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Why Startups Condense in America
bariswheel writes "The controversial genius developer/writer/entertainer Paul Graham writes an insightful piece on Why Startups Condense in America. Here's the skinny: "The US allows immigration, it is a rich country, it is not (yet) a police state, the universities are better, you can fire people, work is less identified with employment, it is not too fussy, it has a large domestic market, it has venture funding, and it has dynamic typing for careers. Inquire for details within."
But I don't agree with all of it: That's odd, all the studies and anecdotal evidence presented to me suggest otherwise. I don't think the universities themselves are better, you're just more likely to make better contacts here than abroad. And the only reason for that is because Americans have money and a lot of them use it to invest (as Paul pointed out).
I've been through undergrad and grad schools in the US and I have to say that there were more than a few courses where I didn't learn anything.
Why is he asking about Universities in Europe? What about Eastern Europe or the Ukraine or Russia? What about the results to the programming challenge that everyone made a big fuss about? What about China's Universities?!
I'm not as confident about the US as Mr. Graham is. In fact, I'm kind of afraid when someone like him writes an article like this because it feels like we're creating a false sense of security as an industry leader.
My work here is dung.
As a European I find the article rather America-centric. Here for example in the UK about 10% of people are self-employed. Yes, technically those are pretty much all "startups". Here however most people don't have the desire to chase VC funding, float on the stock market or found an international company (as a number of US startups have).
Of course part of the problem (both in the US and over here) is that a lot of businesses tend to have a blinkered restricted view of just selling/dealing with their domestic market (which of course in the US is larger) rather than doing business globally (which in a lot of businesses is the best way to grow).
Video Game cheats, hints a
The guys evidence that there aren't any good Universities in Europe, is that American professors can't name any aside from Cambridge?
Does this say more about higher education in Europe or the US?
If we can put a man on the moon, why can't we shoot people for Apollo-related non-sequiturs?
But the US style has it's problems. US companies wind up as slaves to the markets and often damage their engineering skills. The problems in the US car industry show this. While the German car industry has come up with fuel injection, ABS braking and constant four wheel drive over the past 20 years the US industry has invented the cupholder and the SUV.
Likewise, somehow the Japanese are great craftsmen. This skill is reflected in the quality of Toyota's manufacturing and the remarkable qualities in Japanese portable electronics. Apple may have invented the ipod, but the walkman and the transistor radio all came out Japan.
It's good that the world is like this. Countries specialise. But presuming that one companies system is superior for everything to all the others is silly. The best is what is created when the systems work together - as in the computer industry where the parts are made in Asia and the software comes from all over the world, and in particular from the US.
lots of bitter, negative opinions on this one. To add to the discussion instead of criticizing (which is fine - in small doses), I believe government (or lack thereof) is key for innovation. If you have an oppressive regime luring over you, there will be minimal startups; people will have little incentive to innovate, or fear to innovate. What he's trying to do in this article is to find commonalities within the 'American persona' to find out whether Silicon Valley is clonable. I believe That's the root of his thesis. He addresses personality traits such as Americans being free spirited risk takers, and it's a point well taken. "Startups are the kind of thing people don't plan, so you're more likely to get them in a society where it's ok to make career decisions on the fly." - P. Graham
Insinct is stronger than Upbringing - Irish Proverb
Illegal immigration is a whole other story, we still allow millions of legit immigrants every year.
Regards,
Steve
And this survey demonstrates what, other than the parochialism of the American computer science professors with whom Graham happens to be acquainted?
To start a corporation in America all you have to do is file out a simple form and mail in a cheap fee. I started mine for a whole $100 in costs to the gov't. While it is more than I want to pay, it isn't bad. I pay less in taxes than foreign counterparts, so I have more to actually invest into my company to grow it, another great reason why it is easier to start a small business in America. Employment laws as well. In France it takes 2 years to fire someone. If someone is destroying my small business, they can be out the door that day (well, depends on the state really). THere are tons of other reasons, but ease of doing business, ability to put your own capital into your business is def up there. Look how many businesses are started by those w/o college educations, it isn't the schools.
