
Sputtering Startups Weigh on U.S. Economic Growth - spuiszis
http://www.wsj.com/articles/sputtering-startups-weigh-on-u-s-economic-growth-1477235874
======
cylinder
Go on your state's Obamacare exchange. Hypothetically you are a mid 30s
individual with a spouse and two young children. Look up 2017 numbers. You are
looking at $12,000 - $24,000 per year in premiums alone and then massive
deductibles and coinsurance of 30% to actually access services.

Who can bootstrap a business like this? So people are staying with their
powerful big corporations if they can't get millions in funding for a startup
(and outside of tech this is simply not even a consideration).

Edit: and if at some point you hire an employee, you will need / want to
provide them with health insurance, and it will cost just as much. Large
corporations have an advantage in that they negotiate lower premiums in bulk.
Add this as yet another barrier to entry, along with their lobbying for
protectionism, tax loopholes, their ability to hire huge teams of tax lawyers
and accountants, and if you really start to get their attention, they can sue
you baselessly by throwing lawyers at you to keep you in court. Merely
defending yourself and getting to the point of dismissal is unaffordable for a
budding small business.

Take a look at S&P500's profit margins. They are at record highs and not
coming down as economics teaches us, meaning new entrants are not coming into
the market.

~~~
PaulHoule
It was worse before Obamacare. If you had a common prexisting condition such
as high cholesterol or high blood pressure you probably could not get health
insurance at all on the individual market.

It's a problem with "Health Insurance in the US" as opposed to Obamacare.

~~~
cmdrfred
The worst part of Obamacare for me is the individual mandate. It essentially
raises taxes on working class people or forces them to buy a high deductible
plan that is of little use to them. The poor get a subsidy and the wealthy
need not worry about preexisting conditions. The working class just gets
screwed.

~~~
potatoyogurt
It's necessary given that the ACA restricts insurers for rejecting people for
preexisting conditions. This only really works in a country where everyone has
insurance. Otherwise, why not just hang around without insurance until you get
really sick, then purchase insurance at that point? If this happens, it
drastically distorts the insurance market and makes insurance even more
affordable, because people who have insurance will be disproportionately sick.

It may seem like a tax on working people, but really, it is a payment for a
very real benefit: a dramatic change in your personal healthcare risk. When
you can purchase health insurance at any time even when you're unhealthy, you
are essentially being granted an insurance policy for expensive, chronic
conditions without even having to purchase anything.

~~~
TearsInTheRain
You can't simply purchase Insurance and be covered next day. Insurance
companies can have a waiting period of up to 3 months before providing you
with benefits. It's not really a good idea to wait around with cancer for 3
months until you get your treatment covered

~~~
toomuchtodo
The ACA actually makes it very easy to purchase insurance only when you need
it (you've moved, your employer drops your coverage), and drop it when you
don't (you can go two months per year without insurance without penalty). This
is a fundamental flaw in the program.

You must mandate participation through payroll taxes, but also ensure services
can be affordably provided to participants. Insurance companies are still
raking 20% off total premiums paid; that's money that could go directly into
providing care.

~~~
cmdrfred
Keep in mind that 20% is after executive salaries and bonuses as well, at best
you are getting 75 cents on the dollar.

------
GarrisonPrime
As a physician, I am blown away by the fact that almost no one is talking
about the true problem: American health care is artificially hyper-inflated,
expense-wise.

Sooooo much waste. Sooooo much inefficiency. The problem is the cost is too
high! So why, oh why oh why, is NO ONE TALKING ABOUT FIXING THE ARTIFICIALLY
HIGH PRICES?

Because those who make money off the system are controlling the narrative.
They are more than happy to have the population "empowered" by increasing
insurance coverage. More money for them. More reason and excuse to increase
the costs even further.

There is zero reason why a doctor's visit can't cost $100. Maybe less. Break
something and need a few x-rays? $100 each, max, including development and
reading costs, everything. Need an appendix or tonsils removed? $500 would
cover pretty much everything. Sure, such things aren't cheap, but they're
survivable. But as soon as we somehow decided we needed "insurance" for such
routine expenses, the costs shot up and never looked back. The actual
consumers of health care never see the price tag, and - surprise, surprise -
the costs have no real reason to stay held back. The systems have no incentive
to stay efficient and accountable.

~~~
pcurve
How do you propose we start to tackle the problem?

I'm no stranger to the issue, having worked many years in the same dirty
industry as you, but on pharmacy benefits side.

It's not just one particular group getting rich in this sector; healthcare is
a giant gravy train for everybody: you, me, insurance companies, pharmacists,
hospital systems, drug makers, diagnostic tool makers, dme makers. Everybody
is getting rich. Where do you even start?

