Entrepreneurship for the 99%(steveblank.com)
steveblank.com
Entrepreneurship for the 99%
http://steveblank.com/2012/06/04/entrepreneurship-for-the-99/
54 comments
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.
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.
Great thoughts! But I still want to be an entertainer...
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.
(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.
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.
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.
Um, no. Nothing in the economy is zero sum. Wealth is constantly being created and transferred.
Created and transferred are two different things. Created means new wealth is generated through increased efficiency or innovation. The pie gets bigger. Transferred means one player loses and the other gains (the definition of zero zum). The pie stays the same, only the relative size of each slice changes.
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.
You argue that increased efficiency is a kind of innovation. Your argument is that increased competition leads to increased efficiency, and by increasing efficiency in a market more resources are freed for other markets and the pie gets bigger.
I may agree with you here, but you'll have to provide examples.
* 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*
Can you provide concrete examples?
Several points: I can agree with your argument on a theoretical level but its still a leap to make the connection between increased quantity leading to innovation without evidence or examples.
1) One instance in which your argument could be true: If there are greater efficiencies discovered in one industry (for example, a new gizmo that doesn't require as many restaurant cooks), leading to less labor costs and subsequently lower cost of food, leading to increased money in consumer's pockets with which they could spend in other industries.
But who discovered that efficiency? It could be made by a separate party and have no connection to the increase of competitors. It is a leap to draw the correlation between increased competitors and innovation.
2) One instance where it may not be true: An industry where there are little or no efficiencies to be captured.
Lets say there are 10,000 software design firms competing with one another and they make their profit from software consulting projects. If they all make a profit of $1,000,000 / year and you add another 10,000 competitors, all providing the same service, two things will happen for sure: 1) some of the new competitors will gain entry to the market, leading to lower profit for everyone else. 2) some competitors will fail.
It is possible that the innovations are simply not there to be found by the new entrants, even with their newfound startup wisdom. Innovation is not a matter of strictly effort. For example, I recently came back from a trip to Southeast Asia where I traveled for 3 months across many of the developing countries and witnessed the effects of increased competition there among the street hawkers.
In the street-hawking industry there simply aren't many innovations to be discovered. Adding more entrepreneurs to the mix wouldn't lead to innovation, but rather a race to the bottom. Profits across the board would decrease and consumers would benefit.
Also, a point about quality: increased quality does not necessarily lead to a greater pie. We may lead richer lives from 10% more delicious food but the wealth pie stays the same. (although that is valuable as well).
Created and transferred are two different things. Created means new wealth is generated through increased efficiency or innovation. The pie gets bigger. Transferred means one player loses and the other gains (the definition of zero zum). The pie stays the same, only the relative size of each slice changes.
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.
You argue that increased efficiency is a kind of innovation. Your argument is that increased competition leads to increased efficiency, and by increasing efficiency in a market more resources are freed for other markets and the pie gets bigger.
I may agree with you here, but you'll have to provide examples.
* 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*
Can you provide concrete examples?
Several points: I can agree with your argument on a theoretical level but its still a leap to make the connection between increased quantity leading to innovation without evidence or examples.
1) One instance in which your argument could be true: If there are greater efficiencies discovered in one industry (for example, a new gizmo that doesn't require as many restaurant cooks), leading to less labor costs and subsequently lower cost of food, leading to increased money in consumer's pockets with which they could spend in other industries.
But who discovered that efficiency? It could be made by a separate party and have no connection to the increase of competitors. It is a leap to draw the correlation between increased competitors and innovation.
2) One instance where it may not be true: An industry where there are little or no efficiencies to be captured.
Lets say there are 10,000 software design firms competing with one another and they make their profit from software consulting projects. If they all make a profit of $1,000,000 / year and you add another 10,000 competitors, all providing the same service, two things will happen for sure: 1) some of the new competitors will gain entry to the market, leading to lower profit for everyone else. 2) some competitors will fail.
It is possible that the innovations are simply not there to be found by the new entrants, even with their newfound startup wisdom. Innovation is not a matter of strictly effort. For example, I recently came back from a trip to Southeast Asia where I traveled for 3 months across many of the developing countries and witnessed the effects of increased competition there among the street hawkers.
In the street-hawking industry there simply aren't many innovations to be discovered. Adding more entrepreneurs to the mix wouldn't lead to innovation, but rather a race to the bottom. Profits across the board would decrease and consumers would benefit.
Also, a point about quality: increased quality does not necessarily lead to a greater pie. We may lead richer lives from 10% more delicious food but the wealth pie stays the same. (although that is valuable as well).
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.
I'm talking about markets on the whole, not any particular business.
Let's say you have 5 players selling car tires. There are 1000 cars in the area, and only one brand of tire to buy. For the most part, these 5 players compete on something other than price, since the market is mature. They have 20% of the market each.
Let's introduce 3 new players into this market. They bring nothing new to the market per se, but by default they get some sales (maybe they are closer to the car owner's homes, maybe they have a hot chick at the front desk). Nothing major, let's say they share 10% of the market overall, and the 5 incumbents lose 2.5% of their sales each.
