When It’s Darkest Men See the Stars
Ralph Waldo Emerson
This Thanksgiving it might seem that there’s a lot less to be thankful for. One out of ten of Americans is out of work. The common wisdom says that the chickens have all come home to roost from a disastrous series of economic decisions including outsourcing the manufacture of America’s physical goods. The United States is now a debtor nation to China and that the bill is about to come due. The pundits say the American dream is dead and this next decade will see the further decline and fall of the West and in particular of the United States.
It may be that all the doomsayers are right.
But I don’t think so.
Let me offer my prediction. There’s a chance that the common wisdom is very, very wrong. That the second decade of the 21st century may turn out to be the West’s and in particular the United States’ finest hour.
I believe that we will look back at this decade as the beginning of an economic revolution as important as the scientific revolution in the 16th century and the industrial revolution in the 18th century. We’re standing at the beginning of the entrepreneurial revolution. This doesn’t mean just more technology stuff, though we’ll get that. This is a revolution that will permanently reshape business as we know it and more importantly, change the quality of life across the entire planet for all who come after us.
There’s Something Happening Here, What It Is Ain’t Exactly Clear
The story to date is a familiar one. Over the last half a century, Silicon Valley has grown into the leading technology and innovation cluster for the United States and the world. Silicon Valley has amused us, connected (and separated us) as never before, made businesses more efficient and led to the wholesale transformation of entire industries (bookstores, video rentals, newspapers, etc.)
Wave after wave of hardware, software, biotech and cleantech products have emerged from what has become “ground zero” of entrepreneurial and startup culture. Silicon Valley emerged by the serendipitous intersection of:
- Cold war research in microwaves and electronics at Stanford University,
- a Stanford Dean of Engineering who encouraged startup culture over pure academic research,
- Cold war military and intelligence funding driving microwave and military products for the defense industry in the 1950’s,
- a single Bell Labs researcher deciding to start his semiconductor company next to Stanford in the 1950’s which led to
- the wave of semiconductor startups in the 1960’s/70’s,
- the emergence of venture capital as a professional industry,
- the personal computer revolution in 1980’s,
- the rise of the Internet in the 1990’s and finally
- the wave of internet commerce applications in the first decade of the 21st century.
The pattern for the valley seemed to be clear. Each new wave of innovation was like punctuated equilibrium – just when you thought the wave had run its course into stasis, a sudden shift and radical change into a new family of technology emerged.
The Barriers to Entrepreneurship
While startups continued to innovate in each new wave of technology, the rate of innovation was constrained by limitations we only now can understand. Only in the last few years do we appreciate that startups in the past were constrained by:
- long technology development cycles (how long it takes from idea to product),
- the high cost of getting to first customers (how many dollars to build the product),
- the structure of the venture capital industry (a limited number of VC firms each needing to invest millions per startups),
- the expertise about how to build startups (clustered in specific regions like Silicon Valley, Boston, New York, etc.),
- the failure rate of new ventures (startups had no formal rules and were a hit or miss proposition),
- the slow adoption rate of new technologies by the government and large companies.
The Democratization of Entrepreneurship
What’s happening is something more profound than a change in technology. What’s happening is that all the things that have been limits to startups and innovation are being removed. At once. Starting now.
Compressing the Product Development Cycle
In the past, the time to build a first product release was measured in months or even years as startups executed the founder’s vision of what customers wanted. This meant building every possible feature the founding team envisioned into a monolithic “release” of the product. Yet time after time, after the product shipped, startups would find that customers didn’t use or want most of the features. The founders were simply wrong about their assumptions about customer needs. The effort that went into making all those unused features was wasted.
Today startups have begun to build products differently. Instead of building the maximum number of features, they look to deliver a minimum feature set in the shortest period of time. This lets them deliver a first version of the product to customers in a fraction on the time.
For products that are simply “bits” delivered over the web, a first product can be shipped in weeks rather than years.
Startups Built For Thousands Rather than Millions of Dollars
Startups traditionally required millions of dollars of funding just to get their first product to customers. A company developing software would have to buy computers and license software from other companies and hire the staff to run and maintain it. A hardware startup had to spend money building prototypes and equipping a factory to manufacture the product.
Today open source software has slashed the cost of software development from millions of dollars to thousands. For consumer hardware, no startup has to build their own factory as the costs are absorbed by offshore manufacturers.
The cost of getting the first product out the door for an Internet commerce startup has dropped by a factor of a ten or more in the last decade.
The New Structure of the Venture Capital industry
The plummeting cost of getting a first product to market (particularly for Internet startups) has shaken up the venture capital industry. Venture capital used to be a tight club clustered around formal firms located in Silicon Valley, Boston, and New York. While those firms are still there (and getting larger), the pool of money that invests risk capital in startups has expanded, and a new class of investors has emerged. New groups of VC’s, super angels, smaller than the traditional multi-hundred million dollar VC fund, can make small investments necessary to get a consumer internet startup launched. These angels make lots of early bets and double-down when early results appear. (And the results do appear years earlier then in a traditional startup.)
In addition to super angels, incubators like Y Combinator, TechStars and the 100+ plus others worldwide like them have begun to formalize seed-investing. They pay expenses in a formal 3-month program while a startup builds something impressive enough to raise money on a larger scale.
Finally, venture capital and angel investing is no longer a U.S. or Euro-centric phenomenon. Risk capital has emerged in China, India and other countries where risk taking, innovation and liquidity is encouraged, on a scale previously only seen in the U.S.
The emergence of incubators and super angels have dramatically expanded the sources of seed capital. The globalization of entrepreneurship means the worldwide pool of potential startups has increased at least ten fold since the turn of this century.