~~~
GarrisonPrime
Massive education of the consumer is where I think the weak point is.

Every aspect of our society minimizes or ignores the fact that our bodies need
occasional attention. The public at large needs to be told the reality that
_maintenance_ is incredibly important. Getting teeth cleaned every 6-12
months, getting a colonoscopy at age 50 and every decade thereafter, getting
your eyes examined every year or two - these should be seen as routine and
just as expected as needing to mow your lawn or buy another gallon of milk.
The idea that we don't need to budget for such things and just rely on
"insurance" is asinine.

I encourage everyone I know to budget and save for predicable expenses, have
savings, and only use insurance for catastrophic coverage.

------
FilterSweep
> One key factor intertwined with this loss of dynamism: The U.S. is creating
> startup businesses at historically low rates.

This is one of the outcomes of oligopoly, and a system that encourages
oligopoly (see: "legal" tax evasion[0]).

Google and Amazon, in particular, have their tendrils extended to many more
areas in tech than Search, Affiliate Marketing, good Hardware, and selling
products at cheap prices and highly developed operation systems.

In fact, one of this year's most successful tech IPO, Twilio, put the
disclosure on their filing that their entire business is toast if AWS begins
offering a VoIP / SMS delivery service and start undercutting their costs.

[0] [https://thestack.com/world/2016/05/03/the-tech-giants-
invent...](https://thestack.com/world/2016/05/03/the-tech-giants-inventing-
their-own-tax-regimes/)

------
anton_tarasenko
Walmart and Amazon alone sell $600bn worth of goods. That's 4% of US GDP.
These two pushed thousands of independent retailers out of business due to
lower prices (and smaller profit margins relative to revenue).

The same happens in transportation, restaurant business, hotel industry. Firms
get bigger since 1800. Naturally, the number of new firms decline. In govt
stats, it appears as "fewer startups."

Meanwhile, the economy grows thanks to productivity gains in big companies. So
what do we want: productivity or new small businesses?

~~~
treehau5
I want a new economical system besides crony capitalism. Time to start
thinking outside the box.

~~~
TearsInTheRain
I feel like more aggressive anti-trust action that breaks up huge companies
and reduces barriers to entry and we cang et back to the lean, competitive
capitalism that leads to growth and innovation

~~~
dmix
Breaking up big companies is just the first step and relatively a minor one
compared to the many barriers to competing with large incumbent firms.
Industries with oligopolies where a more aggressive anti-monopoly policy would
makes sense are almost always heavily regulated and in bed with the US gov. So
that would only be the starting point if you expect them to continue to exist
and not just get acquired.

This is more of a problem for medium companies wishing to not get acquired,
not so much a roadblock from small firms.

------
forgotpwtomain
It's just an editorialized presentation of the following:

[http://www.bls.gov/bdm/entrepreneurship/entrepreneurship.htm](http://www.bls.gov/bdm/entrepreneurship/entrepreneurship.htm)

------
johan_larson
> Goldman Sachs economists in part blame the cumulative effect of regulations
> enacted since the Great Recession for reducing the availability of credit
> and raising the cost of doing business for small firms.

Huh? Haven't small firms pretty much always been funded by personal saving of
the founders, sweetheart loans from friends and family, and perhaps the odd
bank loan secured by the personal assets (read: homes) of the founders?

Banks aren't interested in lending directly to businesses until they are large
enough to have concrete assets to secure the loans. And they never were.

~~~
jonwachob91
I found this statement amusing too. Somehow, regulations enacted in the 40's
took over 60 years to impact the industry? Seriously? The 80's and 90's, under
the same regulations, where able to ignore those regulations and have
tremendous growth and positive effect on the economy. Sounds like an economist
who doesn't actually know what is going on so he's making shit up.

~~~
ndonnellan
Great Recession, not Great Depression

~~~
muzz
that would be 2008, but the graphs start in 1977

------
Spooky23
Health insurance and direct regulation is a distraction.

