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Corporate America Hasn’t Been Disrupted (fivethirtyeight.com)
200 points by japaget on Aug 8, 2014 | hide | past | web | favorite | 138 comments

I think there is a bit of cognitive dissonance in the tech community about "disruption" versus "big companies." Technology, in general, makes it easier to scale companies to large sizes, and "disruption" often involves using technology to enter an existing industry that is dominated by small, inefficient companies.

A great example is Uber. Uber is making the taxi market a lot more efficient, but it's also well on the path to replacing a bunch of little local taxi companies with a big national one. That's the power of technology: it pushes out the point on the curve where diseconomies of scale cancel out economies of scale. Technology enables consolidation. Other good examples are the dry cleaning and food delivery startups.

It's also not surprising that once an industry has been "disrupted" it takes a lot to push out the incumbent. Small businesses are generally inefficient and prone to failure. Large corporations are efficient and diversified in comparison. A new mom & pop coffee shop might easily out-compete the old mom & pop coffee shop across the street, but they can't offer the scale and uniformity of a Starbucks. When big corporations die, it's either because of their own mistakes, or some seismic market or technological shift (e.g. Kodak).

I think big music labels are another example of corporations that have been disrupted less than folks here on HN might think.

Yes, iTunes changed the music industry, but who got killed? CD retailers, primarily. The bulk of music sold through iTunes is still licensed from big labels. Spotify licenses music from the big labels. Ads, TV shows, and movies license music from big labels. Heck even the most popular videos on YouTube are almost all the official Vevo versions of big-label songs.

Piracy is harming album sales, but because big labels have so much financial leverage over new artists, they have simply started requiring "360" deals for a lot of new contracts, which give them a cut of all revenue streams: not just albums, but also tour revenues, merchandise, media appearances, sync licences (ads and movies), even publishing in some cases.

Reminds me of an article on /r/movies the other day about "XYZ didn't kill the movie industry, the movie industry killed itself".

Well... no. The movie industry is far from dead and is doing quite well for itself. It even avoided the mistakes the music labels made when they gave Apple too much power (a mistake that they have since recovered from).

Some labels/studios are being hurt by piracy, primarily the mid-size and smaller independents. They have less financial leverage over their artists, but more importantly, many of them choose to limit their relationships with artists to publishing and promotion, so they are more dependent on album sales for revenue.

They also tend to more fan-friendly, so they generally choose not to fight against file sharing, etc. even though it hurts them.

These are the "middle class" level folks in those industries--making a professional living, but not getting rich. That particular stratum is being eaten away by piracy.

At the lower extremes of the industries, piracy is making it easier for new folks to get found and build an audience. But once they want to take the next step, they'll have a harder time staying out of the big company systems than folks 15 years ago. There are just fewer "mid-range" professional options available to them now.

Exactly. The labels that have been worst hurt by the digital revolution were the least exploitative ones.

These comments need to be hedges. With services like soundcloud and artists publishing their music and directly uploading new albums, a new method for payments that is not an over-extended method of sales and 'representation' based on antiquated physical formats will need to rise, and I welcome it.

Unfortunately, large companies can also much more easily engage in rent-seeking behaviour (http://en.wikipedia.org/wiki/Rent-seeking) which small competitors can't engage in effectively unless they organize as a group (effectively a small business union)

Even worse, rent-seeking is often a better use of money than actually innovating in the market you supposedly compete in. If I can disadvantage all of my competitors with horrific regulations that severely penalize small size competitors, then I need to do nothing and rake in the cash.

So, its a tired refrain, but one of the other main issues is that our regulatory and governance bodies are just not agile enough to deal with companies that are, and actively manipulate them.

In some cases, that can be a benefit, as loopholes or slow response may allow companies to get established before regulation catches up and reams them, but if the big boys (JP, GE, Exxon, Apple, Walmart, ect..) are on the ball, they can effectively kill whole markets as they appear. Just regulate them away.

I've said this in other threads, but I think this angle is overstated by people who underestimate the purely business advantages that come with scale. Look at the tech industry, which historically hasn't had much involvement with regulation and thus little opportunity for regulatory capture. Is Apple using regulations to keep Jolla from succeeding? No. They use their scale to amortize their OS development work over tens of millions of units. They use their scale to invest in manufacturing processes and equipment that allows them to release complex designs that competitors can't match at the same price point. They use their scale to do in house CPU development, etc.

People want to believe that the free market means tons of little companies duking it out. They blame consolidation on the government and rent seeking and regulatory capture. But the fact is that there are massive business advantages to being big, and the natural state of the market is in the direction of consolidation (e.g. the trusts back in the day of Carnegie).

People want to believe that the free market means tons of little companies duking it out.

It would be interesting to create an actual free market and see what happens.

But the fact is that there are massive business advantages to being big, and the natural state of the market is in the direction of consolidation

Keep in mind that the entire notion of a shared stock, limited liability corporation is a legal fiction which exists due to the State. Now one can certainly argue about whether or not the world is a better or worse place with or without corporations, but in a strict sense, corporations are a violation of the idea of a free market. Since one of the main arguments for corporations it they make it easier for people to pool their capital and build large companies, I don't think it's a stretch to suggest that a corporation-free world would be closer to "tons of little companies duking it out".

Regulatory capture is the word of the day.

>Small businesses are generally inefficient and prone to failure.

Also, small businesses have to make money now, or nearly now, before their angels run out. Large businesses can lose money for as long as it takes for the small businesses to fold, and will still attract investment that anticipates the future monopoly/monopsony pricing possible after all small firms close.

Also, large companies can eat small competitors, or collude with each other (non-competes, patent truces) in ways that exclude the smaller actors.


Edit with a possible Uber future:

Cab companies will start to (continue to?) run their hired business through Uber, and eventually Uber will gain the ability to pick up street hails. Uber will buy Taxi.com and ditch the Uber brand. The new Taxi.com will market itself as a dispatching service for independent taxi companies, but take a large percentage off of the top of each cab ride - and reduce that percentage in markets where independents have managed to survive. They'll also unify through systemwide discounts/customer loyalty programs. In the end, the only difference in the taxi market will be a new middleman, higher + less direct pricing, and lower quality (after you have to take what Uber gives you.)

> Technology enables consolidation.

I don't think that's quite right. Technology enables scale. That doesn't inherently mean consolidation.

For example, you can imagine Uber as a decentralized or federated P2P free software app. It's essentially a market for rides. There is no inherent reason it has to work like Facebook rather than TCP/IP or DNS. Someone like FSF or Mozilla could build the technology and then the the only people making money would be all the small timers offering rides and getting good deals on rides.

The obvious question is why that hasn't happened. And it's because there are other forces pushing consolidation. Markets don't inherently need middlemen but you end up with them when some serious problem(s) exist which require a consolidated entity to solve them. Somebody has to fight the taxi commissions. Somebody has to process the payments.