Yes, it's easier to get slave workers (well, not really slaves, you have to shelter and feed slaves while with "normal" workers you can pay them less than shelter&food would cost you), it's easier to get investors, it's less bureaucratic hassle and so on. It's easier to get the biz rolling.
But with the patent laws and the legal system around it, opening a biz in the US is risky. As soon as you're actually starting to make money, some corporation will cover you with suits 'til you hand it over for a nickle or a dime because some harebrained patent they got offers them a foot into that door.
In other words, startups are the risk-free way of "innovation" for corps. If it doesn't fly, it doesn't cost them money. If it does, hand it over!
We used to have a Bill of Rights. Now, with the rights gone, all we have left is the bill.
With an attitude like that, I can understand why you'd favor more protection.
The world is made by those who show up for the job.
That's odd, all the studies and anecdotal evidence presented to me suggest otherwise. I don't think the universities themselves are better, you're just more likely to make better contacts here than abroad. And the only reason for that is because Americans have money and a lot of them use it to invest (as Paul pointed out).
.. I do not like the way the article was written. I wish he had used more statistics and numerics than just, for example "half the people in silicon valley have accents". How about showing us the stats of how productive they are etc. The numbers can't be that hard to find. Just because you have references at the end of an article doesnt really boost the usefulness much. Reason i am saying this is that without facts and numerics people who sort of disagree haven't really anything tanglible to be convinced by. And those who already agree, well they don't have reinforcing data they can use in convincing others.
Differing from your opinion, I agree with the entire article 100% (including the assertion that our universities are better), BUT
That said it's a good article in that it puts things to forefront that maybe people (especially those in other countries) will research or utilize.
The faulty logic in this article is a good reason just to pass it up
From the article:
"it is not (yet) a police state"
Why is it there are people in this country are screaming and yelling about their imagined "police state", yet want to leave the other countries in the world to people who want to turn the whole world into a police state?
Yes, We USAans are self-centered, self-absorbed, and generally think very highly of ourselves. Just like those in the European countries many of us came from.
In the realm of international relations, how many countries are riding the coat tails of long dead empires? Why should any outside of France have any care for what goes on inside of France? And what about the English? They're guilty more than anyone. Okay, at one time the UK was a big deal, but that time is over. Is Britain really a significant economic, political, or military power anymore? Certainly not to the extent you think of yourselves.
For a European to raise the charge of 'America-centric' seems the height of 'it takes one to know one.' I don't deny the charge, but when you point one finger at me, you have three pointing back at yourself.
- Immigration: The US has a great immigration policy, but it's not really that much different from a lot of advanced Western countries, esp. when it comes to skilled workers (researchers, college graduates, etc). E.g., the UK has a much larger talent pool it can draw from for immigrants (esp. Commonwealth citizens) yet there have been very few successful UK startups. Same could be said for Germany, the Nordic countries, and most of Southern Europe.
- The US is a rich country: so is most of Western Europe, Australia, NZ, Southeast Asia, Japan, etc. Arguably the latter regions have even better infrastructure than the US.
- The US is not a police state: again, neither is any EU member or the rest of Western Europe. Still, the only big European startup as of late has been Skype, and even that was US-funded.
- American Universities are better: absolutely, but not for the reasons stated. American universities are just more free to make money from their R&D, unlike most say European ones. Since they can run research for profit they can also hire the best professors and researchers they can find and that creates a virtuous cycle. In Europe for example, most research schools are state institutions and thus professor salaries are set to a nationwide scale. Plus it's much harder to profit from R&D.
- You can fire people in America: labor mobility is not a US invention. If you are faced with stifling labor laws, you can work around them. You can use contractors, bankruptcy law, subsidies, the list goes on. Plus, Anglo-Saxon countries with liberal labor laws (UK, Australia), still haven't fostered startups that well.
