What Paul ignores is the fact that most people out of college are faced with seemingly insurmountable debt as a result of having to pay for an education - esp. in America (and to a lesser extent in Canada). This is one problem that will prevent startups from happening at such a rapid pace as he anticipates. In fact, most graduates want to find stable jobs to pay off their debt -- startups are not really on most graduates' radar. On a somewhat related note, Businessweek had a survey of the top ten desirable places to work for new graduates -- three were govt. agencies, one accounting firm, google, etc.
So wouldn't those people drop out earlier? If you strip out the emotional content of your post, it's quite banal: the price of a product (college) is going up, so people who buy the product (students who pay full tuition) have less money, and since money is a transportable, transferable form of freedom, they're less free.
" In fact, most graduates want to find stable jobs to pay off their debt -- startups are not really on most graduates' radar."
That's irrational. If they're already way in debt, shouldn't they want to take more risks? Why the hell would you do something boring for ten years to pay off your debt, when you could do something fun for one year and have a 10% chance of more than paying off your debt. Also, employers are impressed by people who start their own businesses.
" Businessweek had a survey of the top ten desirable places to work for new graduates -- three were govt. agencies, one accounting firm, google, etc."
Right, because Businessweek can't say "The best place for you to work is that company you start in your apartment with your pals," because 1) that doesn't appeal to BW's audience, and 2) startups are small and varied, so it wouldn't make sense. It's like taking a survey of the most popular restaurants (McDonalds, Burger King) and using that as proof that the swanky new sushi place down the street is an awful place to eat.
Regarding the businessweek comment, I can only say that if the desire and willingness to start companies was a meaningful trend, it _might_ have been noted as an option.
I would disagree with this: "1) that doesn't appeal to BW's audience" starting businesses _does_ appeal to businessweeks audience. ;)
But that's not a 'place to work'. It's like having a list of the top twenty restaurants, with #3 as "Your kitchen, assuming you go to culinary school and are a talented cook and have the time to cook and..." it doesn't give any real information.
I wouldn't be surprised if BW's readers were less entrepreneurial than average. It's a magazine about big business, not about doing business.
No those people would not drop out earlier, because they likely did not know they wanted to be startup founders until they had enough technical knowledge and/or more importantly built those relationships with students around them which led to the creation of a startup in the first place. Perhaps your experience has been different in which case I cannot argue with that.
"when you could do something fun for one year and have a 10% chance of more than paying off your debt"
For precisely that reason -- that the likelihood of success is only 10%. And it often takes more than a year to build something meaningful.
"Also, employers are impressed by people who start their own businesses."
This is not always true. It depends on the role the employee is being hired into.
So you're saying that college, while expensive, is still worth it? I don't get your argument. For a given student, either college is too expensive to be worth it, and people will drop out early, or it's cheap enough to be worth it, and people will finish. Only one of these things can be true, and there are obvious conclusions depending on which you pick. So which is it?
"For precisely that reason..."
Did you miss what I said above? If you're already broke, why is getting broker a problem? What do you have to lose if you have less than nothing?
Can you give me some detail on your 'depends on the role' comment? I didn't realize this; when I recruit people (IT/quant finance), employers respond more favorably to entrepreneurs than to people who worked for someone else. Where did you hear otherwise?
"So you're saying that college, while expensive, is still worth it? "
Yes that's exactly what I'm saying. You meet like-minded people there who are excited about technology - potential co-founders. You learn about technology.
I've been through 3 universities, and the relationships I have built at these institutions have helped me to this day. I'm running a startup btw.
What was the point of your original post? It looks like you were saying "It is better to have a college education than to spend that time or money in any other possible way." But you keep saying that like it's a bad thing, and talking about how college reduces your chances of starting a startup because it's so expensive. If college increases your chances of starting a startup, and you want to start a startup, your original post doesn't make sense. What were you trying to say?
I'm really having trouble following this. You're saying that your odds of success after getting an education are higher than before. But that, uh, getting an education makes it harder to start a startup. You see the contradiction.
Is this like saying "If you're going to be a programmer, you'll do better to buy a computer. But if you buy a computer, you'll have to get money, which leaves you less time to be a programmer!"?
From what I remember, college debt payments are not usually more than other expenses like food and rent. I'd bet they're rarely more than 30% of the expenditure of someone considering a startup, and thus shouldn't be a deciding factor.
This is one of those ways in which being a rich kid is a huge advantage. I'm not sure if most young startup founders have rich parents, but it wouldn't be particularly surprising. Then again, maybe having rich parents makes it too easy to just coast in a cruddy job (or grad school)...
Another big advantage for Silicon Valley: Rich (from tech or real estate) parents supportive of playing around with computers instead of getting a real job.
[quote]
What Paul ignores is the fact that most people out of college are faced with seemingly insurmountable debt as a result of having to pay for an education
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Yeah, but you get a 6 month grace period after school's over before repayment begins, and you usually have several financial hardship forbearances you can take to postpone repayment. Even then, you can go back to school for one semester, and reset the grace period and financial hardship forbearances.
So, you have at least 18-24 months of forbearance/deferment before you have to begin repayment, and that can be hacked indefinitely by taking 6 credits at your local community college.
I don't know why this was modded up. That's like saying if one can't pay the $20,000 credit card balance, American Express will delay charging interest as long as the user charges up $2,000/year more. I think one would be better off just paying the interest than adding $2,000 of classes that they will have to attend.
Also, free interest or low interest as "aid" is a joke. You still have to pay the entire amount you borrowed.
I think the only time your strategy makes sense is if you can pay $1,000 to enroll in community college for one semester in order to stay on your parents' health insurance from June to December, which comes out to $140/mo, and the quotes you received for health+dental+vision were $500 a month, therefore saving approximately $2,500 per semester, or $5,000 a year. (And I believe if you're from Massachusetts, you can stay on your parents insurance as long as you're a dependent in income level even if you're not a student.)
This might be a recent policy change, but now at CWRU you need to be in the top 10% of your high school class to get the SAT scholarship. I had a high enough SAT score to qualify for one of CWRU's standard scholarships but didn't get it because I was in the top 12% of my high school class.
