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."

Comments

Better Universities?

[eldavojohn]

Another good article by an intelligent man.

But I don't agree with all of it:

4. American Universities Are Better.

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.

Re:Better Universities?

[lbrandy]

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?!

It's about quantity. If Chinese Universities were able to handle the demand of top Chinese students, they wouldn't flood to American universities by the thousands. There are top universities around the world, but if you write down all the "tier 1" universities in a particular discipline, more than half of them will be in America.

Re:Better Universities?

[gowen]

American Exceptionalism (or any other Exceptionalism through history, British Exceptionalism in particular) has never needed, or wanted, hard evidence. Like Manifest Destiny, it simply relies on an assertion of superiority, backed up by the evidence of being the most powerful country in the World, (like Britain was in the 19th Century, or France in the 18th).

The only trouble with this is, it blinds us to what makes those empires really succesful -- natural resources, opportunism and good old blind luck, in the form of historical happenstance.

Re:Better Universities?

[morie]

I used to work for a european university. We had quite an impressive standing in europe, but were nowhere near the top of the list woldwide, which is dominated by US universities. This was a non-US list based on the opinion of academic peers. The list of most funded universities is almost exclusively US and UK universities.

So, as much as I hate chaufinism (either US or otherwise), this is not it but just a basic truth.

Re:Better Universities?

[gEvil (beta)]

So, as much as I hate chaufinism...

I can't stand it either. Learn to drive your own damn car!

Re:Better Universities?

[jc42]

There are top universities around the world, but if you write down all the "tier 1" universities in a particular discipline, more than half of them will be in America.

Good point, which gets lost in most discussions like this.

For some reason, most people will read a sentence like "America has many of the world's top universities" and think it said "No country but America has a top university."

This is mostly a sign of the abject level of the teaching of basic logic at schools around the world. In America, too, because most Americans will misread things in the same way.

What I've always found especially curious is the mismatch of the American higher-education system with the open and blatant anti-education attitude of much of the American public. It's not just George Bush; signs of education and intelligence are carefully hidden by most American politicians, because they understand that this would be a major flaw to a huge fraction of the voters.

Meanwhile, people make jokes about how education is now America's major export industry. Funny how a country can make and export something that they don't like to use at home.

Re:Better Universities?

[Richthofen80]

This is bollocks. If that's the case then the fall of an economy should be based just on the same amount of luck.

If you want to read a story about how an economy is not a matter of resources or luck, but rather how little or much a government meddles in the economy, read about Zimbabwe.

http://news.bbc.co.uk/2/hi/business/2780775.stm

Economies are based on the decisions of its citizens... a million little decisions controls the tide of the economy. When a hands-off, rational minded government or political climate takes place, economies do better. When a meddling, irrational government takes seed, then that's what you get.

If natural resources take such a huge stance, why are most of the oil producing nations still 'poor'?

Your reference to the empires of 100+ years ago doesn't apply because the wealth of that period was 'exported', a.k.a. stolen and redistributed. The American 'exceptionalism' you quote was by large not built on Empire wealth but by the wealth of industry of its citizens. And that itself is pretty exceptional.

Re:Better Universities?

[gowen]

When a hands-off, rational minded government or political climate takes place, economies do better.

Well, they do better than Robert Mugabe, certainly. But the standard of living in Scandinavia, where social democracy and government intervention, are consistently higher than the USA. If you compare yourself to Mugabe, no wonder you do well. It's completely juvenile to compare the best of one system with the worst of another. Government intervention doesn't inevitably lead to the genocidal excesses of Robert Mugabe.

Now, what about the laissez-faire free market that was instituted in Albania after the fall of communism? Answer: the whole economy collapsed under the weight of Ponzi schemes and Enron accounting. Go read "Eat The Rich" by P.J. O'Rourke (hardly anyone's idea of a socialist) and learn that your simplistic reasoning isn't actuall born out by studying a range of countries.

Re:Better Universities?

[Mr. Underbridge]

For some reason, most people will read a sentence like "America has many of the world's top universities" and think it said "No country but America has a top university."