It's the same reason Paypal exists. The technology for processing payments is hardly rocket science. Paypal shouldn't be a company, it should be a standard protocol supported by all financial institutions. You authenticate to your bank or credit provider, you provide an amount and a routing number and that much money is transferred from your account to the target account.

A protocol something like that must already exist as it must be what Paypal uses to communicate with the banks. The problem is it isn't directly available to the actual account holders. So I can't write a free app or library that will allow you to connect directly to your bank and request bank transfers regardless of which bank you use.

So when Joe Blow wants to pay for a ride or some knickknack on eBay, he can't just tell his bank to send the money, he first has to sign up for Uber or PayPal and tell them to tell the bank. Solely because they've filled out all the appropriate forms with the Department of Redundancy Department in order to gain access to your money that you don't have yourself. That's where the consolidation comes from.

Technology enables scale.

Technology may also reduce the need for scale. If you believe that Coase[1] was right about the "nature of the firm" vis-a-vis transaction costs[2] then it would follow that technology that can reduce transaction costs reduces the advantage of being big. And since there are innate downsides to size (people usually ignore this point), transaction-cost-reducing technology should generally work against bigger companies.

Is that happening? I don't know, I haven't really studied the issue, and I don't have enough data to say. But even if the argument leveled in this article is right (and I'm not sure it is), I'd be skeptical of the idea that it's technology which is driving a move towards bigger / older businesses.

[1]: http://en.wikipedia.org/wiki/Theory_of_the_firm

[2]: http://en.wikipedia.org/wiki/Transaction_cost

Part of the issue is that sometimes reducing transaction costs gets them so low that the activity ends up being done by the individual rather than a business entity.

The other side of that coin is the "commoditize your complements" thing. If you make X cheap and people who have X want or need Y, whoever is selling Y is going to grow like a weed.

So that's kind of what we're seeing. Things either get so easy that you don't need to find somebody else to do them, or they don't while everything else does, in which case that thing becomes a bottleneck in the low transaction cost economy and the entity providing it turns into a giant business corporation.

A new mom & pop coffee shop might easily out-compete the old mom & pop coffee shop across the street, but they can't offer the scale and uniformity of a Starbucks

And if they try, they had a bad strategy in the first place, and they deserve to fail. You don't compete against Starbucks on the basis of scale and uniformity. If you do it at all, you do it by offering a higher quality product (not an unreasonable proposition), or by offering greater customer intimacy (also not unreasonable) or maybe by achieving better operational efficiency and competing on price (this one seems like a stretch). But the point is, no one company can be "everything to everybody". Starbucks is vulnerable to competition from companies that follow a different value discipline, and that's why there are still local coffee shops, even where there are Starbucks stores.

When big corporations die, it's either because of their own mistakes, or some seismic market or technological shift (e.g. Kodak).

That's probably mostly true, but the big corporations don't have to die completely to allow smaller competitors to co-exist.

You used coffee shops, which is a bit of a strawman. How might a small competitor even begin to compete with the iPhone?

I wasn't the one who started talking about coffee shops, FWIW.

As for the iPhone... I don't know - I haven't thought about it, and consumer devices are of little interest to me, so I'm probably not the guy to come up with a great idea for competing with the iPhone.

I only disagree with you statement that big companies are more efficient. Starbucks, maybe, but many other large companies are so horribly inefficient that it amazes me they not only survive, but thrive. Case in point, the large bank where I work: super slim margins, really inefficient operations, the whole nine yards. In my experience large corporations are mostly this way: lumbering giants.

I have another suggestion for the decline in startup rates: health care and college expenses.

The historically "prime" years for entrepreneurship are in one's late 30's to early 50's, years when one typically has a family in need of healthcare, college tuition, and hopefully retirement at some point down the line. In the 70's and 80's someone could leave the security of their big company, get relatively affordable private insurance for them and their family, and sleep moderately well knowing that even if their new venture fails their children will at least be able make it through a state school working part time. Now, they'll have to pay through the nose for healthcare and we all know how much schools cost these days.

Given the increased failure rates of new ventures these days it's not so hard to see why more mid-career individuals are remaining in corporate jobs instead of venturing out on their own: it's getting too expensive to roll those dice.

You nailed it. I also add that the government (probably varies allot by state) makes it very difficult to hire employees. My wife and I hired a nanny a few years ago, doing everything by the book regarding taxes and insurance. Still got fined twice for some infantile amount owed on something, even after three calls to the state office resulted in three separate amounts of what we owed. I'll NEVER take on an employee again. The game is rigged to favor those who can afford the lawyers and accountants.

1. Was the fine large enough to matter?

2. You can hire an "nanny tax" accountant for ~$500 a year (maybe was more expensive a few years ago)

1) No, it was a fine for an amount owed under $100, which we paid, but then received a bill for another fine, since it now said we owed $150. Three calls to separate state offices resulted in three amounts owed. We just picked the highest of the 3 and paid the damn thing. This is in KS which is supposed to be "business friendly". I should have just done as the politicians and hired an illegal alien under-the-table.

2) Yes, but it's the principle. I have to hire an accountant (zero added value for me) just to hire someone who actually does provide value to me. It shouldn't be this complicated. It was easier setting up an LLC, and if we could do that, we should not need an accountant for a nanny; guess not.

Sounds like a great business opportunity for a SaaS app that nails the details of nanny accounting in all fifty states.

No sh!t it is! If you can develop that for the tax codes in all 50 states, you'd have a winner! I think it's impossible to do though, unless you are Quicken.

But you could get 2/3rds of the US population operating in just 15 states. 1/3rd in just 4 states.

1/3 of the population and likely 2/3 or 3/4 of the regulations. The big states have WAY more regulations than the smaller ones.

Yes, good point.

I'm 100% with you. When I left my job to do my startup to maintain my health plan at current levels was $1400 per month. That's $18,000 or so a year pre tax dollars. Basically the first $25,000 a year you pay yourself is going to just having healthcare! Assuming you want a decent plan. When we were 4 people all making just enough bootstrapping before we raised 35% of our costs went to healthcare. It was never raised much if at all during the HC debates but affordable, company independent healthcare should make a meaningful difference to how many people take a chance.

I grew up with parents who worked in healthcare (my dad, specifically, has a ton of connections within the health and life insurance industry), I've sold health insurance, I now have a full-time job in a hospital system, and I'm working on launching a health insurance-related product (to augment Obamacare benefits for small businesses) and I can tell you, they didn't touch on many of the most important issues in the industry today.

