I'd rather government not even try to understand startups or business in general. That way they wouldn't try craft policies to stimulate business which are invariably misguided. It'd be better to just lower taxes and reduce regulatory burdens and just let things happen on their own. Even if they did make policies that they thought would help the lack of knowledge would make their ideas nothing more than guesswork and they wouldn't defend as being based on science or research or whatever.
I'm not sure a society needs more startups and I have no way to know so I wouldn't think to make a policy to help create startups. It seems to me that the presumption that society cannot produce the things it values is very arrogant. The whole point of the price system is to allow society to communicate to entrepreneurs what is valued and what isn't. Let others in society (not in government) communicate to the entrepreneurs what they should be building.
> It'd be better to just lower taxes and reduce regulatory burdens and just let things happen on their own.
As DanielBMarkham said in the top post, the problem is that governmental offices need to look like they are productively creating value. Getting out of the way doesn't get a bureaucrat a career advance. The government way would be to use tax money to create a startup development program, so that the administrators can point to successful outcomes from it and take credit. Never mind if we'd have more successful startups without a program at all thanks to lower tax overhead. Government cannot create such an outcome because government is composed of individual administrators all with their own self-interest. Government cannot remain idle even when remaining idle is the best solution, because each civil servant needs to be seen as Doing Something.
My state, New Jersey, has as part of its income tax return a moderately complicated form that amounts to a $50 rebate credit against property tax. Wouldn't it have been infinitely simpler to just lower property tax by $50 in the first place? Of course. But the extra paperwork creates visibility that They Are Doing Something About Our Taxes, which perception is far more important to the politicians than actually doing something about taxes.
I'm vaguely reminded of Internet Explorer's "enhanced security" stuff. IE looks more secure by emitting "we protected you!" notices all over the place, than if it had never been designed with such inherently risky OS integration in the first place.
> The whole point of the price system is to allow society to communicate to entrepreneurs what is valued and what isn't.
Yes, but the whole premise of the venture-capital scene is that the price system is inefficient. =] That is, there are places where you can put in $10m and get $100m out, because you find an area of potential production that just needed a catalyst.
I see cities as more or less trying to do the same thing; they want to find a way to provide a catalyst to local businesses that will pay for itself 10x over the next N years. May or may not work, but nothing in the market precludes it from being possible (the main reason for it not to work is just that city bureaucrats are bad at it, partly due to the political situation they operate in).
Not to get too long-winded about it, but the problem from government's perspective is lack of jobs, not startups. We're in one of those transitional periods right now where a lot of old jobs don't exist anymore and those unemployed people vote (and don't pay much in taxes, either). So it's necessary to look like you're doing something on jobs. Old industries aren't doing it so the presumption is hey, it's small money in gov't terms to try and foster startups, let's try it and see if it works.
PS on taxes, we've got the lowest tax rates in the post-war era right now, and record corporate profits, but new jobs still aren't appearing. Why? There's no business reason for them. Taxes are only one of many variables. Contrast with the 50s and 60s when taxes were much higher as was growth and employment. That's not to say that higher taxes cause economic growth, obviously. Other variables in play.
More start-ups are an inevitability of the future in my vision. I'm not discouraging or encouraging it either way, in fact it's probably not the best outcome, but because of popular media and the cultural dramatization of the start-up world and how entrepreneurial innovation works, people think it's a "Let's work out of a garage for awhile and then see what happens" type of thing.
I really hope that methodology and philosophy never becomes the penultimate choice for those that want to start their own business or innovate something.
The government could potentially destroy that balance though, I agree.
Where there is a need, there will be an innovation of some kind. The best ideas come partially from necessity.
I really hope that methodology and philosophy never becomes the penultimate choice for those that want to start their own business or innovate something.
If "let's work out of a garage for a while" is the second-to-last choice, what is the last choice, and is it better or worse?
I think Start-Ups as understood in the USA is also strongly connected to the peoples philosophy and culture. Knowing a little about the German and UK start-up scene, I feel that European entrepreneurs and investors favour a more risk-averse and engineered approach instead of the "let's do it and get rich or die trying" approach I feel is more common in the US. Just applying the US approach to another country where people think and feel totally different about the topic of founding companys can't work. But why should there not be other approaches that also work fine? Of course they might not lead to the same goals, Steve Blank has defined for a Start-Up-Ecosystem, but why should they? Maybe less innovation and less compensation might be okay, if you get also less risk for example.
