

The High-Res Society - mqt
http://www.paulgraham.com/highres.html

======
old-gregg
I think Paul is over-generalizing. Young, fast-developing industries tend to
produce rich ecosystems of startups due to low cost of entry. But over time,
as industries mature, companies are naturally starting to consolidate into
larger and larger entities in order to survive. Paul thinks that just because
we're seeing this early growth in web software, it applies to all economic
activities of mankind.

Using Pauls's main arguments (historical perspective) it's not hard to "prove"
the opposite: world is constantly moving towards consolidation.

Look: Desktop software development world looked very much like web scene
today: one person could invent (and implement) an electronic table or an
editor or a basic interpreter or an interesting game and do very well
financially (has been done thousands of times). Yet in the early-mid 90s most
software got prohibitively expensive to build for a small firm.

Also you can go back to early automotive boom in the US: there were myriads of
automotive startups in mid-west (and in Europe too) and look what happened to
all of them later. Same can be said regarding telecom, oil and railroad
industries.

Developing industry = more startups Mature industry = very few startups

Has always been like that.

~~~
davidw
I would expect an essay talking about smaller is better to discuss two things
I didn't see there (although I'm pretty tired from having driven through the
Alps, again):

* Coase and lower transaction costs. I think this generally favors pg's argument.

* Capital requirements for new companies. With internet startups, these are _extremely_ low. Is this an anomaly that will disappear soon? Is it a new trend that will spread to other fields? Is anything else that has 'gone before' comparable to this field's low capital requirements?

~~~
kingkongrevenge
> Capital requirements for new companies.

Capital requirements for software companies might have gone down due to better
tools and cheap hardware. However, it's gotten more expensive, and borderline
impossible given the regulatory environment, to start any sort of operation
that builds, grows, mines, or transports things. I'd bet it's more expensive
to start a medical practice or an accountancy now than in the past, too.

~~~
nihilocrat
I don't think enough people highlight how many startups depend on open source
software to keep their costs low. Everyone knows it's the case, but it doesn't
seem as highlighted when people talk about near-zero startup costs. Without
Apache, PHP/Python/Ruby, MySQL, etc. etc. we'd all have to be buying webserver
software, databases, frameworks, etc. or wasting a lot of time (and thus
capital) rolling our own.

------
RobGR
I believe that as a general trend, we are in a period of time where the large
organization is collapsing, across wide areas of human activity.

Without writing a thesis on it, I offer the following disconnected
observations:

* The US Military, one of the largest human organizations, was successfully attacked at it's headquarters for a total expenditure of less than $400,000 and a few lives, and has not and may never catch the attacker

* The Roman Catholic Church's sex scandals

* To be fair to all religious factions, punch in "baptist financial scandal" into google, or any other large religous denomination

* The disappearence of any sort of financial security in corporate employment or retirement

* The fact that there is no "corporate ladder" that PG refers to, and it has likely existed only in people's hopes and fantasies for two decades or so. The way to advance in most corporations is to have the corporation grow beneath you, or to leave for another corporation and come back to a higher position. Promotions and raises inside one corporation do not meet inflation when averaged over all employees. Loyalty is punished, almost as if in some sense the organization knows it is a bad thing and is trying to kill itself.

* The collapse of joint financial organizations that were once emmensely powerful and efficient: * We used to all put premiums into large insurance corporations, and those insurance corporation used their economy of scale to invest those premiums, such that they paid out something like 109% of premiums as claims and still profited. Today most big insurance corporations pay out less in claims than what they take in via premiums. * We used to all put money into banks, which then made loans and paid interest to the depositors. Now we don't save, and as of a few months ago, banks don't lend.

* The US Federal Government, arguably the largest human corporation, is bankrupt and disfunctional -- it was never a model of efficiency, but in times past it got some things done, built dams and won the wars it fought and etc. Now it does nothing productive at all.

* IBM, Microsoft, GE, GM, Exxon, etc -- the readers here don't need to be told of their failures, but I would additionally point out the trend that they don't want new additions to their organization, and attempt to hire mainly contract, outsourced, non-employee employees these days.

* The United Nations

One thing to note, is that I think if the trend is away from big
organizations, the trend of integrating Europe into one big EU is a bad one.
The trend of increasing Federalization in the United States is probably also
generally the wrong direction.

~~~
Retric
You need to separate the stability of individual large organizations over time
to the relative importance of all large organizations. The Mormon faith is
growing and other religions are dieing, but on average about the same number
of people are part of some religion. Google grows as GM dies, but the average
number of people working at large 5,000+ person companies seems fairly
constant. Individual government organizations grow and die but overall the
government workforce seems fairly constant. Companies with less than 5 people
are a wold apart from company's with 50 but after 5,000 it's all about the
same mess.

