April 2009
Recently I realized that there are two ideas spinning in my head that will explode if you put them together.
The first is that startups are a new economic era , akin to the industrial revolution. I'm not sure about this, but, with a high degree of probability, it can be argued that it is. Startup founders and staff are much more productive (imagine how much less Larry and Sergey [referring to the founders of Google] would have accomplished if they worked for a large company), and this increased productivity could change social fabric.
The second idea is that startups are the kind of business that thrives in certain places that specialize. Silicon Valley specializesat startups, just like Los Angeles is at films or New York is at finance. [1]
What if both ideas are correct? What if startups are both the next phase of the industrial revolution and the kind of business that thrives in certain places?
If so, then this revolution will be completely unusual. All previous revolutions have spread. Agriculture, cities, industrialization spread widely throughout the world. If startups end up as a movie business centered in multiple locations and one dominant center, there will be new consequences.
Already, there are signs that startups may not spread widely enough. Startups are spreading more slowly than the industrial revolution, even though communications are faster. In the decades after the founding of Boulton & Watt, steam engines spread throughout Europe and North America. For some time, industrialization did not go beyond these regions. Because these were lands where a strong middle class was formed, and a person could set up an enterprise without fear of confiscation if successful. Otherwise, it made no sense to invest in business. And in countries with a strong middle class, industrial technology was introduced quite easily. A private owner of a mine or a factory decided to install a steam engine and within a few years he most likely found someone nearby,who could make it for him. Therefore, steam engines quickly spread. And they spread widely because the location of mines and factories was determined by factors such as rivers, ports, and mineral deposits. [2]
Startups do not spread at such a speed, on the one hand, because they are more of a social phenomenon than a technical one, and on the other hand, because they are not tied to any geographic objects. A private entrepreneur in Europe could acquire industrial equipment and it worked perfectly in a new place. It doesn't work that way with startups: you need a community of specialists, just like in the film industry. [3] In addition, there are no factors that would contribute to the proliferation of startups. When railways and power grids appeared, they were required in every region. The area where they were not, became a potential market. But with startups, it's very different. There is no need to create Microsoft in France or Google in Germany.
Governments can decide to reward startups. However, government policy does not lead to their appearance, as natural need might.
So what happens? If I were asked now, I would say that startups will spread, but very slowly, because this will not be helped by government policy (which does not work) or market demand (which does not), to the extent that it happens at all, because the same random reasons that have driven the spread of startup culture ever since. And the already existing hubs of focusing startups will increasingly influence these random causes. Silicon Valley is there because William Shockley wanted to return to Palo Alto, where he grew up, and the professionals he lured west to work with him loved it so much that they stayed. Seattle owes a lot to its position as a tech hub for the same reason: Gates and Allen wanted to go home. Otherwise, Albuquerque could have taken Seattle's place.Boston is a tech hub because it is the intellectual capital of the United States and probably the world. And if the venture capital firm Battery Ventures had not refused to negotiate with Facebook, Boston would now occupy a more significant place on the startup map. And, of course, it was no coincidence that Facebook found funding in the Valley, not in Boston. Even students know that there are more investors here and they are more daring than in Boston.
The Boston example illustrates the challenges you face when creating a new startup hub at this stage. If you are going to create a startup hub following this pathas existing hubs have gone, you should establish a top-notch research university in such a beautiful place that rich people want to live. This way, the place will be welcoming for both the groups you need: founders and investors. It was this combination that led to the emergence of Silicon Valley. But Silicon Valley had no competitor in another Silicon Valley. If you are now building a startup hub by building a large university in a great location, then you will find that the time is not favorable for this, because many of the best startups that spring up in your hub will easily move to others.
I recently came up with a short way to create a startup hub: pay startups to move... When you have enough good startups in one place, a chain reaction begins. The founders will move there without payment from you, because there will be people who are close to them in spirit, and investors will also appear, because there it will be possible to conclude profitable deals.
I doubt that any state has enough eggs to dare to create a startup hub or the brains to do it right. My essay is not a guide to action, but a study on what it takes to consciously shape startup hubs.
The most likely scenario for further events is as follows: (1) no state will be able to create a startup hub, and (2) the spread of the startup culture will be determined by random factors, as has happened so far, but (3) these factors will be increasingly influenced by existing startup hubs. Bottom line: if this is a revolution, it will be localized.
Thanks to Patrick Collison, Jessica Livingston, and Fred Wilson for reading the templates for this essay.
Notes
[1] There are two radically different types of startups: the first are those that develop naturally, and the second is those that grow from the commercialization of scientific ideas. Most computer and software startups are of the former, and most pharmaceuticals are of the latter. In my essay, I'm talking about the first kind of startups. There are no difficulties with the distribution of startups of the second type; commercializing new ideas that researchers are coming up with is as easy as building a new airport. Startups of the second type do not require and do not create a startup culture. This means that a type 2 startup will never grow into a type 1 startup. For example, in Philadelphia, there are many startups of the second type and practically no first type.
By the way, Google could have appeared as a startup of the second kind, but this did not happen. Google has not commercialized internet page rankings. Other algorithms could have been used, and the result would still be the same. Google became Google because it focused on doing good search at a critical time in the development of the Internet.
[2] The steam engine existed before Watt. His contribution is that he made it much more effective: he invented an insulated condensation chamber. This seems to detract from his role. But he approached the problem from an unexpected angle and tackled it with such energy that he literally changed everything. It would probably be more accurate to say that Watt reinvented the steam engine.
[3] The largest counterexample is Skype. If what you do is banned in the United States, it will develop elsewhere. So Kazaa took over from Napster. And the experience and connections the founders have gained working on Kazaa have helped ensure Skype's success.
Translation: finik
If you want to help with translations of useful materials from the YC library - write in a personal, @jethacker cart or mail alexey.stacenko@gmail.com
Follow the YC Startup Library news in Russian in the telegram channel or on Facebook .