> Maybe less innovation and less compensation might be okay, if you get also less risk for example.
You're assuming something about the value of the innovation and the cost of the risk.
Would you be willing to pay 1000 failed startups for one Google? I would, because the cost of those 999 startups is largely borne by the folks involved while I get significant benefits from the existence of Google.
Where I live bootstrapping is a necessity rather than an option. Founders and early employees carry tons of risk, and once the business is profitable the idea of taking funding on worse terms than are available to much riskier early-stage startups in the US is laughable. Companies grow organically because it makes the most sense to fuel growth with revenue.
Given that the vast majority of startup financing in the US is late-stage, it seems to me that a lot of companies that take investment in the States are doing it to de-risk participants, exactly the same thing that happens when pre-revenue founders take funding to pay themselves salaries. I think this is a good thing, but the insinuation that the rest of the tech world is building digital surf shops because we are beach bums who don't understand scalability is insulting and inane.
I've interacted with several government groups over the past few years, each with a mission to help startups. I've also worked several times with large companies who want to "foster innovation" and "empower teams" -- ie, actually start making something that people want instead of being stuck in paperwork-land.
I like what Steve has done here. He has a tendency to over-think things but understanding the different kinds of startups is critical to understand why things are so screwed up. The only thing I would add is that political groups, that is, groups of people who make decisions, make decisions based on politics. What else would we expect?
That sounds a bit circular, so let me expand it out. If I am part of a committee who has ten million to spend to bring jobs to the region, my primary goal is to make us all look good, to look as if we are bringing jobs to the region, to whatever group set us up. It is not, necessarily, to bring jobs to the region. I can't, for instance, blow the ten million for twenty years in a row and then end up with a Yahoo. The numbers might work, but the politics never would. The acceptance criteria is not the jobs, it is the appearance.
That's not saying that somehow there's anything crooked going on. It's simply damn hard to fund startups, as any VC will tell you. It's not hard, however, to construct some system of allocation and reporting that makes things look as if they are going along nicely, as any consultant would tell you. So a thousand government startup programs hum along, all giving out money and doing things that look important, all reporting back with solid numbers on how things are changing, and not much else happens. Everybody wants Google or some big startup that was formed somewhere else to move in -- that generates a lot of publicity and makes even more money flow in. Nobody wants a hundred lifestyle/small business startups that might employ 2-4 people. As Steve points out, those guys don't get their pictures on the front of magazines. Hell, most of the time you never even know they are there. Kind of hard to put that in an annual report somewhere, kind of hard to do a standup with the local TV station outside a new warehouse, kind of hard to do a ribbon-cutting ceremony with the local pols, even if the impact is the same or greater than the big score.
What would I do? Beats me. I think the problem is somewhat intractable. But if I had to, I'd work on things that formed communities -- incubators, free wi-fi, regular talks from industry leaders, open-air forums, free beer night, setting up near a college, etc -- and ditch any kind of reporting whatsoever. I'd definitely ditch business plan competitions and other wonkish old and tired ideas that seem to be everywhere but never amount to much. My only metric would be startup attempts and the size of the community actually interested in entrepreneurialism. From there I would get the hell out of the way. Then wait about ten or fifteen years.
> It's simply damn hard to fund startups, as any VC will tell you.
This is the crux of it right here. VCs have the opportunity to directly earn themselves millions of dollars by making good funding decisions. Some of them are good at it, but there's no formula to apply; it requires intelligence, savvy, drive and a good dose of luck.
Now if you think about how government works, even the most upstanding public servants with the best of intentions simply do not have what it takes to make the right cut-throat funding decisions that are necessary. Hell it might even be illegal in some jurisdictions to show the kind of aggressive preference that is required.
All the cynicism about bureaucrats wanting to look good might be true, but even if it's not, they're still fucked if they try to do it themselves. The best a government can hope to do is to not get in the way of people who are capable of doing it.
"...All the cynicism about bureaucrats wanting to look good might be true..."