PS: The Pentagon is just an office building NORAD is far more important.

~~~
RobGR
There is only one Google, but there are many crumbling behemoths. A few years
ago I read a statistic about the percentage of the workforce employed by large
traditional corporations, and it had continually dropped; but like a lot of
statistics, it was not clear how it accounted for the trend in hiring temp or
contract workers through third party front firms.

While the stability of large organizations over time, and the relative
importance of all large organizations, are separate concepts, both are
dropping. While Mormonism or other religions may grow and shift, in general
the trend is toward the less centrally organized sects, and the big centrally
organized, heirarchical ones are becoming less so, and becoming more run by
the lower levels of the organizational pyramid.

Of course the Pentagon is not just an office building. Any reasonable person
would believe that one of the hijacked airplanes could have been piloted into
a NORAD installation if that had suited Al Qeada's purposes, but NORAD is only
useful against other dying behemoths of giant organizations, such as the
soviets, and thus isn't nearly as important as it used to be, and would never
be bothered with by Al Qeada.

I think the reasons that we did not catch or kill Osama bin Laden at Tora Bora
are exemplary of the ways that giant organizations fail. We believed we were
strong enough to pursue other goals at the same time (Iraq, various shifts in
policy under the cover of the Patriot Act, etc) and thus tolerated various
internal groups siphoning off resources to persue those goals, and when things
did not go as expected, we could not move fast enough to get back on track,
and the internal groups had grown too powerful to stop. If we ever catch Osama
it will probably be because we pay someone else to do it for us; I think that
is loosely analogous to how IBM had to pay Bill Gates to write DOS for them,
because their own internal politics and bureaucracy made it impossible for
them to themselves.

One bullet point I left out of my list above, is higher educational
institutions. I remember in the early days of slashdot, the education career
questions were all of the type "should I go for a Phd. or settle for a
Masters" or "the place I want to attend had Computer Engineering instead of
Computer Science, does that matter" and stuff like that. Look at the
educational career dicision questions on slashdot or here these days -- it is
all variations on "should I drop out" "how hard is it to get a job with no
degree" and so on.

------
1gor
Most of creative work at 'big companies' involves designing business
processes. Which is in fact programming, only using people and resources.
Another task involves optimizing the processes and minimizing the associated
cost.

The whole raison d'être of a large organizational pyramid is cost of
processing and transmitting information and handling the associated noise.
Middle layers of management filtering and processing information for the upper
decision-makers. Keeping the noise down by designing company 'policies',
'strategies' and 'missions' that can be easily communicated to every employee.

A manager who designs the most efficient and scalable organization structure
wins over the competition or conquers a new market.

Here comes the internet with zero cost of communication. Here come high level
languages that make it cheap to describe the most efficient processes.

Any large organization can in principle be substituted by a code because the
organization itself IS a code written in job description language.

~~~
pchristensen
I think this is a great point, but I have to disagree with two parts.

 _Here comes the internet with zero cost of communication_ \- information
still costs time (opportunity cost) to produce and consume. It can be designed
to be easier to produce/consume, but that costs design resources. The Internet
gives zero cost to _transmit_ information.

 _Here come high level languages that make it cheap to describe the most
efficient processes._ \- this won't happen because people are not
interchangeable like Silicon is. You can hire two people that fit the same job
description but will fit differently into the organization. They will work
differently, interact differently with management and coworkers, produce
different results (even if equivalent).

I think the closest we can come to high level business languages are

1) something like design patterns that can't be plugged in directly but can
guide implementation of a business process with known trade-offs OR

2) design processes that can be completely specified and automated so human
judgement isn't involved

Interestingly, #1 favors talent cultivation (a la Google) and the second leads
to outsourcing.

------
geebee
It's amazing how quickly things change. Paul mentioned the 70s as a heyday for
big organizations, but I remember this going well into the 80s. You can see it
in the culture. Remember how many movies were made that glorified climbing the
corporate ladder? "Working Girl" with Meg Ryan, "The Secret of My Success"
with Michael J Fox, "Big" with Tom Hanks. Those are just a few. There was an
entire hollywood genre of climbing the ladder - movies that made it seem that
making presentations with little arrows going up and down on a chart was the
apex of human achievement.

I was in my teens during the latter half of this decade - I'd guess that at
least half of the people who read hacker news are too young to have seen them
when they came out. If you do watch them now, they'll probably seem as quaint
as "Hair".

Don't ask.

~~~
herdrick
Ever notice any 80s movie characters who were computer programmers? I can
remember one - it's the weirdest thing to watch. He's socially awkward, which
is reasonable, but he also has no money! All the cool kids in the movie make
more than him. You could not have such a character today - completely
implausible.

~~~
jgrahamc
David Lightman. He was smart, nerdy, witty and got the girl.

------
Alex3917
_Part of the reason—possibly the main reason—that startups have not spread as
broadly as the Industrial Revolution did is their social disruptiveness._

I think a more abstracted version of the problem would be that, at least in
western civilization, products spread much faster than best practices. If
Nintendo releases a new videogame system they'll sell millions the first day,
and yet 2/3 of American children still don't get their daily RDI of calcium.

The problem is that processes are much more important than products in terms
of quality of life, health care, child development, business, education, etc.
And while technological progress is increasing exponentially, the rate of
best-practice adoption remains flat.