I'm not going to criticize Obamacare, but there are a bunch of things they could've done that would've been easier to implement and easier to understand that would've fixed the system! For example, get rid of the PPOs and give the "discount" they provide to everyone. PPOs provide no real value and have basically stuck themselves in the middle of the transaction and inflated costs, which inflates insurance premiums. Getting rid of them would immediately reduce costs quite a bit and make healthcare (and, indirectly, health insurance) much more affordable.

I guess the politicians wouldn't outright get rid of a whole sector of an industry, though, which makes it harder...

When I sold health insurance, one of the things we would often suggest is, if possible, to get a cheap policy with a high deductible and simply put the difference into an emergency fund until you can cover the deductible. This gives you access to the PPO, so you can pay the reduced rates (which are actually quite affordable if you make a decent income!) if something happens, while making the whole thing much more affordable.

The politicians can't get rid of the PPOs, even if they wanted to. Politicians have to get (re)elected, which takes increasing amounts of cash. No cash, no office. If you're out of office, you're out of power.

The PPOs have very large revenues and therefore wield great power in determining the outcome of any move to reduce their influence.

This is regulatory capture by economic interests that don't provide value in the health care service chain. It's making health care more expensive for everyone.

Yup. If you're young and fit, you don't need coverage for diabetes. A high deductible with a cancer/accident supplemental will be 30% the cost of a more normal plan.

PPOs are the only way right now to get all health care providers to compete for patients.

disclosure: I'm for a single payer system that allows everyone to choose their preferred provider.

Same here. I've been a developer for years and as I've transitioned jobs I've met a number of really good developers. Any time an idea arises that would make a tempting startup I reach out to people I've worked with to solicit the opportunity to work on it together. Every time I've done so, the inevitable decline always has something to do with healthcare.

Once you're beyond your post-college years and have a wife, and possibly children, the risk of a startup suddenly includes the cost of healthcare and risk of not having any. All of us can make comfortable salaries and have money to take risks on our dreams and be protected from failure by incorporation. But that does not translate to the potential medical issues of yourself or your family which would lead to personal bankruptcy and future employment issues.

I dunno, state schools are still pretty cheap. My sister's tuition with room and board is $10k per year. If you are someone smart enough to be an entrepreneur in your late 30s, you should have a corporate job paying 150k+ and can save all 4 years worth in a matter of months with a bit of determination.

And health care, while expensive, isn't as big of a deal as most people make it out to be. Get a high deductible plan and a family of 4 can be insured for <$700/month. If you are starting a business in your late 30s you should have a lot of savings already. While annoying, this shouldn't stop you.

> If you are someone smart enough to be an entrepreneur in your late 30s, you should have a corporate job paying 150k+ and can save all 4 years worth in a matter of months with a bit of determination.

It takes 10 months to save $40,000 if you're putting away $4,000 a month (which is half of take-home pay at $150k). If you are someone smart enough to be an entrepreneur in your late 30s with a corporate job paying 150k+, your children are probably smart enough to want to go to an expensive college.

> Get a high deductible plan and a family of 4 can be insured for <$700/month

Looks like it can be done for quite a bit less than that, when ACA subsidies are taken into account (or when expanded Medicaid is taken into account if the other adult family member also has no income...I think all the states where tech startups are common went along with expanded Medicaid).

But presumably you are going to have co-founder(s) or employees. The decision is not just for yourself or your family. Your co-founder(s) will have to accept the same situation and anyone you employ would also be expecting health coverage.

Where?!? University of Wisconsin, for example, is $24k in-state with room and board.

To get through college for $10k/year in many places, you'd need to go to one of the state's lower-tier schools in a small town and live at home. Not many state flagships are in the business of charging less than $20k.

Most of the SUNY (New York State) schools charge about $8k per year in tuition and fees. On top of that, they would need living expenses of about $10k per year to live near campus.

Unfortunately, without working more than 20 hours/ week, a college student isn't going to be able to come up with that $18k per year on their own, but they could get more than half way there, which doesn't leave a ton of support the parents would actually have to provide.

She goes here: http://www.collegedata.com/cs/data/college/college_pg03_tmpl...

She does live at home. If she lived at school it would be about $17k

You said "with room and board," which implies living in university housing. That would do it.

Sure, it's not impossible or nobody would be doing it, but it's still more expensive (a high deductible is still a "cost") and comes with a lower chance of success. Obviously that's going to shift trends in a more conservative direction.

considering that 250k for a couple puts a person in the top 2% in the nation, its not as easy as you make it sound to pull off 'just getting a 150k salary job'.

it's a hell of a lot easier than becoming a successful entrepreneur

Your comments make one want to ask: if it's so easy, why didn't your parents save up the money to send your sister to a better school?


I have a variety of company ideas, but I have several key issues:

- College loans. I pay close to my apartment costs in these.

- Health care for myself and family. Expensive!

- Living costs - moving to someplace really cheap to bootstrap would likely be horribly for my career and would drag hiring down significantly.

So I incur a fair amount of immediate costs, as well as future risk by quitting and starting my own company. I could probably handle the risk, but the immediate costs are.... high.

(If I thought I could have done something involving early loan repayment that I could have performed, I would have! But I didn't see any when I last checked).

As a Professor of entrepreneurship at NYU's engineering school (that VC Fred Wilson called a jewel -- http://avc.com/2014/03/the-value-of-an-engineering-degree), I can summarize the problem in one phrase many of my students said when describing their goals after graduation:

"... but I have to get a job at a big company to sponsor my visa."

They're brilliant, motivated, and capable, but almost none are citizens. To start new companies they have to leave the U.S. To stay they have to work for a big company even though more than half are continuing their entrepreneurial class projects after the course ended. There are options to jump through difficult hoops, but those options are much harder for most.

So we motivate potential entrepreneurs to start elsewhere or give up their plans. What if instead we motivated the world to start companies here instead of elsewhere?

(Incidentally, we're organizing an event in October for non-U.S.-citizens who found ways to start companies and stay here to help inspire others to find ways to do it. If you're interested, especially if you know non-citizens who found ways to stay and live near NYC, please contact me -- http://joshuaspodek.com/contactconnect.)

A corollary to that is that even if you work out the legal obstacles (it's possible to get a tax ID and even start a company without having legal status), it's difficult to accumulate the seed capital if you can't work a regular job.

That'a s bit less of an issue for people in tech startups - if you already have a laptop and internet service, then you may not need any additional physical capital - but it can be a huge barrier in other lines of business where you may need to invest in a fair amount of equipment in order to be basically competitive. Say someone wants to start a photography business, for example, which is pretty lightweight sort of business - you're still looking at maybe $10k of gear and a year of studio/office rental expenses, potentially much more. You don't have to go that route to succeed as a photographer, but absent that starting capital it's going to take considerably longer to get established. And while that's not a huge amount of money, many immigrants don't have access to credit or jobs that pay enough to accumulate savings.