The macroeconomic environment where everything relentlessly consolidates is
the problem. For software, entire categories are either dependent in
advertising and not long term viable or are scoped from a revenue point of
view from bundled offerings by Microsoft, Google, Oracle, Salesforce, etc.

Every other business is the same way. My neighbors dry cleaning business was
forced to use a centralized plant because they just couldn't compete with the
scale of the local big consolidated industrial cleaners.

------
daodedickinson
A coworker at one of my jobs (I work 4 menial job / gigs, make 17k a year,
live in parents basement, have no friends or lover, was top of my class in CS
but left after a professor openly helped a student cheat to no consequences
and another prof revealed CS grads from my school had less than a 50%
postgraduation employment rate for ANY job, much less a CS one) had an idea
she wanted to patent that would be helpful but would essentially be a metal
pole in a specific shape. I had to be a downer and tell her of this story:
[http://qz.com/771727/chinas-factories-in-shenzhen-can-
copy-p...](http://qz.com/771727/chinas-factories-in-shenzhen-can-copy-
products-at-breakneck-speed-and-its-time-for-the-rest-of-the-world-to-get-
over-it/)

You're damned if you put your idea on the net and damned if you don't and it's
all getting disheartening. I just want to find a career so I can go out and
court someone but even the people with CS jobs that I know are constantly
complaining of work / life imbalance and not getting to see their loved ones
in person enough. Everytime I try to start studying some topic in the hopes of
pursuing a living the shellshock of robophobia and the likelihood I will be
too late overwhelms me. I can only cry at that leaked Clinton speech where she
says we know what to do with the 120 IQ kids, but not the 100 or 80 kids. Well
here I am at 145 mopping floors and literally shoveling shit despite only ever
being excellent in school I guess it's just bad genes because my uncle could
solve a Rubik's cube blind and built all sorts of electrical contraptions and
has been a homeless drunk for decades. Here I am, another sandwich eater in
front of thw trash pile as in Godard's weekend.

~~~
taurath
So you left school because one professor didn't have good morals? I mean...
just because you have a high IQ doesn't mean you make the right decisions. In
fact its a lot easier to fool yourself.

~~~
daodedickinson
If the administration had responded to the complaints, I would have felt more
hopeful. But instead it reinforced all the complaints of graduates who were
saying they can't get a CS interview with their BS because of the grade
inflation at the school. I was at this school because it is the only one I can
afford without loans. So I stopped just short of the CS degree thinking maybe
I will transfer to a school that might be able to help students get something
in return for their degree, and maybe get a Ph.D. So if I become less
depressed about our societal trajectory that is something I may end up doing.
But today I am depressed and feel closer to ending up homeless because I got
burnt out before getting a job. So today I think about maybe wandering
homeless or seeing if there is still some job I could do that doesn't give me
the feeling of absolute abjection that interviews do. At least I'm not Sufiah
Yusof although maybe I would be if my parents had been more organized. I was
successful in school mostly due to terror of my parents but now they feel bad
about how they raised me and they don't push me at all. I keep hoping that
some positive form of motivation will emerge for me but whenever I feel good
about an idea, I feel awful about it the next day. I never know who I'm going
to be tomorrow, or in the morning who I'll be tonight. I hoped university
would be very demanding but they've been less so than my HS was. It's not like
I'm more moral than that lecturer, I have no follow-through on anything and
being on the debate team in particular turned me into a wandering sophist. So
I agree.

~~~
DoctorBit
Dude, go back and finish your degree.

~~~
daodedickinson
Yeah, well, that would require getting letters of recommendation from people
upset that I left. Also, when I left grad school the people that stuck with it
and took on all the debt couldn't find jobs. And they could afford to live in
CA where there still are a few relevant jobs, possibly.

------
bojl
As a CS student interested in tech and entrepreneurship, I and so many of my
peers won't be able to start our own ventures because of student loans. And by
the time i've paid off my loans I'll probably have other responsibilities I'll
need to take care of.

------
threepipeproblm
So while startup hype is at an all time high, the actual level of startups is
at an all time low in the US.

Reminds me of something Terry Gilliam said... "Usually you spot how societies
work by what they glorify: it's usually the thing they're deficient in."