The incumbents panic and look to counter this threat, and one of them happens upon the fact that if you change the formula for the tire a little, you can get a 50% increase in performance and a 20% increase in lifespan with only an extra 5% in manufacturing costs.
Now everyone scrambles: Some into R&D, some into improving customer service, some into death. The overall value of this market increases, because of the 5% increase and corresponding price increase... inflation, if you will.
This innovation happened completely and only because of the dreaded saturation of the market you are complaining about. The quality of the noobies is irrelevant, since the incumbent did the innovation. Point is the innovation happened, and wouldn't have happened without the new entrants creating pressure through competition.
Let's say you have 5 players selling car tires. There are 1000 cars in the area, and only one brand of tire to buy. For the most part, these 5 players compete on something other than price, since the market is mature. They have 20% of the market each.
Let's introduce 3 new players into this market. They bring nothing new to the market per se, but by default they get some sales (maybe they are closer to the car owner's homes, maybe they have a hot chick at the front desk). Nothing major, let's say they share 10% of the market overall, and the 5 incumbents lose 2.5% of their sales each.
The incumbents panic and look to counter this threat, and one of them happens upon the fact that if you change the formula for the tire a little, you can get a 50% increase in performance and a 20% increase in lifespan with only an extra 5% in manufacturing costs.
Now everyone scrambles: Some into R&D, some into improving customer service, some into death. The overall value of this market increases, because of the 5% increase and corresponding price increase... inflation, if you will.
This innovation happened completely and only because of the dreaded saturation of the market you are complaining about. The quality of the noobies is irrelevant, since the incumbent did the innovation. Point is the innovation happened, and wouldn't have happened without the new entrants creating pressure through competition.
Sure, I understand the idealized theory; it just doesn't match what actually happens in most complex systems (take fluid flow, for example, where increasing pressure increases flow rates... until a critical threshold at which flow becomes turbulent). I don't think markets are well-understood enough to apply this idealized theory without empirical evidence that assumptions aren't violated. It's not a priori clear to me that there don't exist situations where increasing market participation leads to decreased market efficiency as friction effects or internal market dynamics start dominating.
This is not a theory - it's exactly what happens.
Even a case where an innovation decreased market efficiency (of this does happen - all players would love to have a monopoly), the trend is for the market to work towards increased efficiency.
I'm no hard-core libertarian, but unless you have outside interference in a market - big tire 5 use government to mandate a tire-selling license that presents a barrier to entry - or one of those markets that lead itself to creating natural monopolies, this is the way things work.
Even a case where an innovation decreased market efficiency (of this does happen - all players would love to have a monopoly), the trend is for the market to work towards increased efficiency.
I'm no hard-core libertarian, but unless you have outside interference in a market - big tire 5 use government to mandate a tire-selling license that presents a barrier to entry - or one of those markets that lead itself to creating natural monopolies, this is the way things work.
That's just an assertion based on idealized economic theory; not evidence that things work that way in particular situations. In particular, you haven't explained why there are either a priori or strong empirical reasons to believe that greater market participation never produces adverse effects. Evidence from nearly every other complex-systems discipline, ranging from hydraulics to meteorology to ecology, points in the direction that such "well-behaved" systems characterized by general relationships, valid in all regimes, are quite uncommon; and instead "phase-change" type thresholds at which behavioral regimes change are the norm.
>greater market participation never produces adverse effects
I never said it didn't.
I said greater market participation increases innovation by default, regardless of the quality of said participation. You are the only one equating the behaviour of the markets to being either "good" or "bad". The reality is that these are not concepts the market understands or cares about.
Innovation can and does destroy entire markets all the time. But unless you feel innovation itself is horrible and we should be writing these arguments with typewriters and cabling them to each other, you simply have to accept the reality that innovation will occur all the time in every direction.
I never said it didn't.
I said greater market participation increases innovation by default, regardless of the quality of said participation. You are the only one equating the behaviour of the markets to being either "good" or "bad". The reality is that these are not concepts the market understands or cares about.
Innovation can and does destroy entire markets all the time. But unless you feel innovation itself is horrible and we should be writing these arguments with typewriters and cabling them to each other, you simply have to accept the reality that innovation will occur all the time in every direction.
You make a leap in the story there when you assume that the incumbent will discover the innovation. It is so subtle too:
and one of them happens upon the fact
I don't think its that easy, and the story could have turned out a number of different ways and you chose the one that supported your argument (much like I did in my other reply to you).
Increased competition could lead to a race to the bottom, with each competitor slashing prices, engaging in expensive marketing wars and predatory acquisitions. With so much heated competition, R&D budgets get slashed by short-term thinking managers. There is no innovation for a decade, only decreased profits.
I don't think its that easy, and the story could have turned out a number of different ways and you chose the one that supported your argument (much like I did in my other reply to you).
Increased competition could lead to a race to the bottom, with each competitor slashing prices, engaging in expensive marketing wars and predatory acquisitions. With so much heated competition, R&D budgets get slashed by short-term thinking managers. There is no innovation for a decade, only decreased profits.
