Why start startups?

Startups are somewhat of a misunderstood topic. We often view startups through the optic of the hyper successful tech companies that have shaped many aspects of society over the last 50 years. We look to The Microsofts and Googles of this world in amazement at how what were once small, inconspicuous startups that had managed to implant themselves and forge a lasting impact. Of course, both companies are currently involved in many sectors and serve billions of customers worldwide, but by focusing on this aspect, we miss the underlying point. Before these mega-companies did everything, they did 1 thing and their genesis can be traced back to the unique way of thinking of their founders.

This is what I want to talk about today -where do startups come from and why we desperately need them. The world is flat, or at least that’s what we believed for many years. Until of course the ancient Greeks calculated otherwise, and once again when early explorers embarked on daring journeys around the globe. Even after discovering the world was round we still conceptualised our [human] share of resources as flat. In other words — a zero sum game. In order for someone to gain they inadvertently had to take from someone else. For most of human history, this is actually how it worked from our viewpoint. Technological progress was very slow from the time our ancestors started using stone tools to relatively recently. The industrial revolution changed that with a wave of ever growing production capacity, all of a sudden, everyone had more and that allowed more people to add their creative inputs into the system which accelerated this cycle. (see figure 1)

The point is, those who adhered to the zero sum game view of the world were wrong, like their predecessors who thought the world was flat. In fact, the truth is that on long enough time scales, with any amount of compounding, you will get exponential growth and with a growing economic pie, there is more to go around for everyone. In modern times as of this writing, individuals living in western and many parts of eastern society live far, far better than kings did in the middle ages. That’s because technology empowers humanity to do more with less and our increased productivity as a society means that we’ve been able to systematically answer our needs. Starting from the most basic human needs and up Maslow’s hierarchy. (See figure 2)

[From this point forward it’s important that I mention; when I talk about the positive effects of technology on society and the high standard of living it affords us, I am focusing intentionally on the developed world. The third world and developing countries are not an indication of the failure of technology but rather a failure of politics and human subjugation.]

We have hitherto met some of our most basic needs; from sanitation, clothing to keep us warm to adequate housing and transportation. The way we live our lives today is a testament to how innovation permeates every aspect. It allows us to reach ever higher in the hierarchy of needs by providing the tools to be more creative, connect with more people and even become more intelligent. This is where I circle back to our big tech companies. Steve Job’s view of a computer was that of a bicycle for the mind. An amplifier that would push us beyond mere human limitations. What are the effects of billions of humans collectively using computers in a network? *Scroll up to see the GDP growth graph from earlier*. Startups then, are the pursuit of solving a human need. Founders with innovative ideas, strong work ethic and a realistic vision of the future are able to rally networks to realise those solutions and they inexorably empower more people to do more and aim higher still.

There exists an ever present danger however, and it’s not one that seems dangerous at first, if at all — benign. When new companies are born, can we call them startups? In the sense that you are starting up a new company they are, however they are not fundamentally solving a problem in a novel way to feed that productivity cycle. Instead, the creation of copycat businesses arguably destroy wealth because they misallocate resources. The business’s efforts in a highly competitive market go towards competing until all the profits are competed away. Indeed, the difference between a startup and a copycat business is that the startup should fundamentally have little to no competition because what they are building is novel. When a startup is done right, society as a whole moves forward. When another copycat business is created, the world becomes flatter.

Founders face a daunting task. They must create the future and in doing so, they bear the burden of responsibility to give society something new and valuable, so that we can all reach greater heights.

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