13 ms·

Entrepreneurship for the 99%

81 points by ridruejo 14y ago

intellegacy 14y ago
It seems to me that the industries most kinds of 99% businesses enter is zero-sum, which means helping new businesses only hurts the profit of other new businesses or incumbents. Ergo I question what value from an overall economic perspective helping individual entrants to the 99% market holds. (Here I use as examples the industries defined from the article: construction, retail, health care, lodging, food services) For instance, if 10 businesses are started, and there is only room in the market for 3, then 7 will inevitably fail. It is possible to improve each's individual odds of success, but to what end? Unless the market these businesses are in grows, any successfully-started new business only increases competition for the others. So lets say that we improve the odds for these new entrepreneurs by educating them. We will also assume incumbents have access to the same knowledge and benefit equally. If the new competitors all enter the market together, all we have done is raise the competitiveness level in the industry, and the odds of failing are still the same. This is what Peter Thiel discusses in his "perfect competition" argument. (If you haven't read his CS183 notes yet, please do so. They're insightful). Peter Thiel likens competition to athletes or soldiers beating each other up. They compete to win and that is what they know how to do. But in the end there is only one victor. The rest are losers. And if you improve the competitiveness level of these athletes, all you have done is make the competition fiercer. Now that could be a good thing as it could provide better value for consumers. But the businesses themselves don't benefit from that! All this program is doing is making more perfect competitors, although what will probably happen is not all will benefit the same amount, as certain businesses will learn and apply these lessons better than others. But from a birds eye perspective, the result is stil the same: the same number of failing businesses. Even if these new businesses you help succeed do in fact "make it", they don't increase the size of the industry (barring technological breakthroughs). They only add more players to a limited pie. People by nature care more about themselves. Thus they care more about entrepreneurship rather than innovation per se. Entrepreneurship without innovation is about beating up the other guy, simply outcompeting him through energy or maneuvering. Innovation is about doing something better, freeing up time or resources to do other things, which grows the pie for all. In summary: Sure a new business may add value by providing a better service than the competitor it beats, but the overall wealth pie of this nation doesn't increase. Encouraging just entrepreneurship without technological innovation is not that useful from a macro perspective. What we need are new entrants who change the game via technological or process breakthroughs. These are precisely the kind of companies that Peter Thiel seems most interested in, according to his CS183 lectures. And I submit that these are the kinds of businesses startups should focus on. Not the other 99% which only increase competition for everyone else. This is why R&D and innovation are the key to growing the economy. Simply calling for more entrepreneurs, without a corresponding emphasis on innovation, is a flawed long-term strategy.
- laglad 14y ago
  All true. But with a customer development focus, they'll see failure more quickly with less resources. For example, instead of renovating your restaurant and reopening it with your personal conviction that it is now better, why not test different redesigns before investing. I'd call it teaching the scientific method.
- run4yourlives 14y ago
  I'm more than a little confused by your comment. In several areas either you or Thiel (I'm not familiar with his thinking enough to know which) are completely disregarding some very basic economics... It seems to me that the industries most kinds of 99% businesses enter is zero-sum Um, no. Nothing in the economy is zero sum. Wealth is constantly being created and transferred. I think you are confusing this with the idea of a mature-market at an industry level, but those markets are almost non-existent because they destroy themselves like anti-matter. Unless the market these businesses are in grows, any successfully-started new business only increases competition for the others. Well, for one thing, if the market isn't growing we are in a recession, and recessions simply aren't permanent states. Recessions destroy themselves, because they are simply forced efficiency finders. Secondly, increasing competition increases pressure to become more efficient and/or innovative, which in turn drives market growth. The whole idea of helping and soliciting help in business is an act of innovation. In short, your initial point - that of a zero sum market - is flawed, and therefore all your other arguments are too. Increasing the quantity of entrepreneurs by default increases the quality, because it increases the pressure to compete, and therefore leads to the very innovation you feel is the real solution. You are arguing against the very solution you seek.