It seems like the American dream is being able to purchase the solution to any
one of life’s problems in a big f __*ing box at Wal-Mart for less than 200
bucks. Consumers are already really well trained at this, and we need to
figure out a way to leverage this behavior to get them to adopt new processes.
The problem as I see it is threefold:

1) People don't know about best practices

2) They know about a best practice but they aren't sold on it

3) They're sold on it but it's too hard

So far as I can see it, the only way for America to remain competitive with
the rest of the world is to make the adoption of best practices an order of
magnitude easier. We might be temporarily ahead of everyone else in terms of
getting the smartest kids to go out and join or start their own businesses,
but in terms of nearly every other best practice we're falling drastically
behind.

The reality is that we live in a society where doctors don't wash their hands
before surgery, where shoddy farm practices cause excessive soil erosion,
where pregnant women eat fish high in mercury and PCBs, etc. America is
certainly getting more high-res in response to change, but is the catalyzing
change really technological? Corporations are great at buying stuff, it's the
best practices they are really slow at adopting. The fact that corporations
are breaking down into smaller units seems to be a synechdoche of society at
large falling apart due to the same set of failures.

------
bokonist
Behind the success of most corporate giants is usually the not-so-invisble-
hand of government connections. The 1960's organization man economy was a
result of the tremendous growth of government during the New Deal and the
World War. IBM was a small company until it received a giant government
contract to run the Social Security accounting system. GE grew enormously from
government spending on space, nuclear energy, and advanced AT&T's dominance
was a result of nationalizing the telephone industry in 1918. The economies of
scale for Wall St. companies are solely the result of the Federal Reserve's
"too big to fail" policy ( and also regulatory costs).

I think that the early 1900's were a more economical natural time. There were
some big corporations, but the economy was largely dominated by small
businesses and startups. The 1960's were the anomaly, a direct result of the
creation of the American mega-state.

Today the government and large government connected corporations have
calcified. Look at NASA. It's not sexy to work there anymore because everyone
knows that it hasn't done a single interesting thing since it put a man on the
moon. But because it is a government program, it cannot fail and be replaced
with something more dynamic. It's a zombie organization, not really alive, but
unable to die.

 _But till recently this was an anomalous route that tended to be followed
only by outsiders. It was no coincidence that the great industrialists of the
nineteenth century had so little formal education. As huge as their companies
eventually became, they were all essentially mechanics and shopkeepers at
first._

In 1900, getting an education was anomalous. Most smart people were mechanics
and shopkeepers, and if they were ambitious and talented, they created
successful startups. The hacker in 1900 viewed a college degree like a hacker
today views an MBA - as an expensive way to rot your brain. And finally, for
those who got engineering degrees, I doubt starting a company was that
uncommon. Off the top of my head, the very first student at Stanford ( Herbert
Hoover) did indeed start his own company. So the tradition has been there for
a long time.

 _Now I would guess that practically every Stanford or Berkeley undergrad who
knows how to program has at least considered the idea of starting a startup.
East Coast universities are not far behind, and British universities only a
little behind them._

In the 2000's your average ambitious Ivy league graduate wanted to work for
Wall St. The rest would go into consulting, academia, or get a profession
degree. Very few people think of doing startups. If the Wall St. bubble never
comes back, and graduates are forced to make an honest living, perhaps there
will be a trend towards doing more startups.

 _Fifty years later, startups are ubiquitous in Silicon Valley and common in a
handful of other US cities, but they're still an anomaly in most of the
world._

Startups are an anomaly in Europe, Japan, and Korea because of government
regulations. China is filled with startups because it has the freest market in
the world. Startups are common in Sillicon valley because it is the home of
the tech industry, which is the most unregulated industry in the United
States.

------
swombat
_How often does it happen that a rule works for thousands of years, then
switches polarity?_

I'm not a historian, but as far as I know from reading various books by
Drucker, large corporations didn't exist for much of the last thousand years.
In fact, I remember he made the point that looking at the turn of the last
century, even the largest business of that day would be considered small to
medium by today's standards (and goes on to ascribe that to a lack of
management knowledge - it's impossible to manage a huge corporation without
management).

If "larger is better" has only been with us for a hundred years, it may well
slink back into the shadows sooner than we think.

I think the order in which this will unfold will be highly dependent on what
kind of business you're in. Car manufacturers and pharmaceutical companies are
unlikely to get small any time soon, at least not until we have perfect
simulated models of the human body to get rid of all the human trials, and
until we have instant, near-free manufacturing processes available to all. By
the time those happen, it seems unlikely that "corporations" will look like
they do now....

~~~
gills
I don't think 'corporation' is a required title for the concept to apply.
Large command-oriented economic drivers have existed for a long time. The
Roman army was one, it's economic function the looting of conquered territory.
Notice that when it could no longer accomplish that function, things began to
turn south for Rome.

We are observing the decentralization of economic authority, common throughout
history, but usually a side-effect of economic decline and/or societal
collapse; maybe more correctly a side-effect of the movement from specialized
occupations back to subsistence farming.

This decentralization seems to be different, and appears to be driven by the
unprecedented communication, access to information, and wide audience granted
by the Internet.

------
sdurkin
"Now it turns out the rule 'large and disciplined organizations win' needs to
have a qualification appended: 'at games that change slowly.'"

The pattern I see throughout history is that large organizations endure until
some disruptive technology takes them down. (Greek hoplite armies vs. light
infantry and archers, armored knights vs. longbows, cavalry corps vs. tanks.)

The modern age has simply accelerated the whole process. Technological change
occurs increasingly quickly now, and so these "overturnings" happen more and
more often. Because large organizations take time to form, the balance of
power has shifted to small entrepreneurial organizations.

