VC returns over the last decade have been poor. The cause is widely agreed to be an excess of venture capital dollars to worthy startups. Observers seem to universally assume that the solution is for the VC industry to downsize.
For example, Fred Wilson says about VC:
You cannot invest $25bn per year and generate the kinds of returns investors seek from the asset class. If $100bn per year in exits is a steady state number, then we need to work back from that and determine how much the asset class can manage…. I think “back to the future” is the answer to most of the venture capital asset class problems. Less capital in the asset class, smaller fund sizes, smaller partnerships, smaller deals, and smaller exits
Similarly, Bill Gurley writes:
There are many reasons to believe that a reduction in the size of the VC industry will be healthy for the industry overall and should lead to above average returns in the future.
All of these analyses start with the assumption that aggregate venture-backed exits (acquisition and IPOs) will remain roughly constant. I don’t see why we need to accept that assumption. The aggregate value of venture-backed startups, like all valuations, is a function of profits generated (or predicted to be generated). In technology, profits are driven by innovation. I don’t see any reason we should assume venture-backed innovation can’t be dramatically increased.
For example, innovation has varied widely across times and places – the most innovative region in the world for the last 50 years being Silicon Valley. What if, say, Steve Jobs hadn’t grown up in Silicon Valley? What if he had gone to work for another company? Does anyone really think Apple – and all the innovation and wealth it created – would exist if Jobs hadn’t happened to grow up in a culture that was so startup friendly? Jobs is obviously a remarkable person, but there are probably 100 Steve Jobs born every year. The vast majority just never have a chance or give a thought to starting a revolutionary new company.
Some people blame our education system, or assume that there is some fixed number of entrepreneurs born every year. I think the problem is cultural. As much as we like to think of our culture as being entrepreneurial, the reality is 99% of our top talent doesn’t seriously contemplate starting companies. Colleges crank out tons of extremely smart and well-educated kids every year. The vast majority go into “administrative” careers that don’t really produce anything – law, banking and consulting. Most of the rest join big companies. As I’ve argued many times before, big companies (with a few notable exceptions) aren’t nearly as successful as startups at creating new products. The bigger the company, the more likely it suffers from agency issues, strategy taxes, and myopia. But most of all: nothing is more motivating and inspiring than the sense of ownership and self-direction only a startup can provide.
Whenever I see a brilliant kid decide to join Goldman Sachs, McKinsey, or Google, I think to myself: a startup just died, and as a result our world is a little less wealthy, innovative, and interesting.
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interesting post. i've also reached the (totally non-PC) conclusion that what holds back haiti is also cultural.
culture is really important.
my post on the topic: http://adrianbye.com/2010/01/27/perspectives-fr...
Well, the startups need Google to buy them! And Google need the engineers to continue innovating (even if it's not the same rate!). When Google says “we're going to bring fiber to your home”, they're also fostering innovation on the tens of thousands of homes where the kids will be able to access invaluable information or “invent” new uses with a faster internet.
Most startups don't have the “power” that Google or other big cos have when lobbying or financing open-source projetcts, research projects in universities… etc
This is a whole eco-system. What's usually lost somewhere is gained somewhere else!
Chris, I agree with the sentiment–that culturally there is a conservatism that pushes uncertain young people into 'career-track' professions.
However, I'm not sure how tied up that is in VC.
For example, in my vision of the future, I'm fully in favor of small fiefdoms of technology (such as Threadless) and successful micro-ISVs that can be based anywhere–Brooklyn, old mill cities, etc. While it's important to have some people playing the go big or go home game, I think it's a healthier ecosystem to have lots of innovation at the margins that can be self-sustaining because that's what changes the cultural perception.
Unfortunately too many people aspire to middle management. That aspiration has created a culture (or the culture has created the aspiration) where people want to protect what they have. Since we've had success as a country I think it works against us moving forward in some ways. People aren't willing enough to take risks and they gravitate to jobs that don't add a whole lot to the pot.
My instinct is that economic meltdown will – at least in the short term – cause some people to end up at start-ups and actually think who wouldn't have. At the same time big investors may turn away from start-ups. My bet would be that the venture world will see great returns over the next 5 years as a result. What do you think?
I'd argue that this is correct to a point, but not at scale. Suster's “entrepreneurial traits” series was interesting to ponder how much has to be built into your fiber vs can be learned. Culture can play a big part (it inhibits innovation in India, for example), but within the US, a shift in culture or education can only do so much. So yes, there are a few folks who go into those companies who could turn out to be great entrepreneurs, but I don't think it's a big move of the needle.
Re: your last sentence, are you referring only to brilliant engineers or are you referring to all business talent? As a training ground/learning lab for non-engineering talent that can help transition companies from product launch/small user base to profitable businesses, GS, Mckinsey, Google and other big companies are pretty valuable. It would be interesting to look at Facebook, Twitter, Google, Amazon, etc. and see how many of the first 500 employees at each came from this type of background.
And a separate point – what's the solution to this cultural problem with respect to engineering talent going to big companies? Most probably go to big companies that pay good $$ b/c they have education loans, rent, etc. Folks with investment capital like Fred, you, etc. could theoretically choose to fund these kids as “post-grads-in-residence” for a year or two, thus encouraging them to be entrepreneurial. This would send quite the cultural signal to the 99% of top talent that doesn't consider starting a company a viable option right out of college.
There's definitely a cultural thing going on, not just location based but also community based.
A large chunk of my family and friends are wondering why I'm leaving a well paid gig at Yahoo! to start something that might end up as a failure.
Or to say it another way.
All complex system are finite. All complex system survive/thrive through diversity.
If a system becomes to large/complex for it's own good it will destroy itself, large companies or companies to big to fail…. If a complex system becomes a monoculture, see above(which can be VCs sitting on the me too train).
And every time an engineer leaves Google with invaluable experience and an healthy bank account, a startup is born.
That's the best way to make a point I often make to my classmates who join, well, Goldman Sachs, McKinsey or Google.
You had me until that triplet at the end, “…as a result our world is a little less wealthy, innovative and interesting.”
Perhaps you're right on the last two, but I'm pretty sure Goldman, McKinsey and Google generate more wealth per employee than startups on average. Take Google for example. Over the past 6 years they have generated more than $100 billion in market value. With something like 20K employees today that's, oh, about $5MM of value created per employee (actual number is probably higher since employee count has been growing rapidly).
Chris, I love the positive spirit and largely agree there is BIG room to nurture and increase the entrepreneurial pool.
One comment re: Google. Even if Google allowed engineers to have “40% time” instead of 20% time, it comes down to equity. I know very few examples of companies that are set up to give creators/entrepreneurs internally a real equity stake. But there are complications from a legal, culture/jealousy etc. standpoint.
So I think it's less an issue of Google stifling (tho there is certainly much truth there) and more what you get at in the body of the post- we need more education and systemic incentives to expand the entrepreneur base.
I'd like to think that this culture shift could begin w/ Universities. I'm working with the interactive media/entrepreneurship departments at my alma mater, Miami University to build a program that would allow students to see the opportunity of a startup as a viable one after college and fundamentally change the culture of, leave college -> get a job with big corp X.
Slowly but surely these programs could be part of the answer.
I think if you were at Google pre 2005 that would have been true. The people I know there now aren't learning much of anything except how to be political in a big company. They'd learn a lot more working at a startup.
“generate more wealth per employee” – i don't market value/employee has anything to do with innovation. monopolists like Microsoft generate tons of wealth per employee and haven't innovated in a decade.
My start-up addresses this issue directly, among its other merits. BP will be at FC by sometime next week. Will tweet you when it happens.
I don't think there are a finite number of entrepreneurs born every year, but it seems likely that there are a finite number of viable entrepreneurial businesses. And also likely that culture and ecosystem are more important than individual: If Steve Jobs had grown up in New York, he would have been a banker – but that means someone else would have built a company in Silicon Valley as successful as Apple. I don't think the world is poorer when someone decides to join a big company; it just means that the available innovative opportunity will be fulfilled by someone else.
Somewhat related: Isn't “innovation” by definition a minority activity? If everybody's doing it, it's not innovative, it's mainstream.
Absolutely. I've seen many cases where a young person is deciding between say Google and a startup and basically their parents say they are crazy to go with a company they've never heard of.
Totally agree…wealth can be generated w/o innovation (and you can have
innovation w/o wealth creation!).
Totally agree. I think startups are a fundamentally better structure for innovation than large companies.
Chris
This is a compelling thought.
But I need to exclude Steve Jobs. I think he would have built Apple or something else wherever he was born. Innovation is his personality more so than the culture that made room in the garage for his first project.
If I replace culture in general with seed economics or the 'culture of supported innovation' this strikes really true to me. Folks like yourself and FredW and others who are forging innovation through a seed support culture are innovating that change.
Its less about the big companies swallowing talent and dreams than it is about innovative successful folks spreading inspiration and supporting it.
Great post.