Entrepreneurship as Its Own Management Science
Over the last ten years, entrepreneurs began to understand that startups were not simply smaller versions of large companies. While companies execute business models, startups search for a business model. (Or more accurately, startups are a temporary organization designed to search for a scalable and repeatable businessmodel.)
Instead of adopting the management techniques of large companies, which too often stifle innovation in a young start up, entrepreneurs began to develop their own management tools. Using the business model / customer development / agile development solution stack, entrepreneurs first map their assumptions (their business model) and then test these hypotheses with customers outside in the field (customer development) and use an iterative and incremental development methodology (agile development) to build the product. When founders discover their assumptions are wrong, as they inevitably will, the result isn’t a crisis, it’s a learning event called a pivot — and an opportunity to change the business model.
The result, startups now have tools that speed up the search for customers, reduce time to market and slash the cost of development.
Consumer Internet Driving Innovation
In the 1950’s and ‘60’s U.S. Defense and Intelligence organizations drove the pace of innovation in Silicon Valley by providing research and development dollars to universities, and purchased weapons systems that used the valley’s first microwave and semiconductor components. In the 1970’s, 80’s and 90’s, momentum shifted to the enterprise as large businesses supported innovation in PC’s, communications hardware and enterprise software. Government and the enterprise are now followers rather than leaders. Today, it’s the consumer – specifically consumer Internet companies – that are the drivers of innovation. When the product and channel are bits, adoption by 10’s and 100’s of millions users can happen in years versus decades.
The Entrepreneurial Singularity
The barriers to entrepreneurship are not just being removed. In each case they’re being replaced by innovations that are speeding up each step, some by a factor of ten. For example, Internet commerce startups the time needed to get the first product to market has been cut by a factor of ten, the dollars needed to get the first product to market cut by a factor of ten, the number of sources of initial capital for entrepreneurs has increased by a factor of ten, etc.
And while innovation is moving at Internet speed, this won’t be limited to just internet commerce startups. It will spread to the enterprise and ultimately every other business segment.
When It’s Darkest Men See the Stars
The economic downturn in the United States has had an unexpected consequence for startups – it has created more of them. Young and old, innovators who are unemployed or underemployed now face less risk in starting a company. They have a lot less to lose and a lot more to gain.
If we are at the cusp of a revolution as important as the scientific and industrial revolutions what does it mean? Revolutions are not obvious when they happen. When James Watt started the industrial revolution with the steam engine in 1775 no one said, “This is the day everything changes.” When Karl Benz drove around Mannheim in 1885, no one said, “There will be 500 million of these driving around in a century.” And certainly in 1958 when Noyce and Kilby invented the integrated circuit, the idea of a quintillion (10 to the 18th) transistors being produced each year seemed ludicrous.
Yet it’s possible that we’ll look back to this decade as the beginning of our own revolution. We may remember this as the time when scientific discoveries and technological breakthroughs were integrated into the fabric of society faster than they had ever been before. When the speed of how businesses operated changed forever. As the time when we reinvented the American economy and our Gross Domestic Product began to take off and the U.S. and the world reached a level of wealth never seen before. It may be the dawn of a new era for a new American economy built on entrepreneurship and innovation.
One that our children will look back on and marvel that when it was the darkest, we saw the stars.
Happy Thanksgiving.
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Filed under: Customer Development, Customer Development Manifesto, Venture Capital |
Steve you’re right on. However, I would suggest that as product development has become less time-consuming and expensive, it has created a different problem for start-ups. The result is that there customers have a lot more choices and now it is difficult to get through the noise and get through to them.
The real cost of creating a successful company has shifted from product design and development to sales and marketing. However, investors typically don’t like spending their money on these activities and many potentially good products/companies die before they even have a chance.
I wrote about this last summer: http://bit.ly/bATEet+
Have a safe and happy Thanksgiving,
–Bill Ross
bill at latrobellum dot com
Yeah, and another thing is that those startups that take less time might also be less meaningful. The growth in entrepreneurship is creating lower quality innovations. Money makers, but not something like Tesla. If every smart kid out of Stanford creates a Twittter . . . has the world become a better place?
http://tech.rawsignal.com
I’d add another problem, with the big picture: As the simple administrative barriers to entry have dropped – CRM is outsourced, bandwidth management and capacity are outsourced, development is short-timeline, BI is done as SAAS, etc. – so have the number of people employed by those concerns.
While that makes it easier and easier to translate the entrpreneur’s vision into reality, its done little to employ the people who used to be accountants and customer service people – i.e. the non-entrepreneurially-inclined people who have to have the money to buy the product to make it a success.
This isn’t a criticism of your vision, which I find refreshingly optimistic. But this problem is a negative feedback loop and it needs to be acknowledged as such.
I agree with the optimism in this post, but I’m concerned by the business climate in the US right now. The prospect of higer taxes, more regulation (i.e. net neutrality), and more arbitrary government intervention (i.e. McDonald’s waiver on Obamacare), is killin the “soil conditions”. If this atmosphere changes soon, then we could have a screaming recovery driven by exactly the entrepreneurship described in this post. Thanks.
I hope you’re right. It’s a fascinating scenario.
It’s been amazing to see some of those constraints fall away. The open source stack in particular is mind-blowing after the J2EE/Oracle/Sun infrastructure that was common just 8-10 years ago.
In my view, the biggest remaining constraint is psychological. Starting a company is still a mental and emotional leap, and I wonder if the supply of people willing to take it will grow as quickly as other factors have changed.
Thanks for this great post 🙂
I’m not clear on one thing. How has the downturn accelerated the entrepreneurial revolution?
You round up the forces causing the “entrepreneurial singularity” brilliantly and say “the economic downturn in the United States has had an unexpected consequence for startups – it has created more of them.” However, I’m not clear on the causal connection.