~~~
hs
true, you might want to look at empires that lasts for centuries after rapid
expansion

alexander the great, napoleon, the japanese (1940ish) don't count because they
cannot sustain the expansion

ironically, mongol empire (and its vast expansion) lasted for 3.5 centuries.
there must be some other reasons that neither cruelty nor barbarism can
explain (in fact, empires based on cruelty/barbarism don't last long)

------
uuilly
Perhaps it's an east coast thing but I was just back for Thanksgiving and of
the many Ivy League superstars I grew up with, almost all are working on Wall
St, in management consulting shops, or they have become lawyers. I'm not
saying that Ivy League == best and brightest, but it is probably a good
indicator of ambition.

These three industries all have one thing in common, they pay well and they
only require a Liberal Arts degree. My sister graduated from Harvard a few
years back and I'd say that every single one of her friends I've met works in
one of these three industries. Their conversations of others I haven't met
indicate that these three professions are the norm for all their classmates.

Perhaps Stanford is different and perhaps CS majors are as well. But the major
trend I see is that the most ambitious people from the most prestigious
Universities are going to the places that pay them the most.

~~~
hs
the trend i see is that the most ambitious people do startup and degree(s)
matter less as time goes

maybe a quantitative measure like Z = asset_from_work_now /
cost_before_work_then where cost_before_work_then include tuition, rent, etc
... work can be defined as wall street, lawyer, plumber, startup, etc

Z for googlers can be in the thousands to millions, while Z for wall streets
might be in the tens or hundreds ... big difference

or course Z can be negative (bankrupt+debt) ... but the huge discrepancy of Z
value only reinforces my point, only the brave and ambitious dare to walk the
uncertain path; the rest only follow thru the proven, safe path

------
mixmax
I think a major reason for the high-res society as Pg so eloquently calls it,
can be found in Ronald Coase's classic _The theory of the firm_ from 1937.

In it he tries to describe firms and why they exist. His main finding is that
the reason that firms exist as large entities instead of just individuals
trading labour and services with each other is transaction costs. In an
industrial society the transaction costs of many individuals coming together
to create and sell a product would be prohibitive. By creating firms the
transaction costs are lowered - it is cheaper to create and maintain the
structure needed to uphold the firm than it is to locate and purchase services
in the marketplace when you need them .

The transaction costs are coming down with the advent of the global
information flow - it is much easier for me to locate and purchase the
services of an individual coder than it would be to locate and purchase the
services of a welder 20 years ago. The transaction costs are especially low in
industries that sell immaterial services and goods that can easily be moved
around the globe, such as web businesses.

This makes firms increasingly less competitive with individuals, it also
explains why some sectors such as the auto and aero industries are dominated
by big companies and probably will be in the future. The transaction costs of
individuals building a Boeing 747 are just too prohibitive.

Link: <http://en.wikipedia.org/wiki/Theory_of_the_firm>

------
izaidi
I like this a lot, but I'm not sure I understand the title.

~~~
pg
Future economies will be made out of more, smaller pixels.

~~~
Retric
Successful companies tend to grow. Could Google make just about as much money
with 5000 people as they currently make with 20,000? Perhaps, but while adding
people has a positive ROI they are going to keep doing that. There high value
for large organisations to buy small ones and IP law tends to create cash cows
which buy up all the interesting companies around them.

PS: When companies that can kill Google, IBM, and Toyota while staying small
show up I might agree with you until then I expect things to stay like they
are.

~~~
pg
"This doesn't mean big companies will disappear. To say that startups will
succeed implies that big companies will exist, because startups that succeed
either become big companies or are acquired by them. But large organizations
will probably never again play the leading role they did up till the last
quarter of the twentieth century."

