back to article Why aren't startups working? They're not great at creating jobs... or disrupting big biz

If you think we're living in the Golden Age of the Entrepreneur, think again. In the US, startup rates are falling and employ fewer people than they used to. Businesses take longer to form. Meanwhile, subsidies to business have tripled since 1990, and big business is far better at playing the subsidy game. The taxpayer isn't …

  1. Anonymous Coward
    Anonymous Coward

    Jobs? Silicon Valley Startups: A-Wall-Street-Mugs-Game

    Example-1:

    'Venture-capitalist false consciousness':

    "An important story of the modern technology industry is its contribution to inequality, as entrepreneurs and venture capitalists become fabulously wealthy with scalable digital products that do not create lots of middle-class jobs to match the wealth they build for their tiny elite class of owners. At the limit, robots will do all the work, and the people who invent and own the robots will have all the wealth, and everyone else will Starve?"

    https://www.bloomberg.com/view/articles/2018-05-18/silicon-valley-s-subscription-free-for-all

    ------------------

    Example-2:

    'Even though the public owns the majority of Facebook's stock':

    "Zuckerberg has ultimate control thanks to a special kind of stock that gives him 10 votes on corporate matters for every one vote of other shareholders. He can do almost whatever he likes with Facebook even though the public owns the majority of Facebook's stock".

    http://www.bloomberg.com/gadfly/articles/2016-07-06/linkedin-sale-to-microsoft-exposes-superpower-shareholder-tension

    1. Anonymous Coward
      Anonymous Coward

      Re: Jobs? Silicon Valley Startups: A-Wall-Street-Mugs-Game

      There are a few problems with that article. First of all the venture capitalists are already rich; that is how they can enter this high stakes market. Secondly only a few entrepreneurs succeed in securing enough funding and of those funded by the VCs only 1 in 10 succeeds enough to pay for the expenses in funding the remaining 9 in 10.

      Notably the article is strangely silent about the tough conditions set by the VCs. For behind every success lies a lot of hard work plus dozens of nameless failures.

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    1. This post has been deleted by its author

  3. Anonymous Coward
    Anonymous Coward

    >Most Startups are really just Rent-Seeking Privacy-Killing-Scammers.

    Do you have any basis for this assertion? After all not all startups are related to IT.

    1. Anonymous Coward
      Anonymous Coward

      "After all not all startups are related to IT"

      The problem is, there always seems to be an IT aspect:

      --------------

      https://www.bloomberg.com/view/articles/2018-05-08/all-companies-are-in-the-tech-business-now

      https://www.theregister.co.uk/2018/05/07/build_2018_keynote/

      https://www.bloomberg.com/gadfly/articles/2018-03-19/theranos-crackdown-offers-welcome-check-on-tech-startup-frenzy

      https://www.bbc.co.uk/news/technology-42516066

      https://www.bbc.co.uk/news/technology-41268996

      1. Anonymous Coward
        Anonymous Coward

        Re: "After all not all startups are related to IT"

        >The problem is, there always seems to be an IT aspect:

        I never doubted that there was an aspect. The end product does not not need to be an IT product or service. A typical example is pharma and medical equipment. I worked in this field and had to learn the market. That is why I from personal experience question this always assertion.

        Synthetics in pharmacy was huge at one time, and computers were essential in simulation, characterisation and analysis. That does not mean software or hardware were end product.

        This field is typically based around small groups and successful exit means being bought by one of the huge players (Pfizer etc.) If you succeed you become rich - after 10 - 15 years work. Most likely it will sink without a trace.

        1. ArrZarr

          Re: "After all not all startups are related to IT"

          To me, the important point is that the graph started in 1987. This means that the productivity gains of the nineties mean fewer people are required to do the same work - a huge deal for a startup which can hold off longer employing their second or third employee. If a one person startup now can do the work of a three person startup from '87 due to productivity gains from tech then you will see a proportionate reduction in workforce employed for the same number of startups relative to the available workforce.

