

America doesn’t have a small business problem. It has a startup problem. - rpavlick
http://www.washingtonpost.com/blogs/ezra-klein/post/america-doesnt-have-a-small-business-problem-it-has-a-start-up-problem/2011/10/31/gIQARN9CZM_blog.html?wprss=ezra-klein

======
BerislavLopac
"It’s easier, after all, to take a risk, quit your day job, and start a new
business if you don’t have to worry about getting health-care coverage."

Actually, I think it's the other way around. First of all, countries with
national health care have introduced it precisely because is citizens are less
risk-tolerant on average. Also, with a bunch of social parachutes such as
health care, solidarity pensions and the like, the willingness to risk
actually decreases, as there is less incentive to "make it big".

~~~
bobbles
Sorry, but I think this is delusional. The fact that I can break my leg and
pay for nothing more in the hospital than a pair of crutches to take home in
no way is related to what I want to do professionally.

On the other hand, the fact that it could cost some ridiculous amount in the
states would definitely drive me to wanting to stay put in a reliable salary
position in corporate world.

~~~
mixmax
I'm from Denmark, maybe the country with the best social safety net in the
world. The state pays your medical bills, your school and education (you even
get a state allowance to live on while you study), if you lose your job the
state will give you money, and so on. You can actually live a whole life with
nothing but statemoney.

The startup culture here is terrible, exactly because of this. People become
cosy and risk averse because they don't really need to fight, and because
there's no need to.

So i think the parent hits the nail pretty much on the head.

~~~
chairface
That's an interesting correlation that you've transformed into causation.

------
ewoodrich
I would say (at least from personal experience) that the funding issue is a
bit of an easy culprit (especially since the article highlights three tech
companies in the graphic).

In my experience, the barrier to entry for a sufficiently skilled founder or
founders is fairly low, as long as one has the skills, and motivation to
learn.

But for biotech and other industries, I can definitely see the potential for
grants and other support to "jumpstart" these companies.

~~~
FD3SA
Precisely. Markets such as social, search, and cloud were the low hanging
fruits because they required relatively small seed capital.

The reason why PG is complaining about a lack of truly unique startup ideas is
because, frankly, many of the low hanging fruits have been picked. The next
generation of fields ripe for innovation (AI, robotics, transportation,
biomedicine, energy, space, etc) require orders of magnitude more seed
capital. Some of these are on Manhattan project scales, requiring billions of
dollars invested for a decent probably of an acceptable return on investment.

Some big spenders, such as Peter Thiel, are paving the way forward with their
personal initiatives; yet few organic investment communities exist to support
such endeavours. I doubt that such an investment community would spring forth
without government support.

Unfortunately, government largesse is a critical issue in most developed
nations at the moment, so I am pessimistic of government assistance in these
sectors. Thus, we are constrained to our narrow fields of low capital startups
for the time being.

~~~
ewoodrich
I think your observation that "social, search and cloud" as you point out, are
extremely over-saturated is especially relevant.

One of my main draws to programming was the extremely law barrier to entry --
a weekend spent with a Python compsci text and Google was enough to get me
started on Django.

But even though I have interest in biology, genetics and related fields, I
don't see how someone in my position with more time and motivation than money
could "break" into the startup world.

~~~
FD3SA
Indeed. High capital fields such as medicine are the great entrepreneurial
challenges of our time.

Everyone on HN knows of the decaying behemoth that is academic research. It is
an unsustainable system built upon a terrible incentive architecture. Graduate
students and postdocs are used as cheap labor in a Ponzi scheme, while
Principal Investigators have no incentive to engage in difficult, high risk
research due to salary caps and tenure. The market failure of academic
research is the primary reason for the grinding pace of progress in fields
such as medicine.

Again, there are individuals such as Craig Venter who are changing this
paradigm, but the sheer magnitude of funding being dumped into the academic
research black hole is unfathomable.

Our collective tax money is in the government's hands, and as such, only they
have the power to dismantle such terribly broken schemes. I'm not holding my
breath.

------
temphn
The solutions proposed here are to increase the number of startups by
increasing government spending/taxation and increasing extension of
credit/financing.

However, if the goal is to have more startups that are "the envy of the
world", then increasing the number is not necessarily the way to do this.

We need to stop harassing those startups that do become successful. Startups
by their nature are _disruptive_ in the common sense of the term, and will
violate the cozy arrangements made between established businesses and
governments.

Two recent examples:

[http://www.betabeat.com/2011/05/31/airbnb-takes-manhattan-
wi...](http://www.betabeat.com/2011/05/31/airbnb-takes-manhattan-
with-2k-bookings-a-night-but-many-listings-may-be-illegal/)

[http://venturebeat.com/2010/10/26/ubercab-ryan-graves-
cease-...](http://venturebeat.com/2010/10/26/ubercab-ryan-graves-cease-and-
desit/)

Of course, on a larger scale the government is now harassing Google with
antitrust, even though Google is being nipped at the heels by Facebook.