Were the barriers to entrepreneurship not already being smashed before the banks started to wobble?
I think the causal connection is that the recession has increased the pool of available innovators:
“Young and old, innovators who are unemployed or underemployed now face less risk in starting a company. They have a lot less to lose and a lot more to gain.”
If you have a good job and are making good money, you are likely to put all of your effort into maintaining or advancing that position, which leaves you unavailable for entrepreneurial work. If you’ve lost your job, you’ve got nothing else to do. So the recession has helped by increasing the number of potential entrepreneurs.
@im_original
Yup, for those already out of work it makes perfect sense.
Important, timely post, Steve.
Too many are focused on the short-term challenges we face and not focusing on the long term trends. The US has faced many dark nights in the last 100 years including world wars, depressions, epidemics, and political failings at the highest levels. Each time we’ve conquered the challenge and emerged stronger for it. This will be no different.
The pace of innovation will accelerate exponentially. Barriers to startup-entry are nil. This will be our greatest century.
Thanks for your timely post.
– Kevin
Awesome and inspiring article Steve. I agree with you and believe we are experiencing the beginnings of a new era. I’ll be interested to see how this translates to other business segments. When you consider that drug development typically takes 10 years and $1Bn, the potential impact for advancement in health care could be outstanding!
i agree there is much to be excited about. however, there are problems, and i see few if any people dealing with the problems in their entirety. problems that are not dealt with grow.
the simple problems not being dealt with are:
1. improper regulation of the securities markets
2. improper monetary policy on a global level (the big one IMHO)
3. improper and unsustainable fiscal policy in the US (and many other nations)
4. no significant savings in the US (and many other Western nations). future earnings are based on current savings or access to debt. with deleveraging still happening, and savings rate still near zero…..
5. government policy that does not allow asset prices to fall, thus preventing liqudiation of malinvestments and the restructuring of the economy that is needed.
also, while costs are obviously shrinking remarkably in many sectors as you note, i believe market size is shrinking as well. IMHO the future of markets is local, but governance is moving towards greater singular, centralized control. the disconnect between trends in governance and trends in market needs is the biggest problem IMHO and the true source of economic stagnation.
i see remarkably few entrepreneurs and VCs discussing, let along addressing, these problems.
and so i think these problems will grow until they simply cannot be ignored. then they are finally dealt with, then we get the good stuff.
of course we could just address the problem and solve it now, thus getting to the good stuff as quickly as possible! 🙂 but people are reluctant to address governance problems, as it suggests social instability which is threatening to many people.
Steve –
The “less risk” for innovators… It is not only less risk due to the factors you mentioned (decreasing cost and time to market, and increasing funding options, etc.) – but also reduced imputed risk. Because those “safe” corporate jobs look a lot less safe right now.
The risk “gap” between a job and a startup has decreased dramatically. As the economy improves the gap may widen again – but by then we’ll have a lot of new startups that have traction and growth trajectory to employ people.
Living in South Africa we have had all of these things happen in a very short space of time. I became a victim [being a shoe designer when you have no factories to work in does that to you] as industries closed by the dozens and retailers bought more and more from China.
the problem is investment in infrastructure and working capital. I am open to correction but USA is paying China something like US$350 billion for product this year, work out the knock on effect and look at the reality of only living on retailers profits and distribution income to keep the dollars flowing through the economy.
1 – Profits maybe US$200 billion but you will continually send money to China for the inventory capital, which is coming from where? What is China buying from you US$35 billion in transport and delivery?
Reality is retail, the biggest industry in any economy that greases the wheels along the business road requires manufacture and inventory to survive.
The raod has moved to China and no amount of 3D information, or modern internet is bringing back that reality, as the internet is a subscriptive service, you cannot make a snakeskin internet for 8 times the price..
No economy can survive a net outflow as no business can either, if the world does not find stuff to sell to China, or public starts demanding local production, the growing economic crisis and lack of jobs will grow. All you will have left is jobs in restauarnts as that is all that will be left of America.
The reality is Japan and China and India has taken the automobile industry out from under the Americans while they where still dreaming, the rest is following while people still think it is about cheap goods.
Jobs require manufacture and service industries, throwing away and replacing every 2 years is a Chinese manufacturing intervention that will see the growth of jobless markets in countries that retailers promote the growth of “buy Chinese”
I pose the question when China decides they can take up their own production their population is 3 times that of USA, and they start to fight for product, and manufacturers decide it is easier to sell at home where are the huge product burners going to be? That day is coming fast where there will no longer be cheap but a bun-fight for containers of product to sustain the retailers shelves..
An inspiring post, and one that my colleagues in academia should take to heart, particularly since we are at the front lines of changing mindsets. As you rightly point out, the legacy of digital entrepreneurship is an infrastructure that supports (possibly multiplies) subsequent start-up efforts.
I believe the next evolutionary step in education is to break down the now dysfunctional walls between disciplines. We need anthropologists studying and learning with engineers–that’s what startup culture looks like in the academy.
But academic change makes the retreat of the glaciers look like the Indy 500. We could use more posts like this one–and more demands from the startups out there to change the structures. Sound off. Some of us are listening.
All the innovation and multitude of startups can’t plug the sinking ship that is the US economy. For example, how will these problems be fixed:
– US national debt at 13 Trillion.
– US debt held by foreigners at 4 Trillion.
– US total debt at 54 Trillion. Unfunded social security and medicare liabilities.
– a costly army stationed at 150 countries around the world
– an aging baby boomer generation, which will reduce their consumer spending (70% of the US economy is consumer spend)
– U6 unemployment rate at 17%
Not to mention in this economy, the web startups face
– closed platform dominance from facebook/google/zynga/apple. if you build something they want, they will duplicate the functionality quickly
– too many other ‘me-too’ startups. all the seed camp startups are starting to look alike.