------
gumby
The article is absurd and not even supported by its own data!

The fact is startups and small businesses have always been a small fraction of
the economy both by employment and contribution to GDP. When I say "always" I
actually mean the modern economy of the last 75 years at least. I was very
surprised when I learned this but the data go back at least to the end of
WWII, which is far back as I looked. Pre-depression there was still a lot of
small / disorganized (unincorporated) business and a lot of agricultural
employment.

The large companies are the large employers; next are "small businesses" which
are franchises (e.g. a lot of people are employed selling MacDonalds
hamburgers who aren't technically employees of the MacDonalds company).

There article even points out that new businesses account for only a tiny
percentage of jobs; they compare company creation to the 1980s but don't
account for company failure. And how many of those companies grew
significantly? The vast majority of operating companies formed in the US, and
I suspect most countries, are small businesses (shops, restaurants etc).

~~~
muzz
> The vast majority of operating companies formed in the US, and I suspect
> most countries, are small businesses (shops, restaurants etc)

My understanding is most of these are retail (think mom-and-pop shops),
construction, and professional services (think solo-practicing doctors,
lawyers, accountants, etc).

The fact that I can join Google instead of incorporating Muzz's Software
Consulting Services should be a _good_ thing, not a bad thing.

~~~
gumby
I am not sure I understand your comment. The article claimed that the change
in the number of startups had a materially bad impact on the economy. I claim
that small business and startups, collectively, have only a small impact on
the economy -- and that the article's data didn't support its conjecture.

Of course Google, Apple, GE, Exxon (Standard Oil) and Boeing were all startups
at some point, so without startups you don't have an economy, but the breakout
in terms of affecting employment is in the large companies. So yes, google
hiring is good for you and is believed by many to be good for the economy in
general.

------
jordache
This article was written under the assumption that startups in general =
innovation.

~~~
brianwawok
That is generally true.

BigCo has billions in profit from existing products. They can't task big
risks. What big innovations have the BigCos done in the last X years?

Startups do crazy stuff. Many fail. Some succeed. End result: Innovation

~~~
Qworg
Wait. Why can't they take big risks?

They're in a better position to take big bets than anyone else - Google X,
Microsoft Research, Facebook's FAIR and others. If they have the right people
in house (or can get them), they can take big swings.

~~~
nkohari
Public companies often can't take big risks because they have to justify them
to their shareholders and consistently meet expectations. The examples you've
listed are all just R&D projects, the expense of which are a tiny line item in
the budgets of the companies.

Conversely, a startup has nothing to lose. Early-stage investors know they're
taking a moonshot, and they expect only a few of their bets to succeed, so
they will encourage the team to swing hard. That's how startups can disrupt
established markets with big players: they have less to lose, and don't need
to earn buy-in of a large existing company. They can build what they need as
they go.

This is also why most acquisitions fail. The team of the acquired company can
have difficulty navigating the existing company culture. Often, they're tasked
with being a "change agent" only to be identified as a threat by the acquiring
company's "immune system" (its existing power structure).

------
jonbarker
The percent of the US economy invested in startups is very low, so I disagree
with the premise of this headline. If every startup went bankrupt tomorrow,
what would that represent in GDP decline? If the US GDP is 18 trillion and the
total VC investment in 2015 was around 58 billion, then if only last year's
investments all went to zero, it would represent a decline in .3% of US GDP.
Of course there is more capital at risk than just last year's investment so
let's say last year's 58 billion is only 10% of total capital deployed. OK
still just a 3% decline. I think what the article should highlight is how few
high growth and cash flow positive startups there are, which I agree is a real
problem. Maybe completely eliminate all fees and taxes for LLC formation?

~~~
itissid
Stripe folks are working on a product called Atlas(I think thats the name)
that supposed to make the LLC formation much easier. Bless them.

------
itissid
So many tech firms these days seem to satisfy some tiny facet of a group's
demands to have/do stuff. The bigger the group's economic footprint the more
the opportunity for business. But it seems to rely on "hierarchies" of social,
economic status. But, basically if you have money you can avail a vast
majority of today's tech firm's "products".