I believe that more high-schoolers than before will evaluate an alternate option to college. It is these folks who will add strength to the startup numbers. The people who decide to get into college and pickup big debts have already made a decision of not wanting to do startups. Additionally,this debt seems insurmountable in the current scenario, but as things change loan financiers will factor in such changes and perhaps even build in options for doing a startup or allow for repayment to start much later than it currently does.
While Paul focuses on web based startups, I think this phenomenon will apply to more areas as technology enables individuals to create their own niche. This is already true for some sports and certain types of businesses.
Like you correctly mentioned, the debt problem is more pronounced for Americans and some other nationalities, most developing nations do not have this problem and their entrepreneurs will start startups especially in developed and lucrative markets such as the US. This inturn will force the US mechanism to adapt. This effect of globalization has already had effects in many other industries.
In the UK you graduate in June and have to start repaying your loan the following April as a percentage of your income if you earn more than GBP14,000/year. I've found that you can survive for GBP6,000/year so this shouldnt be an issue. No idea what the situation is like in the US however
I wish I'd thought to consider a startup during my grace period. If I was graduating today, rather than right after 9/11, that's almost certainly what I'd do.
"Then the effects of being measured by performance would propagate all the way back to high school, flushing out all the arbitrary stuff people are measured by now. That is the future of web startups." What an impressive conclusion - I hope it happens.
Not really. We are at a new plateau, if you want: stuff that used to be hard is now standard. So people can lift up their heads and get going with something new.
This would only work if everyone in HS either expects to work on web applications or the trend spreads to all industries. That might take a little longer.
I wish acquisition was this easy. I worked at a very large bank in Emerging Technology and I pushed our group to buy 3 startups. We passed on all of them because of bureaucracy and lack of vision. Heck, the same bank passed on paypal (and tried to create their own), and now they have to compete head to head with a company that could be in house.
The unexpected Ted Stevens reference at the end really made me grin. I find Stevens so hilarious and horrifying at the same time.
I was surprised to find it in a PG essay, but on reflection it seems really appropriate in context. Though it did distract me enough that I had to read the last section twice.
With standardization comes bureaucracy. I dread what will happen when all this starts to become apparent to the government, and they decide that they need to "fix" some of the perceived injustices. How long before we start seeing laws regulating founder/investor relationships that look like our current laws for employers and employees? Will investors start being required to submit reports to the government to prove that their investment decisions aren't racially biased?
The government does not have an interest in impeding entrepreneurs or the formation of new businesses. The goals are usually the opposite, as can be seen with the various govt incentives and programs in place to help aspiring business owners.
I dont foresee increased regulation to be a big problem. Hindering the development of new businesses would be shooting the economy in the foot.
> Will investors start being required to submit reports to the government to prove that their investment decisions aren't racially biased?
Are you suggesting that investors should be racially biased?
I'm playing devil's advocate far further than intended for sure, but the laws regarding employment, although bureaucratic are there for very good reasons.
I think he's suggesting that they could be accused of it. Startups are disproportionately started by men, most of whom are white or Asian. Paul Graham says not to blame on malice what you can attribute to math, but other people might not see it that way.
"I'm playing devil's advocate far further than intended for sure, but the laws regarding employment, although bureaucratic are there for very good reasons."
I'll take a stab at this. I recently read one of Milton Friedman's books, and I liked it a lot. His pursuit of freedom is admirable, and something that I can understand. He even suggests that freedom is more important than using government power to attempt to stop racism, for instance by letting people choose not to hire black people (as an example).
That got me to thinking though. While I'm attracted to the sentiment of freedom above all else, what I think is missing in his equation is that communities tend to be sort of self-reinforcing. It would be very difficult, if it were accepted by others to not hire black people, to be the first one to do so. Now, laws against that kind of discrimination don't change the way people feel, nor make their racist sentiments go away overnight. However, they do drive those thoughts underground, and break the cycle of "we've always done it that way" by making it no longer acceptable. And with time, that improves the climate and makes it easier for attitudes to change.
At least that's one thought that came to mind. I really admire Friedman's purity of thought, but think that perhaps it's a bit naive. It would certainly be an interesting subject to discuss in person with a person of that libertarian mindset.
Just imagine the level of job candidates you could be selecting amongst if you were the only one hiring from a population as big as the black community. In any competitive field, employers are fairly limited in how 'racist' they can be in their hiring practices without setting themselves up for a fall.
Sure, but there are a lot of fields that aren't really that competitive (where you simply hire cheap laborers who basically work about the same), and where the pressure to conform may be higher than the pressure to find an employee that is 2% better than the next guy.
Even then, widespread aversion to hiring from one of two equally productive groups creates a big incentive to break the mold. And that incentive will only keep increasing as long as no one steps out. In the limit case, you pretty much have access to an 'unlimited' pool of free labor. This line of reasoning does presuppose a reasonably free country, though.
And I don't understand what you mean about laws being proof that people feel this way. I assume that the proof that people feel a certain way is that they act that way. For example, if I think being a coal miner is too risky, I won't be a coal miner; if I think the rewards are fair compensation, I will be one. Why do you need a law to deprive me of my freedom to make those decisions?
I don't understand why you keep posting comments that begin with "I don't understand", and then proceed to make an argument about the comment that you profess not to understand.
I've found that sometimes, people refuse to say exactly what they mean because it's so absurd. So they write vague, pleasant nonsense about how "human rights trump economics." What is that supposed to mean? Economics is the study of what people want and how they get it -- how can it be 'trumped' by one set of things people want. It's a malformed argument. I wondered if the commenter would explain exactly what he was trying to say.
Want to know what else those conditions led to? death, disease, revolution, communism, fascism and war.
>For example, if I think being a coal miner is too risky, I won't be a coal miner.
Unless of course you're not in the position to make that choice. You are speaking from a position of privilege and assume all share that privilege. It leads to only a half understanding of why we've instituted the systems we have.