– lack of monetizing opportunities, as most people still don’t like to pay for things online.
the only way to fix those problems is expanding the pie. the only way to get there is a push in innovation/investor and eventually the knowledge of investing spread to larger group.
All startups are risky business at the moment.
I my manifesto, The One Million Paradigm Shift Challenge, I call for entrepreneurial action, with the same vision.
Innovation for survival is not what humanity strives for… it is innovation for growth and expansion that we seek. And such innovation is only possible from a profound awareness of our potential.
Entrepreneurship is a hands on vehicle for said potential discovery, and that’s what I am working on!
I thank you for this uplifting post, I read everyone of them, but this one also touched on the emotions that keep us fighting!
Just Action
The problem is there is no demand in US or western Europe. We all have just about everything we need. The rate we consume currently is not likely to grow significantly. Our children just maintain the level of consumption of their parents.
Most citizens of emerging countries have little or nothing. The kids born in the 80s and 90s don’t want to live like their parents – they have 30 or 40 years of massive consumption ahead of them – they are working as hard as they can to make as much as they can to make that happen.
I constantly hear people say “there are 1 million in China”, it is actually 1.3 million. That rounding down is the equivalent the population of the US today.
*That should be 1.3 billion
You make some good points in your post but you start out with a wrong premise about what the “the pundits” say. There are plenty of more credible pundits on the other side. Also, using “common wisdom” as a strawman is commonly unwise.
The Entrepreneurial Singularity…
“The barriers to entrepreneurship are not just being removed. In each case they’re being replaced by innovations that are speeding up each step, some by a factor of ten.” — Steve Blank, http://steveblank.com/2010/11/24/when-its-darkest-men-see-the-s…
I agree with what you’re saying about the changes in entrepreneurship in this country and those are all good things.
But I don’t see how that would have a substantial impact the US economy. I’m not saying it should be otherwise, but technology often destroys more jobs than it creates. I don’t know the numbers, but I feel certain that more people drew their pay from a bookstore ten years ago than work for Amazon.com today.
Also, a lot of the entrepreneurship today is focused on applying existing technology towards disrupting current industries rather than creating new ones. That’s admirable and good, but doesn’t necessarily help pull the economy out of a slump.
I think what we’re witnessing is the final shift into what Richard Florida calls the Creative Economy http://bit.ly/9bIlZS. And entrepreneurship will be an important part of educating people to succeed in it.
Wow! What can I say? A marvelous piece.
Ever the optimist, I agree with your vision of an Entrepreneural Revolution (ER) and consequently, an Entrepreneural Singularity. However, I’m not sure who will be the winners and losers of the Entrepreneural Revolution especially at the level of countries.
Nevertheless, there’s one thing I know for sure: the ER will be bloody! The ER will result in massive creative destruction as startups not only engage in head-to-head battles among themselves (each trying to be lean) but also take on established corporations in the Red Ocean of competition.
I believe that there are limits to efficiency and leaness especially in the lifecycle of technology. I believe that Customer Experience Innovation within the framework of a Blue Ocean Strategy is a more sustainable option for startups. Lean Startups are a good start. But, in anticipation of the ER which you articulate, I believe the ultimate goal of the entrepreneur should be the creation of Blue Ocean Startups, that is, Lean Startups operating within a framework of Blue Ocean Strategy with the vision of creating an uncontested market space while making their competitors irrelevant in a fast-growing market or niche.
Have a blessed Thanksgiving.
Rod.
[…] we live in during this holiday season? Long-time entrepreneur and start-up theorist Steve Blank provides it today. “The pundits say the American dream is dead and this next decade will see the further […]
Steve,
I wish I had written such a great post!
I think Cloud Bees is almost a perfect illustration of this new entrepreneurial revolution. Having lived and worked in the US and Europe, I think however that the cultural (as in deep culture) environment in the US is still the best for entrepreneurship. The rest of the world is definitely catching up but the US will remain ahead in my opinion. There is also one very important advantage that is often underestimated: there is no other region in the world with a high average GDP/person and with one unique language/culture and legal system. Europe is still a set of smaller countries and BRIC are still under developed in spite of a growing middle class. This means that it makes a lot of sense to start (as in start-up) in the US because it is so much easier to achieve critical mass and visibility. That’s what we did at Cloud Bees.
More generally, I think the revolution of the internet is just starting and it is far bigger than the entrepreneurial revolution. Actually, Michel Serres, a great french humanist who teaches at Stanford, likes to explain that the Internet is a revolution in the way we store, compute, send and receive information. And that has only happened two times in human history. Gutemberg (15th century) and the invention of writing (500+ years B.C). What he means is that such a change revolutionized *everything*, ie urban/rural life, professions, trade/commerce, laws, politics, science, religion. And what we are witnessing today is of the same magnitude. I personally believe that such a revolution is happening. We are in a transition period today and it will take 50 years or more before the new world is visible. I think the US will still shine if they embrace that broader change and don’t focus on their own egocentric short term “decline” problem. Being #1 or not will not be the issue anymore. The #1 mindset is a great cultural asset for entrepreneurship but, IMHO, it will not help the US to adapt to the world of tomorrow.
To understand what’s happening today, it means that we should analyze change with a very long term perspective of human history. Otherwise, we will not clearly appreciate the magnitude of the change. I like change anyway so I welcome it with passion and excitement more than fear. Maybe that’s why I like entrepreneurs… 🙂
Thank you again for your great post and wishing everyone a great Thanksgiving break.