There is no innovation for a decade, only decreased profits.
Decreased profits are an innovation. Clearly the market was overpriced. It's the same as buying a new machine and decreasing your costs.
Creating wealth is not "building something" directly. I think this is where you are confused. Creating wealth is "acquiring something". This could be a physical item or something nondescript like time.
Decreased profits are an innovation. Clearly the market was overpriced. It's the same as buying a new machine and decreasing your costs.
Creating wealth is not "building something" directly. I think this is where you are confused. Creating wealth is "acquiring something". This could be a physical item or something nondescript like time.
> This innovation happened completely and only because of the dreaded saturation of the market you are complaining about.
False. This happens with or without the 3 new players. Those 5 players are going to be vying for a bigger piece of the pie. They're trying new marketing, new formulas, etc. Over time an increasingly large part of the company will be dedicated to growing it, (especially if they're not growing!). Some of them might invest in or partner with the car companies and secure a contract for new cars. They might work together to increase the size of the market. Markets that are stable are not so because players idle, they are stable because everyone is innovating at a similar pace. When one of these guys makes the mistake of thinking he can take it easy and sit on his 20%, the others will take it as fast as possible.
(I'm not disagreeing that new entrants to a market are a bad thing, just saying that it's not for this reason)
False. This happens with or without the 3 new players. Those 5 players are going to be vying for a bigger piece of the pie. They're trying new marketing, new formulas, etc. Over time an increasingly large part of the company will be dedicated to growing it, (especially if they're not growing!). Some of them might invest in or partner with the car companies and secure a contract for new cars. They might work together to increase the size of the market. Markets that are stable are not so because players idle, they are stable because everyone is innovating at a similar pace. When one of these guys makes the mistake of thinking he can take it easy and sit on his 20%, the others will take it as fast as possible.
(I'm not disagreeing that new entrants to a market are a bad thing, just saying that it's not for this reason)
No, this simply isn't true. If it was, oligarchies would never become established.
Failing a strong leader that can create monopolistic conditions in a market, oligarchies are the norm. The reason for this is that the status quo is often more desirable than the risk required in advancing your position.
What you are suggesting will only happen if for some reason, competitors view themselves as enemies. The reality is that it is often the opposite, and nobody wants to rock the boat - except for the upstart.
It's for that reason that new competitors are almost a requirement, never mind a benefit.
Failing a strong leader that can create monopolistic conditions in a market, oligarchies are the norm. The reason for this is that the status quo is often more desirable than the risk required in advancing your position.
What you are suggesting will only happen if for some reason, competitors view themselves as enemies. The reality is that it is often the opposite, and nobody wants to rock the boat - except for the upstart.
It's for that reason that new competitors are almost a requirement, never mind a benefit.
You're created a bogus thought experiment and tried to pretend it reflects what happens in the real world. A extrapolation fault common to many academics and startup owners.
"Um, no. Nothing in the economy is zero sum. Wealth is constantly being created and transferred."
Created and transferred are 2 completely different things and I think OP is against innovation that simply transfers wealth (popular example is financial industries). A more cynical example is Groupon, which transfers wealth from small businesses to them.
Creating wealth is making something more efficient like creating the airplane or the internet. Or improving the standard of living like creating a cure for a disease.
It's actually very very hard to do it, and less than 5% of tech startups probably succeed in doing it, even the ones that are successful.
Created and transferred are 2 completely different things and I think OP is against innovation that simply transfers wealth (popular example is financial industries). A more cynical example is Groupon, which transfers wealth from small businesses to them.
Creating wealth is making something more efficient like creating the airplane or the internet. Or improving the standard of living like creating a cure for a disease.
It's actually very very hard to do it, and less than 5% of tech startups probably succeed in doing it, even the ones that are successful.
The transfer of wealth is in fact the creation of wealth in 99% of cases, otherwise you are talking about charity.
There is no "good" wealth creation, nor is there "bad" wealth creation. It just simply is. A tornado is a horrible event, but it creates wealth.
You are conflating simple wealth creation - the idea of providing value that wasn't previously there - with innovation and/or human progress. That's simply a misunderstanding of the term when used in the context of economics.
There is no "good" wealth creation, nor is there "bad" wealth creation. It just simply is. A tornado is a horrible event, but it creates wealth.
You are conflating simple wealth creation - the idea of providing value that wasn't previously there - with innovation and/or human progress. That's simply a misunderstanding of the term when used in the context of economics.
> A tornado is a horrible event, but it creates wealth.
Classic broken window fallacy.
A tornado doesn't create wealth. On net, it leaves the society poorer than before. It may create a windfall for a particular industry, but that's just moving wealth around. The money spent on rebuilding had to get pulled away from something else. It would have necessarily been spent or invested, and now that spending or investment will never happen.
Bastiat called it the seen vs the unseen. We see the builders making money. We don't see the economic activity that would have otherwise occurred if there had been no tornado.
The overall impact on economic activity is a wash, and the only net effect is the original property destruction.
Classic broken window fallacy.