The rest of the list is even more wooly than these bits. Here's my take as to why the US does startups better:Don't forget that, for many years, the USA have been at the forefront of technology and science because the US Governement -- meaning you, Happy American Tax-Payers! -- has been very happy to sign big, fat juicy checks to US corporations, US Universities, US Think Tanks, etc. Also, the US Governement was able to do this because, right after the end of WWII, the USA were one of the very rare country in the world with industries left intact and a lot of natural resources.
Now that the US Governement is pretty much anti-science, and that the US debt is soaring to ever more dangerous summits, I am not so sure the USA can maintain their advance on the rest of the world. But we'll see.
The right to offend is far more important than the right not to be offended. (Rowan Atkinson)
Also many of those Japanese cars with such great quality are built...in the US. Toyota and Honda both have several plants in the US.
Two childhood friends both struck it big (20+M and 300+M) starting software companies, so the American dream does happen.
o ur-own-business.html) but only if you do it for the right reasons.
However, the statistics are against you if your goal is to become very rich - but it is the possibilty that motivates people.
Here in the USA, we have an interesting cultural/political phenomenon: many lower middle class people strongly support the republican party whose policies are very biased towrads helping the very rich. I think that part of this phenomenon occurs because people dream of having a great idea and striking it rich.
I think that having one's own business is a good idea (http://mark-watson.blogspot.com/2006/04/owning-y
" it is a rich country, it is not (yet) a police state,"
I am going to hazard a guess that the person who stuck "ye"t in there has lived his or her entire life in a free western country and has little or no understanding of what a police state really is. All this person knows is 1. bush bad , 2. bad is police state, therefore bush = police state. This reminds me of every college kid who knows 1. bad 2. bad is nazi, therefore if you disagree with me you are a nazi.
Idiotic use of extreme terms like this just erodes any meaning they may have. Its is about as effective in conveying meaning as the F-word if you use it as almost every other word.
The war with islam is a war on the beast
The war on terror is a war for peace
Startups happen in clusters. There are a lot of them in Silicon Valley and Boston, and few in Chicago or Miami. A country that wants startups will probably also have to reproduce whatever makes these clusters form.
While I agree with the overall tenor of his presentation, starting with a number of begged questions weakens his argument.
1) Startups happen ALL OVER THE COUNTRY. He maybe right about 'clustering' when you're talking about certain industries, but in a country where The above paragraph makes a LOT more sense (and is factually more supportable) if instead of "Startups", you read "The cool trendy startups that we like to talk about". In fact, Raleigh-Durham and Austin are (like SFO) in the top quartile of VC investment but he doesn't seem to think they are "cool" enough to discuss.
2) "The US allows immigration, it is a rich country, it is not (yet) a police state..."
Please. I'm sure the horse is dead, so you can stop beating it with your non sequitur stick. Anyone who connects the "US" and "police state" in a sentence merely illustrates how little they know about an actual police state. I understand it's very important to continue the shtick so PERHAPS your side has a chance to win an election sometime in the next half-dozen years, but you'd be much more persuasive if you left your political baggage at home with your pom-poms.
3) (Paraphrasing) "German Universities suck because there are no Jews there." That's just plain stupid. Aside from the overt racism of the statement, then why aren't we all heading pell-mell for the universities in Israel? Perhaps there's only a certain 'dose' of Jewishness that we need, and too much is somehow poisonous (hands waving dramatically)?
4) "You can fire people in America" - I think he's absolutely right, but isn't using our academic system a particularly BAD example? If he's willing to venture into the speculative fiction of the US becoming a police state, his omission here is the deletorious effect of Affirmative Action, and a litigious society where where a woman or minority is fired, their first thought is "hm, I wonder if it was my race/sex/preference/etc." and not "What did I do wrong?".
5) "In the US it's ok to be overtly ambitious, and in most of Europe it's not. But this can't be an intrinsically European quality; previous generations of Europeans were as ambitious as Americans. What happened?" They left Europe and came to America?