— Francois
Point on. I agree. It has always been, and will be in the future, Yankee Ingenuity that sees us through. This cycle, it looks different, is technology-driven, operates at a faster pace, and quickly jettisons unworthy ventures. So we adapt, and prosper. It’s the American way.
You make some good points, but I don’t think you’re going far enough. Even below the angel/incubator stage, there is a mass of startups that are doing things cheaply and profitably enough to avoid taking any outside capital. Things are cheap enough that one can bootstrap an idea that doesn’t need ‘web scale’ quite easily. Even beyond that there are micropreneurs who are happy enough to simply make an income as the sole ’employee’ of their company, with no need for growth growth growth.
Your larger point stands though, that we’re at the beginning of a Cambrian explosion in the tech startup world. The new diversity of styles is quite exciting, and gives us so many more options than before.
Nice post Steve, thank you for a great Thanksgiving send-off. I agree that the changes happening are systemic and not a temporary fad like incubators during bubble times. Great encapsulation of them.
[…] despite having an ultra-innovative industry that is growing at 50% a year. So when someone like Steve Blank suggests that the USA is at the beginning of an “entrepreneurial revolution” it is […]
Excellent synopsis. The only flaw is the suggestion that this will bolster the US relative to other economies. The only remaining US advantage is financial capital. That is significant but reduction in barriers to startups will more favor emeging economies without the education deficit evident in the US. To make your prediction a reality will require a supply of labor with business and technical skills that I’m seeing less and less of domestically.
As to the pre-conditions for an entrepreneurial revolution, you’re absolutely right. Just add education and we’re there.
[…] we live in during this holiday season? Long-time entrepreneur and start-up theorist Steve Blank provides it today. “The pundits say the American dream is dead and this next decade will see the further […]
Steve, I appreciated that you started the post with a reference to decimating domestic manufacturing, and I was eager to see you to return to the point ala some of the recent writing of Andy Grove. I was hoping you would highlight the surge of entrepreneurship and innovation happening around physical products, some of which is actually creating domestic manufacture opportunities. Your basic points apply to this arena too. One issue that arises for consumer internet, and for inventive new physical goods, is gaining awareness and distribution for all these cool ideas and products. THAT is the next big problem to solve. Sorting out the wheat from the chaff, but also making sure the good guys can see the light of day. Most innovations…even great advances…suffer from lack of awareness and these companies die on the vine, as noted in a previous comment.
Phenomenal post. You really nailed it, Steve.
One note to everyone who is concerned about the rise of “dipshit companies” (or as we used to call them, features masquerading as companies)–the revolution Steve refers to dramatically increases the number of startups and entrepreneurs. By definition, this increases the number of crappy companies and entrepreneurs seeking funding. It also increases the number of great companies and entrepreneurs.
Even if the vast majority of new entrants fail, mankind still wins.
Back in the late 90s, whenever someone asked me if startups were good for the world, I’d simply ask this question:
“Who do you think will create more value and innovation for the world? Microsoft and its 50,000 employees, or 10,000 five-person startups?”
Startups, for all their flaws, are one of man’s greatest creations. Increasing their numbers is a very good thing.
I agree.
The most significant current constraints of entrepreneurs are in the mind.
Great point in time to witness.
Steve–
Great post! I spent 10 days at Singularity University recently so this topic has been on my mind.
All of the things you point out are absolutely true. However, humans think linearly, not exponentially, and the institutions we have created often do not seem to think at all.
We have a culture that has evolved to accept entrepreneurs and forgive their failures (not every country does–I’m looking at you, Western Europe).
But our institutions have been much slower to embrace the elements necessary to help entrepreneurs. Our schools are adapting, as you mentioned. But our government does not seem to move quickly.
Thickets of regulation, most of it designed before the Internet, faces entrepreneurs. Remember that most entrepreneurship happens outside the “tech industry” (although it still mostly uses tech).
Talk to someone trying to open a gourmet lunch truck in SF about how easy it is. Look at the issues AirBnB and Uber are having as they try to disrupt industries.
Our current government structures seem to favor larger businesses that can afford to lobby heavily. We hear a lot of noise about helping small businesses, but then the dollars seem to flow to large businesses.
We need to evolve our regulatory frameworks and institutions before we can reach an entrepreneurial singularity.
Well written Chris and congrats on the SU. Those that think exponentially need to use that as a mantra reminding those we communicate with we are talking about the truly disruptive.
Very insightful post, Steve. I really enjoyed seeing you speak when you were in NY.
When you call out the previous massively high failure rate of startups, and how the new stack of CD, PD and Agile drives us to discover failure faster and sooner and give us the opportunity to pivot.
I agree with that and for startups that might have failed for those reasons, a chunk of them will now not fail…and/or fail less spectacularly.
But I think there is another big chunk where startups fail, especially the inexperienced ones. It’s around hiring and managing people, and developing really great and special relationships with customers.
I started my career in the startup world, then was out of startups and in corporate and not-for-profit, and now back in the startup world.
I see that skill gap clearly, especially among younger entrepreneurs. Lots of mistakes happen which didn’t have to happen; they are skill, experience, and interpersonak bed behavior mistakes, not market-driven mistakes. The “dude, don’t be an asshole” kind of mistakes. It yields lots of burned out and bitter people. And they’re not necessarily learning to be better entrepreneurs, they just behave more like that.
And it’s funny when you’re ruthlessly focused on customer and product and have an awesomely functioning team, even if you’re only sleeping 4 hours a night, you feel energized. It’s a totally constructive focus of your energy.
The thing is, a lot of that stuff is totally learnable and coachable. We’d have fewer business failures, more businesses that are sustainable, lower attrition both for the companies and for entrepreneurship as a career path.
So — to have many more businesses that succeed and become sustainable? That would be a major revolution.