(<http://www.paulgraham.com/highres.html>)

~~~
netcan
That is actually _the_ point I thought needed more exploration. For one thing
it seems to accept that 'startups' are a product of an environment dominated
by large companies. There are some interesting questions that arise:

* A theme running through many of pg's essay is that startups are a far more productive use of resources. Pg sometimes uses acquisitions as an example taking the same resources & applying them to a large organisation. The result is reduced productivity. Doesn't that imply that acquisitions shouldn't take place in the first place? A transaction is supposed to take place when it produces some sort of a net surplus.

* Can a startup complex survive without acquisitions?

* If size is a disadvantage, isn't this a disincentive to grow? Wouldn't that put a company in danger of being out competed by smaller players?

* If growth is capped by anti - economy of scale effects, is there still enough incentive for startups?

* Today's startups often float around winner take most areas. Isn't this at odds with small organisations being dominant? The solution to this one seems alarming: Small organisations with huge revenues. If this scales we get a large number of Googles being run entirely by a few hundred employees & responsible for a level of wealth creation grossly disproportionate to their number of employees.

My ideas are pretty uncooked. But what I'm saying is that this prediction
might be more robust if it explored a separation startup & big business. IE
what does a startup look like in an economy dominated by startups. Foxes can
never outnumber rabbits.

------
SwellJoe
So there's at least one problem with this, I think (though in principle, I
suppose I agree). This line bothers me:

 _Even if Internet-related applications only become a tenth of the world's
economy_

A tenth? Internet applications? A tenth of the world's economy could be
Internet applications? I'm a bit flabbergasted by the thought. I mean, I
guess...if entertainment spending comes to be merged into the Internet
applications category, and media, and toys and games, and travel, and
education, etc. I guess the argument can be made that a tenth of the
investment an average business makes (regardless of what the business actually
does) in the future will be on Internet-related technology.

But, I think we're still a long way from that, aren't we? And it doesn't alter
the basic realities of the economy, and where people spend most of their
money.

How much do grocery stores and food producers spend on Internet applications?
Certainly not 10%. Real estate and other big ticket item sellers like cars and
boats? Is it 10%? Seems very unlikely, though maybe with advertising becoming
more Internet focused one could say that their advertising budget will
eventually be going to the Internet. Food and houses and other necessities are
where 1/3 to 2/3 of the average person spends their money, worldwide. So, what
else is there? Energy. I suspect energy companies spend maybe a tenth of one
percent of their annual budget on Internet-related expenses, if that much
(though they spend a lot on technology, in general).

Unless we imagine that the percentage of money people spend on these things
will drop significantly in the near future relative to entertainment, toys,
sports, and knowledge-related activities (and all of those things become
dramatically more Internet focused--which is the believable aspect of this
scenario), a 10% Internet application economy future is hard for me to
visualize.

Of course pg is theorizing that the wealth being created is independent of
existing systems of wealth generation. Being a libertarian, I'm sympathetic to
that notion. But, there needs to be a productivity boost created by new
technologies for it to literally create wealth. It needs to save people time
or make some sort of production or transit more efficient. Entertainment
doesn't produce wealth, IMHO, it merely redirects it...and some percentage of
modern Internet applications are entertainment. I'm not saying that's a bad
thing...just that I believe when the wealth being "created" isn't actually in
response to production or increased efficiency, I suspect it's squeezing a
balloon rather than blowing more air into it.

And, the natural fallout of that is that if the brightest young lads and
lasses are going into Internet applications, instead of taking part in the
physical world, we might end up slowing the growth of wealth generation in the
world rather than accelerating it. Particularly if they're mostly doing pure
entertainment applications.

Luckily, as long as we have a free market, it will correct for those kinds of
mistakes, even if it takes a while for us to recognize the corrections (and
even if the mistakes get subsidized across several years because investors are
slow to react to shifts in the landscape).

~~~
ippisl
there is no direct relation between a product's market value , and true value.

look at wikipedia , skype , and linux. another example:worldwide yearly
vaccine market is $11 billion , worldwide daily oil market is $6.5 billion.

the problem with those going to internet apps is not that they chose internet
apps , because internet and software apps hold enormous potential value. the
problem is the things they chose to implement , are not really valuable. but
that's maybe a basic issue related to the consumer culture.

------
rpgoldman
Isn't there some danger that you are over-generalizing from an industry where
there are exceptionally low barriers to entry to a global trend? What if you
want to make a new automobile, or even worse, a new airliner?

However, I think there is another trend that reinforces what you say here.
Previously there was a strong incentive for risk-averse people to work in
large corporations. I'm a risk-averse person and I once worked at a large
corporation. With the change in organizational behavior so that layoffs have
become a first resort action, instead of an action only appropriate in
desperate circumstances, there is little risk-aversion benefit to large
organizations. So other than health insurance, large corporations have become
a generally inferior class of employers. This is true even if you are not
entrepreneurial.

------
steveplace
I think the trend here was missed. The fast change is not a new event but
rather a continuous trend that moved laterally into business.

It's decentralization, and it's been occuring throughout history. For example,
equality is a form of decentralization that has taken quite a while to
manifest. You've also got decentralization in information, labor
(specialization), and housing.

The next one that we desperately need is energy decentralization: we need to
have smaller, agile, and more incremental methods of generating energy. The
tech is coming along so we'll be able to do this, and some of the tech will
only work well if it's not scalable.

My $.02

------
bdr
I had two responses:

\- The Internet is different from other fields because of low barriers to
entry and the ease of collaboration between groups (low transaction costs).
This means that even if our field grows very large (and I think it will), the
principles underlying its success might not successfully spread to other
industries.

\- Another thing that might happen is that large organizations gain enough
power that they can control the Internet. If they're able to do so and prevent
the rise of alternative, more free networks, then hegemony could come to
dominate this industry too, as it did all the others.

