3 ms·

That's an interesting point. Yes, for economic growth to be measurable, the nominal gains (i.e. dollar-value gains) have to be exponential--but there are a few

by md_ 7y ago

That's an interesting point. Yes, for economic growth to be measurable, the nominal gains (i.e. dollar-value gains) have to be exponential--but there are a few reasons to think that as the economy grows, innovations that lead to productivity improvements should become cheaper. First, the productivity gain should scale with economic growth. A technology that leads to a 5% improvement in productivity of a farmer leads to 5% improvement in productivity of 1000 farmers. Second, the fixed costs of innovation--capital costs and research costs--should in many cases increase sublinearly relative to the above (linearly increasing) returns on investment. Thus relative to available capital (which increases as the economy grows) these innovations should become cheaper. Finally, some per-unit production costs may also decline as scale increases. As a simple example, if a farmer makes $100/year using a donkey and $200/year using a tractor, a tractor costs $10, and a tractor factory costs $10000...well, you get the idea. So I don't think this is explicable by economic growth, unless there's a facet of growth that hinders innovation (or its application).

Nevermark 7y ago
Ironically, as technology and business become better and better at monetizing new ideas, this makes things more expensive for individuals to bring ideas to market. First, large competitors (whether businesses or investors) fastest way to wealth is to jump into markets validated by someone small, with overwhelming advantages in terms of customer relationships, being able to fill out solutions spaces, funds for deep optimization, etc. Second, even if the small inventors expected mean return has gone up, so has the standard deviation, so risk has gone up. Anything that discourages or inhibits individuals and small teams from following through on new ideas will have a big impact. Because most good ideas are by individuals and small teams, and few of us have the ear of CEO's or other efficient fund decision makers.
- md_ 7y ago
  Why do youth the variance in returns had increased? Because of the first point? I don’t think I buy the first point, though. Intellectual property rights are probably at an all time high. Is the point that many types of innovation are outside of copyright able/patentable innovation, that enforcement is imbalanced, or something else? (What about the prototypical awe of the 800lb established competitor who simply buys the startup?)
  - Nevermark 7y ago
    It is tough for any small group to protect itself from a motivated, well funded, and well informed competitor even using copyright, trade marks and patents. Part of the reason is that it can take vast sums and years to enforce IP rights against deep pockets. The other reason, is that no matter how much IP you formally protect, most of any business is not its IP, it is the sales and support channels and services, etc. Even a lean software startup’s code is likely mostly the non-IP code that delivers and supports the IP actually solving a problem. This means well funded and well informed competitors have a good chance of solving the same problem using a slightly different solution. You saved them work by defining the problem, providing an example solution, and validating the market for solutions to that problem. Probably the best way for a small team to protect any really valuable IP is if they keep it a Trade Secret, while growing the business until it has the depth of resources, customer engagement, market bisinility and organizational depth so that deep pocket copycats might be successful too, but without stopping your momentum. Obviously, this strategy depends on being able to deliver new IP to market without disclosing it exists. But customers care more about the results you can give them than how you do it. So innovative code buried in an app may not attract much or any scrutiny. Aiming initially at underserved or previously unserved markets also avoids attracting competitive attention. Edit: I think variance in returns has gone up because information tech is making it easier and easier for new organizations to serve larger markets, so more small companies will make it big. And at the same time, competitors are more likely to notice anything significant, and their are many more competitors observing and reacting globally. And we now have massive global competitors like Google, Facebook and Amazon that are getting harder to avoid as they attempt and often succeed in dominating one market after adjacent market. So expected (in the statistical sense, I.e. mean) returns have gone up, but the ease that a startup can be crushed is also higher. There is a kind of conservation of risk and reward in economics, so it isn’t unexpected that bigger opportunity attracts players who in turn create bigger risks for new players.

by md_ 7y ago

Nevermark 7y ago

Ironically, as technology and business become better and better at monetizing new ideas, this makes things more expensive for individuals to bring ideas to market. First, large competitors (whether businesses or investors) fastest way to wealth is to jump into markets validated by someone small, with overwhelming advantages in terms of customer relationships, being able to fill out solutions spaces, funds for deep optimization, etc. Second, even if the small inventors expected mean return has gone up, so has the standard deviation, so risk has gone up. Anything that discourages or inhibits individuals and small teams from following through on new ideas will have a big impact. Because most good ideas are by individuals and small teams, and few of us have the ear of CEO's or other efficient fund decision makers.

md_ 7y ago
Why do youth the variance in returns had increased? Because of the first point? I don’t think I buy the first point, though. Intellectual property rights are probably at an all time high. Is the point that many types of innovation are outside of copyright able/patentable innovation, that enforcement is imbalanced, or something else? (What about the prototypical awe of the 800lb established competitor who simply buys the startup?)
- Nevermark 7y ago
  It is tough for any small group to protect itself from a motivated, well funded, and well informed competitor even using copyright, trade marks and patents. Part of the reason is that it can take vast sums and years to enforce IP rights against deep pockets. The other reason, is that no matter how much IP you formally protect, most of any business is not its IP, it is the sales and support channels and services, etc. Even a lean software startup’s code is likely mostly the non-IP code that delivers and supports the IP actually solving a problem. This means well funded and well informed competitors have a good chance of solving the same problem using a slightly different solution. You saved them work by defining the problem, providing an example solution, and validating the market for solutions to that problem. Probably the best way for a small team to protect any really valuable IP is if they keep it a Trade Secret, while growing the business until it has the depth of resources, customer engagement, market bisinility and organizational depth so that deep pocket copycats might be successful too, but without stopping your momentum. Obviously, this strategy depends on being able to deliver new IP to market without disclosing it exists. But customers care more about the results you can give them than how you do it. So innovative code buried in an app may not attract much or any scrutiny. Aiming initially at underserved or previously unserved markets also avoids attracting competitive attention. Edit: I think variance in returns has gone up because information tech is making it easier and easier for new organizations to serve larger markets, so more small companies will make it big. And at the same time, competitors are more likely to notice anything significant, and their are many more competitors observing and reacting globally. And we now have massive global competitors like Google, Facebook and Amazon that are getting harder to avoid as they attempt and often succeed in dominating one market after adjacent market. So expected (in the statistical sense, I.e. mean) returns have gone up, but the ease that a startup can be crushed is also higher. There is a kind of conservation of risk and reward in economics, so it isn’t unexpected that bigger opportunity attracts players who in turn create bigger risks for new players.