Startup nation

I was just reading Paul Graham's latest essay on startups, and there's some very interesting things in there (although I don't agree with all of it).

He mentions a couple of things; the first of which was how starting a startup now seems like a reasonable thing to do after getting an undergrad degree.  I never thought about that, and I wonder what today's undergrads think of it (no, I'm not saying I have any insight at all into that, let alone more than Paul;  I just wonder about perspective).  Still, it's a very interesting thought.

And an interesting twist on it that he didn't explore (as a VC, he'd likely see it as irrelevant for investors) at all is the effect of Kickstarter and similar "capital markets" (for lack of a better term).  If you can get your costs down low enough, you can go directly to customers now, and that's a new situation entirely.  I've bought (or thought about buying) a couple of gadgets that recently came out of kickstarter.

I also thought it was interesting what he revealed about how Y Combinator makes its decisions about which companies to fund.  Not sure what to make of it, but interesting, nonetheless.

This paragraph, though, I found particularly interesting:
One thing we can say for sure is that there will be a lot more startups. The monolithic, hierarchical companies of the mid 20th century are being replaced by networks of smaller companies. This process is not just something happening now in Silicon Valley. It started decades ago, and it's happening as far afield as the car industry. It has a long way to run.
To take it apart, I certainly agree with the first statement.  But I'm not at all sure I agree with the second; the amazing amount of consolidation across most industries is impressive (well, depressive, actually).  I really don't see the replacement happening.  Mostly what I see are the big companies buying up the small ones.  How many phone companies are there?  How many broadband companies?  How many media companies?  How many airlines?  How many banks?

Aside from a couple of companies (Yahoo! and Google are the two I can think of off the top of my head), I mostly see startups doing some shaking up of industry, and then getting bought by one of the behemoths.

There's a lot of reasons for that, but it mostly boils down to the government not caring about antitrust.

So I'm not terribly sure startups have really had that much effect, broadly speaking.  The potential is there, for sure, but I'm not sure it's really happened.

The part where I strongly disagree with the article is actually in one of the footnotes (referenced at the end of the above paragraph, I now note).  It says that the networks of companies are a prime cause for the concentration of wealth in this country.  I can list a whole bunch of reasons that have more effect.

  1. The idea of companies existing to create shareholder value.  This idea has been an enormous rip-off that has actually decreased shareholder value by putting more money into executive leadership.
  2. All that Merger and Acquisition activity to which I alluded has removed a lot of middle-management and administrative jobs (particularly the latter).
  3. The destruction of the labor union.  Unions represent about 9% of workers nowadays.  In the 50s, it was more like 70%.  That allows for a lot more downward pressure on wages.  These three factors, together, have sent CEO salaries from 50-ish times average wage to 300-ish times it.
  4. The failure of the minimum wage to keep up with inflation.  In the 60s, minimum wage was, in today's dollars, about $10.50.  Working full-time at minimum wage, back then, was enough to stay out of poverty.  That is certainly not the case any longer.
  5. Tax policy from the 80s onward has largely been targeted at concentrating wealth into one clade.  This has accelerated greatly in the last twelve years or so, but has been ongoing since '81 or '82 (trickle-down economics).
  6. The gradual dismantling of the public school system.  It hasn't happened yet, but it's well underway (especially see what's happening in Michigan and Texas, which are much further along this path than most of the country), and this might completely undermine much of what Paul theorizes is coming.  Why?  Because education is a major, driving force for people working in startups.  If they can't get that education (because only the rich can get the fundamentals), then there won't be any workers to drive that.
  7. One could even make a case that the money being allowed back into politics (particularly via SuperPACs) since Citizens United is a bigger factor.
All in all, a very interesting read.

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