I know i'm going to be slaughtered in downvotes, but have the top schools ever considered admitting more citizens?

My wife works in admissions at a top university... foreign students are extremely attractive them because they 1. Pay full tuition and 2. Have very high test scores.

Regarding 1, shouldn't it not matter to the university who is paying the cost of tuition as long as tuition is paid (i.e. loans are equivalent to a student personally bearing the burden)? Seems odd to favor foreign students for that reason.

It's a bit unfair to to US universities to suggest they made this situation. There is a huge demand from foreign families who have the means to pay for a quality education and who live where university capacity it not able to keep up with demand at home.

US schools can raise the quality of their student body, not to mention raise their income by meeting this demand. And on the other side of the ledger, it can be argued the US has too many university seats.

Maybe they need to better prepare students for not being able to stay in the US, via exchange programs with universities in students' home countries, for example. There isn't going to be an H1-B for everyone straight out of school.

certainly they arn't all the blame, but they are also not blame free. for some reason, engineering programs over favor test scores. In China, their schools prepare their students to take our tests such as the GRE. also in china, they take paper exams (because that makes it easier for them to cheat). As an engineering student, i met several chinese students who got perfect verbal scores for the GRE but could barely hold a conversation. i asked, they said they were lucky. i pressed, they said they bought the questions and answers prior to the test. I'm honestly perplexed that US universities even allow chinese GRE results.

with that being said, engineering programs want to have entrepreneurship in their programs, but 80% of their cohorts are from countries that are risk adverse. the above commentator's students gave up at VISA, you really think they have the chops?

How about just re-evaluating the acceptance criteria. look for other criteria besides standardized test scores instead of complaining that they gave up at VISA so thats why they're struggling to have alumnae who started their own companies. Americans are 'supposed' to be entrepreneurial. not sure if that's true but the top engineering/cs programs are eager to over look them.

I have seen where foreign students who are very well prepared by an excellent high school education but who would not make it into an elite school at home due to pretty much infinite demand for a constrained supply get a quality university education here, and I have seen both graduate and undergraduate foreign students cheat their way in, and in too many cases, through a US university education, and everything in between. Though it looks like the numbers favor the former being the majority.

I think we can agree any visa program would need a way to distinguish among them. But also consider that George W. Bush graduated from Harvard Business School. If you have the juice, anything can be made to happen.

If you don't have a visa, you can't stay in this country beyond a certain point. That has nothing to do with having killer chops for entrepreneurship.

I can attest to this. I had to leave US last September due to visa expiration.

i'll bet you if you gave an hour to think about it, even you who made that comment can think of at least 3 ways that statement is wrong.

entrepreneurs find ways.

what? no you can't "entrepreneur" your way out of govt policies. and no, marrying for the sake of greencard is not an option either as sooner or later govt will catch you on that as well.

They couldn't even if they wanted to, because where are these citizen applicants? If you are are smart enough to be an engineer you are smart enough to realize that it's an industry in terminal decline and that no-one is on your side - the government, the employers, the colleges, the professional organizations are all trying to flood the market and drive down wages.

Then you look at the other professions, medicine and law, and you see secure jobs and professional associations that fight for their members like crazed wolves. It's a no-brainer.

The top schools are private. They are only interested in their bottom line.

And under H1B building a company on the side is illegal because of all the rules forbidding to work for another company.

That's, in my opinion, one of the greatest problems with the world, the economy, and the education system today.

For one thing, we train people to be workers, so they can end up as cogs in the machine of the big corporate system.

Then, those that still want to be entrepreneurs have to jump through political and legal hoops to do so.

Isn't investment, velocity of money, and innovation what makes the system keep moving? Without these entrepreneurs and business owners/founders, where would the jobs be? Why not provide incentives to be business owners and innovators? Or at least nurture the ones who are predisposed to it rather than trying to stomp it out of them!

I keep saying to people in valleybubble.io that the rest of America is in something like a depression.

It might not meet the strict economic criteria of a depression, but the general sense is that there is no opportunity and that the future is only for the 1%. Wages are going down (or nominally flat and losing ground to inflation) and everything else is going up (or at least keeping up with inflation).

This is particularly true if you're not in the top ten to twelve (mostly coastal) major cities: San Francisco, New York, Seattle, Boston, "San Angeles," etc. The gap between rich and poor cities has noticeably worsened in the past 10-20 years. In the rich ones, the poor are being priced out. In the poor ones, there are no jobs and no routes to advancement. The long term trend is toward something resembling The Hunger Games, with the alpha coastal cities as "the capital" and the rest as "the precincts."

It looks not terribly unlike Japan post-bubble, but perhaps with streaks of Gilded Age and the 1970s cultural malaise. It's not pretty.

Much of what we are seeing is the effect of our insane visa and immigration policies.

The traditional entrepreneurial spirit of the United States was driven by the culture of immigrants. Over 40% of the companies on the Fortune 500 were founded by immigrants or the children of immigrants. These were once disruptive startups.

Now we make it very difficult for talented and intelligent people to become permanent residents. So instead they stay home, or maybe go to Canada or Australia.

Has the number of people becoming U.S. permanent residents or naturalized citizens actually declined, relative to the times those Fortune 500 companies were founded? As far as I can tell, it hasn't: somewhere around 1 million new permanent residencies are granted per year in the 2010s, versus ~250,000 in 1960, which is actually about twice as many relative to population (~0.3% of population annually now, up from ~0.15% in 1960). Sure, there are many more people wanting to become PRs than are granted, but immigration has been gradually expanding since the low of the 1930s/40s, not contracting.

It's true that immigration was freer prior to the 1930s, but today is better than any other time post-WW2, in terms of the % of the population that is foreign-born, the # of naturalized citizens, the # of permanent residencies granted, etc.

Most green cards today are family-based instead of employment or skill based. Family is a golden word in America, according to the Godfather: "But don't ever take sides with anyone against the Family again." In addition, there are many diversity (lottery), refugee, and asylum green cards.

It's funny while America is hated, and some other countries are touted to have better systems and will soon take over America's leadership, tons of people are voting for America with their feet, and crying for green cards.

A quick google search suggests this explanation doesn't work.



If correlations prove anything (note: I don't think they prove much), it is that immigrants inhibit startup formation.

sweet... this should be dangled in front of those who keep criticizing whites-only startups.

We have 7-20 million illegal immigrants in the USA out of 313 million total residents.

How difficult can it really be to stay?

Illegal immigration is completely orthogonal to the topic. To run a startup, you need to be able to operate your business legally, which means the founder and employees need to be legal.

It's not that hard to stay, but it's very hard to get access to capital, credit and legal resources. The necessity to get paid off the books imposes a ceiling on earning ability.