The government also denied the Blockbuster/Hollywood merger in the mid 2000s
([http://www.washingtonpost.com/wp-
dyn/articles/A2310-2005Mar2...](http://www.washingtonpost.com/wp-
dyn/articles/A2310-2005Mar25.html)) on antitrust grounds. Of course, just a
few years later these "trusts" were blown up by Netflix, which is itself being
blown up by Amazon and iTunes.

To have more successes, we need to stop the dynamic in which government goes
after successes and tries to destroy them. What we don't need are government
policies that encourage more marginal entrepreneurs to jump into the pool.

~~~
majika
I don't see why simply being a startup should give you permission to flaunt
the law for whatever reason you deem necessary to be profitable.

IMHO, the law usually exists for a reason. I care about antitrust violations,
or data privacy violations. If New York requires hotels to be licensed - which
I think is a fair requirement - then I don't see why Airbnb patrons should be
exempt from that law. This view will probably be unpopular on HN.

I don't suggest that the US government stop "harassing" startups because ...
they're startups, and economy economy economy.

I think you need to find a way to spur wealth creation while still having some
rule of law in the country. Tax breaks, government-sponsored venture capital,
and immigration incentives are a great way to do that.

~~~
temphn
We get to the nub of the matter. There is not a single disruptive startup that
did not break dozens of laws, either in spirit or in fact. It is impossible
for them not to as laws are written by incumbents and are not written in the
public interest.

Napster and Youtube broke copyright laws. So did Google. Apple's Jobs was a
phone phreak. Gates was disciplined by the Ad Board for selling software on
campus. And Facebook's creator famously "breach[ed] security, violating
copyrights and violating individual privacy by creating the website,
www.facemash.com".

Good entrepreneurs don't give a damn about "the rules", or about those whose
primary purpose in life is obeying rules or making up new ones. Indeed, good
entrepreneurs have a healthy disrespect for the law. But unlike the common
criminal, they break the law to create rather than to destroy.

Your assumption is that the legal system is on the side of the average Joe and
is protecting their interests against "for profit companies". It is much more
accurate to say that a law is like a stationary cannon, which is captured by
those with the deepest pockets and aimed at those who would pose market
threats to those deep pockets.

Real estate developers who already own property support restrictive zoning
laws to keep rents high. Life insurers are the biggest lobbyists for the death
tax. Large restaurant chains support food safety inspection regimes that
result in reams of paperwork, as they can amortize this cost across more
employees.

Stated good intentions mean nothing. Every system of laws will face gaming
attempts from day one, not just from "evil for profit startups" but also from
corrupt politicians, bureaucrats, and lobbyists.

This needs to be factored into your analysis, as you too easily accept the
narrative of "data privacy law" rather than "a law passed to advance the
career of so-and-so politician and NGO, funded by lobbyist X, covered
sympathetically by journalist Y, and sold to us as a data privacy law".

~~~
majika
>It is much more accurate to say that a law is like a stationary cannon, which
is captured by those with the deepest pockets and aimed at those who would
pose market threats to those deep pockets.

Every law? Antitrust laws? Data privacy laws? Laws that require hotels to be
licensed?

If you take issue with a law, then that law is the problem; not the enforcing
of it.

Startups should not be exempt from the law simply because they're a startup.
There are better ways to spur wealth creation via small businesses than to
allow small businesses to flaunt the law when they see fit.

~~~
dantheman
What do you like about antitrust laws? Without government intervention there
are no monopolies. How did breaking up standard oil help anyone? They ended
whaling, drove the price of kerosene from 100$ to 2$ -- how was this bad for
the consumer?

How did all the microsoft antitrust stuff help us? How is hassling google
helping us?