>Why do you need a law to deprive me of my freedom to make those decisions?
Wow, that's a warped view of freedom. Too many Ayn Rand books to be sure. If you were right in your theory, the nation you live in (assuming you're American) wouldn't exist right now. Think about that a little.
Shit. I thought death, disease, revolution, communism (read Acts), fascism (which was an attempt to revive Rome) and war all predated the Industrial Revolution. In fact, the actual research I've read (http://www.edge.org/3rd_culture/pinker07/pinker07_index.html) demonstrates clearly that those are declining as we industrialize. But I'm sure you meant to cite your own source. I'm waiting.
" You are speaking from a position of privilege and assume all share that privilege."
Pleasant nonsense. Why should my status change the validity of my arguments? I have an idea -- let's ask a black high school dropout (http://www.tsowell.com/) if he agrees with me! Then let's decide that an individual's 'privilege', whatever that means, isn't as important as making a reasonable argument backed by data.
"If you were right in your theory, the nation you live in (assuming you're American) wouldn't exist right now."
If I were right in my theory that depriving people of freedom in order to force them to make decisions they're going to make anyway (at best!) is a bad idea? I don't see how my rightness would affect American politics. Do you mean that if more people agreed with me, the world would be different? Are you confusing my perscriptions and historical descriptions? Please clarify.
Hey, Paul: I've got an even better idea. What say I just cut all you investors out altogether? Whatever happened to growing a company slowly, based on the profits coming in? Oh, that's right - we don't do this in the tech industry because everyone says it won't work.
That's just a bunch of bunk. Nothing was funnier during Web 1.0 than guys saying we were "rewriting" the rules of business - like, profits didn't matter. Truth is, from a business point of view, starting a web service is no different than starting a dry cleaners: give people what they want, at a reasonable price (in our business, that usually means ad-supported)... and they'll come back (and click on ads in the process).
Yes, it may take some technical innovation... but it doesn't take any business innovation. Everything you say in your essay is true; so seriously, why do I need you? You expect me to go through this whole dance to come to Cambridge for, what, the possibility of five-thousand bucks? And then move to SilCon for three months so you can keep tabs on us once a week? Like, are you serious?!
Your essay is particularly prescient because you might have inadvertently predicted the ultimate demise of your current business - i.e., venture funding. No, I won't fill out your form; no, I won't travel to Cambridge for the possibility for you to give me five-thousand bucks. No, I won't move to the Valley so you can keep tabs on what I'm doing. I'm a big boy, and I can take care of this end myself, thanks. Good luck with giving away your cash.
James Touchi-Peters, Founder/CEO
CONK!/Arrow Media
Minneapolis USA
conkhead@conk.com
http://conk.com
Where is the evidence that Google has the best programmers? Certainly if you look at Google's acquisitions, they all stagnate post Google. Picasa was a pretty good product -- two years ago when Google bought it. Since then it's added a button to upload photos to Blogger. Gmail had a pretty good feature set for Web-based mail -- two years ago when it rolled out. Since then? etc.
Can't agree with the "Younger, nerdier founders" section.
It's like any other long tail, in this case the prototypical founder (late 20', single, technical guy) will not be as common - it'll become a more-diverse population. There will be younger founders and there will be older founders, too. Nerdier, and hipper. Etc.
For example, I'm a 40 yo front-end developer (started in 1995 building interactive apps at ESPN). I'm now starting a company, doing all the backend development too, thanks to Ruby on Rails. This was never available to me before 2006, really.
My bet - the trend will be away from the core developers, as the back end tools become commoditized and packaged, and the prized employees will become the designers - UI and graphical. Brands and positioning will start to play a larger part, and these contributors will have the most to say about this part of the company. I predict the trend will go away from the technical, as people will need to wear many hats in a small company.
As for the young, I don't believe they have an advantage in a crowded startup environment. The lucky bet, or obvious missing younger-demographic website will be created by the kids, but this will happen less and less as the low-hanging fruit is gobbled up. Instead, I think the older (or rather experienced) will have an advantage in a crowded startup world. Here, it'll be the niche positioning, establishing business relationships, and pursuing effective growth strategies that will make the difference.
Agreed. As per below. You probably know that Fred Wilson stirred up the "age of founders" issue a few months back. I'm curious to find some data on age/general demographic trends re: founders.
Prediction: Angel investors will ink deals with VCs to create an official pipeline. For example, let's say KPCB agrees to fund at least one Techstars company per year in exchange for first pick or something like that. That's the way elite prep schools interface with certain Ivy's, and it seems to work out for both of them. Of course startups will never get as locked down as colleges because there will always be more money than good investments, at least for the foreseeable future.
I always assumed the prep-school -> ivy connection was informal, much like the one between certain software companies and cs programs. For instance, Yale takes 10 kids from andover every year because they know all about how smart the 10 smartest kids from andover are from previous experience.
Most of them are informal, but not all. Here are a few situations where an Ivy would offer guaranteed admissions:
1) The university promises admission the top student from the Japanese language program of a certain high school each year. Situations like this often arise from alumni putting crazy earmarks on the donations to their colleges.
2) The university guarantees admission to a certain percentage of state residents each year in exchange for state funding.
3) The university wants to buy more land but the town tries to block the deal because it doesn't want the property taken off the tax roll. The university brokers a deal guaranteeing admission to a certain number of students from the local HS in exchange for the land.
4) A top prep school comes to some more formal agreement with a university for purely strategic reasons.
Situation #1 seems to be the most common in terms of connections to prep schools, although it's hard to say since the relationships aren't exactly published.
"And being Google, they're figuring out how to do it efficiently."
pg, I am a little alarmed by this flat recognition that is awarded to Google. It might be actually true. But its not an optimal way to think about things in the long run. As a teen ager I was a Michael Jackson fan, It took me a good while longer than other people to realize that he has turned into shit.
That's not a comment about how successful or cool Google may be, it's a comment about their management and corporate culture.
It's like saying "And being Wal-Mart, they're figuring out how to squeeze the last nickel out of their suppliers." It's just how they're interested in doing things.
