a cash reserve. That appears to have
been Steve Blank's route as well; he became a self-funding entrepreneur only
after first having a few successful exits from funded companies.

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wfrick
I welcome efforts to help small business owners, but we shouldn't pretend that
small business in general drives the economy. The huge jobs and productivity
growth that we associate with startups comes from a very small % of disruptive
companies, mostly in high tech. (I wrote a bit more about this here:
[http://bostinno.com/2012/02/17/bailouts-for-startups-
tough-l...](http://bostinno.com/2012/02/17/bailouts-for-startups-tough-love-
for-corporate-america/))

~~~
rprasad
Small businesses drive employ almost half of all employees (and more than half
during boom cycles).

The technology sector has an overinflated sense of the value it provides to
the economy in terms of jobs created or productivity growth. Note that the
article you cite does not refer to technology startups, it refers simply to
new businesses under the catchall "startups."

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isalmon
He forgot to mention that 90% of all startups produce waste (leveraging VC's
money), while 99% of small businesses produce real value simply because they
don't have a choice.

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djt
The Lean Methodology is what small businesses have been doing since companies
were created. I assumed that they took it and adapted it to tech business.

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guscost
Great thoughts! But I still want to be an entertainer...