  - _delirium 14y ago
    I don't have a problem with most of that explanation, but am somewhat skeptical of the last point. I don't think there is necessarily a linear relationship between quantity and quality that holds in all market regimes, across the whole range of possible states. Dynamical systems (such as markets) often have tipping points where things get wonky, so it'd at least require some empirical evidence that that isn't the case.
casca 14y ago
Is it just me or does this look like a massive advertisement for Steve Blank's books and program? That's not to say that the books and programs aren't necessarily good, but still.
- paulhauggis 14y ago
  Isn't this most blogs? Even HN is in essence a platform for ycombinator.
  - larrys 14y ago
    Same with Avc.com People like things to be subtle though. They can also read into things that aren't there. I offered to help someone the other day in a comment (which I did - then going back and forth with several emails and advice which took time) and was voted down in the one line offer. I guess they looked at my profile and thought I was angling for paid work? The truth is I've helped many people but never asked for payment (although it's been offered.)
- digitalengineer 14y ago
  Agreed. I kept thinking "well, where are these insight then?" No such luck. Why this scores so high is beyond me. I suppose a lot of people didn't bother to read the entire article which is without ANY insights.
- AznHisoka 14y ago
  Content marketing is the best marketing.
- friendstock 14y ago
  I agree. I was expecting more insights.
- freshnote 14y ago
  Sheeple mentality for the most part. I will be downvoted into oblivion for saying it, but it's true.
_delirium 14y ago
In a certain practical sense, aren't "the 99%", i.e. people without any significant cash cushion, precisely the ones who can't as easily take this non-VC, lifestyle-business route? If you need to pay rent and buy individual health insurance, it's a lot easier to do that if an angel or VC is fronting enough money to pay you at least a modest salary.
- run4yourlives 14y ago
  I'd venture 90% of all new businesses have nothing to do with VC money. In fact, my hunch would be that most are started with personal savings and family money.
  - ams6110 14y ago
    I agree. The VC-funded startup is for the most part found only in the tech sector. You will never find a VC funded pizzaria, auto-repair shop, carpet-cleaning company, etc.
    - _delirium 14y ago
      That's true, although most of those businesses' founders also don't have much of a choice: they aren't turning down a 6-figure pizza-delivery job or eschewing pizzeria-angel funding to open their own pizzeria. They just don't have much of a choice but to open it on their own and try to scrape by, sometimes borrowing from relatives, living with parents, getting "free" healthcare in the ER, etc. I think it'd be a much less attractive choice if you were in an area like tech where you do have the option of a well-paying job or funding, though. Lifestyle businesses are still attractive in tech, but only if you're somewhat better off, either coming from a better-off family, having already had one minor success on a previous business, or spending some time in a lucrative job / consulting career that let you save up a cash reserve. That appears to have been Steve Blank's route as well; he became a self-funding entrepreneur only after first having a few successful exits from funded companies.
    - heretohelp 14y ago
      That's not true at all, there's a seed funded Indian burrito shop in Palo Alto in the whats-it-called shopping center called Tava or something.
wfrick 14y ago
I welcome efforts to help small business owners, but we shouldn't pretend that small business in general drives the economy. The huge jobs and productivity growth that we associate with startups comes from a very small % of disruptive companies, mostly in high tech. (I wrote a bit more about this here: http://bostinno.com/2012/02/17/bailouts-for-startups-tough-love-for-corporate-america/ http://bostinno.com/2012/02/17/bailouts-for-startups-tough-l...)
- rprasad 14y ago
  Small businesses drive employ almost half of all employees (and more than half during boom cycles). The technology sector has an overinflated sense of the value it provides to the economy in terms of jobs created or productivity growth. Note that the article you cite does not refer to technology startups, it refers simply to new businesses under the catchall "startups."
isalmon 14y ago
He forgot to mention that 90% of all startups produce waste (leveraging VC's money), while 99% of small businesses produce real value simply because they don't have a choice.
guscost 14y ago
Great thoughts! But I still want to be an entertainer...
djt 14y ago
The Lean Methodology is what small businesses have been doing since companies were created. I assumed that they took it and adapted it to tech business.