If it was easy, they wouldn't be illegal.

In many markets, there are great opportunities to nibble around the edges of the larger companies. The crumbs of many of these companies offer entrepreneurs the opportunity to build six and seven figure annual businesses.

The way to win in markets that aren't likely to be "disrupted" is to go for the crumbs, not the cake. It's a shame so many entrepreneurs have been deluded by the appeal of "disruption."

Here's a Y Combinator example: Casetext says it is "disrupting" the legal research market dominated by Westlaw and LexisNexis[1]. Anybody who has any experience in this market knows how absurd this is. Bloomberg has invested approximately $1 billion trying to make a dent in this market, with limited success[2]. You simply cannot disrupt the incumbents because they have too many advantages.

That doesn't mean there's no opportunity in the legal research market, however. There are quite a few focused/niche legal research services that are doing well. I know one that counts close to 90% of the Amlaw 100 as subscribers. This service will never be a billion dollar business, or even a $100 million business, but back-of-the-envelope math says it's a business most founders would feel blessed to have started.

[1] https://news.ycombinator.com/item?id=8011009

[2] http://www.adweek.com/news/press/fortune-reports-bloombergs-...

For the purposes of this discussion we should dispense with the word "startups" and replace it with "new businesses". Since 1970 the rate of new businesses has been falling. Gee, can anyone else think of reasons why that might be besides immigration and housing rates in the bay area? What a bunch of navel gazing. Perhaps there is a causal connection with population age? What about other factors? What if we zoom out a bit and look at general workplace productivity factors and the impact of technology? Yes, that old crusty stuff they are currently using which you don't consider technology. It's actually a lot better than how things were done before, and before that, and before that too.

And what about the rising number of old companies? Look at different industries such as air travel, raw materials, and manufacturing. What I see is Standard Oil all over again, consolidation, incremental optimizations, with a little anti-competitive behavior thrown in to boot.

That's sometimes the problem with us programmers, especially the more naive amongst us. We often believe that File &gt; New is the answer to the world's problems when incremental optimization often is more pragmatic (and as the market shows us, more effective). It isn't sexy but it "works".

I don't know much about Home Depot but I'm going to guess that they got as big as they did (mostly) by introducing optimizations into the marketplace for home improvement products. They are not a monopoly (such as taxi services) that was created by and protected through legislation and can dissolve rather quickly (like it did in Houston this week) with a change in public support.

The tech "startup" community should stop looking at companies like Wal-Mart as evil and start to respect and marvel at the massive amounts of muda they have been able to eliminate from product supply chains. Just because they don't use Node.js doesn't make them disruptable (yes, I'm aware Wal-Mart actually does use Node).


A similar thought occurred to me when I read this article. By not making a clear distinction between innovative, true "startup" enterprises and new small businesses following established business models, it's easy to make a grave error when looking at the data. Yes, there may be fewer small businesses starting. But I think a lot of that has to do with consolidation in industries such as retail, hospitality, and food services.

Back in the 1970s, there were thousands of small, independently owned grocery and retail stores that have been pushed out by large chains. I don't fault people for preferring to buy their food and clothing from large, brightly lit, lavishly appointed and stocked stores with low prices. Personally, I wouldn't choose to buy my groceries at a rinky-dinky corner store that was common in this country forth years ago when I had the option of shopping at a modern Super Target. But that means that people aren't opening small stores and small restaurants, and small inns like they used to.

But the loss of those businesses as entrepreneurship opportunities may have drained a little bit of the color out of our country's culture, it hasn't affected our innovation engine very much. If anything, the demands that larger scale enterprises like Target and Kroger and Chipotle and Holiday Inn Express for efficiency and logistics have spurred American innovation on, and the expansion of these companies have made the average US consumer's life better by bringing them a better selection of higher-quality products and services at lower prices, increasing everyone's standard of living. (Admittedly, at the cost of a degree of homogeneity).

So we could have fewer opportunities for entrepreneurs to start successful new businesses, but still have expanding opportunity for a certain type of entrepreneur to start truly innovative companies opening up brand new markets and doing that "disruption" thing. We'd have to take a closer look, and separate out new dry cleaners and dentists offices from technological innovators.

I agree with your overall sentiment. BUT, regarding Wal-mart, Home Depot and other large corporations; they certainly have benefited by lobbying for a better economic playing field for very large corporations. They also have attained their success and market share through innovations, optimizations and seized opportunities. I see it as a lot more complex than Wal-mart is "evil" or not. My position is that it just isn't that simple.

Could other possible reasons be:

1) The companies innovating become large themselves and are now indistinguishable from the incumbents?

2) Silicon Valley is in a venture capital frenzy. VCs make money by exits. Innovative companies keep getting bought by the incumbents.

The author is looking at the economy broadly, not just tech and not just Silicon Valley.

Not to mention that counting the number of companies says little about their cumulative impact.

It's hard to overstate how important monetary policy is in this state of affairs. CapEx has been plummeting for years because it makes more sense to lever up with artificially cheap debt and gamble with equity. We see less upstarts and less major capital investment by businesses because that's way riskier than the guaranteed returns that can be got through other common schemes predicated on cheap money.


Ding, we have a winner. The entire state of the economy is predicated on the effects tax policy has on where money is safest, and where money is least taxed, and of course the money goes where the optimal returns for the lowest risk are.

And those are not in entrepreneurship.

Though I find his point intriguing about corporate America entrenching itself, the graphs he has chosen to represent it are a bit misrepresented - most notably, the graph about startup failure rate. I disagree that the rate of failure in startups has risen significantly in the last 20 years - he cherry picked his data point from 1991 to 2011. The first fifteen years of that interval remain almost entirely flat. The spike in the last three are easily explainable as part of the housing bubble bursting that sent a bunch of businesses in the US to the deadpool. Conversely, the declines in new businesses in the early 80s and late 00s can be easily attributed to spikes in the price of oil and the housing bubble bursting. The rate seems pretty solid at about 10 percent before that.

I find the evidence he presents inconclusive at best. If anything, I find it encouraging - no huge sea changes in the ability to start a business in the US over the last 30 years, except for macroeconomic factors.

Agreed, on that particular chart at the 2010 point there was actually an increase going forward after the 2007-2008 drop.

The compensation packages that tech companies are offering are outrageous. Coupled with the fact that money itself generates better returns than most startups.

Earning 10% a year over 10 years in some mutual fund is way better than investing in some startup that'll be around for likely less than two years.

The housing market in the Bay Area is exploding. The salaries are going to have to keep up somewhat with that explosion. Why would I run a startup making 50k in Chicago, when I can make more than triple that(with RSUs, options, ESPP, healthcare, etc.) in the Bay Area?