A tornado doesn't create wealth. On net, it leaves the society poorer than before. It may create a windfall for a particular industry, but that's just moving wealth around. The money spent on rebuilding had to get pulled away from something else. It would have necessarily been spent or invested, and now that spending or investment will never happen.
Bastiat called it the seen vs the unseen. We see the builders making money. We don't see the economic activity that would have otherwise occurred if there had been no tornado.
The overall impact on economic activity is a wash, and the only net effect is the original property destruction.
A tornado doesn't create wealth.
Of course it does. It's a catalyst.
On net, it leaves the society poorer than before.
There's no basis for you to make that assertion. If a trailer park is destroyed and a regional business park is what replaces it, there's no way you can argue that there hasn't been a net growth economically. Natural disasters almost always increase GDP in the recovery phase.
We don't see the economic activity that would have otherwise occurred if there had been no tornado.
This is kind of irrelevant since economic activity can't be measured until it actually happens. It's like suggesting that going to the moon was a net loss for humanity because we could have reinvested those funds in going to Mars instead.
We don't see the economic activity that would have otherwise occurred if there had been no tornado.
Again, because said activity is completely irrelevant. The point is that there is economic activity that is a direct result of the event. Is Christmas a wealth creating event? You are suggesting it's not, after all, all the resources used for Christmas presents would have been used somewhere else, no? Using those terms, nothing is a wealth generator, and the economy is zero sum.
That is completely wrong.
Of course it does. It's a catalyst.
On net, it leaves the society poorer than before.
There's no basis for you to make that assertion. If a trailer park is destroyed and a regional business park is what replaces it, there's no way you can argue that there hasn't been a net growth economically. Natural disasters almost always increase GDP in the recovery phase.
We don't see the economic activity that would have otherwise occurred if there had been no tornado.
This is kind of irrelevant since economic activity can't be measured until it actually happens. It's like suggesting that going to the moon was a net loss for humanity because we could have reinvested those funds in going to Mars instead.
We don't see the economic activity that would have otherwise occurred if there had been no tornado.
Again, because said activity is completely irrelevant. The point is that there is economic activity that is a direct result of the event. Is Christmas a wealth creating event? You are suggesting it's not, after all, all the resources used for Christmas presents would have been used somewhere else, no? Using those terms, nothing is a wealth generator, and the economy is zero sum.
That is completely wrong.
"The transfer of wealth is in fact the creation of wealth in 99% of cases, otherwise you are talking about charity."
How is that so?
Yes, creating wealth does involve transferring of wealth, but if it's simple redistribution entirely from A to B, that's not new wealth creation at all. Say I take out a loan of 100K to build a house. Did I create new wealth?
"A tornado is a horrible event, but it creates wealth."
I can see your point, if that's your definition of wealth. Divorces create wealth. Wars create wealth. I guess that shows how useless any economic indicators are: they don't tell you whether the standard of living is improving at all.
How is that so?
Yes, creating wealth does involve transferring of wealth, but if it's simple redistribution entirely from A to B, that's not new wealth creation at all. Say I take out a loan of 100K to build a house. Did I create new wealth?
"A tornado is a horrible event, but it creates wealth."
I can see your point, if that's your definition of wealth. Divorces create wealth. Wars create wealth. I guess that shows how useless any economic indicators are: they don't tell you whether the standard of living is improving at all.
They do tell you how the standard of living is improving, because standard of living as a measurement is linked to things like purchasing power, GDP, overall wealth etc.
What you are looking for though is Quality of Life. This measurement is an attempt to do what you are looking for: harness non-economic indicators together with the empirical data to determine how people are doing.
EDIT: To your first point - If you are giving some of your wealth (often in the form of money) to someone else, you are usually doing so for a reason, in that they are producing something that you value. The very act of producing value is creating wealth.
Say I take out a loan of 100K to build a house. Did I create new wealth?
Yes. You're paying interest to the bank aren't you? Interest that wasn't there before. That's new wealth. You're also paying your realtor. That's new wealth, etc. etc.
The fact that you don't think the bank needs any more wealth is entirely besides the point.
There's a good pg essay on this that explains these concepts well: http://paulgraham.com/wealth.html
What you are looking for though is Quality of Life. This measurement is an attempt to do what you are looking for: harness non-economic indicators together with the empirical data to determine how people are doing.
EDIT: To your first point - If you are giving some of your wealth (often in the form of money) to someone else, you are usually doing so for a reason, in that they are producing something that you value. The very act of producing value is creating wealth.
Say I take out a loan of 100K to build a house. Did I create new wealth?
Yes. You're paying interest to the bank aren't you? Interest that wasn't there before. That's new wealth. You're also paying your realtor. That's new wealth, etc. etc.
The fact that you don't think the bank needs any more wealth is entirely besides the point.
There's a good pg essay on this that explains these concepts well: http://paulgraham.com/wealth.html
This has devolved into a semantic argument about wealth and pies. Part of the confusion isn't helped by one line in PG's essay:
People think that what a business does is make money. But money is just the intermediate stage-- just a shorthand-- for whatever people want. What most businesses really do is make wealth. They do something people want.