------
Xichekolas
I think the limiting factor to growth of the startup culture is the fact that
big organizations are good at providing commodity goods and services _and_ the
freedom and unconventional nature of startups doesn't seem to scale up to big
organizations. At some point I'm sure even companies like Google and
Genentech, which tried to maintain the startup feeling, start to feel pretty
corporate.

So I would agree insofar as to say that startups will become the _de facto_
standard method of commercializing new technology, but I don't think they will
ever represent a significant portion of the economy as far as the number of
people employed. Having such a small percentage of the population involved in
startups doesn't afford them much opportunity to affect social norms on a
large scale.

Short of complete automation, big organizations will always be best at doing
commodity things like picking up your trash and making your shirts. Even once
those particular tasks are automated, big organizations will grow (often from
startups) elsewhere to tackle new commodity goods and services. Once something
is no longer cutting edge, it'll be provided by a big organization.

Startups will always disrupt the way big organizations currently do things,
but by being successful they will just become big organizations themselves.

------
JamesMitchell
In many industries, there is a non-stoppable trend towards larger and larger
companies.

In retailing, Wal-Mart is crushing their competitors, who are also extremely
large but they do not have the economies of scale that Wal-Mart. (In addition,
Wal-Mart has better management.)

In some cases, large companies succeed because consumers want the perceived
value of purchasing from a large company. Dell and HP basically own the server
and desktop computer market, and there is no reason to assume this will change
in the next ten years. People feel that Dell will not go out of business.

One of the industries hurting most right now is the automobile industry. GM
and Chrysler say they will run out of money unless the U.S. government
provides several billions of dollars in aid soon. Ford says it does not need
government financing but it has pledged all of its assets in a collateral-
based loan. Yet almost no one is willing to buy a car from a small automobile
company, they are viewed as risker than GM or Chrysler.

In choosing software companies, one factor sophisticated purchasers look at
is, "How likely is this company to be in business 5 and 10 years from now?"
When you commit to a software package, you are making a huge investment in
time and energy, far beyond the purchase price of the software. You want to
know that in the future, the software company will continue to enhance the
product and will be around to provide technical support. This is why
companies, for example, purchase software from Oracle, even though Oracle is
ridiculously. People expect Oracle to be in business ten years from now. Yes,
open source to some extent mitigates this risk, but putting aside very
successful open source projects (Linux, Apache, MySQL, how do I know that they
will be around ten years from now. Do I really want to writing the code
myself?)

Law firms have consolidated tremendously in the past decade. Large clients
want one firm that can provide experise in dozen of areas of the law and can
handle complex transactions that span the globe. In Boston, ten years a 100
lawyer firm was considered to be a large sophisticated firm. Now such firms
(at least on the corporate side) have merged with other firms to create 500
attorney firms.

In public accounting, the Big Eight has consolidated into the Big Four.
Clients want the brand name that only a Big Four firm can provide.

There is no clear trend here. In some industries, consolidation is taking
place and will never stop. In other industries, it is the opposite effect.

James Mitchell www.bostonconvivium.com jmitchell@kensingtonllc.com

------
ph0rque
"If Internet startups offer the best opportunity for ambitious people, then a
lot of ambitious people will start them, and this bit of the economy will
balloon in the usual fractal way."

With the advent of open hardware and 3D printers, I think you can take out the
word Internet and have the statement still be true.

------
biohacker42
The conclusion overreached a little bit. And there was something disturbingly
California centric about it.

In my opinion there is not such a huge cultural gap that's responsible for the
different startup rates.

Few (if any) cultures are so deeply authoritative as to be anti-success.

The valley's lead is much more the result of rather simpler causes. People - a
whole lot of smart ones, two recession proof large smart people producers (the
universities), and funding lots and lots of funding.

That's where the lead comes from and it will be difficult to close it. Culture
doesn't have anything to do with it.

~~~
DaniFong
"Few (if any) cultures are so deeply authoritative as to be anti-success."

I would argue that most cultures, even in California, are too authoritarian
and inflexible to really cultivate productive, disruptive change. For all the
talk about innovation, it is genuinely difficult to argue against the status
quo. It is very, very hard to change one's frame of mind, and people tend
elsewhere to defer to expertise and experience over ideas with are promising,
make sense, but are not so fleshed out. In the Bay Area you will at least find
an audience, if not easily convince them. Being anti-authority is obviously
insufficient for startup success, though.

A good quote to keep in mind:

"...I would design my own, fresh, without knowing how other people do it. That
was another thing that made me very good. All the best things that I did at
Apple came from (a) not having money and (b) not having done it before, ever.
Every single thing that we came out with that was really great, I'd never once
done that thing in my life." -- Steve Wozniak

We are currently encountering much existing knowledge in engine design. Some
of it is undoubtedly wise, but a lot of it is probably out of date. We have
the chance to experiment. But it would be genuinely impossible to do such a
thing in most auto companies today.