You do realize that not all of us can afford to take risks right after college, correct? Some of us have to pay that off, and if our startup goes under, debt collectors will not give us a break for our entrepreneurial spirit.
I realize that by my words I am part of the cultural problem you describe, but sometimes this problem is a function of simple economics.
Also, wealth can be skimmed off the top when other people are creating it.
A majority of the people I know who took the GS, McKinsey, and GOOG path would never consider working for a startup, or starting a startup, right out of the gate. I'm not sure if it's a personal thing (that these people aren't wired for startups/entrepreneurship), or cultural. My gut reaction is that it's mainly a cultural issue. It's so ingrained in the psyche that you need to follow steps X, Y, Z in order to be successful. Usually those steps follow something along the lines of Analyst, Associate, Executive, maybe with an advanced degree thrown in there for good measure. Sadly, a majority of the people I know think in this linear way – mainly because it's safe, it's been done before, and they haven't seen many appealing alternatives.
Yes, I do. I came out of college in heavy debt. I worked at a startup which was great training to later start a company.
Mike's comment here is SPOT ON. the same can be said of “whenever I see a brilliant kid go to: Harvard, Upenn,” etc etc.; some people feel empowered by established learning grounds where experience is gained, both academically as well as into the early onset of one's career. The plethora of ex-McKinsey/Google-ites at top-tier startups (we can all name a handful at the top of our heads) goes without saying.
But I think Mike's second point is even more spot on: if young, capable people don't feel personally incentivized by startups, then let's privately subsidize the opportunity cost. I think this is actually brilliant, and needs to be done the right way.
For instance, I went to Penn. The majority of my classmates, including myself, chose careers on wall street right out of college. I can't speak for anyone else, but at the time, there was no convincing me of doing otherwise, because making $170k/yr at 22 was far more compelling for a number of reasons (student loans to begin with, etc.) than any combination of salary and option grants you could give to me as a junior employee at any startup. Only after having gone through that, paying off my loans very quickly, getting a bit of professional experience, and also acquiring a bit of a personal financial cushion, do I now feel comfortable working at a startup.
So, how about this: VCs, if you have junior level jobs at portfolio companies (both engineering and otherwise), then recruit for those positions at top schools, forgive student loans/rent costs and pay decently competitive salaries for anyone who is hired. If this existed, I wouldn't care if you gave me zero options, I'd definitely jump on board in a second, and there are many thousands of others who would, I guarantee you.
Great post. On the flip side though, there are a lot of really dumb startups out there where you gotta think the people involved would be better off working for a large company. I guess they are less likely to get VC money though.
I think the best thing to do out of college if you can't afford to start a company is join a startup. VC backed startups usually pay market wages and good management teams will teach you a lot. See
http://cdixon.org/2009/05/11/joining-a-startup-...
http://cdixon.org/2009/10/22/the-ideal-startup-...
It was virtually impossible for VCs to do this when the finance bubble was happening. The spread was just too wide. Now it might be more feasible.
Ultimately, people need to see it as a choice between joining BigCo or joining the *startup community*. It really is a small community and if you do a good job people will notice and will support you (invest in you, advise you, hire you etc).
Agreed, I think fresh grads, with potentially lots of debt face a lot of pressure to take the steady pay check rather than another risk.
I'm not nearly as optimistic as you about big companies, but I guess I've said that so many times on my blog I won't rehash it here.
Side note: this is at least the third time Google has made noises about moving into Telco. I'll believe it when I see it.
I like your vision. I think there is room for more non-VC backed startup and VC-backed startups. Every team/idea has its right and wrong kinds of investors.
Jobs grew up in Silicon Valley in the 60-70's. You really think there aren't 100 other Steve Jobs who happened to grow up in poverty or in a place without jobs or in a culture that was anti-startup?
Yes, but I'd like to see this institutionalized; that sends a very strong message, and I think that message is just as important as the act itself, which is what Mike was referring to I believe.
And I don't think you need to pay $170K a year to be “competitive” in that way, this is not what I meant at all.
Btw, this is a great post, and I'm glad you brought it up.
Yeah. I think its gotten worse too as parents today seem to tell kids if they don't go to a great school at get a name brand job they are losers. I went to Columbia in the early 90s and the people I knew all just messed around in grad school or in odd jobs until their late 20's.
True, but if more really smart people start companies instead of going to, say, Yale law school, we'll get more good startups.
Provocative! As an ex-Googler now at a startup, I think you're missing a lot of issues here, though. The question we're trying to answer is: does an engineer generate more value (defined as innovation, rather than just money) inside of Google, or out? On the plus side, being outside of Google gives you infinitely more freedom to maneuver, fewer organizational taxes, exposure to a broader range of the stack, and an increased probability that your ideas will at least enter the world rather than being trapped inside of a closed organization. But being inside of Google gives you an insanely good infrastructure to build on, an incredible interchange of ideas and knowledge with world-class people inside of the organization, and the ability to share the things you do launch with a large built-in audience. It's hard to say either side is an obvious winner here. From the engineer's perspective, they have a much higher expected value payout at Google, I'd think, and a much easier lifestyle. Better pooling of expertise and risk among startups could make them more competitive with Google.
Maybe part of that mindset (leave college -> get a job with big corp X) is partly due to the large influence big companies have at a lot of universities. They are everywhere from having names on buildings, to speaking in class, to recruiting students right on campus.
Totally agree. AT Miami Univ. they get a lot of money from P&G being right
outside of Cincinnati. To combat that (not that money from a corp is a bad
thing) we're setting up a program where engineering and business students
head out to SF for a semester to work with startups & take course at bay
area academic institution.
It's a start.
Maybe. And maybe we are not really disagreeing.
But I think its less about big companies sucking the brains and talent out of potential entrepreneurs than it is about a cultural economics that lets true entrepreneurs find support that wasn't as prevalent before.
More seed $$ = more startups = more opportunities for choice between large companies and startups. Not everyone has the chops for entrepreneurship and even the risk of startups.
The Bay Area in the mid 80s/90s had lots of startup choices. The population split–I chose startups, friends choose HP and IBM and others.
Totally. Pressure from parents and friends – it's a total image thing. The game has changed. My younger brother is a freshman @ Columbia and he already feels it. At 18 he's lined up a finance gig for spring and summer because he thinks he wants a head start. Something is wrong with the whole picture and something needs to change.
Well said. Great title.
Thanks for writing!
Very cool idea. Almost like “studying abroad” for startups.
GREAT post
i can learn a lot from it and will probably rewrite it in Indonesian 
thanks a lot for the inspiration
Not almost, exactly. We think/hope that we get some VC firms to partner &
help fund.
It's tough getting exposure for midwest schools but there's a lot of smart
kids from those schools going to companies like Google or BCG or whatever
that are missing the startup opportunity solely because of lack of exposure
to it.
When you've taken on $100,000+ of debt to pay for higher education, you need to pay that off. This is the tax the US pays for not making good education easily affordable.
That last sentence is so generalized that it's hard to take seriously although I'll take the bait since it begs a good question. Just because Google is large, prestigious, and an intellectual magnet, like Mckinsey or GS, does not mean they have the same affect on the startup ecosystem. How many startups would NOT be around if not for a company like Google? What differentiates Google from a lot of other big companies is that Google makes an effort to foster intellectual curiosity and to attract potentially innovative minds that could greatly benefit from incubation in a company with many other smart and experienced engineers, such as Google. Most recent grads, no matter how inherently brilliant, would benefit from the experience of working in a well-oiled machine with a plethora of brilliant minds. Why is there a notion that if a grad doesn't become an entrepreneur straight out of college that their entrepreneural spirit will just wither away. As a VC I'd put money on the 27 year old who just worked with a team the last 5 years on Google Chrome OS or Gmail rather than the 22 year old kid who thinks he's going to be the next Zuckerberg and build the next Facebook by himself in a basement.
You cannot possibly exclude Steve Jobs from the overwhelming effects of culture. He simply would not have been a success, probably wouldn't have even been an entrepreneur, in say Kabul or even Tokyo.
I'm discounting culture certainly. I'm affirming it. Didn't mean to imply that.
I just think that some folks have the genius to create opportunity and Jobs is one of those.
I think your post is exactly right, and it articulates it far better than I had in the post I was drafting on the subject.
Fred is looking more at the short term for the VC industry. VCs can't really control the outputs (profit driven by innovation); they can only control the inputs of capital. So I understand the perspective. It doesn't bother me too much because I know if we can do our part to drive the outputs, they are more than glad to drive the inputs.
Bottom line: you're absolutely right that we can't accept an artificial cap on innovation capital or profits. It's antithetical to the entrepreneurial spirit.
I'm not sure if anybody has said it but, there just aren't that many startup jobs around.