“But I think there is another big chunk where startups fail, especially the inexperienced ones. It’s around hiring and managing people, and developing really great and special relationships with customers.”
So true!
I used to think that partnerships with VCs could bring the experience and depth of understanding needed around these areas. However, not only do a small percentage of startups have the benefit of a VC investor, now I’m wondering if this wisdom and experience need to be part of the startup’s intrinsic talent mix. In other words, maybe some of these companies run by 20-somethings need a few 40- 50-somethings on the team. There are some things that you can truly only learn with experience.
This is going to take a clearer mind than my post Turkey stuffed haze will allow. Totally sent to my instapaper for a thorough and careful read tomorrow while walking. Happy Thanksgiving Steve to you and fam.
Is the United States on the verge of an entrepreneurial revolution?…
Steve Blank quite convincingly argues that it is. http://steveblank.com/2010/11/24/when-its-darkest-men-see-the-stars/…
I have to admit I am puzzled. Let me elaborate.
On the positive side, the optimism you express is very refreshing and I felt really good after reading it. I tend to agree with the lower barriers to entrepreneurship, and probably I kept my sun glasses in the dark too long, so I do not see the stars. But I will certainly mention your post as a great article to my own little network.
But on the other side, I am concerned that the same barriers still exist in biotech, semiconductor (and most hardware products if they embed radical innovations) or even in cleantech/greentech (which by the way maybe be more a bubble than a real new field). In these fields, product development is as long, VCs are afraid sometimes of the capital requirements, Richard Newton, the Berkeley professor (http://www.eecs.berkeley.edu/~newton/presentations), had noticed a long time ago, that most talents go out of these tough fields to easier or more promising fields (it was from electronics to internet in the 90s). It might be that we do not (have to) innovate as much in these classical fields anymore, in which case you are totally right. But if not, we are just moving to the low hanging fruits of innovation, and we are blinded by superstars but do not see the myriads of others (needs, opportunities) we should also focus on…
Great, great post. If only it were true…
Outside the writhingly empty froth of social media and the short-term buzz of ‘hot’ sectors (geolocation, etc), now is actually a lousy time to be an entrepreneur. The vast majority of plays I see being pitched are simply value chain optimization rather than innovation – sure, people are daring to dream, but most of their dreams are stultifyingly mediocre.
Surely the right question to be asking is how best to channel entrepreneurial spirit and angel finance into things that actually produce new wealth rather than just optimize old wealth? Otherwise the distinctive feature of the decade will turn out to be a glut of sub-par entrepreneurs and fallen (broke) angels.
[…] a very interesting article on Steve Blank’s blog (link tweeted by @ericries) called “When It’s Darkest Men See The Stars“, but which left me with a curiously bittersweet […]
Optimistic post. But, this revolution requires a cooperative and encouraging regulatory climate.
See http://www.venturepopulist.com posts:
Lipservice and Dodd’s Discriminatory Deal
I for one am ensuring that when my kids look ahead at career choices, becoming an entrepreneur is a viable option in their minds.
Entrepreneurship is the hope of our economic future.
P.S. Thanks for this post…inspiring and prophetic.
I sure hope you are right. Unfortunately, many people who are most in need of starting a company don’t seem to go the extra mile to actually do it, or they start a venture more in line with independent contracting, to help pay the bills. I think this may be in line with what we have seen in past downturns where these workers re-employ with existing firms once the jobs become available.
I like the optimistic tone of this article. Too often, I look at the broader global trends and wonder how the tech revolution will maintain momentum in ever increasing headwinds. Though we have a shorter cycle time to market, does this really mean more ground breaking innovations? The large shifts you point to were all revolutionary changes, but the shorter cycle time methods you described work only for incremental technological changes, not broad shifts.
Hi Steve,
What a brilliant piece. Loved it, loved it, loved it.
I believe there is also a profound shift in leadership thinking too that is necessary (or needs to accompany) this shift in entrepreneurial thinking. The kind of leadership that strips right back to the basics of:
Purpose
Passion
Hope
Curiosity
Courage
Tenacity
It’s what I call “The 6 irresistible human endowments” that compels anyone to become a leader – irrespective of their age, colour, creed, religion, nationality, gender, beliefs.
The other interest thing is that the rise of social media is helping to break ‘Dunbar’s Number’ barrier in terms of making the right connections to remove the barriers you have articulated so succinctly.
All good stuff for the spirit, heart and the mind.
It’s nice to read an optimistic article after constantly reading how China and the rest of the world are kicking our a$$. While I’m sure Silicon Valley will continue to produce, I think that other hubs in different countries are starting to form and will soon be very competitive with us.
It has been interesting reading the comments. For the naysayers, don’t presume Steve’s reference to Singularity means a magic bullet. The Law of Accelerating Returns happens because of a greater number of those taking a chance.
We have, and alway had:
1) Cycles in Economy
2) Incubators trying to eliminate Innovators
3) Those that are not creative gaining jobs in Middle Management creating barriers to those with solutions
With more employees becoming IC looking to full fledged entrepreneurship we steadily gain:
1) More push on products, some disruptive, some just a copy with one additional feature.
2) More innovators who with the forward path of communication that can help each other.
a) More will get accomplished at less cost
b) The changing of the ‘in’ incubators at faster pace
3) Less need for the bureaucracy mentality that wastes so much money.
No matter what, just increasing by 10% the number of those that attempt to do the Idea/Research/Funding and market launch will increase the number of truly disruptive products/platforms leading to a better world.