Besides this one confusing sentence PG gets wealth creation correctly: its about increasing the size of the pie, and that is what's important for the country as a whole.
Your example of the realtor and the bank is not wealth creation, but money transfer. They didn't create new wealth. They made money from you, and your "wealth" is now decreased. The only wealth created in this instance is the wealth you add to the pie when you use that loan to complete your house. The realtor and bank add value in that they enable you to do your wealth-creating thing: build a house. The simple act of lending you 100k is not wealth-creation because if you piss that money away or burn it, all you have done is give money to someone else. The world is not richer as a result.
People think that what a business does is make money. But money is just the intermediate stage-- just a shorthand-- for whatever people want. What most businesses really do is make wealth. They do something people want.
Besides this one confusing sentence PG gets wealth creation correctly: its about increasing the size of the pie, and that is what's important for the country as a whole.
Your example of the realtor and the bank is not wealth creation, but money transfer. They didn't create new wealth. They made money from you, and your "wealth" is now decreased. The only wealth created in this instance is the wealth you add to the pie when you use that loan to complete your house. The realtor and bank add value in that they enable you to do your wealth-creating thing: build a house. The simple act of lending you 100k is not wealth-creation because if you piss that money away or burn it, all you have done is give money to someone else. The world is not richer as a result.
Your example of the realtor and the bank is not wealth creation, but money transfer.
Money transfer - assuming it isn't charity - is wealth creation, you are always getting something in return in exchange for that money. That something is increased wealth.
The only wealth created in this instance is the wealth you add to the pie when you use that loan to complete your house.
First, that $100K did not exist before I asked for it. It literally was created. Second, these aren't two unrelated events. I bought money after all.
if you piss that money away or burn it, all you have done is give money to someone else. The world is not richer as a result.
Actually, the bartender would be richer in this case. I bought money, that action alone increased my wealth the same way buying a car increases my wealth. I have something now that I didn't have before. What I do with that money is really irrelevant, in the same way that how fast I drive the car is irrelevant.
If I physically burned the money, sure. But the same is true if I physically burn my house down. Of course this too adds to the economy.
Again, conflating wealth to some sort of "good" is a near impossibility, since it devolves into opinions of value and worth.
My wealth is now decreased? Hello? I have a house that I didn't have before! It takes some strange reasoning to assume my wealth is decreased because I'm paying interest on a loan.
Money transfer - assuming it isn't charity - is wealth creation, you are always getting something in return in exchange for that money. That something is increased wealth.
The only wealth created in this instance is the wealth you add to the pie when you use that loan to complete your house.
First, that $100K did not exist before I asked for it. It literally was created. Second, these aren't two unrelated events. I bought money after all.
if you piss that money away or burn it, all you have done is give money to someone else. The world is not richer as a result.
Actually, the bartender would be richer in this case. I bought money, that action alone increased my wealth the same way buying a car increases my wealth. I have something now that I didn't have before. What I do with that money is really irrelevant, in the same way that how fast I drive the car is irrelevant.
If I physically burned the money, sure. But the same is true if I physically burn my house down. Of course this too adds to the economy.
Again, conflating wealth to some sort of "good" is a near impossibility, since it devolves into opinions of value and worth.
My wealth is now decreased? Hello? I have a house that I didn't have before! It takes some strange reasoning to assume my wealth is decreased because I'm paying interest on a loan.
Ok, now this is getting interesting. You raise some interesting points that make me question the deeper meaning of what wealth really is. Perhaps we simply disagree about the definition of wealth. From Wikipedia:
the meaning of wealth is context-dependent and there is no universally agreed upon definition. At the most general level, economists may define wealth as "anything of value" which captures both the subjective nature of the idea and the idea that it is not a fixed or static concept.
So it seems a lot of the discussion in this thread revolves around semantics, mainly about what defines wealth.
So what exactly is your definition of wealth? I don't understand the logical basic behind your arguments.
For example: Actually, the bartender would be richer in this case. I bought money, that action alone increased my wealth the same way buying a car increases my wealth. I have something now that I didn't have before. What I do with that money is really irrelevant, in the same way that how fast I drive the car is irrelevant.
You exchanged your money for a car. You could now be wealthier in the sense that the car brings you happiness or functionality that you didn't have before, enabling you to be more productive. But what if you already owned a car and were simply indulging yourself? What if this was your 5th car that you didn't need? So you could keep on buying cars forever, and you'd be continually increasing your wealth? I don't understand why buying the car automatically makes you wealthier. If you give a hobo $10,000 to buy an hour of him walking in circles, you've increased your wealth of entertainment perhaps, but it is a stretch by any definition of wealth to say you've created it.
If I physically burned the money, sure. But the same is true if I physically burn my house down. Of course this too adds to the economy."
Assuming your house was functioning and adequate then the economy is poorer without your house. That is wealth destruction not creation. For now you have to pay for a new house. Someone has to use the materials and labor to build that house. You pay him your money to do so. Now you have less. Wealth was not created here. It was shifted around from your pocket to the construction company's.
the meaning of wealth is context-dependent and there is no universally agreed upon definition. At the most general level, economists may define wealth as "anything of value" which captures both the subjective nature of the idea and the idea that it is not a fixed or static concept.