Sad part is that as far as I could read economies promoting this kind of
behavior are the only ones doing well, yet even here(in the US) it seems
things have worked out at best "average" for a vast majority of people. The
ones that actually tried to do better for everyone failed spectacularly(read
collectivism and socialism).

I always wondered why truly bettering ones self in every way(health,
furthering ones own knowledge, exploration, helping others) are goals
available only to the select few and not made available to more people more
easily? Why are economic efforts geared towards these dwarf in front of more
consumerist ones? Why do economics and behavior align in a way that makes it
impossible to do better than a narrow predefined narrative someone set for
me(or go through immense pain to achieve the one I want)?
[https://www.youtube.com/watch?v=ilY4hRgfC2Q](https://www.youtube.com/watch?v=ilY4hRgfC2Q)
For example, I was looking at the simple task of affording a house with wife
and kids and the only narrative available to have all this are "Zipcode",
"School Districts" and "Zoning laws" which puts me in debt for life to get a
decent thing choice for those options.

Why do smaller economies seem to do better than larger ones(like in europe).
It always seems to me that the bigger the group of people that try to align
towards a common goal(be it insurance premiums or world peace) the harder it
becomes. Why is this so?

And yet, in the end, by and far large my experience of living in 3 vastly
varied countries in the last 20 or so years still makes US a better place to
be. But things could be a bit easier/simple
[https://www.youtube.com/watch?v=fJRcDHKrSqw](https://www.youtube.com/watch?v=fJRcDHKrSqw)

~~~
linkregister
I'm interested in your resources but I don't want to make the time investment
of watching the Youtube videos you linked. Can you give a short synopsis of
them?

------
whybroke
Consider also how much of payroll goes directly through you or your employee
to rent or mortgage in the areas where software talent lives and you can see
why the bootstrapping startups that caused the the tech revolution in the
first place are infidelity harder now.

You must either bear the productivity hit of a pure virtual workplace or you
must comply to the nearly arbitrary success formulas of VCs.

------
madengr
Did anyone else read "sputtering startups" and think physical vapour
deposition?

------
costcopizza
I wonder how much (if any) the lax enforcement of anti-trust law has played
into this.

~~~
eeZah7Ux
That, plus patents.

------
marcamillion
So I think this the article perfectly sums up a thesis I have developed about
these economics indicators and the way Economic Growth & Productivity is
measured.

All of this is intuitive, and I have no hard data to back up my theory, so I
would love for someone with much more econometric experience than I to
prove/disprove this thesis.

Thesis: The global economy and US economy in particular is going through a
radical productivity growth spurt and shift that is not currently being
measured properly.

This article is the perfect example of this. You mean to tell me that during a
period where there has been an explosion of independent contractors of many
different types, we have seen "Startups Weighing on US Economic Growth"?
Surely that can't be true and fully reflective of the reality.

There are two aspects to this. There is direct job growth within startups (so
Employee headcount) and there is the issue of what is a 'new company'.

Direct Job Growth.

It is hard to argue that the average startup isn't much more productive today
than it was 10 years ago, much less 20 years ago. Particularly tech startups.
For tech startups it's most glaring, because you have things like AWS, Heroku
& the App Stores that allow you to deploy a relatively easily scalable,
product that can reach hundreds of thousands/millions of users/customers as a
team of 1 - 5.

No longer do you NEED someone just to manage 1 server, or even add additional
server capacity and deal with Colocation-related issues and all of that stuff.

You also no longer need to pay huge licensing fees for development software
platforms and developer tools. So the barrier to entry to shipping has dropped
to 0, basically.

So whenever a startup raises a nominal amount of money, it can go into much
more high-value jobs (like customer acquisition and customer support) for
which there isn't always a direct correlation between each incremental dollar
in revenue earned with the number of people you hire to support that revenue.
In some cases there is, but in many cases there isn't. Or rather, the up scale
hiring process is horizontal rather than vertical. Each customer support
specialist can handle more support tickets today than they used to 20 years
ago, for much cheaper. Aka, the support systems that multi-national companies
have always used are now available for much cheaper and often much better to
startups at $50/employee in many cases.

When you think about the various aspects within a growing tech startup, you
can see this same principle across all disciplines (even including HR and
Employee benefits via services like Zenefits and its competitors). So the
productivity that can be bought with each marginal dollar invested in a
nascent startup is so much greater as a result of these highly, specialized
and in many cases very economical services that can be leveraged from third-
party providers, than had been the case 20 years ago....yet these articles and
current econometric models would have us believe that productivity growth has
flatlined. Really?