I think there is a logical inconstancies in here.
You say specific startup hubs are important, but specific colleges are not? Bullshit, either both are important or both are not. By your own arguments they will be performing the same service, building communities.
You say one goes to Silicon Valley to be in a community of startups, meet cofounders and talk with smart people.
Then you say that in the future, in college, we will be more concerned with meeting cofounders and communing with smart people than we will be concerned with grades.
Why won't yo want to go to the school with all the smartest like-minded people?
Thats what Harvard is to business people. A community of like minded people that band together to help each other.
The same will be created at the new breed of startup oriented tech schools. The admission standards might be a tiny bit different though.
Great post, as usual, there is one point though - assuming that all the best will move to the startup hubs is like efficient markets hypothesis i.e. not really. They would move in a rational world but there are many seemingly irrational reasons that you can find world class people in obscure places anywhere in the world and, moreover, they are content to stay there. I am talking from personal experience, in my previous (vertical) search startup my chief programmer was world-class and had results to prove it, has since produced another world-class (Facebook) app and has not set foot in US ever. Similarly in my current search startup, I have some really great young kids. So the moral is that sure, the ratio of world class people is higher in startup hubs, but the rest of the world is so much bigger :) that many more are still out there ...
"At the moment, there is no one within big companies who gets in trouble when they buy a startup for $200 million that they could have bought earlier for $20 million. There should start to be someone who gets in trouble for that."
I think it's right that startups will be acquired earlier and earlier, but that makes me wonder: might those earlier acquisitions (which sometimes decrease productivity to 1/13th what it was) sabotage the success of the startup either because once acquired the founders don't have to work as hard to keep their heads above water or because when not constrained by a tiny startup budget the founders won't worry as much about finding efficient ways to do things--which in the past made them better startups/companies?
I wondered if anyone would bring that up. I think another thing that will happen is that acquirers will figure out how not to ruin the startups they buy.
A company that bought a bunch of hot startups early on and didn't destroy their productivity would be a force to reckon with.
It seems the act of acquiring does a lot of damage all by itself. One thing that would probably go a long way would be if the acquiring company kept the acquisition process short, sweet and easy.
Your each and every article is giving indication that married people are not good enough to start startup. Come on man - I am reading your articles to inspire myself and to keep up my tempo but when I read age analysis then that is very demotivating.
Well I think I need to find place where there are success stories without age limit ;)
I understand that kids and wife can take quite a bit time. But if there are people like me who dreams about own business for years and wasn't able to start it because never found right channels and due to that now I am above 30. Now I have vision and courage but also I am married. Does it mean that I have to stop seeing dream? No way man. I am here to prove you wrong. Will let you know whenever I am succesful :)
I agree. I would rather invest in a startup run by a 30+ person than one run by two 20 somethings.
I think one problem of starting up at 30+ is that one has achieved already a level of income, status etc. Putting that to risk is not so easy step to take than just having graduated. But if such a person takes that risk her idea is probably worth a second look...
What about the fact that when an industry matures it tends to become an oligopoly. It almost happens with any industry in history (e.g. automotive). With maturity often comes standardization which in turn compliments big bureaucratic organizations.Will this also apply to the Web? What about the chances of startups in the automotive industry? They used to be good round 1900...
Some thoughts on costs: While it is cheap to get some system up and running in a world of lots of different apps and competitors that go after a limited number of users it will be vital to get attention in order to succeed. In the end this probably means spending loads of marketing money which is anything but not cheap.
If being in silicon valley is important to mix with the best and brightest then being in a good university deserves the same argument/conclusion. Any old university won't have students capable of learning at fast pace and so the curriculum will be watered down. Any old university won't have high quality teachers that can mentor the most gifted students.
I do think taking that last exam and finishing university was a magical moment. Following a commitment through to the end even when things are tough or tedious is valuable experience. You can get this other ways but there is a huge difference between someone who stuck in there and finished university and someone who called it off just three credits short.
Hmm. I find the argument for unlimited concentration of startups in startup hubs somewhat unconvincing.
If the number of startups founded goes up by an order of magnitude or two, then the need to move to Silicon Valley in order to be in a startup-rich environment goes down.
Now, I do think that startups will still move, but I think that the number of hubs they can choose among to move to will be increasing as well.
I also have a feeling that beyond a certain density, the largest hubs will eventually hit diminishing returns in terms of their utility for startups (which will prompt more hub specialization).
That is a valid objection. Though there are only 5 or 6 web startup hubs, out of the thousands of similar sized towns in the world. That number could increase by a factor of 10, and it would still be likely that you'd have to move.
And in any case I doubt the number would increase. The power of hubs is self-perpetuating. So no matter how many startups originated in St. Louis, there wouldn't be a lot there when a given new one started, because many of the previous ones would have already moved.
(Suppose it happened that 50% of the next generation of big movie stars were from St. Louis. That would not make St. Louis a rival to Hollywood.)
Also there's the empirical argument: I can't think of one industry in history whose growth made the established centers irrelevant.
Yes, I did say you would probably still move (and still want to move). But not necessarily to SV.
If there are 'only' 5-6 startup hubs today, not too long ago there was only one. Since the other 4-5 hubs managed to grow in spite of SV's existence (and dominance), I do expect this number to increase further, by one order of magnitude at least.
I don't think the star-system is necessarily a relevant analogy because it is focusing on individuals, who as actors, actually have quite a few more options than just Hollywood. Rather, what would happen if 50% of the next generation of movie producers and production companies were from St. Louis (or Bollywood)? Or, for a different scenario, 50% of the next generation of SFX and post-production companies? Do they all have to move to Hollywood? Can some of them move back? For some types of companies, It's actually demonstrable that they don't all make the move, and a rash of soundstages and post-production facilities are sprouting up in secondary hubs across the US because Hollywood is too expensive and crowded.
Your empirical argument is well taken. By no means was I arguing that SV would become irrelevant to the current industry because of growth per-se, but you're assuming that startups are (and will remain) an 'industry', and second, that they will remain the same industry.