Also, keep in mind the ground beneath us is shifting constantly. Some web app written in Backbone yesterday may be slow as farts today. Objective-C, what's that? CSS? Use SASS. Chef? Use Docker. I mean use AWS. I mean use Digital Ocean.

I know it seems meaningless what technologies you use, but these are the margins which people win by; the ability to be fast and scale quickly. Those are just two aspects of probably a million other really important aspects in running a successful startup.

Again, though, you have to work normal hours(so as not burnout) while paying yourself enough to survive(forget the Bay Area). It's just not worth it to run a startup given the economics. Unless you can secure a shit ton of upfront investment. Which is unlikely unless the investor feels your startup idea could at least outperform some other investment vehicle like a mutual fund.

Does anyone see all the data cited in the article as only kinda tangentially related to what seems to be the main idea of the post? Isn't it possible that "corporate america" is being disrupted AND their are less new companies being formed? It seems simple enough to prove, if only 5 new companies started this year and all 5 grew to be as large as Google, that would be some serious disruption.

I am not arguing that their thesis is wrong, it just seems their supporting data falls short of proving the case. I think a more telling dataset would be a similar type of time analysis but looking at the top 500 companies by market cap. How many are new? And that might not even really be getting at the author's real point. Because, he's talking about upsetting existing industries. For instance, sure Apple, Google and MS are pretty new. But did they disrupt an industry or just make it through as the winners of a newly minted "tech" industry? I'm actually asking because this question and thesis is genuinely interesting to me.

I think the author of the article went looking for stats to support a title. Corporate America has been disrupted however I think this article was looking for financial failure versus adapting to the market pressures.

The corporations below have faced massive disruption:

Kodak, HP, GM, Ford, JC Penney, Sears, McDonalds, Radio Shack, Circuit City, Best Buy, Borders, Barnes&Noble, IBM, Microsoft, Xerox, and Target have all been disrupted.

But most of them have adapted as the market changed because they had the resources to do so.

A small company has fewer resources so when adversity hits (housing crash in 2008) or the market shifts (Digital music versus record stores), those business are less likely to be able to shift.

Regarding the comments in the article on Entrepreneurs:

I think the article is using too much of the 2000's data to make a correlation to today. 2001 - 2010 was the dot com bubble, 9/11, unemployment at 9%, and the housing / financial crisis. Banks weren't lending money and people had little capital to borrow.

Compared to today: Banks are lending again, unemployment is 6.2%, people are spending and earning more, and everywhere you read about startups and entrepreneurs.

One last thing: I find it humorous when articles say that government regulations, licensure, or taxes prevent innovation and entrepreneurial activity. I have never heard somebody say "I'd totally build X but the tax incentives just aren't high enough".

>I have never heard somebody say "I'd totally build X but the tax incentives just aren't high enough".

I read it more as "I'd totally build X but I have no idea how to do it legally or even how to learn what the legal requirements are." Much easier to work for a big company that can afford full-time lawyers.

I think some times startups say "I know this is the law but it's outdated and let's see what happens..."

Sometimes it's bad: Aereo Sometimes it's controversial: Uber / Lyft

But for the most part I think people act and then find out after the fact they did something wrong or not in alignment with expectations.

For example, is Soylent worried about somebody dying? Probably but that didn't stop them from doing what they are doing.

Ok. Kodak wasn't really disrupted so much as its market base moved to digital cameras. I suppose you can claim that retail has been disrupted by online markets like Amazon, but (to take an example) there were a lot of reports that Borders went under because of crap management. Radio Shack is still around, and with open doors to anyone who needs a cell phone ;) IBM and Microsoft haven't really been disrupted...

It seems like you're pooling together a bunch of companies that are seeing misfortune for a variety of reasons and assuming they have all been "disrupted". Further, the context of the comment implies they were disrupted by startups, which I don't think is true at all.

I'm happy to admit I'm wrong if you can give more evidence, but this comment seems a bit misguided.

True... I guess the point is that the claim that startups haven't disrupted corporations is true in bulk but when you pick each company it is easy to see an impact a startup has had in changing how they operate.

Flickr definitely contributed to Kodak failing as much as the market for digital cameras. Kodak actually had digital technology but failed to capitalize on it.

Borders may have bad management but so do startups that fail which maybe says startups need better management too? Seems like a common denominator versus differentiator?

Radio Shack closed a ton of stores and is still losing money. IBM stopped selling computers because Dell and others did it better and cheaper (Dell was a startup at one time...) and Microsoft keeps fighting for relevancy in software on all fronts.

But yeah, some of my comments weren't exactly on point. I just think that to say companies aren't disrupted is a broad paint stroke that the article didn't fully support.

Microsoft fighting? Their revenue continues to climb. Its maybe cool to dis them, but they continue to make big bucks and grow.

Revenue is increasing but their cost of revenue is increasing while their earnings per share stays stagnant.

I actually like what Microsoft is doing to try to adapt to the new world but they are losing money on Xbox One (it appears Sony may win this round) and Surface is a great product but overpriced and costing Microsoft profit as well.

I wish they did more hardware as that division makes some really cool stuff but Microsoft is starting to fall on the Windows 8 debacle.

It's hard to buy a surface for $1000 when a comparable laptop is $300 (not as light or small but spec wise comparable)

Kind of agree. The author arbitrarily took 1 year as "startup" and any business longer than 1 year as "establishment". It was probably possible to start and sustain a small business in 1 year earlier, perhaps. But now the world is integrated, and the probability of survival by serving people of your neighborhood or city, is much less. IOW, a business has to grow big and hence it takes longer than 1 year to succeed. So by author's definition, Blockbuster being disrupted by Netflix doesn't count any more because it's establishment displacing establishment.

I agree, and I think it's especially hard to observe the complete lack of Borders and Barnes & Noble locations remaining and say things haven't changed all that much. For the big players in the music and movie industries, even if they're still profitable, but had to completely change their ways of doing business, doesn't that count as disruption also?

>Kodak, HP, GM, Ford, JC Penney, Sears, McDonalds, Radio Shack, Circuit City, Best Buy, Borders, Barnes&Noble, IBM, Microsoft, Xerox, and Target have all been disrupted.

The irony there is a lot of them started out as disruptors themselves!

Who disrupted McDonalds?

McDonalds had to compete with coffee shops, places with Wifi, installed RedBox to get people to walk into the place, and the general move toward healthier foods and locally grown food. That's part of the reason they bought into Chipotle.

A lot of his citations are of systemic disruption - in the case of McDonalds, it was disrupted because people stopped taking their diet for granted, and McD's got called out on their atrocious menu.

Another simple explanation for the decline might be economies of scale or economies of scope (or both) . Thirty years ago they might have had a smaller effect on small businesses (like coffee shops and retailers), whereas nowadays complex logistics (economies of scale, ie. walmart) or versatile production facilities (economies of scope, ie. starbucks) have a bigger influence on profits.