Fine, you want to work for a startup, but you want to stay in the NY metro area. How many startup positions do you think are available each year versus the amount of positions the big banks , consulting firms and other media/tech companies. 100 versus 1000's
I think some of it is a numbers game, I would guess there are less than 100 jobs at startups in the NY Metro area that would be engaging enough(CORE Team) for someone who is competitive for a job at Google,McK, MCD, GS to really consider.
I graduated college and took a job in finance, made good money and would like to transition over into a startup. When I first started out I had no exposure to startups, now I do and I'm interested. BUT, I have no interest in taking a job as the 35th person as a social media blogger for some company. Maybe I should be smart enough or lucky enough to come up with my own idea, but if I don't there just aren't that many positions out there.
Excellent points krave,
And thanks, Chris, for provoking discussion and making some good points as well. There is certainly a tradeoff and there is quite a bit of innovation that takes place at Google that only exists as innovation within the technical culture of the company itself, as you pointed out. With an infrastructure and an elite audience, the kinds of higher order problems that are satisfying to work on and that motivate the proverbial engineer are easily at hand.
Much of that infrastructure has now been virtuously externalized by the open source “artifacts” that Google has ,along with the startups, used as a base upon which to innovate.
I've consistenly chosen start-ups as places to work because they have been environments that have embraced the use of open source “artifacts” to innovate in the sense that Chris means it. However, innovation in the sense that an engineer qua engineer might mean it, is inspired and is thriving extra and intra institutionally. Institutions here are the universities, the big companies, and the startups as well. Innovation in that sense is its own drive, and it uses the cultural institutions to achieve quite extraordinary things. The big companies, IBM and Google, etc. are as much a part of the open source ecosystem as the startups and the universities.
In fact, I was just discussing the summer of code last night which provides grants to students to work on open source projects such as the ultra-pluggable and modular Parrot vm.
To get back to the thrust of what krave said at the end and what is I think of direct interest to Chris, startups are a particular instance of innovation, with a unique set of problems and opportunities. How efficiently startups manage to leverage existing “artifacts” will determine their capacity to innovate successfully.
Culture is surely important, but I think that's all a result of a broader failure of the venture community to not build deep community engagement infrastructure.
It's absurd that these guys are just waiting around for projects to climb their way up the 'get your project pulled together enough so it's investable' cliff and then cherry picking.
I believe in 'nights and weekends' and proving your commitment and all of that (not to mention, risk reduction), but it's still WAY too hard and takes WAY too much time for capable people to build a new company.
The Seed investment 'movement' is a great start, but a more structured, regularly occurring (every weekend?), competition-based (?) program financed by the venture community (and others) and administered through local start-up community hubs could go a long way to making it easier to have the time to really innovate and build value.
Chris, I'm surprised to find this post here. IT'S VCs FAULT! Google do what it does best: disrupt another industry. VCs should compete better (you and Fred already do it). Here is why:
1. VC's will easily fund ex-googler for whatever idea than a freshman (VC's syndicate the risk to Google here).
2. If you read Mark Suseter “Entrepreneurial DNA” (great blog) you get the idea that a founder is a crossbreed of Superman, Batman and the Hulk combined.
And this is just to get you into step 1 of the 31 steps (count them) of the raising money process. You can't blame any sane grad to run away.
3. How many stories do we hear about people who were screwed by Google? not many.
4. This is important: AGE. The same brilliant grads can return to the startup world when they are older. With experience, and a desire to start phase 2. But no other industry would be allowed to promote age discrimination so boldly like many VCs do (most way above the age they reject).
5. VC's tend to focus on geeks. Acceptance of balance teams of tech people + domain pro's (not necessarily MBA manufacturing, accounting, education etc) can bring many good people in
6. The seek for serial entrepreneurs by definition translates to “go away” for new people
7. The “get to me by connection” filter. Maybe Google is easier to apply to.
8. This is not VC's fault, it's a chronological issue, but the phenomenon of VCs with “Entrepreneurs turned VC” is new.
So Google destroys (again) another comfort zone. VCs will have to take more risks, be more founders friendly etc. This means that your way and USV way will be funding industry main stream, and that's a good thing.
Agreed – I did that for 2 years post b-school. Then I moved back to a big company where I saw an opportunity to grow my sales/biz dev skill set utilizing the resources and platform that a big company can allow. But I hope to move back into the startup world in the intermediate term in the right role. I don't think people need to make a cut-and-dry, either/or decision (BigCo OR “startup community”). Having a mix of experience can give you a unique skill set and perspective on how to scale innovative ideas into big businesses.
I think there are reasonable trade-ff paths like working (/apprenticing) at a startup (VC backed startups usually pay market or near market salaries).
I think what you say about Google was true 5 years ago, but no longer. I know lots of very smart people there and they are generally very frustrated.
Facebook, on the other hand, still seems like the place you describe.
Perhaps, but I've seen many occasion where a top engineer took a job at Google or a hedge fund when they had other options at startups, or were thinking of starting their own company.
“It's absurd that these guys are just waiting around for projects to climb their way up the 'get your project pulled together enough so it's investable' cliff and then cherry picking.”
Couldn't agree more. I heard a VC in Boston say recently that “there are only 15 good deals a year and every VC is chasing them.” This is such a passive mindset. Meanwhile Y Combinator etc are out creating new companies that otherwise wouldn't have existed.
I agree that VCs could do a lot more to compete better and to foster innovation (the way seed programs and incubators like Y Combinator have).
As to VCs funding ex-Googlers, that is true of bad VCs, but a lot of smart investors I know currently have a bias against ex-Googlers, since they are so used to having a huge platform where traffic comes to them (don't understand startup marketing) and get dumb money to give them high valuations.
Bullesye Mr. Dixon.
But what you aim to disrupt is the nature of corporate entities. You seek to hack the system that promotes joiners. In order for your ideal innovation growth to occur (which I fully accept, wealth isn't a fixed value), you'll need to elevate the social acceptance and expectations of bright folks striking out on their own and founding startups.
I want nothing more than this, but it can't happen till we plant the seeds for a massive social re-architecture. It's a fine idea, but now what?
I don't know if I'd say that big companies are worse than any random start-up at creating new products. It seems to me that they are worse than the start-up world collectively.
By that I mean, 100 start-ups could try to create a microblogging platform, 99 of them would die and we'd only ever hear about Twitter. On the other hand, when Google releases Buzz, everybody hears about it because it's Google, not because it has been successful.
Using these (totally made up) numbers, even IF Google engineers were twice as good as start-up engineers, they would still ship 49 busted products for every hit.
All that being said, I'm staying in start-up land. If people know and use one of my products, I want it to be because it has a history of success, not because it has some brand name behind it.
I fear that the aggregate “startup community” may be another color of BigCo. The VCs and successful exit founders are the higher ups. The entry level employees are the ladies and gents creating their first business but owning only a very small share.
Obviously it's not a major concern of mine, I'm drinking the startup Kool-aid. I think owning their work is what drives people to search and create fantastic new tools/products.
It's not like some random dude created Twitter. Ev had created Blogger and then was acquired by Google where he apparently had the least productive years of his career. Same for 4square, Jaiku etc. Big companies do all sorts of things to inhibit real innovation…
Yeah, the groovy thing is that you can navigate your own path and gain more confidence of your direction as you contrast both.
Excellent point, that was probably a terrible example on my part. I was just trying to point out that successful products we see suffer from survivorship bias.
I agree that large corporations stifle innovative employees, but it might not be the only force at work. Great post!
It may sound counterintuitive, but actually the cost of education goes up every time we try to “make good education easily affordable”. For instance, when education is subsidized by the government through grants and loans, the price of education goes up because the price is not negotiated. The person paying has no negotiation power even though the source of the money does. There is a similar effect when publicly traded companies subsidize employee education. In both cases, there is essentially a monetization of credit into the education sector, an effect similar to what happened with dot coms and the housing bubble. Somehow I do not think the solution is to regulate education pricing, but rather to reflect on whether we should be requiring everyone in our society to have a college degree even to be an admin.
Nice Christmas, that self sustaining form of micro business system can weave together a big enough social change to make “going it on your own” more acceptable to a larger slice of the population.
Part of the issue is that there's a big group of personality types that don't want to live with the risks inherent to startups. Many of them fail, either through poor timing, luck, getting out competed, or out copied. Not everyone wants to work in that environment.
If Google gave a sliding scale of 0-100% time, and equity they'd be one big confederate startup.
It'd be interesting to see which employees preferred the 0%
Great post, but no time to add symbolic graphic?
You also worked in finance right?
yeah it was a weird company, a financial tech startup that also traded its own capital (so kind of a like a hedge fund but not really). I was a programmer there.
The “What if” game is a dangerous one, but I think Steve would be building something interesting, no matter where he started out. There's a cultural effect built into the perception of startups. Only a handful of my real life friends understand what or why I'm working on social data and semantic search. But the folks who do get it, gives me hope that there's more value I can contribute in this space than at my day job. And owning a good portion of that created value helps keep me searching and pushing.