5) "Silicon Valley is too far from San Francisco....The best thing would be if the silicon valley were not merely closer to the interesting city, but interesting itself.... (The suburbs are) the worst sort of strip development...The kind of people you want to attract to your silicon valley like to get around by train, bicycle, and on foot." No projection there, no sir. Funny, I'd think that the people you'd want to attract people that are interesting, intuitive, hard working, conscientious people...not just smarmy, self-important, elitist black-clad coastal urbanites. I didn't realize Greenpeace membership is required for this job sir, would donating to the Nature Conservancy be enough?
Pssst, Paul: there are a lot of interesting startups in what you'd call boring, flyover country. Telecommuting means that you can have outstanding information-based companies in Granite Falls, MN, Paragould, AR, or even Nampa, ID. In fact, a lot of people may even PREFER rural or small-town life, but they probably drive pickups or something (shudder).
6) Immigration - this is just utopian and thus nearly valueless. The US already has the most open immigration system (even in these days of leather-clad jackbooted thugs summarily executing everyone trying to enter the country). He spent the previous ten paragraphs talking about how the US system is unique, particularly because of its poor educational system compared to other countries, and then when discussing the US's requirement of a college degree for entry he uses examples of....Americans. Circularity anyone?
-Styopa
Aside from Graham's tendency to extrapolate wildly from a sample size of one: "I felt oppressed as a geek/nerd in high school therefore America oppresses geeks/nerds in high school", "I was successful in a computer tech startup using LISP therefore successful computer tech startups should use LISP", "I now have enough money to indulge my eccentricities and a stage on which to let the stream of my ego's consciousness spew forth without worry about the consequences, therefore I must be a public intellectual". Like Chomsky, I'm sure Mr. Graham is certifiably brilliant within his chosen field of study. Like Dr. Chomsky, Graham tends to mistake brilliance within one field with the capability to achieve deep understanding and useful insight on a variety of unrelated topics.
As a simple counterexample to the current topic I'd offer India's IT sector. Although India has a few world class schools they are nowhere near as numerous as in the US, India does not have a large immigrant population, India's red tape while improving is still closer in style to "in Soviet Russia" than the Rand's libertarian paradise etc. However start up businesses in India are booming, mostly as spin offs of subsidiaries of American tech companies. Likewise Taiwan's semiconductor and electronics manufacturing industry has largely shed its foreign owned component and can be considered a startup success story. Not all start ups form in little red barns, or unkempt Cambridge, MA apartments; Intel formed from disgruntled Fairchild employees, as did Zilog and in a generation or two similar stories are likely to be common in the Indian tech sector.
However the above is not a rigorous counterargument, and is not meant to be. My larger point is merely that if one narrows one view enough the world can seem remarkably simple. And then one starts to believe any story that can explain that simple world. Fortunately most of us have enough of a sense of shame to keep those stories to ourselves. Perhaps Mr. Graham, and Dr. Chomsky and many other public intellectuals should spend their efforts looking into what particular combination of genetics and environment lead to a pathological inability to refrain from espousing cranky theories in public.
I don't know about Asia or other regions, but these are my thoughts about the relative difficulty of starting business in Europe:
#1 reason: Government is an obstacle rather than help or even better: JUST DON'T MESSING TOO MUCH. Bussinesses in Europe has to comply with municipal, state, country and european community regulation. Municipal laws are often vary a lot whithin even the same province. The local government has to give permission and get taxes (not cheap) just to open the company's door. Also the nation's government. And guess what? They are not exactly very fast nor cheap. The high costs of starting a bussiness make it very difficult for people who is not already rich or other bussiness who have already a lot of money! Paradox of social-democracy? Government as reverse Robin-Hood?
Other:
- the "progressive" taxes system doesnt award personal effort and risk. The taxes for businesses are as high as 30% or 35% of profits, even higher for wealthy individuals (Social Security not included). Where does this force capital to go? Easy question: any other place.
- Public workers are impossible to fire. Once they pass their exams they can even just not go to work and they will keep their salary and benefits forever. Not the best to stimulate efficiency and speed. They also have higher salaries than private companies employees. Young people here dream about working for the government.