81 points by ridruejo 14y ago

It seems to me that the industries most kinds of 99% businesses enter is zero-sum, which means helping new businesses only hurts the profit of other new businesses or incumbents. Ergo I question what value from an overall economic perspective helping individual entrants to the 99% market holds. (Here I use as examples the industries defined from the article: construction, retail, health care, lodging, food services) For instance, if 10 businesses are started, and there is only room in the market for 3, then 7 will inevitably fail. It is possible to improve each's individual odds of success, but to what end? Unless the market these businesses are in grows, any successfully-started new business only increases competition for the others. So lets say that we improve the odds for these new entrepreneurs by educating them. We will also assume incumbents have access to the same knowledge and benefit equally. If the new competitors all enter the market together, all we have done is raise the competitiveness level in the industry, and the odds of failing are still the same. This is what Peter Thiel discusses in his "perfect competition" argument. (If you haven't read his CS183 notes yet, please do so. They're insightful). Peter Thiel likens competition to athletes or soldiers beating each other up. They compete to win and that is what they know how to do. But in the end there is only one victor. The rest are losers. And if you improve the competitiveness level of these athletes, all you have done is make the competition fiercer. Now that could be a good thing as it could provide better value for consumers. But the businesses themselves don't benefit from that! All this program is doing is making more perfect competitors, although what will probably happen is not all will benefit the same amount, as certain businesses will learn and apply these lessons better than others. But from a birds eye perspective, the result is stil the same: the same number of failing businesses. Even if these new businesses you help succeed do in fact "make it", they don't increase the size of the industry (barring technological breakthroughs). They only add more players to a limited pie. People by nature care more about themselves. Thus they care more about entrepreneurship rather than innovation per se. Entrepreneurship without innovation is about beating up the other guy, simply outcompeting him through energy or maneuvering. Innovation is about doing something better, freeing up time or resources to do other things, which grows the pie for all. In summary: Sure a new business may add value by providing a better service than the competitor it beats, but the overall wealth pie of this nation doesn't increase. Encouraging just entrepreneurship without technological innovation is not that useful from a macro perspective. What we need are new entrants who change the game via technological or process breakthroughs. These are precisely the kind of companies that Peter Thiel seems most interested in, according to his CS183 lectures. And I submit that these are the kinds of businesses startups should focus on. Not the other 99% which only increase competition for everyone else. This is why R&D and innovation are the key to growing the economy. Simply calling for more entrepreneurs, without a corresponding emphasis on innovation, is a flawed long-term strategy.

laglad 14y ago
All true. But with a customer development focus, they'll see failure more quickly with less resources. For example, instead of renovating your restaurant and reopening it with your personal conviction that it is now better, why not test different redesigns before investing. I'd call it teaching the scientific method.
run4yourlives 14y ago
I'm more than a little confused by your comment. In several areas either you or Thiel (I'm not familiar with his thinking enough to know which) are completely disregarding some very basic economics... It seems to me that the industries most kinds of 99% businesses enter is zero-sum Um, no. Nothing in the economy is zero sum. Wealth is constantly being created and transferred. I think you are confusing this with the idea of a mature-market at an industry level, but those markets are almost non-existent because they destroy themselves like anti-matter. Unless the market these businesses are in grows, any successfully-started new business only increases competition for the others. Well, for one thing, if the market isn't growing we are in a recession, and recessions simply aren't permanent states. Recessions destroy themselves, because they are simply forced efficiency finders. Secondly, increasing competition increases pressure to become more efficient and/or innovative, which in turn drives market growth. The whole idea of helping and soliciting help in business is an act of innovation. In short, your initial point - that of a zero sum market - is flawed, and therefore all your other arguments are too. Increasing the quantity of entrepreneurs by default increases the quality, because it increases the pressure to compete, and therefore leads to the very innovation you feel is the real solution. You are arguing against the very solution you seek.
- _delirium 14y ago
  I don't have a problem with most of that explanation, but am somewhat skeptical of the last point. I don't think there is necessarily a linear relationship between quantity and quality that holds in all market regimes, across the whole range of possible states. Dynamical systems (such as markets) often have tipping points where things get wonky, so it'd at least require some empirical evidence that that isn't the case.