~~~
MaysonL
Also - Feynman's "What I cannot create, I do not understand."

------
13ren
There's a famous economics essay about the size of the firm by Ronald Coase
(winners of the Nobel prize for economics), in which he discusses why firms
(companies, organizations) exist at all (instead of individual contractors),
and the factors influencing their size.

summary: <http://en.wikipedia.org/wiki/The_Nature_of_the_Firm>

actual essay: <http://web.cenet.org.cn/upfile/30998.pdf>

------
pjf
I dont quite understand if the article was to convince me about something or
was it to predict the future?

"An ambitious kid graduating from college now doesn't want to work for a big
company. They want to work for the hot startup that's rapidly growing into
one."

Thats a generalization and I believe its untrue and biased towards talented,
ambitious young people Paul meets. Sorry if I'm wrong, but if that was to
convince me, I'd need a proof. From my point of view, the rest of the world is
still at sort of peak of belief in the "corporate world" (but I dont have any
research doc to reference as well :)).

"Fifty years later, startups are ubiquitous in Silicon Valley and common in a
handful of other US cities, but they're still an anomaly in most of the
world."

Well thats what I dont understand the most. If the whole article talks about
the huge positive impact that startups are going to have on economy, let me
ask Paul: what has changed since then ("fifty years [ago]") that makes you
believe that NOW is the moment startups are going to change the whole world so
much? What was the reason you wrote (published) the article NOW?

------
istara
Large organisations are modelled on the military. So were schools. And many
more countries had compulsory national service. Now schools are evolving and
university with all its freedoms is more likely experience than military
service for most new entrants to the workforce, it's not surprising that a
huge, rigid, hierarchical structure is no longer relevant or even tolerable to
many people.

Another point to bear in mind: more small companies means more outsourcing,
particularly for legal, HR, IT support, and so on. We should also see masses
more companies using shared business premises, with shared receptions and so
on.

Small companies should also mean more teleworking, since (1) people in small
companies are generally more open to the idea of it, and (2) it's easier to
keep track of what everyone in a smaller company is doing, even if they are
working remotely, and (3) it means small companies can have international
representation which may be one guy in a specific Asian country working from a
bedroom-office.

------
nebula
PG, your use of the term "economies of scale" seems to be slightly misleading:

My understanding is that to benefit from "economies of scale", you don't
necessarily have to be big in size. You can be a two people startup serving a
huge user base with a small margin. It's possible to make huge profits in this
scenario because of economies of scale in terms of the size of the market
served.

Your use of the terms seems to indicate that you can use economies of scale to
your advantage only if you are big in size:

 _Those who bet on economies of scale generally won, which meant the largest
organizations were the most successful ones._

 _But in the late twentieth century something changed. It turned out that
economies of scale were not the only force at work. Particularly in
technology, the increase in speed one could get from smaller groups started to
trump the advantages of size._

~~~
bdr
I think you're confusing "economies of scale" with what Taleb calls
"professions that scale".

~~~
nebula
May be I'm; but you are not helping with your one liner :( [for "professions
that scale" google is pointing to this page]

Btw, Wikipedia seems to be more or less in agreement with my stand here:
[<http://en.wikipedia.org/wiki/Economies_of_scale>] "Economies of scale are
the cost advantages that a firm obtains due to expansion. Diseconomies of
scale are the opposite. Economies of scale may be utilized by any size firm
expanding its scale of operation."

OK! It seems I missed the cost advantage part; i.e., the term "economies of
scale" is used only if there is a cost advantage to be gained from expansion.
Is that right?

~~~
bdr
Sorry, I assumed that that was where you were coming from.

Economies of scale usually refers to how the cost of producing a unit
decreases as you are producing more units at a time.

Taleb calls an endeavor scalable if your reward can increase practically
unboundedly with little no extra effort. Examples include pop stars and
websites.

~~~
nebula
That helps :) Thank you.

------
dpapathanasiou
It's interesting to read this with Taleb's " _The Black Swan_ " in mind (which
I just reread this weekend), specifically because it made me think of Taleb's
"barbell strategy":

" _... your strategy is to be as hyperconservative and hyperaggressive as you
can be instead of being mildly aggressive or conservative. Instead of putting
your money in 'medium risk' investments, you need to put a portion, say 85 to
90 percent, in extremely safe instruments, like Treasury bills—as safe a class
of instruments as you can manage to find on this planet. The remaining 10 to
15 percent you put in extremely speculative bets, as leveraged as possible
(like options), preferably venture capital-style portfolios._ "

It seems that going to work for a startup is the exact opposite of this.

I.e., it would be better to be an investor in many startups rather than
working solely on/for one startup.

------
connellybarnes
The "corporate ladder" analogy is broken, because the ladder is tree shaped.
It's statistically impossible to climb tree shaped ladders, because they get
exponentially smaller at the top, and there are too many levels. "Climb the
corporate n-ary tree" would be a better analogy, for large values of n, and
large tree height. It should be obvious to computer scientists, via pigeonhole
arguments, why this isn't statistically feasible.