Wonderfully optimistic. However, it fails to take into account several things:
a) Peak Oil
b) Overpopulation, which cannot be fed without … oil
c) The fact that everything, not just energy relies on .. oil
d) You can’t replace plastics with solar power … requires oil
e) You can’t replace fertilizer to feed people and animals with solar energy … requires oil
f) global warming, accelerating whether or not it is mankind’s doing because of b)
Some say the only sustainable civilization is the stone age, and that is where we will eventually end up.
http://www.democracynow.org/2010/11/26/author_and_activist_derrick_jensen_the
The stars may not be aligned right now. Asia is turning out 7 engineers for every one the US does now. There is no wealth and market control by America now like 1960’s the fed the cold war tech boom funded by the gvernment. Foreign schools and universities and economies are keeping the best and the brightest from having to come to America now.
There is a great potential, but not with disruptive technologies now. The future is industrial, manufacturing, steel, energy, infrastructure, etc. These are capital and labor intensive, not information intensive like the past in Silicon Valley.
The future is bright, but in different ways and in different places than in Silicon Valley in the last half of the 29th century. Different times and different boundary conditions now.
mm @shooteyeout
I really like this blog, no matter if Steve is right on the money or not, his blog seems to always provide good food for thought.
Steve: You forgot to mention that there’s chilling effects too, those which you can’t count as barriers for startup *creation*, but chilling effects still create an hostile environment for startups to thrieve and survive.
Take for example, software patents creating big risk for technological startups, immigration law which prevents the U.S. from accessing a global pool of talent, big corporations rigging the market through lobbying and influencing the creation of new laws that serve their own purposes, etc.
It’s not as easy as just removing the roadblocks to startup creation, that’s only the beginning.
Thanks for your great work, best regards.
vruz
I am tired of hearing this entrepreneurial arguments – unemployment in the valley is higher than the national average. So the place that’s supposed to save the country cannot even save its region. For the past few years there is net domestic emigration from the valley, the only people moving there are foreigners. So I’m not sure how this can be a model for the rest of the country.
You cannot sustain a country of 300M on a bunch of startup companies with a relatively few highly-trained employees. You need a proper economy and exports (a la Germany or China). Check Andy Grove’s recent talks about this.
And above all, top talent isn’t staying in the US anymore, people are so sick of dealing with bureaucracy here that they just head home where they are treated like kings with their US-degree. And thanks to globalization you can get the same stuff pretty much anywhere you go and even get a better living standard by moving abroad. The lack of foreign talent will be by far the biggest problem for the economy in the next 10 – 25 years.
Peter, I think you had better start getting used to hearing about entrapreneurial arguments. Did you know that 60-70% of all businesses in the US are small entrapreneurial businesses. Most of them have no formal trianing in their fields but they learned and did it anyway. This country was built on small biz with low trained employees. Todays education system is a hinderance to building a profitable venture. The big corp. profits are not what gets put back into the economy but its the small biz profits that are whats holding the system together.
Agreed that the burocracy is a big hinderance to running your own shop these days and the politicals get bought to pass stupid laws to aid the monopolies, but when has that not happened?
You can keep your 9-5, kool-aid, and dancing with the idiots…. I’m busy with building a life!
Steve,
Inspiring. Incredible. Insanely great.
Thanks for reminding me why you’re one of my heroes. 🙂
Aaron
I found time to catch up on reading, and you’ve crafted a wonderfully optimistic tale about the American future. But there are still a few boundaries left between a few people with a great idea, and a successful product. The cost of failure is real.
If you spend a year learning about the basics of web development in a handful of languages, meeting sharp builders, and crafting a prototype you still may not be able to construct a minimum viable product.
The number of pivots that you can afford is one hard restriction. You and a founding team may start in a problem space that requires more resources to get to the next peak than you have at your disposal.
The same rules apply to the pivot though. If you’re a talented, visionary enterpreneur, you’re 10x more likely to have the resources you need to execute the pivot if you were wrong before.
Thanks, Peter for your comment – although I am an entrepreneur myself I really can’t see why Silicon Valley is the solution to all the “How to fix this” questions that the US and California is facing.
I doubt that a state that is not able to pay its teachers because it’s more or less bankrupt can be a role model for the western world.
When I was driving through San Francisco this summer (I saw people nearly dying on the streets of the Mission District) I was shocked – and I think american society needs a major reboot. More than 10 years ago, I attended University of Michigan, Ann Arbor and the “Global Citizenship Program”. The program showed me that you can’t grow a tree from a rotten limb. If entrepreneurship is about creating huge natural monopolies, using tax loopholes to save billions and not adding anything to the society it will be nothing like one big dead end. Needless to say, that the even more urgent problems like “Stop climate change!”, “Stop poverty!”, will remain not adressed. I think these questions are much more important and need to be answered, so much more than how to develop the next twitter efficiently. Entrepreneurship can be one answer to these problems, but it also needs a strong sense for the society and the moral standards of a leader to overcome the home-made and global problems.
I am puzzled by the reactions.
There appears to be a choir that hasn’t actually read the article but is merely resonating with the optimism within it.
And there are a bunch of comments by others who also haven’t read the post, but are bringing up the usual issues (debt, China, capital-intensive industries…) without noticing that specific answers are actually implied by the post (whether these answers are believable is a different matter).
Only a few people seem to have actually read Steve’s post carefully! I see the post resting on 3 basic arguments (which Steve and others have repeated enough times elsewhere that I don’t think I am mis-stating them):
1. Entrepreneurship as a process has now been codified and teachable and is significantly de-riskable.
2. That process is also CHEAP due to Internet dynamics and (some commenters appear to have missed this), since the consumer Internet is *leading* innovation, the cheap models will percolate and have impact elsewhere. i.e. even for apparently hardware problems, the major innovation will come from the cheap s/w end of the game.