So it seems a lot of the discussion in this thread revolves around semantics, mainly about what defines wealth.
So what exactly is your definition of wealth? I don't understand the logical basic behind your arguments.
For example: Actually, the bartender would be richer in this case. I bought money, that action alone increased my wealth the same way buying a car increases my wealth. I have something now that I didn't have before. What I do with that money is really irrelevant, in the same way that how fast I drive the car is irrelevant.
You exchanged your money for a car. You could now be wealthier in the sense that the car brings you happiness or functionality that you didn't have before, enabling you to be more productive. But what if you already owned a car and were simply indulging yourself? What if this was your 5th car that you didn't need? So you could keep on buying cars forever, and you'd be continually increasing your wealth? I don't understand why buying the car automatically makes you wealthier. If you give a hobo $10,000 to buy an hour of him walking in circles, you've increased your wealth of entertainment perhaps, but it is a stretch by any definition of wealth to say you've created it.
If I physically burned the money, sure. But the same is true if I physically burn my house down. Of course this too adds to the economy."
Assuming your house was functioning and adequate then the economy is poorer without your house. That is wealth destruction not creation. For now you have to pay for a new house. Someone has to use the materials and labor to build that house. You pay him your money to do so. Now you have less. Wealth was not created here. It was shifted around from your pocket to the construction company's.
How about wealth of the overall economy? When a tornado happens, when a house burns down.. as mentioned, wealth is destroyed because resources are utilized that could've been used for other purposes - investment, new venture, etc.
You give the example of Christmas. Wealth is hardly ever created when you buy lots of stuff for Christmas - that's wealth distribution from your savings to Macys. Savings is still wealth. If nobody spent anything for Christmas, wealth would not decrease - because our money would remain in our savings accounts.
Technology is a good example of wealth creation. With the invention of the internet, we save time on many things like shopping, buying plane tickets, etc. Time that could be used on other things in our lives.
You give the example of Christmas. Wealth is hardly ever created when you buy lots of stuff for Christmas - that's wealth distribution from your savings to Macys. Savings is still wealth. If nobody spent anything for Christmas, wealth would not decrease - because our money would remain in our savings accounts.
Technology is a good example of wealth creation. With the invention of the internet, we save time on many things like shopping, buying plane tickets, etc. Time that could be used on other things in our lives.
The definition of wealth that you are using is not the same as the one recognized by most economists.
As such, some of the things you are saying are absurd in that context, and it really makes it difficult to keep the conversation in scope. I can certainly tell you that if everyone stayed home this Christmas, the economy would come close to collapsing.
I don't take issue with what you're saying, but you have moved beyond this being a discussion regrading economics, I'm afraid.
As such, some of the things you are saying are absurd in that context, and it really makes it difficult to keep the conversation in scope. I can certainly tell you that if everyone stayed home this Christmas, the economy would come close to collapsing.
I don't take issue with what you're saying, but you have moved beyond this being a discussion regrading economics, I'm afraid.
This is what Peter Thiel discusses in his "perfect competition" argument.
That's not Peter Thiel's argument. That's Peter Thiel delivering a remedial microeconomics lesson. 'Perfect competition', 'monopolistic competition' and 'monopoly' are technical terms which don't necessarily mean what they might appear to. In perfect competition, for example, all goods are fungible. It's a good model for the commodities market, since one barrel of oil is very much like another (there are different grades of oil with different sub-markets, such as 'Brent crude' or 'west Texas intermediate', but you don't care which particular company extracted which particular barrel of oil from the ground within a given market).
Now once you introduce the element of skill, you have something more like monopolistic competition. Pizzerias are in competition, and they're selling a similar product, but they can compete on everything from the quality of the pizza dough to the comfiness of the seating, so different customers may end up strongly preferring one to the other. Maybe I'm price-sensitive and prefer Mario's bargain slice, but you're a gourmet and you prefer Luigi's home-made flavor. Someone else prefers the fancy service at Gino's, and so on. This is why towns can have so many different restaurants and why supermarkets can sell multiple different brands of what are essentially similar products: you can differentiate products and services, and anchor consumers to a particular combination.
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.
Oh yes it does, because now the wealth is being allocated more efficiently. Commodities are one-size-fits-all, but relatively few goods are commodities. Consider, for example, that there are relatively few companies in the business of wheat production (commodity) but a great many different bread companies, in line with the wide variety of different bread products.
Please, pick up a microeconomics textbook. Macroeconomics is so flawed and obtuse that a lot of people dismiss the musings of economists, but microeconomics is a very robust discipline that is almost criminally underappreciated. If I could back to high school and give my teenage self some advice, it would be 'learn microeconomics.'
That's not Peter Thiel's argument. That's Peter Thiel delivering a remedial microeconomics lesson. 'Perfect competition', 'monopolistic competition' and 'monopoly' are technical terms which don't necessarily mean what they might appear to. In perfect competition, for example, all goods are fungible. It's a good model for the commodities market, since one barrel of oil is very much like another (there are different grades of oil with different sub-markets, such as 'Brent crude' or 'west Texas intermediate', but you don't care which particular company extracted which particular barrel of oil from the ground within a given market).