          On top of that, I would bet my bottom dollar that while not all startups are IT related, a lot more of them are and manufacturing is now much easier to outsource than it was in the past. We wouldn't have seen such an increase in "Shenzen Generic" phones recently if this were not the case.

    2. Yet Another Anonymous coward Silver badge

      >Most Startups are really just Rent-Seeking Privacy-Killing-Scammers.

      Most startups are one-person contracting companies, hair salons or nail bars, or small family restaurants

  4. }{amis}{
    FAIL

    Accumulation of power

    The problem with the internets is it cuts both ways, forward as an enabler of small groups to reach a wider audience, and backwards to make it easier for large groups to detect up and coming challengers and crush them before they become a problem.

    This has now become so normal that the main effort in the startup world is that their entire business model revolves around making themselves the most attractive acquisition target possible for one of the mega-corps, rather than aiming to become a real company in their own right.

    1. Nick Kew

      Re: Accumulation of power

      Silly to generalise like that. Startups take many different paths to success - even if greater numbers end in failure, or bumble along supporting one person cleaning windows, trading on ebay, or flirting with IR35.

      Bear in mind that all the Internet giants are startups from the 1990s or later, and some are now among the world's biggest companies. Also that our long-established giants were once startups too.

    2. MonkeyCee

      Re: Accumulation of power

      "This has now become so normal that the main effort in the startup world is that their entire business model revolves around making themselves the most attractive acquisition target possible for one of the mega-corps"

      That's called contingency planning, surely :)

      I've started my own business before. One man band doing similar stuff to various other bigger companies, but cheaper and better (low overheads, not charging enough for my time). At all times I had a good idea of how much I'd sell it for, since that's when I get paid for all the time and energy that was over and above doing the job.

      One of my competitors decided they wanted to expand. They made me a sensible offer, and I haggled them up and then sold out. They then went after the other players hard, under cutting them, stealing their clients and generally playing hardball. Not what I'd have liked to be against.

      For many a small business, even profitable, once a bigger fish takes an interest in you your options are to either get crushed and suck up the loss, or get bought out. Carrot or stick, it's your choice.

      But it's a hell of a lot easier to get a line of credit from a bank or supplier when your record is one of selling out at the right time, rather than holding on and going bankrupt.

      If you don't have "sell out" as a possible plan, then you're pretty much stuck with either "go bust" or "borrow more" when things go gnarly.

      1. Anonymous Coward
        Anonymous Coward

        Re: Accumulation of power

        Except that for most silicon valley startups, selling out is not the contingency option, it's the primary goal. They come up with some half baked idea, make a half baked implementation (minimum viable product) and give it away for free/dirt cheap, hoping that it will become trendy enough fast enough, so that they can dump it on some corporate idiot before the VC funding runs out and they go bankrupt.

  5. Anonymous Coward
    Anonymous Coward

    Not enitirely unexpected

    The majority of startups, especially in the valley are a form of Tax scam. We live in a day and age when a large company taking a big bet on the next big thing and trying to build it will be eaten alive by the stock market and ripped to shreds by sharks like Icahn. At the same time they have to waste money on stuff from time to time for tax efficiency reasons so it all goes into the M&A carousel fraud.

    That distorts the market two-folds:

    1. A lot of "BIG" things have started small. A lot of tech which made its inventors fortunes ~ 40 years ago started as subcontracts for larger companies on particular components. DOS, Basic and even Windows itself. There is no demand for that as there are very little BIG projects floating around. There are only small incremental improvements so the R&D subcontract market has contracted by several orders of magnitude.

    2. As there is no competition with BIG companies and products/projects the amount of work which a valley startup needs to complete has decreased. It has become more of a matter of who are your founders, where they were spun off and where they will sell the half-baked bs you built in the meantime. I can go through the M&A lists of some of the valley "greats" of late as examples of ridiculously overvalued bs, but I think it is not needed. It is just there - for all to see.