casca 14y ago

Is it just me or does this look like a massive advertisement for Steve Blank's books and program? That's not to say that the books and programs aren't necessarily good, but still.

paulhauggis 14y ago
Isn't this most blogs? Even HN is in essence a platform for ycombinator.
- larrys 14y ago
  Same with Avc.com People like things to be subtle though. They can also read into things that aren't there. I offered to help someone the other day in a comment (which I did - then going back and forth with several emails and advice which took time) and was voted down in the one line offer. I guess they looked at my profile and thought I was angling for paid work? The truth is I've helped many people but never asked for payment (although it's been offered.)
digitalengineer 14y ago
Agreed. I kept thinking "well, where are these insight then?" No such luck. Why this scores so high is beyond me. I suppose a lot of people didn't bother to read the entire article which is without ANY insights.
AznHisoka 14y ago
Content marketing is the best marketing.
friendstock 14y ago
I agree. I was expecting more insights.
freshnote 14y ago
Sheeple mentality for the most part. I will be downvoted into oblivion for saying it, but it's true.

_delirium 14y ago

In a certain practical sense, aren't "the 99%", i.e. people without any significant cash cushion, precisely the ones who can't as easily take this non-VC, lifestyle-business route? If you need to pay rent and buy individual health insurance, it's a lot easier to do that if an angel or VC is fronting enough money to pay you at least a modest salary.

run4yourlives 14y ago
I'd venture 90% of all new businesses have nothing to do with VC money. In fact, my hunch would be that most are started with personal savings and family money.
- ams6110 14y ago
  I agree. The VC-funded startup is for the most part found only in the tech sector. You will never find a VC funded pizzaria, auto-repair shop, carpet-cleaning company, etc.
  - _delirium 14y ago
    That's true, although most of those businesses' founders also don't have much of a choice: they aren't turning down a 6-figure pizza-delivery job or eschewing pizzeria-angel funding to open their own pizzeria. They just don't have much of a choice but to open it on their own and try to scrape by, sometimes borrowing from relatives, living with parents, getting "free" healthcare in the ER, etc. I think it'd be a much less attractive choice if you were in an area like tech where you do have the option of a well-paying job or funding, though. Lifestyle businesses are still attractive in tech, but only if you're somewhat better off, either coming from a better-off family, having already had one minor success on a previous business, or spending some time in a lucrative job / consulting career that let you save up a cash reserve. That appears to have been Steve Blank's route as well; he became a self-funding entrepreneur only after first having a few successful exits from funded companies.
  - heretohelp 14y ago
    That's not true at all, there's a seed funded Indian burrito shop in Palo Alto in the whats-it-called shopping center called Tava or something.

wfrick 14y ago

I welcome efforts to help small business owners, but we shouldn't pretend that small business in general drives the economy. The huge jobs and productivity growth that we associate with startups comes from a very small % of disruptive companies, mostly in high tech. (I wrote a bit more about this here: http://bostinno.com/2012/02/17/bailouts-for-startups-tough-love-for-corporate-america/ http://bostinno.com/2012/02/17/bailouts-for-startups-tough-l...)

rprasad 14y ago
Small businesses drive employ almost half of all employees (and more than half during boom cycles). The technology sector has an overinflated sense of the value it provides to the economy in terms of jobs created or productivity growth. Note that the article you cite does not refer to technology startups, it refers simply to new businesses under the catchall "startups."

isalmon 14y ago

He forgot to mention that 90% of all startups produce waste (leveraging VC's money), while 99% of small businesses produce real value simply because they don't have a choice.

guscost 14y ago

Great thoughts! But I still want to be an entertainer...

djt 14y ago

The Lean Methodology is what small businesses have been doing since companies were created. I assumed that they took it and adapted it to tech business.