Personally, I anticipate quite a bit more disruption and creative destruction than that. The US rust-belt is testimony that further growth in an industry can under the right circumstances pass existing hubs by, eventually making them irrelevant because the industry itself has changed in fundamental ways. It is also possible that 'startups' might get distributed into the broader economic fabric as thoroughly as 'web design' or 'desktop publishing'. This may actually be required if companies in all industries (in industry-specific hubs everywhere) are to grow by acquiring startups rather than hiring.
At what point do VCs learn to believe in bolder ideas? There are VCs outside hubs, right?
If the trend if that many more small startups with bold ideas start to win, other VCs have to become more bold, and so the difference between, for example, the Valley with their aggressive VCs and other areas would diminish.
It depends on how the new startups are distributed. If it's a lot more places with just one startup, no new hubs will be created. Doubling from one to two increases the odds that another startup will come along, but the odds don't get especially favorable until you hit a critial mass, and that mass probably depends on local conditions.
Lots of folks have tried to create startup hubs. What will be different this time?
"We now get on the order of 1000 applications a year. What are we going to do if we get 10,000? That's actually an alarming idea. But we'll figure out some kind of answer. We'll have to. It will probably involve writing some software, but fortunately we can do that."
The company that manages to blend digital identity and reputation with the information power of networks is probably going to be the next MS. I've been interested in this problem for a long time now. Someone should really submit a proposal as a YC idea.
Does anyone believe that the future viability of web application innovation depends on the availability of consumer access to higher and higher bandwidth connections (at a cheaper and cheaper cost - to the point of commoditization), and if so, as the US falls further behind other countries in this respect,will that reduce the relevance of Silicon Valley as a startup hub for web application companies? Which country (city) do you think will emerge as the web app innovation leader?
I think Japan or South Korea is at the forefront in terms of widespread availability of cheap high speed internet access. Probably their reputations as societies that are not very inviting to foreigners, and the difficulty of non-native speakers learning the language is going to dissuade a lot of people from moving there to start companies.
A lot of people study Japanese, think Japan is really cool, and would enjoy living there, I think. I think Korea is behind Japan in these trends but catching up.
I do agree, though, that Japan does have a reputation of being not very inviting to foreigners that is to some degree deserved. I don't know as much about S. Korea in this regard.
Japan could probably do much to solve some of their looming economic problems (low birth rate and rapidly aging population, for example) by allowing more people to immigrate and integrate into Japanese society and culture. Especially entrepreneurial, technology loving types who could contribute a lot to Japan's high tech economy.
I lived in Japan for 6 years and found that it's quite an easy place to live in (and I lived in both a rural/industrial backwater as well as the Tokyo megapolis - Tokyo was much more fun). Yes, you do always feel like a foreigner but you also do not feel the pressure to conform to every norm like a typical Japanese person would. There are some signs that Japan is opening up more. For example, when I started working there you had to have your visa renewed every year, by the time I left it was possible to renew for 3 years.
Paul, you always speak of acquisition of a startup by a big company. What possibilities exist for startups merging? Is it common, or do you expect it to be?
I know a couple other startups in my town (one of your big 3) who do similar things to my startup. Thanks to the public (link-happy!) structure of the web, we already let people go from one to the other: a loose ad-hoc integration. Will this be the future of cooperative web software development?
It is if they do it a couple times. Ever try folding a piece of paper in half 5 times? It's how Google might have formed, if they had started acquisition instead of interview-hiring sooner.
I haven't been to US education system, but I don't think you get to know stuff like Fourier series or why inverting a matrix is unstable, etc., until you get through a university. And such stuff is important in high tech. Unless you're into web sites that host user generated videos. Being in video hosting pays off, for some, but it's not what I'd call high tech. I mean, it isn't a new UNIX, or a new Internet, or a new CPU design.
Those bigger, more interesting things were done by people who'd been to universities, and I think there's a reason to it.
Those startups started by undergrads, they may very well make money and produce cool apps and products, but I doubt they will drive technology.
I recently found I wasn't keeping up with new languages any more. Not because I've become too lazy, but because there aren't any new concepts in all those Pythons. Those are products of smart hackers, and new concepts are done by scientific kind, who seem to be out of fashion today.
Yes, I'm kind of fan of PG posts and this one is also cool. While I can argue a lot about what the future will bring for startups and hackers etc., I'm more interested into that "being in the hub". While I'm from Europe, I would like to know what would be the hub in the Europe (Maybe I'm writing in the wrong place but anyway) and if the cities/areas compete, how come that there are no Silicon Valley VCs present in Europe, if they are present in Israel?
While I like having in my mind all about good stuff from Silicon Valley, VC and tech folks, I would encourage Paul to write about bad things that can happen to hackers when they deal with VCs or Angels like dropping out of the Board, etc. it would be good to maybe prepare us tech folks to handle the truth that not all people will be good people around us that will try to invest in us, or are there only "good people" in Silicon Valley?
This already happened to me. Early on I realized that grades weren't that important and the best thing about going to school was having time to take huge intellectual risks with few consequences. In addition to the basic computer science concepts I learned, I also took on personal projects that caught my interest.
Through these projects I learned new ways of making things using current technologies like Ruby on Rails, Python, Mapreduce, Amazon S3 (and friends), Lisp, and other technologies that someone simply fulfilling the graduate requirements would likely not have learned. I also met great people along the way who were far more impressive than any programmer, designer, or manager I've met in the industry.
Oddly enough, now I'm in grad school, hacking the iPhone for a degree.
Eventually, I imagine that my continual curiosity will bring me to the startup arena, or perhaps to the international sphere.
In point 1 where Paul states there will be a lot of startups because it's cheap to startup, I have to wonder where is the demand side of the equation. Is there enough demand for whatever it is these startups are/will be doing? Hearing more about that would be very interesting; I'd love to see a world with many many more startups.
The different thing about the web is that a biz doesn't need to be physically close to its customers. In fact, there frequently aren't any advantages to being close to said customers (or it's impossible to be close to all of them because they're spread out).