- Trade unions degenerated to political parties. Their leaders and representants are too busy doing nothing and helping #1 in their labor to increase regulation.
- We spend about 40% of the E.U budget subsidizing the low-margin, low-innovation, low-tech agricultural sector. This money should be better in their legitimate propietaries' pockets thus lowering the high tax pressure on business and individuals. As a side effect we screw up emerging economies with our protectionism (OK, maybe also the USA)
- We have literally dozens of different languages. I dont think this is necessarily wrong, it's just a consecuence of our history. But the really stupid thing is the politicians are very busy trying to revitalize dead or semi-dead languages and dialects like galician, basque and catalan to have another more justification to fight with other regions, get local privileges, and keeping their positions. Of course these languages are studied in schools, diminishing the time young people should rather use studying maths, literature, economics, english or whatever. Mix this with governmet regulation and you get a lot more overhead for business.
- We dont fight strong enough against terrorism, instead we let the terrorists (convicted killers included) form political parties and negotiate with our governmets as equals. Shame on us. Insecurity scares the capital who tends to go away.
It's not that is easy to start a bussiness in the United States because they are rich: they are rich because is easy to start a bussiness.
AES, the encryption algorithm, was invented at a Belgian university. A country like this, with less inhabitants than NYC cannot afford to have universities leading the world in all kinds of disciplines. This is a big problem for European universities: every country wants a silicon valley, AND a biotech center, AND nanotech,... But really they can't afford it, and therefore the money gets spread out too thin. If you work with small groups and good funding you can beat the world in a niche discipline, just like the AES guys did.
10 ?"Hello World" life was simple then
The start-ups would all be happening in France except that they don't have a word for "entrepreneur".
No, really! Type that into Babelfish and ask for an English-to-French translation, and it spits the same word back at you. OK, maybe it's in French dictionaries, but it's obviously one of those words that they're always borrowing from other languages (e.g. the days of the week sound suspiciously like the Italian names).
http://alternatives.rzero.com/
You can't really teach this out of people. It's a cognitive heuristic which saves on brainpower, which is deeply embedded in the human psyche. The only way to escape it is with large doses of intelligence: larger than most people possess. The core issue is about compression as a way to aid comprehension: to make a sentence like "America has many of the world's top universities" tractable - easier to reason about and remember - it has to be translated into something simpler. The most obvious example is "America == top universities". There's an obvious loss of information here, but arguably, the main point has been retained. A lot of human silliness is explained by this trick.
The US bias in the individual vs. society question is relatively more in favor of the individual than Asia and Europe.
Talking to my lovely German wife, I was shocked to discover that, if you own a bookstore in Germany, you can't be open whenever you want, or sell books at your desired price point.
Sure, there are restrictions on such activity in the US. You can't just offer books at next-to-nothing indefinitely, to break the market. My perception, however, is that the amount of government interference in the market is substantially lower in the US than elsewhere.
Government is the second oldest business. Can't have it stifling the rest.
Get thee glass eyes, and, like a scurvy politician, seem to see things thou dost not.--King Lear
THe marriage thing will no longer work at all. Neither will the getting sponsored part if you've already moved in here illegally. During the later half the clinton administration, a new bill was added that barred illegal immigrants from legalizing themselves should they have spent any time here illegaly. If ti was fairly short, under a month or so they would be barred for a year or so. The next level they'd be barred from staying here for ten years.
Gaining illegal entry from foreign countries via airport is also quite difficult.
Hmmm... Pie...
Silicon Valley ceased being an engine of significant economic growth after the dotcom bust. It is unlikely to return to its former glory.
I'm writing this from within walking distance of downtown Palo Alto, and I tend to agree. It's really discouraging. Five years after the dot-com crash, there are still empty industrial parks for lease. The big reseach centers are gone. Xerox PARC is gone. Interval Research is gone. IBM Almaden Research is emptying out. DEC SRL and DEC WRL are gone. HP's real business today is printer ink. Intel is still around, but the new fabs aren't here, and they seem to be out of ideas anyway.