I think the promulgation of the idea of "disruption" is itself an anti-disruptive force.

The Microsofts of this world have seen the Kodaks and Xeroxes go down, so we see them doing bold things. For instance, Microsoft saw tablets as a threat to the PC, and they didn't let the fact that their customers didn't see it this way from releasing Windows 8.

I agree with everything in OP, and this admittedly makes me sound like a dreamer, but I think there's a good chance that computer-aided radical decentralization is going to have a major effect on these numbers in the next few years.

The possibilities of blockchain technology (and other technology inspired by it) has barely even begun to percolate through society, and in theory it allows free agents to fill roles previously only viable inside of corporations.


Can you name any businesses where radical decentralization builds important revenue?

As others have pointed out, technology seems to consolidate more than decentralize. Network effect is opposite force to decentralization. Companies like Airbnb, Uber consolidate previously small businesses under one huge company.

> Can you name any businesses where radical decentralization builds important revenue?

Well, contrary to popular belief, making large revenue isn't the only viable business model: The other viable model is to build something that greatly hurts your competition's revenue. Here, "viable" means "it survives", I don't think CARD is about making huge profits, it's about commoditizing scalable parts of a business, removing scalability as a revenue generating mechanism. (Airbnb and Uber are not CARD and I think will fail in the next 5-10 years.)

As for naming businesses: Only illegal business currently use this model, unfortunately (some parts of the online drug trade, and to some parts of the bittorrent scene.)

> Only illegal business currently use this model, unfortunately (some parts of the online drug trade, and to some parts of the bittorrent scene.)

Which goes to show that the model is not competitive in the mainstraem market. It only works where big centralized orgs are barred from entry.

Fair point.

What about the lack of privacy in Bitcoin? Couldn't that be used to regulate the decentralized agents? http://www.pds.ewi.tudelft.nl/~victor/bitcoin.html

It's easily to be arbitrarily anonymous with something like bitcoin. The only way the government could maintain attributability for bitcoin accounts would be to put in place extremely aggressive enforcement policies that (hopefully) would not be viable.

Any references on how to accomplish this? The link above says ".. for perfect anonymity, both sender and receiver have to split every complex transaction among separate pairs of throw-away identities. But at this point, transactions stop being technically atomic, in addition to the fact that the system becomes quite complicated and heavyweight."

https://bitcoin.org/en/you-need-to-know says "Bitcoin is not anonymous .. Some effort is required to protect your privacy with Bitcoin. All Bitcoin transactions are stored publicly and permanently on the network, which means anyone can see the balance and transactions of any Bitcoin address. However, the identity of the user behind an address remains unknown until information is revealed during a purchase or in other circumstances. This is one reason why Bitcoin addresses should only be used once."

CoinJoin is a technology that can be viewed as atomic in regular usage (it's a generalized way of mixing coins.) As for complicated/heavyweight, most computer technology we use today was viewed as too complicated/heavyweight a couple decades ago.

Thanks for the pointer. Found a design thread that's been going for a year, https://bitcointalk.org/index.php?topic=279249.0, but no implementations. This approach seems to have the same challenge as Tor or email encryption, i.e. convincing everyone to use it.

Sure there are implementations- See darkwallet.

Another issue is that as IT has become more prevalent in corporations, there are just more jobs out there in existing companies for STEM grads - so they feel less pressure to start new companies. But, I would honestly not take this data too seriously. The latest startup tech boom is too young to judge. this data is probably skewed by the tech collapse of 2000-2001.

"Revitalization" might be better word than "disruption" to explain what is required of corporate sector.

But corporate sector is adopting "disruptive" technologies and methods such as cloud, analytics, ecommerce. The problem is it is incremental and interstitial rather than comprehensive.

"Disruption" really means using technology to find loopholes in the law e.g. AirBnB "disrupting" hotels by providing services for people operating unlicensed hotels. Do how do you disrupt a bank? Insider trading? Fraud? Stealing deposits?

So where is there a better environment for entrepreneurship? I don't mean theoretically, I mean in practice.

Is there a country that has better infrastructure, capital markets, regulation and market size? I am genuinely curious.

Based on the criteria you mention (infrastructure, capital markets, regulation and market size), there most certainly isn't one. The other large countries have more onerous regulations and worse infrastructure than the US does.

But it's clearly not enough to say "the US isn't as bad as everywhere else" if everywhere else is merely drifting toward consolidation more slowly.

I wonder: were past disruptive efforts more sucsessfull in unseating incumbents ? And is Clayton Christensen theory responsible for bigger companies' better defense against disruption ?

This is something that seems to be ignored in this discussion. There's a widespread belief that large companies are stupid and unaware of what's going on around them. However, the boom in easily available knowledge benefits everyone, including large corporations. They may be "disrupted" but they are also much more aware that it's happening and can take steps to adapt to it and thrive in a new environment.

Private sector wages are quite high in places like San Francisco. Large successful corporations are great at incentivizing would-be startup owners into staying. Large companies are making money, the employees are creating value, and they're realizing some of the value as personal wealth.

People launch businesses when they have no better opportunity in front of them. In a rising economy with a record stock market, even the most capable people are finding significant upside within the companies they're employed by.


Actually, I tend to think that the Iron Law of Oligarchy is correct. Dictatorships also converge to oligarchy. The autocrat still has to rely on his handlers and lieutenants for information. They become oligarchs.

Oligarchy gives way to aristocracy, which is more effete and less dangerous. Oligarchs want to be powerful. Aristocrats want to be other things (e.g. dignified, respectable, prestigious) and tend to let go of some of their power. The problem is that some aristocrats see the power vacuum and rush in, and then you get a new oligarchy, but one based solely on entitlement. That tends to lead to collapse, from which all sorts of systems can emerge.

First of all, it's pretty clear that the Valley isn't "disrupting" the establishment. It is the establishment.

The elephant in the room: the death of the middle class.

Thirty years ago, unions were strong and average people had savings. Venture capitalists were wealthier than average, but not of a superior class... and they still hung out with people who wrote code for a living. Class distances weren't nonexistent, but they weren't nearly as sheer as they are today. And venture capital wasn't a requirement because bootstrapping was really possible, because average people actually had money.

People complain about how the Valley is cranking out apps for spoiled 20-year-olds instead of regular people, and missing the much bigger point, which is that "regular people" are cash-strapped, time-poor, overworked and generally disenfranchised altogether. The people building apps for spoiled 20-year-olds are staking out the new, post-large-middle-class world.

Now, to bankroll a business you either need elite connections (usually to people spending others' money) or outlandish luck, you have to have people in your pocket who'll ensure coverage, and you'll probably end up taking a back seat in your company as soon as you hire a "business co-founder" who can deliver Sequoia and A16Z.