In any case, it's probably easier to find loopholes, like startups, or being
an early arrival to an industry, or starting at a smaller company that
inflates later, or tunneling your way between points in the corporate
topology, by switching from one company to another, if you're ambitious. But
betting against statistics never pays.

------
pwim
"To say that startups will succeed implies that big companies will exist,
because startups that succeed either become big companies or are acquired by
them."

A startup can have a goal besides becoming a big company or being acquired by
one. If the company meets that goal, it is successful.

------
hs
"There's no evidence that famously successful organizations like the Roman
army or the British East India Company were any less afflicted by protocol and
politics than organizations of the same size today. But they were competing
against opponents who couldn't change the rules on the fly by discovering new
technology."

the mongol empire was the game changer [adopting siege machine, biological
weapon (throwing infected corpse thru enemy's wall -- the seed of black
death), religion (islam, christian, budhism), trade (silk route, 'pony'
express), and the rise of creative class]

it conquered the world with bow and arrow, lasted 3.5 centuries (longer than
the nuclear powered usa)

barbar/dictator/despotic empire can't/won't last that long -- there's truly
something about mongol

------
coliveira
Paul mentions the decreasing costs of technology, but he doesn't mention the
fundamental property of technology that allows this to happen.

This economic trend is directly related to technology and software. One of the
problems for big corporations is that more and more is done by machines, i.e.,
software. However, the singular phenomenon of software is that, the more
people working on it, the harder it is to maintain and evolve.

Small groups are much better prepared for success in our present world because
they can leverage software. As a single organization grows, so grows the
complexity of its internal systems.

------
prakash
_[3] It's possible that companies will one day be able to grow big in revenues
without growing big in people, but we are not very far along that trend yet._

PG: Can you expand your thoughts on this? Why do you think this trend is not
very far along? What would help in accelerating such a trend?

After startups, this trend could have a significant impact -- meaning folks
that start companies/early employees would like to stay longer at such
companies, and still be nimble, maybe not to the extent of a startup but not a
BigCo. either.

------
akkartik
_"..there were already a handful of countries past that stage when the
Industrial Revolution happened. There do not seem to be that many ready this
time."_

Speculation: This factor may be the difference between life and death for the
trend towards high-res. There's today a good chance the US will weaken
economically, energy will get catastrophically more expensive, a city
somewhere will experience a suitcase nuke.

'should', not 'will'.

------
pestwave
本文中文版请参考：<http://www.yeeyan.com/articles/view/pestwave/19240>

A Chinese version of this article is available
at:<http://www.yeeyan.com/articles/view/pestwave/19240>

------
RPatershuk
This trend was examined in Zuboff's 2004 book "the Support Economy". I've
commented it on my (fledgling) blog. www.efficientfactory.com
[http://efficientfactory.com/2009/01/17/the-support-
economy-b...](http://efficientfactory.com/2009/01/17/the-support-economy-book-
review/)

------
cool-RR
"But large organizations will probably never again play the leading role they
did up till the last quarter of the twentieth century."

I suggest retracting this statement. What idea do you have of how the world
will look 50 years from now? This may be remembered as your "640kb will always
be enough" quote.

~~~
harpastum
pg isn't prescient, but based on his argument this isn't much of a stretch. It
may not turn out to be true, but it would be an even worse idea to cripple the
conclusion to your thought because you're worried about embarrassment.

.

"The best way to predict the future is to invent it." \- Alan Kay

YC is definitely working to prove pg right.

~~~
cool-RR
"this isn't much of a stretch"?! from a sample period of a few decades to
"never again"?

~~~
andreyf
No. Read the rest of the essay - the factors that made large organization work
are dissolving.

------
RyanElisei
Startups don't go against the traditional grain of society. They are part of
the fauna that resulted from an economy of extremely large scale. Things like
anti-trust laws, and investment banking - the food for startups - only happen
in instances of super-scale.

------
cadalac
Quick question: Is the RSS for PG's essays not working? I never got the
update.

------
mxtbcca
I hear echos of William H. Davidow's "The Virtual Corporation", isbn
0887306578, in this post. I thought those ideas were innovative back then -
1993 - and still waiting for then to arrive in mass. mxt

------
yahc
"Which means the ambitious can now do arbitrage on them. It will be very
valuable to understand precisely which ideas to keep and which can now be
discarded."

Do you mean "arbitrage" or do you mean "triage"?

------
h3h
A corollary to the move toward smallness, if I might:

<http://h3h.net/2008/12/economy-of-software-maintenance/>

------
zdrum
There's a lot of start-ups per capita in Israel. The big sharks buy them so
fast, Israelis are constantly busy opening the new ones. What a whirlpool.

------
ralph
Pedantically, Uncle Sid, not uncle Sid? Sid is my uncle, but to me, he's Uncle
Sid. Or is that a Britishism?

------
raffi
PG should also read The Third Wave by Alvin Toeffler. This sounds very much
like his thinking.

------
known
People join big company if they are opportunistic and join a start-up if they
are ambitious.

------
mmilenko
n-th restatement of the same idea. jeez, what a bore already