There are some big factors regarding startups I did not see mentioned in the post or thread. Finance is obviously a key part of VC. In reaction to the dot-com peak, many new laws and regulations were created (e.g. Sarbanes-Oxley) to “protect us”. While they did jack to protect us (e.g. housing bubble), they did a damn fine job of chasing a lot of good VC opportunities out of the US, since these laws are onerous for small businesses and startups. Beyond regulations, there is a lot of business unfriendly legal behavior ranging from aggressive criminal prosecution for miniminal offences, prosecutorial misconduct, judicial misconduct, patent trolling, tort trolling, etc. The US is starting to behave like a two bit banana republic. Talk to anyone in finance and they will tell you that US is dead for VC right now.
Besides the legal angles, there is the simple fact that over the last 100 years, our finance sector has increasingly focused on a credit-forward approach. This means the banker/financier gets to decide who and what gets funded. If they think tech is dead, then they will not fund it. They are not gods, their choices may be misguided and faddish, just like the rest of us. Our current money-centric attitude and economic doctrine has led to a focus on finance over actual production. We have gotten to the point where we train up physicists and engineers (GDP drivers) to go play what amounts to a wealth redistribution game as stock “quants” (no GDP creation).
So in the end, whether someone wants to go do a startup or not, choosing to go into a startup when you have the opportunity to go with a finance-protected large corporation is playing russian-roulette with your career. Of course, there are exceptions to every situation, but this thread seems focused on the big picture but maybe blaming the victim a little too much. The people who make things and do things and save things in this country are being screwed over by a kleptocrat government and a predatory finance sector. I feel sad for what this country has become and hope we can fix what has gone so horribly wrong.
What you refer to as artifacts I recently heard an interviewer call gestures while talking to Sergey Brin.
The pattern of creating a new business, versus joining an existing business strikes me as a choice few make and succeed in. We are a species driven by probabilities. As much as I want there to be an entire generation (or better yet cross generation) of founders, as long as 9 out of every 10 people that make the leap crash into the rocks below (startup goes belly up) not many are going to follow that path.
The best we can do as a culture is make sure people know that they can fail a few times, and will be judged by their successful businesses.
I've read some interesting views on all the Facebook founders that have left the business (as well as interviewees for FB). Mark's still finding his groove in a rapidly changing business structure.
I agree, this is a cultural issue. A large majority of people in the US carry the wrong risk profile for a start-up. It is the culture of risk-taking in our country…. even though we're supposed to be the pioneer country.
The only way to counter this would be to decrease the relative risk of joining a start-up. Seed programs decrease risk somewhat, or at least create the appearance. But if you take a relatively risk-averse person and put them in a start-up with $15K, are they going to succeed anyway?
The sad reality is that big companies are no less risky than start-ups, from a job security perspective. You could easily argue they are more risky, because job security in a large company is completely out of your own hands.
Pete
Steve Jobs did go to work at another company. He worked at Atari.
True. Forgot about that. I do think working at a startup on the rise (as Atari was at the time) is a great way to apprentice before starting your own thing.
here here.
Y Combinator has been incredible for the ecosystem, but it still feels like a drop in the bucket (i.e. hasn't scaled).
Dog Patch Labs seems like another great move but none of the other big players are copying them yet.
What gives?
Would love to hear your take on how the VC industry gets away with such glacial innovation and near total neglect of internal process R&D investment.
Is it simple fear of being perceived as “me too'ers”?
Thanks.
Hi Mark
I'm the last one to belittle the importance of a supportive culture. Critical and it is getting better, especially in the NYC area.
But yup, few get it. And it requires a certain type of folks to really get it done.
You, from what I know, are one of them.
I think incumbator/mentorship programs are great. Agree there should be (many) more. There seem like other things you could do. E.g. big firm like Sequoia could guarantee an engineer a job, so if the startup goes under, the engineer knows sequoia will take care of them (which btw they would anyways since engineers don't seem to realize this but the unemployment rate for good programmers is 0%). If nothing else this would comfort the parents and the kids worried about paying off debts.
VC industry is slow to change because the way it's structured. Most firms won't get carry and so just live off management fees and it takes years for bad firms to go out of business.
Interesting take, but I don't think the problem is cultural.
As juniors in college, my co-founder and I decided we wanted to start a company — eventually. But we knew we couldn't afford to do it straight out of college. After being saddled with student loans, high apartment rents, and health insurance, it just wasn't practical.
For the next two years, I basically planned my whole life around eventually starting a company. After a couple years building up our savings and tossing ideas back and forth, my co-founder and I drummed up the courage to quit our full-time jobs and bootstrap our company, http://parse.ly. (Yes, we quit our well-paying, respectable jobs in the middle of a recession, despite our friends' and families' protestations.)
A startup didn't die in our case, it was born. The bonus I got in Jan 2008 made it easier for us to bootstrap (read: live out of our savings) in the beginning, and my income from the prior two years also helped. Even with that “nestegg”, I still had to score a bunch of consulting contracts to bootstrap the company at the beginning. Remember that between health insurance and rent in an outer borough of NYC, you're already talking about >$1500 flying out of your bank account every month.
We applied to all the incubator programs a couple months later and got into one, DreamIt Ventures, in Philadelphia. That gave us some more runway and let us hire employee #1. Despite the leeway, we knew what was coming, and preemptively went into survival mode: for example, we developed a “startup diet” that kept our joint food costs to $7/day (yes, $3.50/person — lots of beans and rice), lived and breathed our startup for 3 months, and launched our private beta by the end. Nice side effect: we also each lost 10 lbs.
And now we're still going strong in NYC — not exactly the land of the cheap — working on our latest products.
IMO, the barrier to starting a startup is economic, not cultural. You've got to financially plan — for years, sometimes — to make this happen. (BTW, Mint.com is good for this.) I consider it one of my greatest personal achievements, but friends look at me like I'm crazy.
It's true that when you're thrown into a world of no income and the full costs of life, it's a great motivator. But I think most of the people who like and say that line haven't actually lived it. Also, most people — particularly those outside of “the startup bubble” — just think it's extremely scary, complete lunacy and, frankly, financial suicide.
Incubator programs are good at delaying this pain for 3 months. But the key to making a startup work as a 20-something straight out of school is to get downright obsessive about costs. I now refer to my days at the bank as “the gilded age”.
It's a recruiting problem as well — can the startup in question convey the passion and talent of the founders/earliest employees to new hires (especially junior people)? I think we did a particularly good job of this at TheLadders in the earliest days by making sure that the CEO (Marc) was meeting every single new hire. We were very clear about what we were selling and stuck to the talking points and everyone understood their role in the interview process (some were actually interviewing, others were selling the opportunity). We also had a kick-ass VP HR/Recruiting who was an incredible salesman and presenter of the vision. And then of course it helped that we were a fun place to work, were having success, and were smart/motivated/excited ourselves. I do wonder what it would be like now (as opposed to 04/05) competing against Google in NYC plus about a million other startups. We weren't the only startup game in town back then, but there werent many of us.
One other tip for startups that are losing junior employees to big companies — for god's sake, make the interview process SHORT! Make all interviews and offers on the same day, and make people accept the job before they leave the office. Don't think you can do it? Try it! We successfully avoided many parent/child conversations that way where the parent would inevitably ask the kid what the hell they were about to get themselves into.
what this post lacks is all the “startups” that are non tech. Many of these startups came from someone in a big company like P&G and saw there was a need for something and they stepped in and filled that gap…..the internet is a very democratizing force, I think non tech industries require more industry experience…..Think Organic Foods…. Cars…. etc….
Back to the point of returns, there is just too much money chasing the same deals, its the same in real estate, in stocks, in everything….. HF/PE/VC investing used to be NICHE, now it is as common as the Fidelity vanguard fund…… The glory days of Real Estate are over, just as the glory days of VC is over, that is not to say there wont be exceptions, a homerun here and there, but there just too much money out there… If you want to make money in real estate go to an undeveloped country, 3rd world esq…. if you want to make huge money in tech, bring tech where there is no tech………..or create something that is truly UNIQUE.
I am graduating Penn this year and azeem's description of the environment has not changed at all. I would also add that many startups lack the resources/time/energy/know how of how to RECRUIT top talent. Lots of the BigCos have relationships with Career Services at the top colleges in the country, so it's easier for them to pick off the smartest kids.
Furthermore, you are sitting with the power/money to invest in startups, so of course it is great for you to see more startups spring up. It seems like consumer focused startups have evolved to the point where the funding decision is binary. If you get traction, you get funded. The idea of 2 guys in a garage, a dog, and a dream doesn't seem to exist anymore. In a lot of ways, it's become LESS attractive to be a consumer web entrepreneur as the barriers to entry have dropped drastically. Programs like Y Combinator benefit VCs and investors a lot more than they do entrepreneurs. More startups = more investment opportunities for investors and more competition for entrants. This is a good thing for innovation as a whole because more competition breeds better results, but after my experience building/selling a startup in the consumer space, it feels like more opportunities exist in businesses with higher barriers to entry.
