To Less Efficient Startups
September 28, 2012
Most of the technology world, especially the traditional venture funding infrastructure, is justifiably proud of the extreme efficiency of modern internet startups. It is a triumph for Craigslist to serve hundreds of millions of users with only a few dozen employees, or even for Facebook to serve a billion users with just a few thousand employees.
But we need to support and encourage another model, one that's less economically efficient.
From an economics standpoint, the hugely successful tech companies of our time are marvels of efficiency because it used to take a company with hundreds of thousands of employees to generate so much market value. Unfortunately, this "progress" in efficiency means a concentration of generated wealth among an even smaller, more exclusive cabal of winners when one of these companies succeeds.
Instead of generating tens of thousands of middle-class jobs as industrial-age titans did, these companies make a few dozen people truly extraordinarily wealthy, and then give generous payouts to a few hundred people who were already on a path to success by having been privileged enough to go to top universities and by having the identities that tech and engineering cultures are biased toward today. There is effectively no blue collar path to success, notwithstanding the much-vaunted stories of tech company chefs entering these companies in the kitchen and exiting as millionaires.
Some of the most interesting startups (the NYC chauvinist in me must point out that these are all New York companies) are not optimizing for raw market efficiency, but instead for opportunity for a broader community. Some examples:
- Kickstarter is explicitly building an economy to support the work of artists and creators, disciplines that are often not favored by the attentions of the tech industry.
- 20×200 has a complete structure of support for promotion and payment for artists, as Jen Bekman outlined at the XOXO festival.
- Etsy perhaps illustrates this best of all; I talked about this a bit when recording Chad Dickerson's talk at XOXO, but his slides from that talk outline their commitment as a B Corporation to many of these principles of helping an entire community, not just preferred shareholders:
I should note that I'm friends with the founders and executives of all of these companies though I'm not part of the community of creators who benefit directly from these platforms. And of course, Ebay has had many of these tendencies for supporting an economy of creators for years; One could argue that Google's programs like AdSense helps publishers in a similar way. But before we go down the slippery slope of saying every small business ad on Facebook and Twitter is proof that many can benefit from efficient companies, we need to draw a line between explicit parts of a company's internal economics and the dollars that flow through their overall ecosystem. Because the players outside the company who are subject to the economics of AdSense or ads on Facebook or Twitter are the first ones to get squeezed if the company needs to optimize its revenues, aside from the fact that they never structurally benefit from an increase in the valuation of the company which provides them with their marketing platform.
How We Do It
I'm not saying existing companies necessarily need to radically change; It's great that many have succeeded with the model so far. But I'm hoping that people who are building and funding companies can put some thought into what success can look like for future tech companies if they also value creating lots of middle-class jobs and lots of opportunities to help blue collar or non-technical workers thrive with meaningful long-time work as their companies take off.
We tend not to think it's cool that Microsoft or IBM have hundreds of thousands of employees. But there's something meaningful, and important, and essential to our society for enormously valuable companies to also provide enormous value in the form of lots of jobs for regular folks. I'll be rooting for the next wave of startups to tackle this problem that has, so far, been too difficult for our biggest web companies.