Now once you introduce the element of skill, you have something more like monopolistic competition. Pizzerias are in competition, and they're selling a similar product, but they can compete on everything from the quality of the pizza dough to the comfiness of the seating, so different customers may end up strongly preferring one to the other. Maybe I'm price-sensitive and prefer Mario's bargain slice, but you're a gourmet and you prefer Luigi's home-made flavor. Someone else prefers the fancy service at Gino's, and so on. This is why towns can have so many different restaurants and why supermarkets can sell multiple different brands of what are essentially similar products: you can differentiate products and services, and anchor consumers to a particular combination.
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.
Oh yes it does, because now the wealth is being allocated more efficiently. Commodities are one-size-fits-all, but relatively few goods are commodities. Consider, for example, that there are relatively few companies in the business of wheat production (commodity) but a great many different bread companies, in line with the wide variety of different bread products.
Please, pick up a microeconomics textbook. Macroeconomics is so flawed and obtuse that a lot of people dismiss the musings of economists, but microeconomics is a very robust discipline that is almost criminally underappreciated. If I could back to high school and give my teenage self some advice, it would be 'learn microeconomics.'
Ok, I'm reading some economics as I type.
on Economic efficiency:
Efficiency is really about a society making the best or optimal use of our scarce resources to satisfy most wants & needs.
To use your bread example, more bread companies offering more choices, allow us to better satisfy our diverse wants of bread. Basically we receive more value from our money. This is good.
But does adding more bread companies increase the resources we have? We can only eat so much quantity or so many varieties of bread.
To grow the overall wealth pie, we have to either make better use of our existing resources or increase the efficiency of production. Basically, improvements in process or technology leading to greater production.
I'm not against Steve Blank's 99% mainstream entrepreneurship course by any means. Helping entrepreneurs make better decisions raises the level of competition in the industry and in most cases that is good for society. But if the new businesses started don't come with innovation then I see this as fiercer fighting for a stagnant (or shrinking) pie. I value growing the pie over dividing it more optimally, although I suppose each is important.
To use your bread example, more bread companies offering more choices, allow us to better satisfy our diverse wants of bread. Basically we receive more value from our money. This is good.
But does adding more bread companies increase the resources we have? We can only eat so much quantity or so many varieties of bread.
To grow the overall wealth pie, we have to either make better use of our existing resources or increase the efficiency of production. Basically, improvements in process or technology leading to greater production.
I'm not against Steve Blank's 99% mainstream entrepreneurship course by any means. Helping entrepreneurs make better decisions raises the level of competition in the industry and in most cases that is good for society. But if the new businesses started don't come with innovation then I see this as fiercer fighting for a stagnant (or shrinking) pie. I value growing the pie over dividing it more optimally, although I suppose each is important.
Can you explain what this means: because now the wealth is being allocated more efficiently
It's kind of beyond the scope of this conversation, but the basic concept is called 'utility maximization'. It's hard to measure utility directly, but we can infer it by examining the opportunity cost - ie, the value of other alternatives foregone in favor of the option I prefer. Where a consumer's preferred product/service is unavailable or unaffordable, other goods are substituted, but these have lower utility. If rising consumer incomes cause people to switch from one good to another, the abandoned good is known as an 'inferior good'.To the extent that resources are dedicated to the production of something that people don't actually want, it's inefficient. It would be better if those resources were dedicated to the production of superior or ideal goods, of the kind that people buy because they already maximize utility.
This general field is called 'price theory.' Please appreciate that I can only sketch the crudest outline within a single paragraph.
If we add more competitors to the pizza arena, how does that grow the overall pie of wealth?
Greater choice leads to more efficient outcomes. You like cheap pizza served fast, so you get a slice for only $3 and don't waste money on linen tablecloths, which you consider a foolish affectation. I like nice service, so I pay $10 to spend a half-hour being seated and served by a waiter. You save money by not paying for services you don't want, I spend it locally instead of driving to the next town for a sit-down meal, which is what I actually want (as opposed to the drive, which costs me $3 in gas and mileage expenses). We both get what we want, pizzeria owners make money money, which they in turn spend on the goods and services they need, and you have a nice virtuous circle.
Now, you could say that there's money wasted on pizza marketing or too many entrants for all pizzerias to survive, so some will go out of business. All true, but those are short run phenomena. Over the long run, the result is greater efficiency. This pattern of short-term fluctuations between equilibria is the business cycle. What you're looking for is optimality, not necessarily growth. Again, all this is drastically oversimplified.
It's kind of beyond the scope of this conversation, but the basic concept is called 'utility maximization'. It's hard to measure utility directly, but we can infer it by examining the opportunity cost - ie, the value of other alternatives foregone in favor of the option I prefer. Where a consumer's preferred product/service is unavailable or unaffordable, other goods are substituted, but these have lower utility. If rising consumer incomes cause people to switch from one good to another, the abandoned good is known as an 'inferior good'.To the extent that resources are dedicated to the production of something that people don't actually want, it's inefficient. It would be better if those resources were dedicated to the production of superior or ideal goods, of the kind that people buy because they already maximize utility.