No cynicism was intended. I'm simply trying to share my direct experiences, as indicated. My interests are in solving this problem, not throwing mud around and claiming it is impossible. When given a bucket of money, a vague and somewhat impossible task, people create systems of allocation and reporting that show progress, even though no actual progress is being made.
This has nothing to do with the government, government programs, or bureaucrats -- one of the big mistakes funded startups do is generate a lot of activity and paperwork without generating any results. There are a ton of startups generating mountains of paperwork -- reports, contracts, studies, research, white papers, market position statements, etc -- that will never have enough business to break even. Why? Because results are freaking hard, that's why. It's difficult to dynamically create a flow diagram full of ideas of various providence and adjust and tweak it as necessary. Much easier to construct some other, simpler measurement criteria that's more doable and simply measure against that. This is an attribute of groups of people put into stressful, complex, and difficult-to-tract situations that have to report to other groups. Organizational setting is not important. Apologies if somehow it read cynically. There is a great tolerance for dealing with uncertainty involved in the area of value creation that most people, frankly, find very uncomfortable.
Very good post there. Sometimes of course it is corrupt as well, and all for good intentions. As long as we are doing something for appearances sake, might as well help our buddies out. Locally I see these government funded business incubators and business parks built. Conference room, fax machine, staff to answer a bank of phones and pretend it is a real company. Business park construction contract goes to this guy's cousin who is a friend of the guy who donates. His niece will be the secretary. We have a connection that has some chairs he picked up from a dumpster, let's just make up a receipt that says we bought them new for $1100 each. Hurray, we are creating jobs. Even have a couple of tenants for the new building, there is a guy whose dream it is to own an ice cream cart, a lady that wants to open her own nail salon and start making more than minimum wage working for others, and an old guy who has been printing coupon flyers with advertisements for local businesses out of his garage. They are incubating, see? Soon this will all pay off somehow. If not, well those construction jobs were real jobs, so it worked, success. Government initiatives really do work. Jobs were created and that's a fact.
I don't think it's so much "help our buddies out" as "bring in a known quantity that I'm comfortable with".
For example, I dislike Dick Cheney and the past Bush administration as much as anyone for a whole host of reasons. But I'd be willing to bet that their thought process with the no-bid halliburton contracts was actually based on comfort level rather than plain old corruption.
Of course, on the flip-side, it's easy to tell yourself all kinds of justifiable reasons why your buddies getting the contract is just a side effect of the things you really wanted.
But if I had to, I'd work on things that formed communities -- incubators, free wi-fi, regular talks from industry leaders, open-air forums, free beer night, setting up near a college, etc -- and ditch any kind of reporting whatsoever. I'd definitely ditch business plan competitions and other wonkish old and tired ideas that seem to be everywhere but never amount to much. My only metric would be startup attempts and the size of the community actually interested in entrepreneurialism. From there I would get the hell out of the way. Then wait about ten or fifteen years.
I like your idea's a lot. To add to them, it would be really good for entrepreneurs wanting to form scaling-businesses to have their cost of living covered by the government for a time period of 6-12 months to get started. That way they could potentially build a business and launch it without having to worry about working a full-time job. For example:
- Free housing
- Free food
- Free medical
- Free office space (w/internet and electric)
If you have a good screening process, accepting those willing, wanting, and smart enough to do a startup, you could allow many to quit their job and work at it full-time. You'd pay just for the bare-minimum living expenses for single individuals in the program (no funding mortgages on homes, supporting families, etc...).
Giving people a time-period of 6 or 12 months of this could result in a lot of businesses being spawned. Kick those out who do nothing, and have experienced overseers (previously successful entrepreneurs) decide who to keep/cut.
You could sell the idea based on this requirement; any individual who takes up the offer must incorporate their company in your municipality for X number of years. That way your state gains future tax revenue from successes (corporate and earned income) to pay for the program, and hopefully make a profit.
I'm not sure a society needs more startups and I have no way to know so I wouldn't think to make a policy to help create startups. It seems to me that the presumption that society cannot produce the things it values is very arrogant. The whole point of the price system is to allow society to communicate to entrepreneurs what is valued and what isn't. Let others in society (not in government) communicate to the entrepreneurs what they should be building.