    Both of these combined royally screw both job creation and value creation which is frankly not surprising. You do not need jobs to build bs. And you do not build value - you build bs.

    1. Daniel von Asmuth
      Boffin

      Economic recovery

      Not so long ago, a high number of U.S. companies went bankrupt. so the percentage of start-ups was high, with gigantic financial and social cost, But now the economy is stabilising, so the age of the average company is rising..... until Trump makes America go into a great recession again.

  6. Platypus

    Misalignment of incentives

    Startups, tech or otherwise, do not exist to create jobs. They exist to make money. They are *funded*, sometimes massively, to make money. If they can do so with greater automation, they will. Even for those startups that create physical things, it's more cost-effective to use pre-manufactured parts (including microcontrollers) and automated assembly than to hand-craft everything from small pieces. It's more cost-effective to sell on the internet than fight for space in a kazillion brick-and-mortar stores. Many logistics and even HR systems can be outsourced. So it's no surprise that even startups that intend to grow rapidly employ what once would have been regarded as a skeleton crew.

    The thing is, if startups hire fewer people each, then maybe there should be more startups. Unfortunately, the funding models aren't geared for that. They want to fund a few unicorns not many minnows. Tax laws, accounting requirements, insurance requirements, and regulatory systems are increasingly hostile to smaller businesses, as they each tend to exact a fixed cost per company that's in the noise for a larger company but significant for a smaller one. (BTW I'm way over on the progressive end of the spectrum and support most of these things in principle, but even I recognize that their implementation has had ill effects.) If we want to undo the over-centralization (and over-financialization) of our economy and go back to a time when regular people were creating jobs for other regular people, we need to stop putting startups in the shadiest part of the garden and letting the giants stomp all over the fresh shoots.

    1. Anonymous Coward
      Anonymous Coward

      Re: Misalignment of incentives

      Startups, tech or otherwise, do not exist to create jobs. They exist to make money. They are *funded*, sometimes massively, to make money.

      And let's be clear, they are funded to make money for investors, not necessarily to make a profit, or have any sustainable business model. Many, maybe most VC backed startups are merely a vehicle to create an illusion of growth and opportunity, prior to selling out to either a gormless larger corporate, or some "greater fool" secondary buyout firm - who in turn hope to sell on for even more to a gormless corporate.

      If the startup does have real potential for growth and economic returns, that's mere luck.

    2. Nick Kew

      Re: Misalignment of incentives

      should be more startups. Unfortunately, the funding models

      Actually funding models are adapting quite nicely to support more and smaller startups:

      (1) Today far-and-away the biggest VCT in the UK is Octopus Titan, which invests in smaller, newer businesses than any successful VCT has in the past (others have tried, but only managed to lose most of their money and get taken over).

      (2) The real new kid on the block is crowdfunding, and that's supporting a whole raft of new entrants.

  7. K

    From 2000-2015 I worked for startups..

    Then I got fed up, because whilst they sped towards goals of consumer pantopia.. rather than building we architectured software, all we ever delivered crap being stacked on top of crap. This was across the board, from bloated libraries to databases, I still have dreams of the marketing teams asking for a new stat in their report, where frequently SQL statement exceeded 1000 lines, it gives me the cold sweats!

  8. CheesyTheClown

    What do you mean?

    So, let's say this is 1980 and you start a new business.

    You'll need a personal assistant/secretary to :

    - type and post letters

    - sort and manage incoming letters

    - perform basic book keeping tasks

    - arrange appointments

    - answer phones

    - book travel

    You'll need an accountant to :

    - manage more complex book keeping

    - apply for small business loans

    - arrange yearly reports

    You'll need a lawyer to :

    - handle daily legal issues

    - write simple contracts

    You'll need an entire room full of sales people to

    - perform business development tasks

    - call every number in the phone book

    - manage and maintain customer indexes

    You'll need a "copy boy" to

    - run errands

    - copy things

    - distribute mail

    Etc...