I agree heartily with your post, Chris. Its a shame the employment ecosystem is so well set-up to promote the benefits of working in a 'stable' job at a big firm, but there doesn't seem to be a concerted effort on the part of startups communally to promote the far superior benefits (in my view!) of working in a startup.
I'm actually looking to kick off such an effort in the UK – to get a government innovation fund here in the UK to create a body that actively promotes startup life to future grads at trade fairs. I'm really passionate about this – I think about how many years of pointless work and meaningless life I led while working in a big company, that I could have spent in a startup, but it just wasn't presented as a viable option to me during university.
Lets stop putting the blame on others, lets take responsibility for it ourselves, encourage your local government innovation funds (like NESTA in the UK) to finance an initiative to educate and promote startups as a career to grads, or let me know if you'd like to help me with this initiative (am @alicianavarro on Twitter).
Very provocative title Chris, which I don't assume to be your literal position on this topic.
Some thoughts:
- As an investor, I'd be very happy backing an entrepreneur who “grew up” in a Google or other institution and who has seen scale, process and a machine that knows how to meet quarterly EPS
- The startup ecosystem depends on the sustained value of the GOOG's of this World since over 90% of exits are through acquisition
- I think that a very large % of the people who join a big company are not and will never be startup material
- I completely agree that we need to do more to promote entrepreneurship as a first choice for college grads. I'm actually spending next Monday am at McGill University in Montreal for exactly this purpose
- Also agree that holding big variables like startup value constant makes no sense.
Lets make entrepreneurship a 1st choice, level the playing field for grads and see what happens
I agree with much of what you wrote. But it's a touch close to snobby.
Innovation is not always acquired by big corporations from startups that began by bootstrapping in a garage. The products and innovation launched by “intrapreneurs” (pardon the cheesey phrase) that always come to mind are: java programming language, Tamagochi the “virtual pet” game, Post-It notes, and the iPod.
Likely, you meant this rhetorically: “99% of our top talent doesn’t seriously contemplate starting companies.” But I think a survey of top colleges and universities would find this grossly inaccurate. Even a survey of the best performing employees at companies like Google and Apple.
In both cases, they hear the nightmares of their peers getting laid off or spending years without steady employment. And they open up to the idea of creating something. I think the indicators are lagging or the research hasn't even been done to show this.
Last point – a lot of entrepreneurs have day jobs. Maybe not if they have day jobs at any serious level at Google. But I'm always reading about these people who were financing this that or the other idea with a salary. And now they're venture backed or at some other successful point.
@mdudas re: Funding engineers and having them work as post grads in residence. That is already happening! What about thinking about it from another angle too, training generalists who do have startup aspirations and other existing business skills, to be engineers?
If this doesn't shout to the VC community I'm not sure what does. I don't understand why VC's haven't scaled up their recruiting staff to go to more job fairs etc. While I realize this happens on a smaller scale, I think it would be a GREAT value add for the firms to take on being the champions of the recruiting process since they have the $$ resources rather then just being there for the “critical senior hires.” Not to mention the amount of time for start-ups this would free up…
Andreessen Horowitz actually came to campus the other week to recruit for their portfolio companies, but it'd be nice to see more VCs do this.
Part of the problem is that more and more students study business, not engineering.
http://blog.redfin.com/blog/2010/02/why_isnt_th...
I know, I've heard those guys do and are breaking the mold it seems. Hopefully others will follow the path they're cutting.
An on-going effort in the NY startup community is trying to engage all area schools with startups more, to the point of the Stanford/SV model. It will probably take some time but we are trying. Check out our events, or better yet, stop by our next event, next Wednesday at the NYU-Poly Incubator: http://eroundtable.net
I agree a startup dies if they take the job just for money, but I think it's fine to join a large company as long as you are learning. Everyone assumes if you join a large company you are 'selling out', but they can also be a great place to learn. I worked for Microsoft for 5 years before founding my startup – I learned a lot, built a valuable network, and put away enough savings to self-fund. My chances of success are much higher with the knowledge I gained. The biggest problem for me was not joining Microsoft, but realizing that I could leave. When I was leaving Microsoft, I was amazed by how many talented colleagues approached me and said they were going to do the same thing – “one day”.
Anyone so easily influenced by their parents or peers is not cut out to be an entrepreneur. You really want to get those people accepting other people's money to start companies? It's a recipe for wealth destruction and wasted lives. So you really want to help create a culture where spineless, gutless (but smart) people have more incentive become entrepreneurs? The last time starting companies was so hip was in the late 90s.
This has been my personal experience, as well, being an entrepreneur and trying to recruit his friends.
Immigrant cultures, in particular, tend to be risk averse. You've already graduated from a good school and you have well-paying job and a big company. Why throw all that away so that you could be paid for nothing and work on a pipedream? Not to mention that you're either trying to save up to buy a house or already have a mortgage payment.
I think the proactive VC approach can only go so far. My sense is that when it comes down to it there are certain kinds of people who are meant to be entrepreneurs and others who are not. It doesn't have to do with intelligence but more to do with (as the post said) needing a sense of ownership, self direction and, most importantly, courage.
I was thinking the other day that there needs to be a program like Y-Combinator that works directly with college/university students in their last year. I imagine they have some sort of mentoring and startup programs at schools but a direct private-public partnership with a seed-funder would be huge.
Students would be learn how to do startups and thus incentivized to do them while they still shoot for the stars and haven't been beaten down by corporate America.
I can imagine a program that runs during one semester (about how long YC would run anyway) and they end with their own Demo Day. It wouldn't cost YC anything since it would be a course and they could teach a lot of valuable lessons (in parallel) to the students.
Glenn, loved your post. I just made a comment on your blog.
[...] Entrepreneur and VC Chris Dixon suggests from his blog that every time a talented, young whiz kid decides to join a huge mega-conglomerate such as Google or Goldman Sachs or AdExchanger.com (wait, not the last one), an opportunity is lost as the world will be a little less "wealthy, innovative, and interesting." He blames culture for this move to a world of safety. Read more. [...]
“[A] startup just died”, because of the manifestation of the competitive character of life, to have more $ than the other one. And these associated extrinsic forces today, outnumber your few intrinsic forces.
Succesful startups are run by and because of intrinsic values. As Guy Kawasaki puts it; 'a startup which doesn't make meaning, doesn't make money.'
Society is at a pivotal point, the Great Recession shows that. After the Iron Curtain fell, there was no thing which helped to keep reckless capitalism in check. Just two examples, USA had a lost decade in net employment growth. And the DOW lost value measured in Gold ( http://michaeljung.tumblr.com/post/363292808/ch... ) the last decade. Or UK government, managed to aggregate a gargantuan budget deficit even in good times, as your (Bush) government did.
So, who is for the reset-button?
the solution is not to send your children to college, invest that money into bootstrapping your kids startup.
OK, because this is a very negative sounding post-
How about explaing how to go get a job in a startup. I can name two people (not including me) who I think should join a startup because I think they would be very happy. One just graduated. Do you want him. I am sure he is not being recruited. There is no formal recruitment process. And the one company that did really recruit, turned me down.
GS, McKinsey, and Bain come and recruit the living hell out of students. There are only two startups who I ever heard of recruiting: Zynga and SpeakerText (and Speakertext did it because students are cheap. Zynga I don't know why they did it)
Yup, that says a lot about startups too. You want students, you need to go to students because the students don't know what they are doing.
I can tell you I am sitting in utter paralysis thinking “I want to join a startup, what am I good at- and I am not an engineer, but I am willing to teach myself how to computer program after I graduate- even still, I have no idea what to do with myself after I graduate because the world is scary” and that mindset is terrifically common with students. Most of people I know are not totally sure what to do with life after college.
If you want students, you have to be friendlier, and put yourself as the friendly people, and come to them. Seriously….
Sequoia would be the last firm on Earth to offer job security. They have an extreme aversion to employment contracts. So does Warren Buffet. Yet they have no problems attracting and retaining top talent. As you observed, good programmers have 0% unemployment rate. What's with all coddling of entrepreneurs? You want some government handouts too?
Then work together to recruit. You want people, then work together to get people….
Umm- not every parent says this. Trust me…
Ah, Mr. Essel, the seeds are being planted while we speak. Or at least the ground is being furrowed by these economic times. All signs point to a need for increased entrepreneurial participation & not just in the tech sector — localized economic growth is crucial as well.
It also depends on time and place. I'm carrying some hefty student loan debt but that hasn't stopped me from becoming an entrepreneur. I believe strongly enough in the utility of my product and my ability to implement, so I am going for it.
Yeah, that's the point of this article. I want government handouts. Insightful analysis.
[...] an interesting article on how when super talented people join big companies, startups die: This entry was posted on Friday, February 12th, 2010 at 12:25 amand is filed under Business. [...]
Oh, I forgot, you're not a clean tech entrepreneur.