3. This will cause a revolution as big as the industrial revolution.
I am skeptical of the argument in its most ambitious form, but buy it in a modest form (i.e., the “as big as the industrial revolution” part). In order:
1. The “lean stack” is _a_ process that appears to be _sufficient_ for one class of problems to significantly lower the risks of entrepreneurship. I don’t believe it is either necessary or applicable across all classes (unless you generalize it to unfalsifiability). I believe the “low cost” part will be true of many models besides “lean stack” but all the specifics of the lean stack will not apply across the board. But there is no free lunch. The “lean stack” has its strengths and weaknesses, and so far we’ve only seen it operate in its strength zones. Lean startups will no more revolutionize entrepreneurship than lean six sigma eliminated operational efficiency problems in big companies. We are at the peak of the hype cycle. We WILL hit a trough of disillusionment with the model, and eventually end up on a plateau of modest returns.
2. This argument is quite strong and goes beyond things like commodity fabs for consumer electronic chips. Lots of apparently hardware problems appear to have good consumer-Web style solutions. Things like zipcar/shared bicycles are examples of the Internet enabling very novel solutions to tricky hardware infrastructure problems without hardware innovation. I believe the consumer Web will similarly play a big role in green/clean solutions. But there will remain a core of fundamental hardware problems that will take boatloads of money and upstream R&D. That’ll be 10% of entrepreneurship and will remain with the big companies/government. 90% may move to cheaper processes
3. This, I simply don’t believe. Entrepreneurship and “pie growing” simply do not have the leverage required to “move” the big problems powerfully enough to cause an industrial-revolution scale shift. Evolution is a diminishing returns game even in nature. The only way to have big revolutions periodically is to also have big collapses regularly. The asteroid had to kill the dinosaurs and cause an evolutionary dark age before the mammals could rule. Between Rome and the Enlightenment, there was the dark ages (which weren’t quite as “dark” as people think, but oh well). Assuming we don’t want to create another dark age deliberately, the bulk of the solution to world problems today will NOT come from entrepreneurship. We cannot “grow” our way out of today’s problems. Economic growth is what created most of them in the first place.
But to the extent that entrepreneurship can be a part of the solution, our biggest problem may be talent supply. Even if entrepreneurship is “teachable” as Steve and the lean movement believe, there aren’t enough young people in an aging world population with the right access to that education. And if you believe (as I strongly do), that entrepreneurship is fundamentally NOT teachable, and that only about 10% of the population has entrepreneurial aptitudes, the talent supply is even more meager. The apparently “teachable” stuff is just some disciplined process knowledge applied to an inborn entrepreneurial instinct (just like math is an “instinct” that is refined through teaching, but you can’t turn a true math dud into a Gauss through teaching).
+1, good commentary.
Optimism indeed! More like a rally Cry for the non-believers amongst you.
I listened to Eric Ries yesterday talking about the pockets of entrepreneurship springing up all over the world supported by local VC initiatives that means the migration to Silicon Valley is no longer an essential for success. He is right. Stay at home and succeed. It’s no longer necessary to pay homage to the Gods of Silicon Valley to build and sell a business. Denmark has many examples over many years of how entrepreneurs can build and grow businesses that are world class.
No doubt though, that when it’s darkest men see the stars…we’ve all been led to believe that when the US lights go out we should be worried. Not so…the lights are on everywhere. We just need to keep our eyes open and for those of us not US based, that’s not so hard.
[…] Steve Blank: “I believe that we will look back at this decade as the beginning of an economic revolution […]
I think the objections to SB’s article are mostly around the limited impact pop-up startups can have to the world economy. This is because they are mostly just rejiggering existing goods and services and just making them easier to get at by people. The argument is that they are not creating anything new, just lubricating the means to conduct commerce. These tools are the ones getting empowered by the technology changes he listed.
What I think people do not properly consider is the impact of a quintupling of the consumers/producers that is being brought into the picture because of all these new tools. Our first world 1B people will now become 5B people deeply engaged in commerce with each other – entirely enabled by the new tools of commerce. This will be profound and the signature development for this century.
I’d +1 this, except for the fact that most of the pitches I see speak all too closely to only a tiny fraction of the 1B. I’ve got nothing against global vision, global relevance, and global execution, but all three remain rarities in startup terms. 🙁
I guess I’m more hopeful. When you’re dealing with addressable market numbers (population) that are exploding, the fraction penetration can stay constant – even small and yet be financially huge. How to do fast launches, pivoting bizplans are now understood by modern startups. Operating globally is still being learned.
In fact the whole internet startups being financially viable is testament to this large numbers thing. How do you sell stuff with an ASP of $0.99 and be viable? You sell it a few times a year to a population numbering in the 10’s to 100’s of millions. Fast forward that to billions and you see where I’m going as to how seemingly trivial things can be huge financially. It kind of upends tradition of creating something very valuable and delivering it to interested parties into creating any small thing of value and concentrate on getting it to 100’s of millions.
This is going to upset some apple carts which desperately need upsetting. The sooner the better.
I wished I shared your optimism.
A couple of thought: don’t all of these paradigm shifts apply equally to an entrepreneur in London, Shanghai or Sydney? I’m not convinced the US is getting a relative competiive advantage due to these changes.
You can’t ignore the fact that the US is essentially bankrupt. It is a big stretch to believe that a step-wise change in entrepreneurship is going to so fundamentally change the income tax base that the US is able to dig its way out of the hole with a default.
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Looking 4 years back now I think while in general US as a country still has some structural issues (with tax code, radicalized two-party system, healthcare, etc.), the tech sector continues to excel, technology is becoming even more accessible (I happen to work for WSO2 and we are now moving our whole integration platform – the stuff running platforms for the Boeings and eBays of the world – online for entrepreneurs to use for their app & API creation and management), and there is the whole wave of IoT technology coming!
So yes, totally sharing the optimism for the tech sector.