This is mostly a sign of the abject level of the teaching of basic logic at schools around the world. In America, too, because most Americans will misread things in the same way.

Well, the resason for the confusion is because, if you read "Top University" as "Top 10" or something like that, the statements are basically synonymous. According to most rankings, America does have a near monopoly at the very top, though Oxford and Cambridge will always be there, and the best Asian universities are certainly improving very rapidly. According to this, America has 8 of the top 10 and 17 of the top 20. So I'd forgive someone of the "error" of believing all the top universities are American. I'm not saying it's a good thing, but it's not far off.

What I've always found especially curious is the mismatch of the American higher-education system with the open and blatant anti-education attitude of much of the American public.

That's a bit of an oversimplification. Pretty much the *entire* American public is pro-education. Some of them simply differ on *what should be taught*, which is a pretty significant distinction. And there are a handful of very conservative American universities - not many, but some - so even the most conservative Americans support education and send their kids off to college. And also, the Bible-thumping crowd is a very vocal minority, but a minority nonetheless. I believe the average American doesn't really care about the whole evolution thing to get very riled up.

signs of education and intelligence are carefully hidden by most American politicians, because they understand that this would be a major flaw to a huge fraction of the voters.

I'd say that's a little off too. It's more that the southern and rural voters I believe you're referring to - who may lack sophistication, but not intelligence - don't take well to condescending intellectuals *at all*. Like, say, John Kerry, who came off that way. Contrast that with Bill Clinton, who is brilliant but not condescending, and got on very well with voters of all classes.

To disclose, I grew up in the south, went to undergrad at a bottom-tier university, grad school at a top-10 American school, and now live in a major city on the east coast. So I've seen a few different perspectives on the whole "Education in America" thing.

It's the Coke

[Anonymous Coward]

Duh! It's because American companies can negotiate better deals with the Coca-Cola Co. (or PepsiCo if they prefer it), which enables them to have those free drink machines. Free drinks draws in the geeks, which results in heavily caffeinated smart people. Wrangle a few MBAs together to lord over them and you have a successful startup.

Re:It's the Coke

[Velox_SwiftFox]

The condensation of the startups is triggured by concentrations of what is called "Dark Money". Should synergistic fusion occur they may eventually explode in a brilliant IPO display.

startups

[56ker]

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).

Let me get this straight...

[damburger]

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?

Re:Let me get this straight...

[Guido von Guido]

The place is rife with incompetentence, and absolutely dogged with bureaucracy, politics and backstabbing.

I think you've just described every institution of higher learning known to mankind.

Largely true but a flipside too

[sien]

There are national characteristics - the fact that the World Cup is repeatedly won by a small group of nations that manage to maintain a style over years also shows this.

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.

Re:Largely true but a flipside too

[SparkyTWP]

The transistor radio was invented in America. Japan was just the first to make them affordable to the point that everyone could buy one. If I remember correctly, part of this is because the profit margin on transistors in other areas was much higher than what you could get from selling radios, so the manufacturers here didn't pay a lot of attention to it.

Re:Largely true but a flipside too

[LWATCDR]