I do think we agree on a lot of points but you are going a bit far in trying to remake everyone in your image. Glad that you love start-ups! Just realize that it might not be the right path for everyone. There are so many incubators and new seed funds these days, it seems the last time starting companies was so hip was in the late 90s. The “entrepreneurs” I admire are not the starters but the finishers – guys who build great companies over many years, even decades. They change the world by bringing along others so it's OK if smart people decide to join them rather than starting their own thing. The most successful companies get big and that's not such a bad thing. Reading some of your posts and the belittling of big companies, you'd think that the world would be better off with a bunch of start-ups and serial entrepreneurs that never build anything substantial. There is no question the VC world has a lot of problems. I've been talking about and writing it for years (google venture lotto). But the last thing I want to see is a bunch of marginal players starting companies that will piss away more of other people's money. I love this quote by Mike Moritz during the last downturn “In bitter and cold times only the brave are going to venture out into the cold and the lily-livered posers are going to stay tucked into their bed clothes.” That's not a bad thing.
[...] Every time an engineer joins Google, a startup dies [...]
I know little about the world of VCs and startups and that fact kind of proves the point of the post. Sorry if I rehash something in the comments (I didn't have time to read them all). I do think there is a cultural element that excludes some from innovation. I work in health care, an industry of great innovation in certain areas. But in the area in which I have interest, there is little to nothing of real quality. I have started a company with a partner to try and move the industry in a good direction but the culture of my geographic location is not tooled for startups. It has been slow going for us to find qualified tech people to work on our project. But, thank goodness for social media. I have found more resources since being engaged in the social media culture than I have in months prior. I know this is a totally different bent to this topic but it is my perspective and I am glad to be a part of the social media culture, which will change many aspects of life as we know it, including innovation and health care. At least that's my dream.
@citizenracer
@chris and @jared hecht
Totally agree with both of you. Some tangential points:
The brain drain away from the sciences and engineering starting in high-school and colleges has been significant in the US over the past generation. Those kids all headed to Wall Street and steadily we have become a nation that makes less and less with China taking over the making. The apologists argue that it is better for Western countries to focus on the design and marketing of products and leave the nasty manufacturing stuff to China. Trouble is that design and marketing doesn't scale and secondly manufacturing of high-technology products is a complex process and Western companies have been training overseas workers to do it rather than our own.
When parents have forked over tens of thousands of dollars in a good education they want to see a return on investment and will push their kids towards where the growth and money is which is Wall Street. There is also the keeping up with the Joneses effect too.
The Western countries where science and engineering still thrive are Germany, Japan and France. It won't reverse in the US until there are government policy changes and cultural changes but I really doubt this will happen.
There is literally a Mount Everest of VC cash out there but it is almost next to impossible to access it because apart from the hoops to jump through, the majority of VC's are not interested in building great companies (irrespective of what they say on their website) because the majority of VC's have never done it before and are instead looking for simple and quick exits to improve their IRR.
Quite a lot has been written about the VC and Entrepreuner/Startup disconnect. The entrepreuner wants to make a difference but the VC just wants to screw you as quickly as possible to improve the firms IRR. I once attended a presentation delivered by a prominent VC talking about how VC's operate and it really is a different mindset from the entrepreuner. It is two orthogonal models trying to find points of compatibility. Since the VC holds the cash they have greater leverage to bend the entrepreuner to fit their model. Of course, by doing so the VC usually loses and so does the startup.
I always like to ask budding entrepreuners trying to raise VC cash that why is the failure rate of VC-based startups so high. After all, the startup is literally one in 10,000 (business plans) to get VC funding. The VC's come with an armful of MBA's from the most prestigious colleges and they sit on the company board to ensure the right decisions are made at the right time. Yet, the failure rate of VC-backed startups is high.
The standard responses are that it was a team issue or a market issue or a technology issue. Strange that.
I'm sure that if you put all VC cash into one giant pot and gave each begging entrepreuner $500K (after passing some basic criteria) the returns would be phenomenal.
“I'm sure that if you put all VC cash into one giant pot and gave each begging entrepreuner $500K (after passing some basic criteria) the returns would be phenomenal.”
I agree the VC process is messed up but wouldn't go this far. My main issues with VC: too many non-entrepreneurs, screwed up incentives (2/20 – “putting money to work”), too much emphasis on presentation skills, herd mentality with respect to themes etc.
I loved the post. So much more to write and say…
your critique of my analysis is spot on.
however, until i see signs that something has fundamentally changed the annual value of venture exits, i think my “venture math” model is the right framework to be using.
i hope that something will fundamentally change that number
startup accelerators like YC, Techstars, Seedcamp and others is one thing to be hopeful about
the decline of big business as an attractive place to work may be another
however it happens, it won't happen overnight
i always like the bill gates line about not much happens in one year but so much happens over ten years
[...] Chris Dixon talks about why venture capitol is still so very important in sustaining an acceptable rate of innovation. [...]
“It's true that when you're thrown into a world of no income…most of the people who like and say that line haven't actually lived it.”
That financial hardship is a barrier to entry is a great thing for innovation and the entrepreneur. Some comments suggest a need for frictionless entrepreneurship where every idea has a source of funding. It's great that we can't fund everything. An entrepreneur forced to scramble just to get by is one of the most clarifying forces in entrepreneurship. Since our culture remains focused on the almighty dollar, the economic hardship of the entrepreneurial life will remain a filter, but an essential filter for innovation.
The best part is that it's getting cheaper to start, but I think it's great that it's still culturally expensive to succeed.
[...] investor and Hunch CEO Chris Dixon posted an interesting article yesterday titled, Every time an engineer joins Google, a startup dies. The gist of the article is that Dixon believes venture capitalists should be doing more to keep [...]
I know a lot of hackers who would gladly trade money for the absence of bullshit. Many of the best innovators I know are motivated less by money than they are by the right culture and a reasonable shot at seeing their work not go to waste.
I'm new to Google still, so maybe I've just still have my fanboy-colored glasses on, but prior to coming here I tried a number of innovation jobs: academia, startups, and industrial research. Google feels very innovative to me. In my experience fruitful innovation requires an interdisciplinary pool of experts, an idea-centric culture, and a strong desire to get technology in the hands of real people… a desire strong enough to push the bullshit out of the way. Google has all that as far as I can tell. Even in a startup it's hard to assemble a strong team with the right culture and the proper focus.
I hear that the VC environment out West is different than in the Northeast. I imagine it helps a great deal when the people with the money have experience in tech innovation. Maybe you should come visit.
I cannot possibly deny that cultural issues push smart kids away from science/tech/free thinking and into finance/law/medicine. Kids are taught to respect authority and every authoritative figure or advisor in their lives tell them to take the safe job (which while high-paying, is by definition non-innovative).
There is also a ton of actual American culture dedicated to glorifying certain professions. I would venture to say that American Psycho is one of the most popular cult movies of my generation (I'm 22). And with Grey's Anatomy and House and Wall Street 2, it's no wonder why kids decide to go into banking and medicine–they think they can get money AND hotties. Sex doesn't just sell products–it sells career paths.
What the startup industry really needs is better PR with the American public. Get the 100 million American kids thinking about startups as cool places where smart people work, make money, don't have to wear suits, don't have to kiss ass to get promoted, and finally, get hot bitches. Probably the best way to accomplish this goal is to make either a TV series or movie.
I'm thinking an Entourage-style show centered around a NYC startup in a very competitive industry. Lots of drama from the startup, nightlife, NYC-specific problems such as arctic tundra, romance, bromance. Call the show something catchy, like The Hyph Life.
A related and interesting post “A brief history of investors (and their investors) by George Zachary was posted today at http://venturehacks.com/articles/history-of-inv....
The comment post by Anonymous is a terrific read.
Let me guess, Zachary's next post is going to say entrepreneurs should
take money from firms like CRV because they have solid LPs (which
would be very bad advice).
I do think it's different in CA (and NYC). Also I'm not saying Google
isn't a pleasant place to work. I knows few Googlers who barely work
and just sit around eating gourmet food. Cool environment != most
innovative environment.
Probably! Zachary's post is interesting from a historical perspective but will most likely be self-serving when we get to the punch line.
[...] investor and Hunch CEO Chris Dixon posted an interesting article yesterday titled, Every time an engineer joins Google, a startup dies. The gist of the article is that Dixon believes venture capitalists should be doing more to keep [...]
Yeah, recruiting processes should be able to move dramatically faster than they actually do.
Great discussions on this issue, however I don't think there is a lack of innovation at all. No matter what, those that are driven to create and innovate will find a way. Good ideas/innovations are a dime a dozen, what is lacking in our culture is the ability to commercialize innovations. There is a theme through this discussion that the start-up risk is too high, established companies pay too well, etc… Overall 70-80% of start-ups fail… I suspect it is higher in technology.
Why is this?