    Now in 2018

    You'll need

    - an app for your phone to scan receipts into your accounting software

    - an accounting app to perform year end reports and to manage your bank accounts

    - an app to click together legal documents based on a wizard

    - a customer relationship manager application

    - a web site service for your home page

    - etc...

    Let's imagine you are a lawyer in 1980...

    - You'd study law

    - Graduate

    - Take a junior position doing shit work

    - Pass the bar

    - work for years taking your boss's shitty customers

    - work for years trying to sell your body to get your own customers

    - one your portfolio was big enough, you'd become a senior partner who would take a cut from everyone else's customers.

    The reason the senior lawyer hired junior lawyers was because there was a massive amount of work to do and a senior partner would spend most of their time talking and delegating the actual work to a team of juniors, researchers and paralegals.

    Now the senior can do 95% of the work themselves by using an iPad with research and contract software installed in less time than it would have taken to delegate. So where a law firm may have employed 10-20 juniors, paralegals and researchers in 1980 per senior, today, one junior lawyer probably can easily handle the work placed on them by two seniors.

    There's no point hiring tons of people anymore. Creating a startup that is dependent on a head count is suicide from the beginning. If you're a people based company, then the second someone smarter sees there's a profit to be made, they'll open the same type of business with far more automated.

    1. Anonymous Coward
      Anonymous Coward

      Re: What do you mean?

      If I started a business in 2018, I'd require a personal assistant to:

      - Look nice

      - Keep creditors from getting hold of me

      - Bin letters of complaint or outrage

      And that's all. You complaints should be addressed to A. Coward, CEO, Sexist Dinosaur plc, Private Equity Towers, Silicon Roundabout, London.

      1. Alfred

        Re: What do you mean?

        "Sexist Dinosaur plc,"

        Nothing sexist about what you said. By all means, you have a tall blonde man as your personal assistant to look nice, sitting at your reception desk painting his nails and finding ways to show off his stocking-clad legs to your customers. Knock yourself out.

  9. Daggerchild Silver badge

    Crushing Gravity

    If I have not seen further than others, it is because I couldn't afford to stand on the shoulders of IP giants.

    Are they finally working out they need an API and data interchange format (and conformance test suite!) that isn't proprietary if they want a functioning and fluid market?

    Pity I don't trust them to come up with one that isn't totally broken and makes the problem worse, not better.

  10. Christian Berger

    Well progress is not creating new work

    Progress is reducing the amount of work that has to go into achieving certain goals. I know this sounds completely absurd to many people sitting in their offices playing Office, but that kind of progress enabled us to not have to hunt or gather our own food. It enabled us to have culture, to think about things other than our immediate needs. We can now afford to treat ill people instead of letting them die. We have things like electricity and computers. All thanks to increasing efficiency.

    So even if startups were "successfull" they wouldn't create new jobs. "More Work" shouldn't be our goal, instead we should look at ways to make everyone feel needed while dealing with a potentially ever decreasing total amount of work.

    1. find users who cut cat tail

      Re: Well progress is not creating new work

      Kind of agree with you, except the ‘make everyone feel needed while dealing with a potentially ever decreasing total amount of work’ part. You put ‘potentially’ there, though. So, maybe.

      There is no shortage of work. We, the human race, are messing up things at an ever accelerating rate -- and although we are also fixing them faster, the gap does not decrease. We accumulating problems and creating more work as we go. That's not the issue with progress.

      It's the incentive structure. For every stupid job killed by automation, the replacements are invariably even more bullshit. We have failing infrastructure, and none of the people who moved from dog hairstylists to live-streaming opening pizza boxes delivered to them will fix it. They might even feel needed if they were doing something useful, but the incentives against are too strong. I just hope Hari Seldon is out there somewhere, already working...

