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16 Sep 17
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Startups are undergoing the same transformation that technology does when it becomes cheaper.
It's a pattern we see over and over in technology. Initially there's some device that's very expensive and made in small quantities. Then someone discovers how to make them cheaply; many more get built; and as a result they can be used in new ways. -
It's so cheap to start web startups that orders of magnitudes more will be started. If the pattern holds true, that should cause dramatic changes.
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1. Lots of Startups
So my first prediction about the future of web startups is pretty straightforward: there will be a lot of them. When starting a startup was expensive, you had to get the permission of investors to do it. Now the only threshold is courage.
Even that threshold is getting lower, as people watch others take the plunge and survive. -
It was only after hearing reports of friends who'd done it that they decided to try it themselves.
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2. Standardization
When technology makes something dramatically cheaper, standardization always follows. When you make things in large volumes you tend to standardize everything that doesn't need to change. -
We often tell startups to release a minimal version one quickly, then let the needs of the users determine what to do next. In essense, let the market design the product.
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One of the most important things we've been working on standardizing are investment terms. Till now investment terms have been individually negotiated. This is a problem for founders, because it makes raising money take longer and cost more in legal fees.
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Series A rounds, where you raise a million dollars or more, will be custom deals for the forseeable future. But I think angel rounds will start to be done mostly with standardized agreements.
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3. New Attitude to Acquisition
Another thing I see starting to get standardized is acquisitions. As the volume of startups increases, big companies will start to develop standardized procedures that make acquisitions little more work than hiring someone. -
One reason Google doesn't have a problem with acquisitions is that they know first-hand the quality of the people they can get that way.
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4. Riskier Strategies are Possible
Risk is always proportionate to reward. The way to get really big returns is to do things that seem crazy, like starting a new search engine in 1998, or turning down a billion dollar acquisition offer. -
When founders can do lots of startups, they can start to look at the world in the same portfolio-optimizing way as investors. And that means the overall amount of wealth created can be greater, because strategies can be riskier.
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5. Younger, Nerdier Founders
If startups become a cheap commodity, more people will be able to have them, just as more people could have computers once microprocessors made them cheap. And in particular, younger and more technical founders will be able to start startups than could before. -
Back when it cost a lot to start a startup, you had to convince investors to let you do it. And that required very different skills from actually doing the startup. If investors were perfect judges, the two would require exactly the same skills. But unfortunately most investors are terrible judges.
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the amount of selling required in an industry is always inversely proportional to the judgement of the buyers.
Fortunately, if startups get cheaper to start, there's another way to convince investors. Instead of going to venture capitalists with a business plan and trying to convince them to fund it, you can get a product launched -
This way of convincing investors is better suited to hackers, who often went into technology in part because they felt uncomfortable with the amount of fakeness required in other fields.
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6. Startup Hubs Will Persist
It might seem that if startups get cheap to start, it will mean the end of startup hubs like Silicon Valley. If all you need to start a startup is rent money, you should be able to do it anywhere.
This is kind of true and kind of false. It's true that you can now start a startup anywhere. But you have to do more with a startup than just start it. You have to make it succeed. And that is more likely to happen in a startup hub. -
it seems to me the increasing cheapness of web startups will if anything increase the importance of startup hubs. The value of startup hubs, like centers for any kind of business, lies in something very old-fashioned: face to face meetings.
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The question of whether to be in a startup hub is like the question of whether to take outside investment. The question is not whether you need it, but whether it brings any advantage at all. Because anything that brings an advantage will give your competitors an advantage over you if they do it and you don't.
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The advantage of being able to work together face to face for three months outweighs the inconvenience of moving.
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Seed funding isn't regional, just as big research universities aren't.
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We've had an ongoing stream of founders from outside the US, and they tend to do particularly well, because they're all people who were so determined to succeed that they were willing to move to another country to do it.
The more mobile startups get, the harder it would be to start new silicon valleys. If startups are mobile, the best local talent will go to the real Silicon Valley, and all they'll get at the local one will be the people who didn't have the energy to move. -
It's cities that compete, not countries. Atlanta is just as hosed as Munich.