I don't know if this is the top reason, but I do know that our business schools do not teach commercialization at the level it needs to be taught at. Mostly because there is no research money for business schools for commercialization. Big business funds our business schools so that is where the research goes. Are there any VC's that fund an entrepreneurial chair? All of the companies mention above pour lots of money into business schools to make sure grads are trained for their business.
In my alma matter, Haskayne School of Business, even though they have a new venture development program, you walk through the building and see who the funders are by the names of the rooms, lots of oil companies and banks.
I propose that an important solution to more innovation would be to start funding some serious research into commercialization.
Google is “successful” and all but what percentage of revenues come from all these homemade, so-called innovative products that 20,000 people have been working on? (Exclude the companies/employees/ideas Google purchased over the last 5 years post-IPO.) Seems to me that Google creates a lot of interesting products and features, but not a lot of standalone businesses. I imagine it would help a great deal if the people working at Google had some finance or operational background rather than just programming skills or “experience in tech innovation.” No doubt Google is ahead of the curve in terms of innovation, but there is no reward for being first in the tech industry–there is only a reward if the innovation is cheap, simple, and marketed superbly. Free innovative products aren't going to please institutional investors in the long run.
I agree with your conclusion if you were talking purely about web start-ups. Expand the focus to other types of start-ups, then GS and McK won't look so bad.
As a McKinseyite who has decided to leave the Firm to start a company, I can assure you that the “death” you speak about can be reincarnated.
I agree that if I am say a venture LP I wouldn't count on a huge change overnight and would be wary of investing in a non-top tier VC.
But people close to entrepreneurs like you, Y Combinator etc have the power to grow the base of entrepreneurs.
I think your comment is a good recital of the conventional wisdom. The point of my post (and my of my blog posts) is to challenge that conventional wisdom.
I agree we don't want posers. Increasing the number of entrepreneurs does not mean increasing the number of posers, if done right.
Wow, that's a ton of comments.
I think there is an assumption embedded in here that, holding talent, intelligence, and ambition constant, people's risk profile is evenly distributed. Which I think isn't true. I think there are many more people who would prefer a steady paycheck and a job at Google (with the promise of “20% time”, real or not), than those willing to live day by day not knowing if they can afford to pay rent next month.
You gotta be a little crazy to be an entrepreneur, IMO.
“You gotta be a little crazy to be an entrepreneur, IMO.” Yes one of my profs suggested it is a mental illness!
I think it's good that you are willing to challenge “conventional wisdom” but in my neck of the woods your view is the conventional wisdom. Being at a tech start-up in Silicon Valley is like being in the Entertainment business in Hollywood or the money business in NY.
One of the special qualities of Silicon Valley is that it's OK to start a company (or join a start-up) because failure is OK. You are not ostracized. I've seen exceptional people fail repeatedly and still get opportunities to come back and achieve stunning success. There's no place like that on the planet in terms of the culture and ecosystem conducive to entrepreneurs.
Yet there is a downside to all this. It's not just the wasted investment dollars but the wasted lives. I've seen too many people goto startups because that's the thing to do around here. I spend a lot of time helping to recruit people to our companies. I also advise a lot of people about career paths. If I sense that the fit is not good, I steer people away from start-ups, even though, perhaps it's against my best interest as a VC. Not everyone should be at start-ups. Certainly, for the right person, it's the greatest thing in the world; but it's not for most people.
@glennkelman recently wrote a post about some MBAs visiting him to learn about being an entrepreneur. He had a great thought that he did not share with the students: “I wanted to tell them that the whole reason to start a company is to be yourself, not to imitate someone else, especially not me.”
If “being yourself” means being an entrepreneur, go for it. For sure, the world needs more people who pursue their passions and dreams. It may or may not be at a start-up.
Mark as I see it there are three valuable forces at work here all of which deserve our respect and resolution.
The first is the biological pioneering spirit within us as human beings to attempt to the do the impossible. That how I view any startup that requires massive up front costs in pursuit of a greater dream. Without that push or that internal compass within us, we wouldn't be reaching out into the universe, maybe have people one day who will try to figure out how to mine asteroids or take science into a whole new frontier, the kind of forces that today excite people like Steve Jurvetson.
The second is magnetic, the physics of which bring us together to create something bigger than ourselves, to participate in our own small way in that which has begun to take on a life of its own. Google was born of that kind of force, because it found a way to become a magnet for some of the best talent out there, it created a cultural garden of inquiry – which at even a smaller scale operates in places such as the Perimeter Institute of Theoretical Physics:
http://www.perimeterinstitute.ca/
Squeezed between all of this is the chemistry of our civilization, the relationships, the emotional hormone, the catalytic evolution that makes us assume that this stuff should be standard, that we should all have equal access to this chemistry, that there should be no such thing as Power Law, that human involvement can bring about equality and a consciousness that says that the present moment is equally valuable, equally something that we need to spend time on or with – because it is the element of our own given life.
In all the poetry and art we can generate or think, whether it is the embryo of a startup try to make its full way to completeness that is a viable business, or a force which has come into being that dominates its space in time, what this tells me is that at the end of the day it comes down to the science we can relate to.
When Stephen Baker writes about the Numerati, it qualifies something that I sense is different about this age rather than former ages. We had a renaissance of art, we know what that looks like, we know who gravitated to its highest value. We are getting so far ahead here that the thinking we do takes on a life of its own, as Thorsten Reil discovered after the 20th generation of simulations:
http://www.wired.com/wired/archive/12.01/stuntb...
The question I am left asking myself (and it is my question)
What does it mean to consider this age as a renaissance of science?
In that question exists a potential cultural shift, around which revolves the biology of startup's, the physics of big entities (whether it is Google or the Olympic Movement) and the chemistry of human beings.
I believe that until we change our thinking and make our own thinking our own unit of discovery, until we engage that form of science which is exploration – we are stuck with the poetic, the superstitious, the mythical, the branded life, the mysterious guru and elevated leader.
We are focused on following today because we are focused on the art – the cave man knew art – we never lost as human beings that sense of wonder or imagination, but what we have to win isn't a sense of art but the practical wisdom of science.
This cultural shift won't happen because we repeat what we see but test what works. What works is evident in the smaller group of startups who survive the entrepreneurial journey – but while I am not sure that this is what Chris Dixon had in mind – I am sure that I am only standing on the starting line of my own question.
All I can really do is bring all of this contemplation back down to a single unit of reality. In my case it is simply DISQUS. What then makes DISQUS different from comments of the past?
I think it is because when we have learned something, we can edit our own comment.
OR
We can simply build of other people's comments in the form of art that is argument or conversation or point making and forget that the science we have at the closest disposal is our individual sense of inquiry.
Everything I have said above I deem a personal hypothesis and at all not all to be deemed as a fact. I should therefore only disprove my own thinking here for there is no path I am exploring here but my own discovery, there is no navigation I am steering here except my own learning.
IMHO all paths are for followers but there is no path for an explorer (whether mighty or humbly small like me) and in thinking about my own thinking, the accumulated change of that way of life I would consider as a key element in the renaissance of science.
[Em]
actually IMHO innovation and wealth are interchangeable and therefore you cannot have wealth w/o innovation. however, you can have transfers of wealth. that is people being overpaid and others being underpaid. i know a lot of bankers who got paid in 2008/2009 even as the world was falling apart. that payment doesn't equate to wealth creation. as a former banker i know.
but isn't true that startups don't even really need a lot of seed capital these days given the low barriers to entry and capital/overhead costs. i would think its much easier to go off and start a company today and if it doesn't work out, so what, you didn't bet the farm
looks like the fresh prince was right: parents just don't understand
it's pretty sad. it's almost as if the corporations and b-schools are in cahoots to keep the money train moving
the problem with your argument is that kids coming out of school have a 40+ year career ahead of them. 2 years just coming out of school is not going to break the bank so to speak (especially in the context of those years being the lowest earning years in that person's lifetime)
very true. we need to make sure we support the folks that could have easily gone into banking but instead chose a start-up. these folks are the unsung heroes
Simple reasons why:
many, maybe even most people aren't interested in building the next big anything. They want to settle down, have a family, buy a house, and live in the suburbs. Even the brilliant ones. Some people don't see this as a problem. Some of us think it's just lame.
It's just too risky. Even if you're brilliant, it doesn't mean you'll succeed (and you may not even /know/ you're brilliant.) If you fail, you may have no more health care. The function your theoretical startup provides may get outsourced before you bring it to market, and you've just invested years of your life for no return. Unemployment pays very little, and in the “New Economy” you may be looking for work for a long time (less than those who aren't as brilliant, sure, but longer than you feel comfortable with or have the wherewithal to survive.) You want people taking more risks? Make it so that failing doesn't hurt so damned much – universal health care and a guaranteed income would go a longggg way. Who wants to take risks when you're one job loss or company failure away from the street?
i agree
but i am doing that with one foot in the reality of today and on in the hope
for a better tomorrow
I liked this post and was pleasantly surprised to see it broadcast via Yammer by a colleague in London. (I work in a very large investment bank).