      1. Christian Berger

        Re: Well progress is not creating new work

        @find users who cut cat tail

        I agree, however I fear that this will have to end eventually, because much of that relies on finite resources.

    2. LucreLout

      Re: Well progress is not creating new work

      So even if startups were "successfull" they wouldn't create new jobs. "More Work" shouldn't be our goal, instead we should look at ways to make everyone feel needed while dealing with a potentially ever decreasing total amount of work.

      The decreasing total amount of work seems like a fallacy to me. The work will change, sure, but there's lots of jobs relatively safe from automation - either they require too much brain power performing ad-hoc tasks, such that automation isn't viable, or they require beauty such that robots are undesireable, or else they require creativity out of bounds for all but the most expensive 'AI'.

      Strength as a well remunerated attribute ceased to be valuable around the time of the industrial revolution - there's no value in muscle power. Endurance too - machines and software can work far more aggressive duty cycles than a human or animal. (I'm trying very hard not to slip into Fallout mode - what makes you S.P.E.C.I.A.L.?) Perception, via ANPR cameras, facial recognition, and other image recognition software is also falling in value and importance.

      If we assume, however, that labour requirements will fall across the board, then having successive governments increase the costs of that labour (minimum wage, employment regs etc) can only possibly speed up the labour attrition rate. Unpopular, but logically correct whichever colour rosette you prefer.

      The cost of hiring staff makes automation or outsourcing a prefered choice almost wherever it is available. Your average accountant simply can't compete with the prepackaged tax arbitrage solutions offered to startups by larger firms, and "pretty receptionist" stopped being the second hire sometime around the introduction of minimum wage - yes, it may be politically incorrect, but it also used to be the order of hiring for 90s startups - good accountant, pretty receptionist.

  11. Anonymous Coward
    Anonymous Coward

    A trend I’ve recently noted....

    Big businesses seeking to emulate what they see as being the good things about startups. This usually involves setting up a small unit, often somewhere like We Work, and hiring a new team. The recruitment ads tend to use terms like Highly Agile (with smatterings of BDD and TDD). It looks like a way of establishing some kind of modern R&D outside of the business/politics as usual. It’s too early to tell how successful some of these efforts will be, but I’m guessing it could be a useful model for consumer applications (e.g. banking apps) if the development model is properly worked out. I would also bet on quite a lot of failure.

  12. chivo243 Silver badge

    Start ups?

    Aren't they like appetizers? Fat cats eat them at every meal. Isn't that the real reason for start ups these days? Become sucked up by Globalhypermegacorp at a nice profit, and do it again?

    1. wayne 8

      Re: Start ups?

      Outsourcing risky development to a small group without visible corporate ties.

      The startup goes titsup in a massive PR disaster, the damage is contained only to that compartment.

      Successful, the startup is absorbed into the Borg Collective.

  13. BebopWeBop

    ?

    GAFA anyone?

    1. Anonymous Coward
      Anonymous Coward

      Re: ?

      Google, Apple, Facebook and Amazon

      1. BebopWeBop

        Re: ?

        Thankyou (a lack of coffee this morning....)

  14. a_yank_lurker Silver badge

    Startup Creation

    I wonder how much an aging population has to do with decreasing startup formation. It seems like the peak age to start one is around 40. Plus, too many people are trying to create the next unicorn which is a much luck as it is a good idea.

  15. Anonymous Coward
    Anonymous Coward

    Some of the stats are quite striking, and worrying. It would be very interesting to know how those US numbers compare to the UK, or Europe in general.

    It has always seemed to be that “technology”/“the internet” has made it easier to form a startup, not harder. There is obviously more to it .

  16. SVV

    Why aren't startups working?

    Their Powerpoint presentations just aren't as good as they used to be back in the good old days.

  17. Anonymous Coward
    Anonymous Coward

    Figurework

    Zero hours, gigness and similar, all conveniently able to help reduce unemployment figures.

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