However, there are still advantages to a biz being close to itself and its resources.
The combination of those to things means that startup hubs will become stronger.
"We know because we make people move for Y Combinator, and it doesn't seem to be a problem. The advantage of being able to work together face to face for three months outweighs the inconvenience of moving. Ask anyone who's done it."
Hello, Paul. I'm selection bias. We haven't met formally, but you're obviously acquainted with me.
>> One of the most important things we've been working on standardizing are investment terms. <<
I can see this being very beneficial, both for the VCs and the startups. The standardization of terminology in any discipline or field allows the people in it to have their lingo easily referenced and indexed, increasing efficiencies. Who wants to wade through a bunch of superfluous gibberish to get to the point?
In grad school, I remember having the realization that every discipline has it's own little shorthand lingo. I remember thinking about how confusion can result when there are clashes/overlaps in, for example, acronyms.
>>An angel who wants to insert a bunch of complicated terms into the agreement is probably not one you want anyway.<<
Exactly: reducing complexity, not increasing it, seems a better objective.
"In grad school, I remember having the realization that every discipline has it's own little shorthand lingo. I remember thinking about how confusion can result when there are clashes/overlaps in, for example, acronyms."
I've long ago lost track of all the different meanings I've run into for the word "feature", for example. Practitioners of various academic disciplines (or even in the same discipline but for a different theory) use this term for all kinds of things with absolutely no connection to each other. I nominate this for most overloaded academic term.
Many influential and smart guys like Paul are saying that starting your own company today got a lot cheaper, but what does it mean in practice?
While it depends on a nature of the business you are starting, in many cases "build something quick" advice does not work as well as advertised IMO: for most non-trivial ideas "something quick" still means a few months of full time commitment which means tens of thousands of dollars that many "younger nerdish" founders still do not have.
I guess what I am saying is that a million dollars is no different from fifty thousand when that's the money you need but do not have. Sure it probably easier to find an external investor with 50 grand, but is it really? Especially for "nerdier" types?
This is why YComb exists, but that is only about 30 deals a year.
This essay argues against local YC clones, which I think is at odds with another point he's made. As he says in "Why to not not etc", the most powerful reason people get regular jobs is because they're conventional. Local YC clones can make startups vastly more conventional by supporting hackers who aren't ready to take the leap and move.
Furthermore, I'd like to point out that even if local YC clones perform worse than YC, there may still be a market for them. State governments pay much more than YC (monetary) costs to encourage YC effects. Local VCs demand more startups, and people to tell them which startups to invest in. And as I argued above, many YC-caliber hackers would be interested in a local YC knockoff, but not YC itself.
Startling, arresting and direct as always. Thank you.
The one thing I find interesting is the overall theme that seems to pervade many of these essays--mainly that all trends are moving to increase the importance of hackers. While this is true for now, I think the more the web evolves and the easier it becomes for non-hackers or even technologists to build apps and start companies then the advantage potentially moves strongly to those that understand consumers and markets. Which may well be hackers, but also may not depending on the app--as has been pointed out in the past by Josh Kopelman the Tech Crunch 50,000 of 2006 (or even 550,000 of 2007) is not the mass market.
Thanks again--nothing I read provokes more intense thought than your essays.
Google has by far the best programmers of any public technology company. If they don't have a problem doing acquisitions, the others should have even less problem. However many Google does, Microsoft should be doing ten times as many.
I heard Carl Schramm (the economist) give a talk on Tuesday, and IIRC he said that MS buys six to ten startups per month. Most big companies are buying startups like crazy now though, even the ones you'd never expect. For example, even Proctor & Gamble buys around 100 startups per year.
Great essay. Maybe a new startup should be something like one of the microfinance sites like Kiva (http://www.kiva.org/about/microfinance) but instead of people making loans, they purchase equity in a startup. All the startups put their "pitch" on the web site and let people read the pitch and decide if they want to purchase equity in the company. If not enough $ comes in, the pitch was not compelling or they are not giving enough equity for the $$. One challenge will be to have a system where getting funding is not just about who can make a slick pitch, but about "real value" (how ever you measure that).
Pat
also - i felt there was too much focus on the 22 year old hacker set - this is a segment not the only segment of hungry, savvy, smart entreps. A real solution to the leaky pipe problem needs to include the slightly older pipes as well.
The title of the talk (or article) is "future of web startups" and most of what is in it is satisfyingly accurate and perhaps marginally prescient. Except for the jump to the gushing, meritocratic tubes of the future. This much is true about startups; they are high-risk high-reward options, with the risk basically come down to around monetary opportunity cost now. Smart people definitely have a better chance at succeeding at these and college is not necessary for success at startups. Read that again. Success at startups. What most young people (I am in my mid-twenties and almost definitely going down the start-up trail so I do not speak from any graying high horse) do not understand is that priorities change as you age. And not just fuzzy notions of priority engendered by cultural forces, but those fostered by your own biology. There is literature, and longitudinally applied common sense, suggesting so.
The opportunity cost of foregoing college is changing, not evaporating. Yes you can pick most of those lessons on the web, and the elitist cachet of iv(or)y league schools is losing its allure. In fact, you don't need to live in a dorm to have an immersive social experience, not that many here do anyways. The oppurtunity cost is that of being thrust into social situations with people whose interests and desires don't align with yours. It is about being part of a tribe for four or more years and finding a niche to flourish within that tribe. Most geeks don't get this anyways, and the evolutionarily obtained multiple equilibria of personalities are partitioned into the black and white of nerds and jocks.
OK, not all are that extreme,but branding the gentle friction of shallow social interactions as 'fake' is rather blinkered. That is an opinion, or even a delusion, and may suit some well, but do understand that what works for some does not work for all.
We can all of course go on with our sheltered lives deciding not understanding why some cultural institutions have evolved (and why their need may eventually be obviated) and it cannot be a bad life. An ignorant life is in fact a blissful one isn't it? But to distort and distill the argument into catchy trade-off: "startups leads to success; college leads to catalepsy" is not even apples and oranges. ..
