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Sputtering Startups Weigh on U.S. Economic Growth

127 pointsby spuiszisover 8 years ago

19 comments

cylinderover 8 years ago
Go on your state&#x27;s Obamacare exchange. Hypothetically you are a mid 30s individual with a spouse and two young children. Look up 2017 numbers. You are looking at $12,000 - $24,000 per year in premiums alone and then massive deductibles and coinsurance of 30% to actually access services.<p>Who can bootstrap a business like this? So people are staying with their powerful big corporations if they can&#x27;t get millions in funding for a startup (and outside of tech this is simply not even a consideration).<p>Edit: and if at some point you hire an employee, you will need &#x2F; want to provide them with health insurance, and it will cost just as much. Large corporations have an advantage in that they negotiate lower premiums in bulk. Add this as yet another barrier to entry, along with their lobbying for protectionism, tax loopholes, their ability to hire huge teams of tax lawyers and accountants, and if you really start to get their attention, they can sue you baselessly by throwing lawyers at you to keep you in court. Merely defending yourself and getting to the point of dismissal is unaffordable for a budding small business.<p>Take a look at S&amp;P500&#x27;s profit margins. They are at record highs and not coming down as economics teaches us, meaning new entrants are not coming into the market.
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GarrisonPrimeover 8 years ago
As a physician, I am blown away by the fact that almost no one is talking about the true problem: American health care is artificially hyper-inflated, expense-wise.<p>Sooooo much waste. Sooooo much inefficiency. The problem is the cost is too high! So why, oh why oh why, is NO ONE TALKING ABOUT FIXING THE ARTIFICIALLY HIGH PRICES?<p>Because those who make money off the system are controlling the narrative. They are more than happy to have the population &quot;empowered&quot; by increasing insurance coverage. More money for them. More reason and excuse to increase the costs even further.<p>There is zero reason why a doctor&#x27;s visit can&#x27;t cost $100. Maybe less. Break something and need a few x-rays? $100 each, max, including development and reading costs, everything. Need an appendix or tonsils removed? $500 would cover pretty much everything. Sure, such things aren&#x27;t cheap, but they&#x27;re survivable. But as soon as we somehow decided we needed &quot;insurance&quot; for such routine expenses, the costs shot up and never looked back. The actual consumers of health care never see the price tag, and - surprise, surprise - the costs have no real reason to stay held back. The systems have no incentive to stay efficient and accountable.
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FilterSweepover 8 years ago
&gt; One key factor intertwined with this loss of dynamism: The U.S. is creating startup businesses at historically low rates.<p>This is one of the outcomes of oligopoly, and a system that encourages oligopoly (see: &quot;legal&quot; tax evasion[0]).<p>Google and Amazon, in particular, have their tendrils extended to many more areas in tech than Search, Affiliate Marketing, good Hardware, and selling products at cheap prices and highly developed operation systems.<p>In fact, one of this year&#x27;s most successful tech IPO, Twilio, put the disclosure on their filing that their entire business is toast if AWS begins offering a VoIP &#x2F; SMS delivery service and start undercutting their costs.<p>[0] <a href="https:&#x2F;&#x2F;thestack.com&#x2F;world&#x2F;2016&#x2F;05&#x2F;03&#x2F;the-tech-giants-inventing-their-own-tax-regimes&#x2F;" rel="nofollow">https:&#x2F;&#x2F;thestack.com&#x2F;world&#x2F;2016&#x2F;05&#x2F;03&#x2F;the-tech-giants-invent...</a>
anton_tarasenkoover 8 years ago
Walmart and Amazon alone sell $600bn worth of goods. That&#x27;s 4% of US GDP. These two pushed thousands of independent retailers out of business due to lower prices (and smaller profit margins relative to revenue).<p>The same happens in transportation, restaurant business, hotel industry. Firms get bigger since 1800. Naturally, the number of new firms decline. In govt stats, it appears as &quot;fewer startups.&quot;<p>Meanwhile, the economy grows thanks to productivity gains in big companies. So what do we want: productivity or new small businesses?