"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."
Not exactly... GM had fuel injection in the 1950s. All wheel drive was developed in Germany because Audi competed heavily in rally racing. A from of racing that isn't all that popular in the US. Not to mention that AWD isn't all the great of an addition to most cars. It eats more gas and is expensive to maintain. It is good for people that like to drive fast in really bad weather. As far as US contributions to the Automotive art? Pollution controls are a huge one. The US had pollution controls on auto decades before anyone else did. As such they paid for the majority of the development costs.
"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."
The transistor radio came out the US. The Transistor came out of the US. http://en.wikipedia.org/wiki/Transistor-Radio "The first commercial transistor radio, the Regency TR-1, was announced on October 18, 1954 by the Regency Division of Industrial Development Engineering Associates of Indianapolis, Indiana".
Followed by, "Transistor radios did not achieve mass popularity until the early 1960s when prices of some models fell below $20, then below $10 as markets became flooded with radios from Hong Kong."
One of the big jokes about "Transistor radios from Japan" was the Transistor wars. Japanese companies would advertise how many transistors they put in the radios, so they would put in extra transistors that really did nothing. I guess they thought more was better even if it really wasn't. Honda and Toyota both build cars in the US now. According to consumer reports many US cars are now more reliable than most cars from EU countries now. Toyota, Honda, BMW, and VW all build cars in the US now. You may say that Toyota and Honda have a culture of high quality in automotive production how ever to make the claim that it is cultural sort of ignores Suzuki which really doesn't have that high of a reliability rating or Nissan which while makes some very good cars also has some that have gotten poor reliability ratings. the US does seem to have a remarkable history of innovation. Some countries like the UK has a great history of destroying innovation. Read about Frank Whittle sometime. The real key to the the success the US has is that is seems to be willing to adapt to change and to take the best of other cultures and allow it to become part of the US culture.

You are just repeating tired stereotypes that mean nothing and are frankly just not true.

Easier to find investors

[maxme]

It's much easier to find investors in USA than in Europe (i'm speaking as a french entrepreneur who tested the both side of Atlantic to run it's own business).

Innovation comes from freedom of expression

[bariswheel]

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

I'm a consumer whore. And how!

[Draracle]

In America you can put a rock in a box, give it a name, and make millions. Why would you not want to start a company in a nation with that level of purchase discretion? "Now with more sodium -- Sweet Jesus!!!"

Re:Fewer bureaucratic barriers

[cerberusss]

US has fewer bureaucratic barriers

Actually, here in the Netherlands, I have spoken to a few businessmen which deal or have dealt with the US. They all find dealing with the Americans an enormously bureaucratic process. Also note that lots of rules come from overseas from our point of view, Sarbanes-Oxley comes to mind.

To start a company in the Netherlands, you do two things:

• visit the local Chamber of Commerce and spend 10 minutes to tell your new business its name
• Fill in one (1) form and send it to the (equivalent of the) IRS for a VAT-number

That's it. How unbureaucrative can you get?

American Chauvinism

[gvc]

You need a great university to seed a silicon valley, and so far there are few outside the US. I asked a handful of American computer science professors which universities in Europe were most admired, and they all basically said "Cambridge" followed by a long pause while they tried to think of others. There don't seem to be many universities elsewhere that compare with the best in America, at least in technology.

And this survey demonstrates what, other than the parochialism of the American computer science professors with whom Graham happens to be acquainted?

Re:American Chauvinism

[alienmole]

The survey itself isn't the proof of the claim, it's merely a kind of illustration, which requires that you already recognize the underlying point. So, what are the European universities most admired in computer science, anyway? Graham has a point, although I'm not sure he's fully explored all the reasons: a big one is simply the size of the U.S. as a homogeneous market which mostly communicates in a single language.

Laws are it.

[hsmith]

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.

Mr Graham needs to travel more...

[costas]

I think TFA has a very narrow view of the rest of the world. Yes, the US has succeeded brilliantly in creating and fostering a start-up culture (where everyone else has failed) but his reasons, are well, mis-informed and a bit narrow-minded. Let me put in my $.02 and €0,02 as well:

• 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:

• Failure is an option: there is less if any stigma associated with failure, making the option of going to work for a startup a much less negative one.
• The market does not favor incumbents: unless you are trying to create a new market, it's much harder to compete with incumbent competitors outside the US, as they are usually politically protected (for fear of loss of jobs, political gains, what-have-you). If you think AT&T has a strong lobby in DC, consider what would happen if say the Ministry of Communications was the one running AT&T. That still is (directly or indirectly, through equity stakes) the case in most of Europe.
• There's no history of startups: nothing attracts people like success and when you don't have your local Netscape or Yahoo or Google to draw inspiration from and try to immitate their success, you are that much less likely to try to start up a company.

One important factor...