No one has a good idea what to build, and products and technology aren't really the point (the point is getting bought; "startups" are a long audition process for would-be corporate executives looking to jump the queue) but one sector that isn't being targeted is the (disintegrating) middle class.

Corporate America, meanwhile, is stronger than ever. The wealth and connections are even more concentrated, giving power to the few at the expense of the many. And these Valley startups are the driving force behind all of this.

Agree entirely. This is a perfect write up of the situation at hand.

> but one sector that isn't being targeted is the (disintegrating) middle class.

So, what (if anything) can we do to fix this?

Is there anything a regular person can do or work on to help the (disintegrating) middle class?

I would suggest joining unions and encouraging others to join them. With all the nonsense coming out of Google, Microsoft and others regarding wage warfare against their own employees I'm shocked that developers haven't unionized.

I'd also like to point out that unions would likely offer much greater protection for the likes of Snowden. There would be viable paths to take within the union and would likely result in not having to run off to Russia.

>'With all the nonsense coming out of Google, Microsoft and others regarding wage warfare against their own employees I'm shocked that developers haven't unionized.'

I think it's a whole mess of things - outdated misconceptions about unions, overestimating their own abilities, being oblivious to the efforts of employers to commoditize the profession and/or play labor against itself.

I was a member of a union which included developers for a while and it wasn't close to a bad deal for anyone short of perhaps the top 0.5-1% and even that was arguable.

One of the brightest guys, who I know quite well, was endlessly dissatisfied with his not-too-shabby top-end union rate and left seeking more.

Today, not only is he paid notably less (though still comfortably over 100k) has endured layoffs and of course lost the 457, 401 + matching, 5 weeks annual vacation, fast accruing sick leave, 1.5x on-call rate and health plan. In the same period he'd have seen 2 guaranteed longevity increases from the union plus across the board bumps from a revised CBA.

Developers will keep thinking they're all 10xers who'll see their rates quartered by unions until a16z has its way and software development truly is a 'low-skill trade', 'decoupled from ability and experience' [1] and it's too late.

1: http://a16z.com/2014/07/30/the-happy-demise-of-the-10x-engin...

There's way too much libertarianism, if not outright objectivism, in this industry for just about any kind of organized labor to exist.

Honestly, it's hard to organize people for any type of movement that are in the top 10-20% of incomes in the country. Yes, we may all be getting screwed, but we're still making bank compared to most.

I am thinking of favoring remote work. That way employees won't have to spent the largest part of their salary in expensive rents, and for the employer it's advantageous at he can pay a bit lower than the market rate (and still make his employees happy).

That's a simple measure new startups could adopt, and I keep being surprised YC companies are not looking for remote people.

I'm also surprised we don't see more remote work in the more computational bits of academia, but there's still a widespread view that remote work is bad for team cohesion and serendipitous collaboration.

Were one cynically inclined, one might wonder if remote work is unpopular because it lets people bypass some of the status-signalling systems that tend to develop within organisations.

Remote work eliminates the emotional content of the communication channel between workers.

That is bad for team cohesion and serendipitous collaboration. Humans have evolved a number of emotions that enable us to work together even when it's not in our immediate self-interest: guilt and shame to realize when we've hurt somebody else and discourage us from doing it again, excitement to pick up on and pile into promising ideas created by others, compassion to help out members of the group who have fallen behind, trust to suspend disbelief and commit to a direction without knowing exactly where it will take you. Teams that lack this communication channel tend to spin apart into little atoms each doing their own thing. Without feeding off each others' excitement, there's little common purpose. Without compassion, it's easy for some workers to fall behind and slow everyone down. Without trust, the team can never take on a goal where the outcome is uncertain or unknown at inception time.

Status-signalling is a byproduct of this emotional communication channel. It's people gaming the system to generate the emotions that the group needs to function without actually doing the work.

I'd love to see remote work become viable too, but it needs a viable way of solving the "presence problem", the need for emotions to come through remotely as well as pure factual information. Without that, you throw the baby out with the bathwater. I looked into this when I was searching for startup ideas recently, but all technologies I could think of were easily 5-10 years away from being viable.

I know it's not exactly a company, but the linux kernel (and other big open source projects) managed to do quite well with its "employees" being remote, which proves that a big project can be successful without face to face communication - and since you mention the emotional content of the communication, I'd say Linus is quite good at conveying that in his own way. IMHO the employees engagement to the project can be inversely proportional to the communication quality. If all the workers really believe in the project they are building, they won't need complicated process and will be fine working remotely and communicating by email. On the other hand, if the project is another cats picture sharing app...

Linus's big observation is that "debugging is parallelizable". Product development isn't, though - Linus had to release an operating system on his own before he could recruit volunteers to help with it. And many of the outside contributions come from corporations who would like to use/support Linux but need to modify or extend it in some way, and so they contribute the patch themselves.

There are big companies that work the same way. Cisco actively encourages employees to work from home. However, Cisco's product-development strategy is "buy startups that are already succeeding in the market", and so if you work at Cisco your job is generally bug-fixing and incremental improvements to existing products. If this is the sort of work you want to do, there are a bunch of options that will let you work remotely. I suspect that much of HN wants to develop new products though, and for them, empirically you need the team to be colocated in one location.

This really sounds like status quo bias to me. No one's going to tell you that face to face communication isn't an incredibly efficient medium, but that doesn't mean teams and companies built around remote work can't (and don't already) thrive. I would even hazard that your experience is possibly colored by the teams you've worked on and the companies you've worked for.

If there's a status-quo bias, it runs the other way. In college, I led a website rewrite with team members in Massachusetts, Oklahoma, France, and Australia, with the site owner in Florida. For my first startup, my cofounder and I usually worked remotely, though we were within driving distance so we could easily have meetings. I've worked on both distributed and colocated projects at Google.

My personal preference, as a developer, is for remote work. But when I look at what the team actually accomplishes, the level of creativity in its solutions, and how quickly it accomplishes them, a colocated team almost always beats the distributed one. There's an energy that you can get when everyone is in the same room that's impossible to replicate when they're 1000s of miles apart.

The cases where I think remote work can do fine is when you have a simple tool or interface that needs implementing, or if you're just trying to optimize one number (eg. performance of a library). These are the same situations you'd use a contractor for.

I won't deny that colocation wins in a ceteris paribus scenario - almost by definition. Remote staffing allows you to tip the scales in many situations though: companies outside of the top 3-5 big tech firms suddenly have access to great people they'd never get otherwise. How many colocated 95th percentile developers are equivalent to one remote Linus Torvalds?

for life like communication ,there's high quality telepresence that includes eye contact . does it lose the emotional element? how? and is it possible to add that element, by virtual reality ?

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