What is a 'new company'?

While there may be significantly less direct job-growth (as a result of the
issues I highlighted above), there has been an explosion in the number (and
types) of marketplaces that have sprung up that allow customers/users to be
independent contractors. Not just typical web dev/writing/etc. But your excess
space (AirBnB and all its clones), your excess vehicle (Uber, Lyft and all
clones and derivatives), your excess time (Instacart, TaskRabbit, Mechanical
Turk, etc.), and any other service that has sprung up that allows random
people to do random gigs from a marketplace of gigs of different kinds.

So yes, the Ubers of the world no longer add significant employees to their
payroll to service increasing revenue as a part of operations, but by creating
marketplaces where random people can earn a living, doing things they
previously never did (or even considered doing), surely has contributed
significantly to economic growth in ways that aren't currently being measured
properly.

Those people likely haven't registered legal entities, they probably just have
a bank account, so they won't show up in "new company" data. But I bet if
there was a way to measure those non-registered, independent contractors
across all of these problems and you contrast that figure with the same
category 20 years ago, you would get a much different picture of the US
economy and productivity growth.

I could be wrong with all of this, but every time I read one of these
articles....that's what jumps out at me. The disconnect between what is being
measured and reported in articles like these, and all the products/services we
see being launched on TechCrunch, Product Hunt and HN that significantly
improve the average person's earning power by both being able to sell said
product/service or sign up to be a participant in that marketplace, has always
been jarring.

Let me know if this makes sense to anyone and if I am missing anything.

I would love to crystalize this thesis and ideas some more, to do a full
write-up in a blog post so please poke as many holes in this as you can.

Thanks!

~~~
pessimizer
Software produces very little concrete benefit. It is largely used in
derivative industries like marketing and finance in order to gain advantage
over competitors. The only software that will result in general productivity
gains is in control systems. Advancements in those are slower than they've
ever been, simply because the low and medium hanging fruit has been picked,
and we're down to a dependency on artificial intelligence methods to squeeze
out more value. There's no particular reason that AI would be easier now than
60 years ago other than that transistors are infinitesimal and cheap and that
data storage in massively dense and cheap, hence big data and an obsession
with storing everything possible (which with no basis is presumed to have
effective AI as some sort of emergent effect.) It has thus far not been very
productive either.

Productivity is dropping because we can't just ride on the improvements in
transistors any more. We are going to have to figure out ways to arrange
society that will allow us to maintain output while reducing the drain on
resources of the financial and marketing sectors themselves. They've become so
massive that squeezing them could provide productivity gains for decades.

The only way that Ubers are more productive than taxis is due to the economies
of scale created by monopoly. A person working multiple jobs through multiple
marketplaces is far less efficient that someone working one job. If the
metaphor is a multitasking operating system, you're disregarding the overhead
of context switching. We're in a nadir of productivity.

------
denim_chicken
Collapse is near.

~~~
whataretensors
I don't understand why this sentiment is gaining so much traction lately. I'm
not claiming to understand the complex world of economics, but I do recognize
great inventions - and our world is full of them.

ML is the one I'm most excited about at the moment.

~~~
daxorid
A few reasons:

1\. We are currently inside the second longest bull market in US history.
Markets are cyclical. We are far more likely to be toward the end of the bull
market than the beginning.

2\. Interest rates have begun to normalize, albeit very slowly.

3\. Source rock fracturing and enhanced oil recovery has bought us another 20
years of bumpy plateau. We are squandering this by employing civilization's
best minds building Tinder, Uber, Snapchat, etc. The last "great inventions"
were the microprocessor and the lithium polymer battery. Every disruption in
the last forty years has been variations of ever more hedonistic consumerist
enablement, while the clock continues to tick on future energy supply.

~~~
jazzyk
The reason investors are not interested in funding enterprise software (which
usually increases productivity, and eventually standards of living) is that
big companies have not been interested in optimizing their operations for many
years now, because:

\- business is good due to lowered competition (market consolidation)

\- cheap/free debt can be used for various forms of financial engineering
(stock buybacks, etc), making EPS look good