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forgotpwtomainover 8 years ago
It&#x27;s just an editorialized presentation of the following:<p><a href="http:&#x2F;&#x2F;www.bls.gov&#x2F;bdm&#x2F;entrepreneurship&#x2F;entrepreneurship.htm" rel="nofollow">http:&#x2F;&#x2F;www.bls.gov&#x2F;bdm&#x2F;entrepreneurship&#x2F;entrepreneurship.htm</a>
johan_larsonover 8 years ago
&gt; Goldman Sachs economists in part blame the cumulative effect of regulations enacted since the Great Recession for reducing the availability of credit and raising the cost of doing business for small firms.<p>Huh? Haven&#x27;t small firms pretty much always been funded by personal saving of the founders, sweetheart loans from friends and family, and perhaps the odd bank loan secured by the personal assets (read: homes) of the founders?<p>Banks aren&#x27;t interested in lending directly to businesses until they are large enough to have concrete assets to secure the loans. And they never were.
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Spooky23over 8 years ago
Health insurance and direct regulation is a distraction.<p>The macroeconomic environment where everything relentlessly consolidates is the problem. For software, entire categories are either dependent in advertising and not long term viable or are scoped from a revenue point of view from bundled offerings by Microsoft, Google, Oracle, Salesforce, etc.<p>Every other business is the same way. My neighbors dry cleaning business was forced to use a centralized plant because they just couldn&#x27;t compete with the scale of the local big consolidated industrial cleaners.
daodedickinsonover 8 years ago
A coworker at one of my jobs (I work 4 menial job &#x2F; gigs, make 17k a year, live in parents basement, have no friends or lover, was top of my class in CS but left after a professor openly helped a student cheat to no consequences and another prof revealed CS grads from my school had less than a 50% postgraduation employment rate for ANY job, much less a CS one) had an idea she wanted to patent that would be helpful but would essentially be a metal pole in a specific shape. I had to be a downer and tell her of this story: <a href="http:&#x2F;&#x2F;qz.com&#x2F;771727&#x2F;chinas-factories-in-shenzhen-can-copy-products-at-breakneck-speed-and-its-time-for-the-rest-of-the-world-to-get-over-it&#x2F;" rel="nofollow">http:&#x2F;&#x2F;qz.com&#x2F;771727&#x2F;chinas-factories-in-shenzhen-can-copy-p...</a><p>You&#x27;re damned if you put your idea on the net and damned if you don&#x27;t and it&#x27;s all getting disheartening. I just want to find a career so I can go out and court someone but even the people with CS jobs that I know are constantly complaining of work &#x2F; life imbalance and not getting to see their loved ones in person enough. Everytime I try to start studying some topic in the hopes of pursuing a living the shellshock of robophobia and the likelihood I will be too late overwhelms me. I can only cry at that leaked Clinton speech where she says we know what to do with the 120 IQ kids, but not the 100 or 80 kids. Well here I am at 145 mopping floors and literally shoveling shit despite only ever being excellent in school I guess it&#x27;s just bad genes because my uncle could solve a Rubik&#x27;s cube blind and built all sorts of electrical contraptions and has been a homeless drunk for decades. Here I am, another sandwich eater in front of thw trash pile as in Godard&#x27;s weekend.
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bojlover 8 years ago
As a CS student interested in tech and entrepreneurship, I and so many of my peers won&#x27;t be able to start our own ventures because of student loans. And by the time i&#x27;ve paid off my loans I&#x27;ll probably have other responsibilities I&#x27;ll need to take care of.
threepipeproblmover 8 years ago
So while startup hype is at an all time high, the actual level of startups is at an all time low in the US.<p>Reminds me of something Terry Gilliam said... &quot;Usually you spot how societies work by what they glorify: it&#x27;s usually the thing they&#x27;re deficient in.&quot;
gumbyover 8 years ago
The article is absurd and not even supported by its own data!<p>The fact is startups and small businesses have always been a small fraction of the economy both by employment and contribution to GDP. When I say &quot;always&quot; I actually mean the modern economy of the last 75 years at least. I was very surprised when I learned this but the data go back at least to the end of WWII, which is far back as I looked. Pre-depression there was still a lot of small &#x2F; disorganized (unincorporated) business and a lot of agricultural employment.<p>The large companies are the large employers; next are &quot;small businesses&quot; which are franchises (e.g. a lot of people are employed selling MacDonalds hamburgers who aren&#x27;t technically employees of the MacDonalds company).<p>There article even points out that new businesses account for only a tiny percentage of jobs; they compare company creation to the 1980s but don&#x27;t account for company failure. And how many of those companies grew significantly? The vast majority of operating companies formed in the US, and I suspect most countries, are small businesses (shops, restaurants etc).