I put the last line on my office wall.
Yes, it is easier. Development platforms and social based discovery processes make it less costly to prototype and deploy certainly.
But, in my experience it's never 'so what' when it doesn't work. Time, passion, focus, other's commitment, and other's money takes a toll.
Your able to streamline the process and share the risk but when you go from 100% belief to selling the furniture, it's something. Happens to us all. We get smarter. We move on. But no one likes to not succeed if you are an entrepreneur.
If I had been at Stanford or this kind of school, of course I would have chosen to go work at a big company. Think about it: no real work to do, big salary, assured career path,…
Point is if you go to these schools you want certainty in life (or at least a nice backup plan if everything else fails) and startup does not offer this.
And if it could then it would defeat the purpose I assume
[...] For as much as we like innovation, most people aren’t cut out to start a tech company or even join one in a super-early stage. That’s my point of disagreement with Chris Dixon on his latest post, “Every time an engineer joins Google, a startup dies“. [...]
this post is amazing
we tried that actually, in 1999
[...] Every time an engineer joins Google, a startup dies [...]
[...] enmity formerly directed Microsft’s way. When a post by Hunch co-founder Chris Dixon – Every Time an engineer Joins Google, a Startup Dies – becomes the hot retweet of the digerati, you know a nerve has been [...]
[...] On Startups and Talent Filed under: Uncategorized — Jing @ 12:16 AM Here is my first DISQUS comment (via Chris Dixon’s blog). [...]
It’s always easy to place blame on VCs and startups for being lax in recruitment efforts or students for failing to step up to bat. As a recent college grad (Penn ’09), my experience is that the reality is a much more complex case of chicken-and-egg.
1. What’s tech anyway? Students don’t include VC and startup careers in their consideration set because they are simply unaware that such opportunities exist. At Penn we have 4 undergraduate schools (liberal arts, business, engineering, and nursing). During “recruiting season,” at least at the first 3 schools, bulge-bracket banks and consulting firms would be wooing everyone and their mother at multiple info sessions each night. Yet Google wasn’t even heard of on campus until 2 years after its IPO. Facebook didn’t even recruit at Penn when it launched its University Recruiting efforts in Fall ‘08. It’s hard not to fall into lemming behavior when tech careers, never mind tech startups, are very much under the radar in students’ eyes.
2. Education is expensive and someone has to pay. Per Azeem’s point, financial concerns are key in considering how to launch life post-college. Especially in the current economy, a lot of recent grads I know selected their jobs not for happiness or growth opportunities but for immediate financial rewards to fulfill loan repayments. This is also true for many MBA grads who need to justify that $150k dent to their wallets. Yes, options are valuable in incentivizing behavior and building the next Google but you can’t quantify them with an NPV.
3. The financial discrepancy adds up over time. Just as in pricing a product for market where it’s harder to start low and rack up prices than to start high and lower prices, once you are on the “fast track” to [“x” #]-figure salaries plus a reasonable sense of job security, it’s hard to just abandon ship and launch a startup career, especially further down the line.
4. People don’t like uncertainty. A prominent Bay Area CEO and Wharton alum came to recruit on campus last spring and was greeted with this question: “Can I go to business school or get a promotion after 2 years at your company?” Startups don’t offer analyst or associate programs where you get your ticket punched on your way to that MBA or retirement at age 40 (plus, you probably would never retire if you are doing something you truly enjoy). But for high achievers who have been raised to hit all the milestones at the right times, it’s hard to get in the mind set of “fail fast so you can learn faster” or just be comfortable with not knowing where you will be a year from now. Giff Constable writes about this today: http://giffconstable.com/2010/02/youve-got-to-r...
5. Information is asymmetric. VCs don’t hire much out of undergrad except for a few sourcing roles and startups often don’t have the resources to recruit the way large companies do. This is not to say that startups don’t need talent but rather that students need to work harder to make themselves available to startup employers. If you are a young person eager to join a startup, you would probably have greater success if you reach out directly. No job boards. No Career Services resume drops. Be proactive and demonstrate how the startup will be well served with you on board. Or at least build a presence and set up a Twitter or blog to make yourself accessible. Fred Wilson will be speaking on this topic of social recruiting next month: http://www.meetup.com/NYCRecruiting/calendar/12...
(And from his blog: http://www.avc.com/a_vc/2009/11/social-recruiti...)
6. On the brighter side of things, I am glad to know per Boris’s comment that more schools are creating new incubators and clubs to foster student interest in tech entrepreneurship. My alma mater already has Weiss Tech House and just launched WIMI and IMG this year. If you are a startup or VC reading this, I hope you will reach out to these groups and introduce yourselves to hungry talent.
[...] – chris dixon's blog – Every time an engineer joins Google, a startup diesFebruary 15, 2010 – In the past, I’ve described myself as a “startup [...]
Excellent blog Chris…
As corroboration, it is a rather misguiding system we live in. Even VCs tend to view professionals with “Ivy League” academic and professional backgrounds more favorably. One can't really fault enterprising professionals for choosing however staid but well-reputed “McKinsey” career tracks.
Recruiters everywhere seem to view these labels act as credit ratings on a stream of cash flows that “Corporate America” (which here includes VCs) is investing in. “Better the credit rating agency and rating, lower the risk.” This in return is proving to be counterproductive (for VCs) as these very “less risky” human assets are not risky enough to produce needle-moving innovation!
It's what we measure as success that will define the quality and quantity of success. E.g. not VC returns but innovation and contribution to society (which could include wealth generation) could be a better guiding metric?
[...] article was in response to a really popular post on the web the other day about startups dying everytime an engineer joins google. It’s an interesting take on hedge funds inspiring creativity, independence, and innovation [...]
If Fred Wilson thinks there is too much money in venture capital, obviously he is not thinking global, and he is too narrowly defining the tech sector, not just in terms of geographical reach, but all that drama waiting to happen beyond the dot com horse goggles. What do you call those things?
Great article.
You should also factor in the economic forces at the time. Especially now, with reduced VC capital as you are reporting, there will be less start ups.
Today's graduates have been burden with school debt that previous generations only acquired when they bought a house. This debt will be the biggest factor slowing down the creation of new start ups and innovation.
It boils down to this: you can't afford to start a company with a big school debt. You probably can't afford to join a start up either if the start up doesn't have enough VC to pay you enough to pay off your loans.
And even if people get together and start a new company with no salaries on a shoestring, the parents and friends off these people will pressure them to get “real” jobs. Never mind that 10 years ago doing this would have been a cause of pride: with a huge debt that you must pay each month the same family and friend network that would have been supportive of you now will nag you to get a paying job and stop fooling around with a time wasting project; time that you should look for a real job.
[...] frase que leí el otro día se acaba de cumplir con la empresa reMail que Google acaba de comprar, le gustaron sus [...]
[...] You may question whether that’s right or wrong, but it’s clearly something that is changing the landscape in all sorts of ways – the type of impact that entrepreneur Chris Dixon alluded to in a recent diatribe in which he argued that “every time an engineer joins Google, a startup dies”. [...]
[...] You may question whether that’s right or wrong, but it’s clearly something that is changing the landscape in all sorts of ways – the type of impact that entrepreneur Chris Dixon alluded to in a recent diatribe in which he argued that “every time an engineer joins Google, a startup dies”. [...]
[...] of my favorite founder bloggers, Chris Dixon recently wrote about the lack of an entrepreneurial culture among the graduates of the top universities in the [...]
[...] Joining a startup is less risky than you think. Every time an engineer joins google a startup dies. [...]
[...] Every time an engineer joins Google, a startup dies cdixon.org – chris dixon's blog [...]
[...] month, Chris Dixon wrote a blog entry titled “Every time an engineer joins Google a startup dies“. The general topic is why there aren’t more successful startups. He believes it is [...]
[...] few weeks ago, Chris Dixon wrote a post (cutely titled Every Time an Engineer joins Google a Startup Dies )about how innovation which he [...]
Joining a Startup Out of College is Hard…
Venture-driven junior recruitment could be a simple solution to an obvious problem of confusion and misdirection, for countless talented undergrads. Especially nowadays, with so many 22 year olds graduating not only jobless, but clueless as well, what …
[...] Dixon posted an article a few months ago on the lack of fresh grads joining startups, where he ended with: “Whenever I see a brilliant kid decide to join Goldman Sachs, McKinsey, [...]
[...] as most graduates do these days, took the full time job that paid the most. (Chris Dixon’s post on the topic hits it). Add consulting and government consulting to where all the talent goes in the [...]
[...] Every time an engineer joins Google, a startup dies. Chris Dixon [...]
[...] probably wouldn’t have existed without them (and the founders might have ended up at big companies). There are also lots of angel and seed investors who are builders. A few that come to mind: Ron [...]
[...] Dixon had a provocative post on how young engineers choosing to join big companies like Google is bad for the startup ecosystem, [...]