One last thing: Recognize that success is a shape-shifting beast.
The proliferation of startups also exposes a need for better integration. If signing up for accounts and remembering usernames/passwords for a dozen different sites is a pain, think about doing that for hundreds!
Look out, oldsters with all your real world money and stuff, Reality 2.0 is on its way, and it doesn't look good for slow-moving dinosaurs. I, for one, welcome our new 20-something overlords. I cross-posted on your piece to http://blog.innovators-network.org The Innovators Network is a non-profit dedicated to bringing technology to startups, small businesses, non-profits, venture capitalists and intellectual property experts. Please visit us and help grown our community!
"standardized procedures" are a very, very important thing. I founded five small companies in the last 15 years and helped a few other founders to start their businesses. One of the big problems i never found a solution for within the process of "standardization starting a startup" is having a tool for the organisation of all the companies' information - i needed a "mini-SAP" for that and i found nothing. So i startet vitool.com. What kind of software do you suggest for your founders, that is simple & cheap and can grow with them?
The funny thing about a great metaphor is that it somehow makes it easier to draw conclusions. If Paul had only said, "A startup now can be just a pair of 22 year old guys, so they can move to a new town pretty easily, so we'll probably see more clustering of startups, not less" then you'd nod and continue on. But instead he said this about startup hubs: "the particles they're attracting are getting lighter." Suddenly you can see it and feel it: move your startup to Palo Alto! Buy real estate in Mountain View! It's so obvious!
I love the image of the big straight pipe. However, it's worth noting that no market operates at perfect efficiency, and even in the big straight pipe there will be leaks. What's most interesting to me about this image of the future is where the arbitrage opportunities will be around the edges of the future pipe. Because they will certainly be there. You have to wonder what the aggressively ambitious entrepreneurial types will be doing once "tomorrow's startup" becomes equivalent to "today's college education and job."
"Knowing that risk is on average proportionate to reward, investors like risky strategies, while founders, who don't have a big enough sample size to care what's true on average, tend to be more conservative."
I don't think that's the only reason founders want to keep risk low.
The most important reason is that money has diminishing effect on happiness. People want to be able to guarantee a "moderate" life. What comes beyond that is not as important basic needs.
So much to think about. One niggling question I have is related to the definition of "start ups". I've heard and read varying opinions. Is a start up a new business with an idea to execute on the web or is a start up a company that executes an idea on the the web or is it both or neither? Depending on the definition of start up, there will be vastly different business models, challenges and economic opportunities.
That is probably inaccurate. A startup is a fledging business.
If you are instead saying that a big company is not designed to scale as fast as a small company/startup then that is perhaps inaccurate too, especially if you were to determine scaling as a function of headcount and/or revenue.
> Acquirers will also have to get better at picking winners.
Hrm... one of the things that makes markets work so well is that it brings "the wisdom of crowds" to bear, and doesn't require small, homogeneous groups to attempt to pick winners. So something about that section raises a flag in my head - if there are more startups in the future, maybe more of them will have to go it alone, instead of this "easy out" of being bought?
It's always been less risky (though perhaps harder) for younger people to forsake a corporate job and do a startup. They have less to lose. So if the degree of "courage" needed to do startup is going down, doesn't that suggest more older people with families and corporate jobs doing startups? (not that's mutually exclusive with more young nerds. more startups means more founders...of all types).
I the article is pretty much spot on; especially the part about how big companies suck the life out of innovation. Having worked in both environments myself; I even worked at a startup that went from nothing, to an IPO and then being acquired by a big company. There aren't words in the English dictionary that can fully explain how the business and the people changed over the years.
I'm currently in uni and have been thinking of starting up a biz as soon as I graduate and as Paul pointed out my goal has actually made me learn stuff in uni instead of trying to get the best grades to impress employers.
It would also be a great change to see technological universities align their teaching to help students startup companies instead of preparing them for 9-5 work.
If the number of startups increases dramatically, then the people whose job is to judge startups are going to have to get better at it. I'm thinking particularly of investors and acquirers. We now get on the order of 1000 applications a year. What are we going to do if we get 10,000?
That's actually an alarming idea. But we'll figure out some kind of answer. We'll have to. It will probably involve writing some software, but fortunately we can do that.
Great essay...there is only one point I disagree with and that deals with elite universities. The same argument that is applied to startup hubs applies to elite universities (which usually happen to be in these hubs). The competitive advantage of finding a better cofounder or employee is one that should not be passed up on.
Another trend: as start-ups veterans become more common, they will form a group of people who are not reliant on organizations for their livelihood. Like Jefferson's agrarian ideal of individual farmers living off the land, those citizens who control their own destiny through technology will be enjoy the greatest liberty.
Paul excellent essay but I disagree on one point. A college education is more than learning about business. It is to be informed to make better decisions re public issues. The elite college issue is very true. Note how most VCs and investment bankers tout their "Ivy" pedigree. Very few of them could start a lemonade stand.
Do you have any comments on the similarity in ideas which early founders share. Essentially an idea emerges out of ones experience of life. Most of life's problems are out of context for undergrads. I am 22 ear old myself, have started, but this thought is bugging me.
Forgiving the possibility of alternate spellings I'm unaware of (e.g., "color" vs. "colour"), and despite the fact that I wish I had more to contribute, I would like to file a:
Pedantic Typo Report
The Future of Web Startups, Section 2. Standardization.
Nice article Paul. I always get many forwards from my longtime friend Frank Gerhardt about your articles.
I like the way you compared the commodities and webstartups. I am in silycon valley and i know exactly what you are tallking about.
I think what you say and how you say it is wise. you could help change education as we know it. but i guess, even in a subversive way, you are - but i just ruined it by talking about it.
I have enjoyed all ur essays and am fascinated by how insightful they are. I am graduating from college in december with a bachelors in electronics. Could u please recommend some of the books which have helped evolve ur thinking to this level.
on the topic of starting a startup right out of college - being a rich kid of course would have its many advantages - but thats a given in all aspects of life - thus moot point - here is where the US Gov can and in some cases does offer some help.