Most growth seems to be in companies that deliver advertising - Google, A9, and their ilk. Startups tend to be "me-too" operations scrabbling for market share in crowded markets.
Yet there's so much to be done. How about producing a personal computer that just doesn't break? Something with hardware and software immune to attack. Satisfaction guaranteed or your money back. Or electric cars with serious range. Or safe nuclear power plants. But that's not what people are working on.
However some of your points underestimate the differences between the two regions:
Labor mobility may not be an American invention but America is the place where it is currently practiced. Of course there are ways of "getting around" anti-mobility laws, as there are ways of geting around any laws, but law avoidance (like tax avoidance) is costly, difficult, and incomplete. Just saying that you can "work around" laws greatly understates the difficulty in so doing. In many countries of the EU, firing someone or laying them off is practically impossible.
There are far fewer large tech incumbents in Europe than in the US. Obviously every country has a phone company but most European countries do not have an IBM, Microsoft, or Cisco.
In my experience foreigners are as tolerant of failure as Americans. In fact foreigners are probably more tolerant of failure because career success is less important in most countries than in the U.S.
Furthermore, it has been my experience that many or most employees of silicon valley startups are Asian or European. Even some of the founders of companies in silicon valley are foreign. If foreign people were terrified of failure then they would not come to the US to fail, only to be sent slinking home. Bear in mind that many people working in silicon valley companies are employed using H1-B visas which means that if the company fails then their visa is revoked and they must return home immediately--implying to their fellows that they went to silicon valley, tried, failed, and were booted out of the place. If they were afraid of failure then they wouldn't take a risk like that.
Since foreigners are as likely as Americans to work at silicon valley startups, cultural differences between employees can't be the reason behind silicon valley's success. The fact that the employees are from all over the world, but the companies are American, suggests that the difference is economic not cultural.
I believe the primary reason there are more large startups in the US is because there is far more venture capital. It's natural that Europeans would be terrified of failing in Europe because the enterpreneurs there must bear the risk entirely by themselves. If you wish to raise money for a startup in Europe then you must risk all of your personal savings, and your house--and even then you really wouldn't have enough money to fund the startup. In America you use somebody else's money, and the risk to you is greatly decreased. Of course, if you accept venture capital then the potential rewards are also decreased, but if the startup succeeds then you'll be filthy rich anyway and you won't worry about the 33% cut of your massive fortune that must now be paid to ventu
Two small comments on your comment :)
:) Seems hard to go more than 10 feet in Austin without being in at least *someone's* open wi-fi zone, including the delicatessen chain (Jason's? Katz's?) that has free wifi at all locations.
1) Re: the "megafence" on the southern border of the U.S.: remember, no such fence exists right now. There are fenced portions of the border, but most of it is basically freely passable (though the landscape itself is forbidding across West Texas and Arizona at least). Note, too, that even if there was a "perfect" (impregnable) fortress-fence stretching the whole way, and likewise keeping out those pesky Canadians, it would not contradict the claim that the U.S. allows immigration (and in healthy numbers!). Allowing immigration does not imply a freely permeable border. Mexico (perhaps in reaction to U.S. rules) has fairly stringent rules about Americans (and others) in Mexico, too; for more than border-area excursions (I think 60 miles / 48 hours), Americans are supposed to get paperwork done in advance to clear it. I have seen little complaint about this exercise of Mexican sovereignity. OTOH, at least in El Paso / Juarez, there is abundant foot- and car-traffic across the various official border crossing points, and the hassle is minimal in my limited experience (either direction, for people of American or Mexican citizenship). But you can't carry a gun from dangerous Texas into ultra-safe Juarez.
2) A 5,000-person conference in Austin with no Internet connection, in 2004?! That's hard to believe
Cheers,
timothy
jrnl: http://tinyurl.com/c2l8yr / foes: http://tinyurl.com/ckjno5