I think we're in agreement with respect to the law, the point of the parent
post was that instead of hair-brained schemes to increase the number of
startups we should reduce useless laws and regulations so that they can
thrive.

~~~
AlisdairO
> Without government intervention there are no monopolies

Can you really justify that statement?

------
dylangs1030
One of the reasons I see startups being more significant for fueling the
economy is momentum. A startup with 2 or 3 well collaborating founders without
internal conflict is following an exciting vision - there's a certain
glorification to beginning the venture on an idea, and being a founder of
something new and practical. On the other hand, more mundane small businesses,
once established, aren't known for adapting and changing much, so much as
fitting into an industry niche and remaining predictable (i.e. a small
software brand which isn't superlative in any way, but is stable and
profitable).

------
DanielBMarkham
Gosh this column is muddled. It's no wonder there's a problem. If you can't
think clearly about an issue it's highly unlikely you're going to be able to
shed light on it.

Startups are businesses that make something people want that are highly
scalable.

So no, "startups" and "small businesses" are different things. Your dentist
has a small business.

At the same time, it's very possible to make something that people want and
simply have no desire to scale. That's what I'm seeing for a lot of American
startups. Yes, there are all the wide-eyed younger folks who are out to
imitate Zuck and be the next Facebook, but for every one of those there are a
hundred people out in the hinterland who aren't out to conquer the world.

Why? Lots of reasons. First, _people who change the world get punished._ They
get punished by competitors, by the government, and sometimes even by the
popular opinion of the people who use their startups. Why make yourself a
target?

Second, a disruptive startup's relationship to the government is far from
clear. Is AirBnB an appointment service or a hotel service? Do the guys that
offer ride shares run a taxi business? Or a bulletin board? The government,
over time, has come up with thousands of little boxes that businesses are
supposed to fit inside. Depending on which box you fit in, various rules
apply. What this has done is create lots of stovepipe business systems. So
when a business comes along that crosses many boxes, which ones apply? A
lawyer can help here, but she's just going to be able to offer an legal
opinion, not protect you from possible problems.

Third, there's the big business overhead hit. There's a huge difference
between 3 guys in a garage and 3 thousand guys in an IT center. You need all
sorts of administrative resources for the IT center, and lots of training for
management on how to act. That doesn't come overnight, and you don't get there
without taking a productivity hit. Now, if you're Google and revenue figures
give you the slack to know you're going to be around for a while, you take the
dive and go through the hassle. But if you're some fly-by-night, just-getting-
started business which might have a huge staff for just one year and then
disband? You can't make the overhead numbers work. I can't go out and hire 3
thousand guys to build my human-powered recommender engine for next year. It'd
take a year or more of scaling just to approach that level of staffing. And
even then I'd probably screw it up. All those laws to make sure "big business"
behaves properly have an assumption that the business is an ongoing concern --
they have lots of money and lots more on the way. That assumption is not
always true.

Finally, even if you had an idea to conquer the world, do you really want to
be an executive? You can be a Derek Sivers and have all the money you want and
the lifestyle you choose, or you can spend your time managing bureaucratic
systems and endless people problems. Does that second forty million spend any
differently than the first forty? The _idea_ of what it's like to be a
business overlord and the reality are vastly different things. The smart
choice for many might be to ditch the fast-growth and large-scale scene
entirely.

I constantly see wonks who understand little bits and pieces of the startup
scene -- that young, fast growing startups count more than small businesses in
general, for instance -- yet miss out on huge chunks of what's really
happening. They offer to tweak the existing environment by adding still
further complexity, thinking they are helping out. They are not. There's not a
lack of people creating business opportunities that are scalable. There's a
lack of people wanting to scale businesses. Totally different thing.

~~~
ippisl
>> There's a lack of people wanting to scale businesses.

Isn't this the role of experienced managers: join the business at a point it
has shown possibility to scale(and big profits) and make the scaling happen ?

And if you've got a successful and growing business you could manage to hire a
good manager to do this ? or there's a lack of people who are fit for this
task ?

~~~
DanielBMarkham
You would think so, wouldn't you?

This is a bigger discussion than I have time to do justice, but there's an
entire field of business books around the "valley of death" -- this huge hole
that businesses go into and never come out. It's not a linear-scaling thing.
10 people aren't just 10 times harder to manage than 1. The reason you see
lots of 20-50 person IT shops is that they never made it out of the valley.
There's this huge consulting field dedicated to helping businesses who get
stuck here. (Whether they actually help or not is up for debate). For
instance, if you have 500 people, you'll have a full HR staff full of people
becoming experts in various areas of corporate staffing law that affect you
directly. If you have 100, you don't have the funds for those guys _yet you
are still affected by the same laws._ It's that way for a hundred things --
the overhead is okay if you are big but unmanageable if you are crossing the
line between small and medium.

If you have enough acceleration, yes, you can bulldoze your way through. Just
start writing checks. Google and others did this. But it's not like server
scaling where for each bit you grow you can just add more management. Wish
that it were so simple! Instead there are these regulatory plateaus you reach
where it's an entirely different world past that. Then there's just the issue
of scaling a lot of people working together, which gets harder in an
exponential fashion. None of this is fun -- and what it does is stifle all the
companies without the huge accelerations.

------
Daniel_Newby
> ... IPOs under $50 million have plummeted since the 1990s.

IIRC it costs around $10M to run an IPO, thanks to a mountain of financial
regulations. Regulations that have had little apparent effect on large scale
fraud.

Some states charge high fees to start a corporation. If you just want a place
to park the IP for a bright idea, California charges an $800 per year
franchise tax.