You can call up the US loan dept., and tell them you having a hard time paying the loan because you quit your lame job and are starting a business and they will defer the loan payments for a while, I did it and it works.
In the future maybe they could offer this to entice more young people to start companies.
Problem: you're confining your thinking entirely to "web" startups. This irritates me, as one currently involved in a non-web oriented startup. The world is bigger than the web.
He did present on the topic "The Future of Web Startups" at a conference called "The Future of Web Apps." Perhaps you can forgive his limited perspective.
True enough. It just irritates me occasionally that the startup community seems overly focused on the web. There is a lot more out there that can be done than just web sites.
Yet another essay on startups, by PG... It appears that essays tend to be cheaper to make, as time goes on, too (thanks to, you know, copy/paste). I couldn't find any ideas here that hadn't been expressed elsewhere in your writings or wasn't self-evident. We want more crazy controversial stuff, like the last (brilliant) one on philosophy!
Ideas for new subjects:
- "google is dead";
- "how to fund painters";
- "all things considered, java rocks";
- "vaporware, or why I gave up arc";
- "return of the web 1.0"
There are plenty of weird ideas that only wait for PG to write clever stuff on them! Seriously, I don't know why people like FOWA, whoever that is, actually pay you to listen to the same old story...
Ok, let's prentend I didn't write the stupid suggestions (which i still find funny). The fact remains, this essay is basically a compilation of ideas already expressed by PG, who needs to know that some of his fans are disappointed... Mod it up, if you want good writing!
This essay definitely gives me a sense of fear and dread. What Paul makes out to be a good thing, really gives me a nasty reaction. Startups becoming ubiquitous? If startups really become so prevalent, I feel like it's not necessarily worth doing. Aren't there only so many things that web startups can do? I'm afraid of startups becoming "the cool thing to do," for students in technical fields. College starting to game students specifically for working on startups. 1000 applications, 10000 applications, it stops becoming novel, it feels like a sellout.
the trouble with the big pipe theory ..personally I'm living in hope it turns up one morning..is most everybody LIKE the leaks twists and bends, believing rightly or wrongly, taking time's their insurance policy (albeit a cracked Crystal ball) www.peterbainbridge.com
by "don't qualify," i mean i'm not really into the game the same way as the companies ycombinator seems to fund. for example, i'm not that excited about writing web apps, it just doesn't appeal to me. i think there are important sectors that could benefit from a bunch of startups that paul has completely written off, because he thinks it's less lucrative, i guess. well, i'm willing to take a LOT less money to do something i'm actually interested in, rather than learning ruby on rails, say.
this is paul's world. i like reading about the energy and creativity involved in web startups. i personally think that narrowing the field to just web startups is short-sighted, but that's not my call to make, certainly not here.
Web apps are probably the most common because the barrier to entry is very low, but the field really seems to be more "software" rather than "only web apps". Xobni is desktop software, Loopt is mobile software, Justin.tv is (as I understand it) a mix of hardware and web streaming.
Interestingly, those also seem to be some of the higher profile projects.
Okay. It might make your argument more compelling. You're making a judgement that Web 2.0 startups are relatively bad -- it would be nice to know what they're relatively bad compared to.
The following is 100% true and accurate:
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1. start-ups are in fact cheaper now. register at facebook.com, learn how to use their API, and create a facebook app. there is your start-up for the cost of how long it takes you to program the API and any other additional costs, which aren't much. storage is almost free now, and all the other web services you could dream of exist and on the cheap.<br>
2. current pedagogy s*s. i'm about to complete a degree from a "prestigious" silicon valley school (marketing/finance) and i can tell you that most lectures are regurgitations of what we read in our over priced text books. additionally, stanford and berkeley (to name just 2 of many more) post many of their lectures online FOR FREE. so in effect, you can actually get a stanford or berkeley education for the price of your computer and internet connection. the autodidacts will have even more access to free information and knowledge, and anyone who focuses more on a meaningful education instead of a brand name/good grades will get the better education. i tell most of my professors to just help me get C's because, after all, no employer is going to ask me what my GPA was 5 years after graduation. why should i care now? plus, the internet has so much more information that most university classrooms that spending my time on the computer all day will actually make me smarter than sitting in most any classroom. but the people still do make the education worth it in some sense. i've met everyone of my partners on campus. and if you're genuinely interested in other people you will meet a lot of cool people who will shape the world. many of the leaders of tomorrow are at a keg party on a college campus right now.<br>
3. most start-ups don't start off as 8 hour a day 40 hour a week gigs. so it's not always necessary to just finish school or drop out entirely to do your start-up. most kids or people will start a company in their spare time. i've already started 3 that way. when you have a good idea sleep isn't as important or necessary, so the work will be done after work or between classes. the only time you drop out of school or quit your job is if the start-up actually has some success and a lot of promise. and the advantage is definitely with the younger, unmarried, childless, crowd. we don't have as much responsibility other than our own selfish needs. in other words, keep it in your pants if you want to increase your chances for success. the world isn't fair, don't cry. and when you get married your testosterone decreases, any way. google search it (hint site: newscientist.com/channel/sex/love)<br>
4. web start-ups are a good thing to write about in the context of this essay because the are so damned comparatively easy to do. give me another example? a biotech company? a nanotech company? a traditional, bricks and mortar company where you have lots of PPE? storage space is nearly free, we have things like google adsense, social networks are great mediums for free, viral, guerrilla marketing, ruby on rails, etc etc etc. all of you griping about a lack of representation in other areas are being ridiculous. stop griping and come up with an idea instead of complaining. none of you will probably ever succeed in a start-up with that kind of attitude. your chances of success are already, statistically, a rare event at 5%. but if you cheer up and take a look at all the positive things this essay mentions your chances for success immediately pick right up. name one successful (truly, in every sense of the word) person who does nothing but complain and gripe about things.
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and lastly, a shameless plug, if you enjoyed my insights check out my new blog at quantumcreative.blogspot.com
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cheers -