This general field is called 'price theory.' Please appreciate that I can only sketch the crudest outline within a single paragraph.
If we add more competitors to the pizza arena, how does that grow the overall pie of wealth?
Greater choice leads to more efficient outcomes. You like cheap pizza served fast, so you get a slice for only $3 and don't waste money on linen tablecloths, which you consider a foolish affectation. I like nice service, so I pay $10 to spend a half-hour being seated and served by a waiter. You save money by not paying for services you don't want, I spend it locally instead of driving to the next town for a sit-down meal, which is what I actually want (as opposed to the drive, which costs me $3 in gas and mileage expenses). We both get what we want, pizzeria owners make money money, which they in turn spend on the goods and services they need, and you have a nice virtuous circle.
Now, you could say that there's money wasted on pizza marketing or too many entrants for all pizzerias to survive, so some will go out of business. All true, but those are short run phenomena. Over the long run, the result is greater efficiency. This pattern of short-term fluctuations between equilibria is the business cycle. What you're looking for is optimality, not necessarily growth. Again, all this is drastically oversimplified.
Thanks for the reply. It's hard to remember sometimes that if wealth is defined by what humans value then increased choice can lead to more efficient wealth. I'm just having trouble reconciling the fact that wealth is being created when we achieve more efficiently what we want but the overall pie is not increasing. Perhaps the pie analogy has limitations. In your example, the pie wouldn't increase, but it would be a better pie. Does that makes sense?
It sounds strange as we are not used to thinking of wealth in terms of "better" or "worse", only more or less.
Now, you could say that there's money wasted on pizza marketing or too many entrants for all pizzerias to survive, so some will go out of business. All true, but those are short run phenomena. Over the long run, the result is greater efficiency.
Yes, this is what I'm thinking of. Too many competitors in the short-term. Is there a point where there are no more efficiencies to be found though? Or the efficiencies are so small as to be negligible? Like having 101 pizza shops vs. 100.
On an intuitive level, increasing the efficiency of production feels more important to me than maximizing efficiency of utility. But both affect wealth positively.
Now, you could say that there's money wasted on pizza marketing or too many entrants for all pizzerias to survive, so some will go out of business. All true, but those are short run phenomena. Over the long run, the result is greater efficiency.
Yes, this is what I'm thinking of. Too many competitors in the short-term. Is there a point where there are no more efficiencies to be found though? Or the efficiencies are so small as to be negligible? Like having 101 pizza shops vs. 100.
On an intuitive level, increasing the efficiency of production feels more important to me than maximizing efficiency of utility. But both affect wealth positively.
Is there a point where there are no more efficiencies to be found though?
For sure. If demand outstrips supply, some competitors will have to exit the market. A good micro textbook will go through all of this, or if you prefer a conceptual approach try Todd Buckholz' New ideas from dead economists.
For sure. If demand outstrips supply, some competitors will have to exit the market. A good micro textbook will go through all of this, or if you prefer a conceptual approach try Todd Buckholz' New ideas from dead economists.
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.
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.
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.
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.
Isn't this most blogs? Even HN is in essence a platform for ycombinator.
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.)
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.)
Content marketing is the best marketing.
"massive advertisement for Steve Blank's books and program?"
To which I say "chicken dinner"!
Disclaimer: I worked with Steve. He obviously has a nose for marketing, pr all that stuff. So of course he will always be angling for anything that will raise his profile. Which is, as you said "not to say that the books and programs aren't necessarily good".
To which I say "chicken dinner"!
Disclaimer: I worked with Steve. He obviously has a nose for marketing, pr all that stuff. So of course he will always be angling for anything that will raise his profile. Which is, as you said "not to say that the books and programs aren't necessarily good".
I agree. I was expecting more insights.
Sheeple mentality for the most part. I will be downvoted into oblivion for saying it, but it's true.
I voted you (and the parent post) up, FWIW, even though I'm a huge fan of Steve Blank's work. I did also notice that this particular post wasn't as chock-full of useful info and insights as many of his previous posts have been. I don't know that I'd go as far as to call it "just an ad" but it wasn't what I usually expect from Steve's blog.
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.
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.
In fact, my hunch would be that most are started with personal savings and family money.
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.
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.
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.
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.
While I don't know what the correct number is I can almost assure you that it is nowhere near 90%. Quick and dirty if you were able to determine the amount of state business registrations and compare it to the amount of vc funded companies (even taking into account not every vc funded company is public) I'm sure you would find an extremely small number.
"personal savings and family money" - sba loan, mortgage the house, credit cards, equity line to name a few more.
"personal savings and family money" - sba loan, mortgage the house, credit cards, equity line to name a few more.
Or a bank loan.
Not these days, unless you have a significant investment of your own to make. You're lucky if you can get an operating loc from the bank.
I believe the article is referring to 99% of small business ventures being outside tech and not referring to the income disparity of the recent referred to in the occupy movements.
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-l...)
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."
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."