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jordacheover 8 years ago
This article was written under the assumption that startups in general = innovation.
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jonbarkerover 8 years ago
The percent of the US economy invested in startups is very low, so I disagree with the premise of this headline. If every startup went bankrupt tomorrow, what would that represent in GDP decline? If the US GDP is 18 trillion and the total VC investment in 2015 was around 58 billion, then if only last year&#x27;s investments all went to zero, it would represent a decline in .3% of US GDP. Of course there is more capital at risk than just last year&#x27;s investment so let&#x27;s say last year&#x27;s 58 billion is only 10% of total capital deployed. OK still just a 3% decline. I think what the article should highlight is how few high growth and cash flow positive startups there are, which I agree is a real problem. Maybe completely eliminate all fees and taxes for LLC formation?
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itissidover 8 years ago
So many tech firms these days seem to satisfy some tiny facet of a group&#x27;s demands to have&#x2F;do stuff. The bigger the group&#x27;s economic footprint the more the opportunity for business. But it seems to rely on &quot;hierarchies&quot; of social, economic status. But, basically if you have money you can avail a vast majority of today&#x27;s tech firm&#x27;s &quot;products&quot;.<p>Sad part is that as far as I could read economies promoting this kind of behavior are the only ones doing well, yet even here(in the US) it seems things have worked out at best &quot;average&quot; for a vast majority of people. The ones that actually tried to do better for everyone failed spectacularly(read collectivism and socialism).<p>I always wondered why truly bettering ones self in every way(health, furthering ones own knowledge, exploration, helping others) are goals available only to the select few and not made available to more people more easily? Why are economic efforts geared towards these dwarf in front of more consumerist ones? Why do economics and behavior align in a way that makes it impossible to do better than a narrow predefined narrative someone set for me(or go through immense pain to achieve the one I want)? <a href="https:&#x2F;&#x2F;www.youtube.com&#x2F;watch?v=ilY4hRgfC2Q" rel="nofollow">https:&#x2F;&#x2F;www.youtube.com&#x2F;watch?v=ilY4hRgfC2Q</a> For example, I was looking at the simple task of affording a house with wife and kids and the only narrative available to have all this are &quot;Zipcode&quot;, &quot;School Districts&quot; and &quot;Zoning laws&quot; which puts me in debt for life to get a decent thing choice for those options.<p>Why do smaller economies seem to do better than larger ones(like in europe). It always seems to me that the bigger the group of people that try to align towards a common goal(be it insurance premiums or world peace) the harder it becomes. Why is this so?<p>And yet, in the end, by and far large my experience of living in 3 vastly varied countries in the last 20 or so years still makes US a better place to be. But things could be a bit easier&#x2F;simple <a href="https:&#x2F;&#x2F;www.youtube.com&#x2F;watch?v=fJRcDHKrSqw" rel="nofollow">https:&#x2F;&#x2F;www.youtube.com&#x2F;watch?v=fJRcDHKrSqw</a>
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whybrokeover 8 years ago
Consider also how much of payroll goes directly through you or your employee to rent or mortgage in the areas where software talent lives and you can see why the bootstrapping startups that caused the the tech revolution in the first place are infidelity harder now.<p>You must either bear the productivity hit of a pure virtual workplace or you must comply to the nearly arbitrary success formulas of VCs.
madengrover 8 years ago
Did anyone else read &quot;sputtering startups&quot; and think physical vapour deposition?
costcopizzaover 8 years ago
I wonder how much (if any) the lax enforcement of anti-trust law has played into this.
