
A Failure of Understanding - A response to "The Start-Ups We Don't Need" - blasdel
http://enfranchisedmind.com/blog/posts/failure-of-understanding/
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voidmain
The entire argument of this article is the broken window fallacy.

The original article is not that great either, but I'm sure it's true that
government programs intended to encourage small business have a net negative
effect. The author's proposed alternative policies would probably have a net
negative effect, too. The best thing the government could do to help
innovation would be to interfere less with the economy.

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ivanstojic
I do disagree with one thing – that somehow larger companies are more
efficient than smaller companies. I’ve spent three years working in Siemens,
and was loaned to several other large companies in telecoms and aviation
business. The amount of HR overhead in those places is scary beyond belief.

In none of those places have I seen the efficiency of a typical startup, where
one employee/founder will customarily be doing the work of at least two people
employed by larger companies.

What does your experience tell you?

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swombat
Indeed. If you're going to argue against that article, surely that's the main
point you should be addressing.

Large companies? Efficient? In what universe?

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GavinB
There are different types of efficiencies.

A small group can accomplish more tasks per person than a large group, as
there is less overhead.

However, large groups can benefit from network effects. A larger group may be
able to build a reputation, distribute work to a broader audience allow more
specialization. So even though each individual worker accomplishes fewer tasks
per day, the overall output of the firm may be much higher.

A factory with 90 workers and 5, managers, 4 HR people, and a CEO may be able
to produce more chairs than 100 independent workers, all of whom spend every
day with a hammer and saw.

Different organization sizes are appropriate for different tasks.

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aberman
"Different organization sizes are appropriate for different tasks."

Yes, if you are making chairs or cars, it makes sense to have more people (up
to a point of inflection where the diminishing returns would make adding new
workers grossly inefficient).

HOWEVER, if we are talking about startups -- disruptive, scalable businesses
-- they are, by definition, more efficient than big companies. I would make
this argument myself, but it has already been made pretty well by PG:

<http://paulgraham.com/boss.html> Startup founders seem to be working in a way
that's more natural for humans...each species thrives in groups of a certain
size...groups of 8 work well; by 20 they're getting hard to manage; and a
group of 50 is really unwieldy.

<http://paulgraham.com/wealth.html> You could probably work twice as many
hours as a corporate employee, and if you focus you can probably get three
times as much done in an hour. You should get another multiple of two, at
least, by eliminating the drag of the pointy-haired middle manager who would
be your boss in a big company. Then there is one more multiple: how much
smarter are you than your job description expects you to be?

<http://paulgraham.com/avg.html> In a big company, you can do what all the
other big companies are doing. But a startup can't do what all the other
startups do [this is why/how startups can beat the average].

It's hard to argue that startups are not more efficient than big businesses.

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tptacek
I don't like this guy's blog. I happen to not agree with the AEI article about
startups, but blowing a long jet of smoke into the debate isn't doing anything
to help us. The AEI article is full of facts, and the blog post is full of
emotions and ideology. Also, Grameen Bank scored a Nobel Peace Prize, not a
"Nobel in Economics".

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Virax
The AEI article is stunningly bad - reminds me of intelligent design
arguments. Take this: "To get more economic growth by having more start-ups,
new companies would need to be more productive than existing companies." This
is like suggesting that people shouldn't have kids because kids aren't as
productive as adults. I usually try to not name-call on the internet, but
Scott Shane is an idiot. He clearly didn't get to be a professor based on his
intelligence.

Unfortunately the linked blog post doesn't quite hit the nail on the head...

