Tuesday, May 26, 2009

Rise of the Startups

My gut feeling has been that history is cyclical, generally speaking, and that true revolutionary change is highly unlikely in the long term. Little did I know that there is an incredible amount of information on this topic just a Google search away.

Wikipedia article on "Social cycle theory"

Anyways, the following excerpt from this Wired.com article about the "new new economy" caught my attention:
As venture capitalist Paul Graham put it, "It turns out the rule 'large and disciplined organizations win' needs to have a qualification appended: 'at games that change slowly.' No one knew till change reached a sufficient speed."

The result is that the next new economy, the one rising from the ashes of this latest meltdown, will favor the small.
The article points out the recent decline of large corporations and points out their disadvantages in our current economy, while highlighting the strengths of small, nimble startups. The article also links to an article by Paul Graham, expanding on the whole "old versus new" debate.
But in the late twentieth century something changed. It turned out that economies of scale were not the only force at work. Particularly in technology, the increase in speed one could get from smaller groups started to trump the advantages of size.

Large organizations will start to do worse now, though, because for the first time in history they're no longer getting the best people. An ambitious kid graduating from college now doesn't want to work for a big company. They want to work for the hot startup that's rapidly growing into one. If they're really ambitious, they want to start it.
Reading that article led to another one, which talks about the declining importance of credentials and how startups are much more meritocratic - nobody cares where you went to school or who your parents are, all that matters is your performance.
History suggests that, all other things being equal, a society prospers in proportion to its ability to prevent parents from influencing their children's success directly. It's a fine thing for parents to help their children indirectly—for example, by helping them to become smarter or more disciplined, which then makes them more successful. The problem comes when parents use direct methods: when they are able to use their own wealth or power as a substitute for their children's qualities.

Large organizations can't do this. But a bunch of small organizations in a market can come close. A market takes every organization and keeps just the good ones. As organizations get smaller, this approaches taking every person and keeping just the good ones. So all other things being equal, a society consisting of more, smaller organizations will care less about credentials.

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