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marcamillionover 8 years ago
So I think this the article perfectly sums up a thesis I have developed about these economics indicators and the way Economic Growth &amp; Productivity is measured.<p>All of this is intuitive, and I have no hard data to back up my theory, so I would love for someone with much more econometric experience than I to prove&#x2F;disprove this thesis.<p>Thesis: The global economy and US economy in particular is going through a radical productivity growth spurt and shift that is not currently being measured properly.<p>This article is the perfect example of this. You mean to tell me that during a period where there has been an explosion of independent contractors of many different types, we have seen &quot;Startups Weighing on US Economic Growth&quot;? Surely that can&#x27;t be true and fully reflective of the reality.<p>There are two aspects to this. There is direct job growth within startups (so Employee headcount) and there is the issue of what is a &#x27;new company&#x27;.<p>Direct Job Growth.<p>It is hard to argue that the average startup isn&#x27;t much more productive today than it was 10 years ago, much less 20 years ago. Particularly tech startups. For tech startups it&#x27;s most glaring, because you have things like AWS, Heroku &amp; the App Stores that allow you to deploy a relatively easily scalable, product that can reach hundreds of thousands&#x2F;millions of users&#x2F;customers as a team of 1 - 5.<p>No longer do you NEED someone just to manage 1 server, or even add additional server capacity and deal with Colocation-related issues and all of that stuff.<p>You also no longer need to pay huge licensing fees for development software platforms and developer tools. So the barrier to entry to shipping has dropped to 0, basically.<p>So whenever a startup raises a nominal amount of money, it can go into much more high-value jobs (like customer acquisition and customer support) for which there isn&#x27;t always a direct correlation between each incremental dollar in revenue earned with the number of people you hire to support that revenue. In some cases there is, but in many cases there isn&#x27;t. Or rather, the up scale hiring process is horizontal rather than vertical. Each customer support specialist can handle more support tickets today than they used to 20 years ago, for much cheaper. Aka, the support systems that multi-national companies have always used are now available for much cheaper and often much better to startups at $50&#x2F;employee in many cases.<p>When you think about the various aspects within a growing tech startup, you can see this same principle across all disciplines (even including HR and Employee benefits via services like Zenefits and its competitors). So the productivity that can be bought with each marginal dollar invested in a nascent startup is so much greater as a result of these highly, specialized and in many cases very economical services that can be leveraged from third-party providers, than had been the case 20 years ago....yet these articles and current econometric models would have us believe that productivity growth has flatlined. Really?<p>What is a &#x27;new company&#x27;?<p>While there may be significantly less direct job-growth (as a result of the issues I highlighted above), there has been an explosion in the number (and types) of marketplaces that have sprung up that allow customers&#x2F;users to be independent contractors. Not just typical web dev&#x2F;writing&#x2F;etc. But your excess space (AirBnB and all its clones), your excess vehicle (Uber, Lyft and all clones and derivatives), your excess time (Instacart, TaskRabbit, Mechanical Turk, etc.), and any other service that has sprung up that allows random people to do random gigs from a marketplace of gigs of different kinds.<p>So yes, the Ubers of the world no longer add significant employees to their payroll to service increasing revenue as a part of operations, but by creating marketplaces where random people can earn a living, doing things they previously never did (or even considered doing), surely has contributed significantly to economic growth in ways that aren&#x27;t currently being measured properly.<p>Those people likely haven&#x27;t registered legal entities, they probably just have a bank account, so they won&#x27;t show up in &quot;new company&quot; data. But I bet if there was a way to measure those non-registered, independent contractors across all of these problems and you contrast that figure with the same category 20 years ago, you would get a much different picture of the US economy and productivity growth.<p>I could be wrong with all of this, but every time I read one of these articles....that&#x27;s what jumps out at me. The disconnect between what is being measured and reported in articles like these, and all the products&#x2F;services we see being launched on TechCrunch, Product Hunt and HN that significantly improve the average person&#x27;s earning power by both being able to sell said product&#x2F;service or sign up to be a participant in that marketplace, has always been jarring.<p>Let me know if this makes sense to anyone and if I am missing anything.<p>I would love to crystalize this thesis and ideas some more, to do a full write-up in a blog post so please poke as many holes in this as you can.<p>Thanks!
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denim_chickenover 8 years ago
Collapse is near.
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