[Noryungi]

And one factor that should not be underestimated is that the U.S. Government has been willing -- and able -- to bankroll a lot of scientific projects for the past 50+ years. Think about it:

1. The Manhattan Project: start of nuclear energy. Immediate military applications, of course.
2. The ENIAC, first electronic computer: first model bought by the U.S. Census Bureau, second model bought by the N.S.A.
3. The Apollo program: biggest space-race project of all times, with benefits too numerous to list here, from electronics to materials to aerospace engineering (including military applications, of course).
4. The Internet: bankrolled by DARPA, then by the NSF, both US Governement agencies.
5. Nano-technology, the Genome Project, etc... etc...

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.

Re:Weak stereotyping

[Skater]

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.

Bay Area-centric

[amightywind]

As a European I find the article rather America-centric.

As an American I find this article to be Bay Area-centric. Silicon Valley ceased being an engine of significant economic growth after the dotcom bust. It is unlikely to return to its former glory. It is kind of humourous that pundits like Paul Graham are still taking victory laps for an era of growth in Silicon Valley he had little to do with. In the US the economies of the southwest and southeast are much more vital.

Re:Bay Area-centric

[superdude72]

Silicon Valley ceased being an engine of significant economic growth after the dotcom bust.

Ahem?

VC Funding by region, Q1 2006

Silicon Valley startups still receive more VC funding than the next four largest regions combined. Why is this? Stanford and UC Berkeley nearby? The pretty scenery? The affordable housing? In part. But mostly, it's because tens of billions of dollars in VC money resides within a few blocks on Sand Hill Road. And for the most part, VCs don't have any reason to leave the area in search of investments. The Web browser was invented in Illinois, but when it came time to found Netscape, the founders moved West because this is where the VC money lives. That hasn't changed.

biz in Europe

[fpedraza]

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.

Re:Distortion by size

[jbeaupre]

One of the reasons I believe Americans become insular is the large size AND homogenaity. Hop in a car, pick a random direction, drive for a day. There's a pretty good chance you're still in the US, with Canada similar enough to fool you. Hop out and you'll likely be able to speak to a local, in English, with accent variation significantly less than within the UK. If you really wanted to, you can probably find a job in a week or less (you might be at McDonalds, but you can get a job), get an apartment, watch the same tv shows, and so on.

My point is that most Americans, even ones who travel, have no concept of any other way of life. That's not a criticism, just an observation. If everyone in Europe spoke the same language, ate the same food, etc, etc, we'd be saying the same about them. We don't have a concept of neighboring countries, except Canada and Mexico, because we never bump into any.

greater fractioning

[spectrokid]

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.

Immigration ?

[Builder]

Mr Graham states that one driver of startups is the fact that America allows immigration. That's at odds with my own story.

When I was growing up, all I ever wanted to do was move to the USA. When I finished school, my parents could not afford to send me to university, so I had to start work straight out of school. I spent 5 years working my way from cable laying guy to networks guy to Unix guy, and then tried to move to the USA. After 2 years of trying, I gave up and moved to the UK.

Next year, I will _finally_ be eligible to apply for an H1B visa, but I won't be. Because I don't have a degree, I need 12 years work experience. The first 8 years of that experience are no longer technically relevant to anything I do today. Sure, it taught me a lot about dealing with people and integrating into the 'real world', but I don't see how that is relevant since I would have been eligible for entry fresh out of university with none of that experience.

Even if I did want to apply, I would have no guarantee of permanent settlement. I would have to 'emmigrate' to the USA knowing that if the company I was working for went under, or declared a loss for a number of years running, or laid off too many other people, I would have to pack my life back into boxes and go home. 30 is too damn old to be taking that kind of chance.

I took that chance coming to the UK at 25, and even then I was almost guaranteed permanent settlement when I moved here. It was certainly never tied to the company that I moved here to work for. At 25, I could take those risks, but not anymore.

So instead of adding to the US economy, I've got a successful life adding to the UK economy. Overall, the US immigration policy is NOWHERE near as friendly as many places in Europe.

France

[tverbeek]

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).