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7. Better Judgement Needed
If the number of startups increases dramatically, then the people whose job is to judge them are going to have to get better at it. I'm thinking particularly of investors and acquirers. -
Acquirers will also have to get better at picking winners. They generally do better than investors, because they pick later, when there's more performance to measure. But even at the most advanced acquirers, identifying companies to buy is extremely ad hoc, and completing the acquisition often involves a great deal of unneccessary friction.
I think acquirers may eventually have chief acquisition officers who will both identify good acquisitions and make the deals happen. -
8. College Will Change
If the best hackers start their own companies after college instead of getting jobs, that will change what happens in college. Most of these changes will be for the better. I think the experience of college is warped in a bad way by the expectation that afterward you'll be judged by potential employers. -
it's hard to get into grad school, or to get a work visa in the US, without an undergraduate degree
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In a startup you're judged by users, and they don't care where you went to college. So in a world of startups, elite universities will play less of a role as gatekeepers.
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In the US it's a national scandal how easily children of rich parents game college admissions. But the way this problem ultimately gets solved may not be by reforming the universities but by going around them. We in the technology world are used to that sort of solution: you don't beat the incumbents; you redefine the problem to make them irrelevant.
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The greatest value of universities is not the brand name or perhaps even the classes so much as the people you meet.
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9. Lots of Competitors
If it gets easier to start a startup, it's easier for competitors too. -
You're not all playing a zero-sum game. There's not some fixed number of startups that can succeed, regardless of how many are started.
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I don't think there's any limit to the number of startups that could succeed. Startups succeed by creating wealth, which is the satisfaction of people's desires. And people's desires seem to be effectively infinite, at least in the short term.
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What the increasing number of startups does mean is that you won't be able to sit on a good idea. Other people have your idea, and they'll be increasingly likely to do something about it.
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10. Faster Advances
There's a good side to that, at least for consumers of technology. If people get right to work implementing ideas instead of sitting on them, technology will evolve faster. -
The big innovations that happen a company at a time will obviously happen faster if the rate of new companies increases.
But in fact there will be a double speed increase. People won't wait as long to act on new ideas, but also those ideas will increasingly be developed within startups rather than big companies. Which means technology will evolve faster per company as well. -
There is an enormous latent capacity in the world's hackers that most people don't even realize is there. That's the main reason we do Y Combinator: to let loose all this energy by making it easy for hackers to start their own startups.
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Performance is always the ultimate test
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you end up with a world in which high school students think they need to get good grades to get into elite colleges, and college students think they need to get good grades to impress employers, within which the employees waste most of their time in political battles, and from which consumers have to buy anyway because there are so few choices.
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the effects of being measured by performance would propagate all the way back to high school, flushing out all the arbitrary stuff people are measured by now. That is the future of web startups.
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13 Nov 14
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20 Mar 12
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I think the experience of college is warped in a bad way by the expectation that afterward you'll be judged by potential employers.
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One change will be in the meaning of "after college," which will switch from when one graduates from college to when one leaves it. If you're starting your own company, why do you need a degree? We don't encourage people to start startups during college, but the best founders are certainly capable of it.
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The importance of degrees is due solely to the administrative needs of large organizations.
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These can certainly affect your life—it's hard to get into grad school, or to get a work visa in the US, without an undergraduate degree—but tests like this will matter less and less.
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16 Feb 12
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28 Sep 11
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28 Apr 08
Juan Carlos LucasGracias a un articulo de Fer en INNOVA, encontré este excelente articulo sobre emprendimiento 2.0 y Capital Humano.
startup entrepreneurship emprendimiento management2.0 capitalhumano
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15 Mar 08
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24 Feb 08
aminggs"So my first prediction about the future of web startups is pretty straightforward: there will be a lot of them. When starting a startup was expensive, you had to get the permission of investors to do it. Now the only threshold is courage."
document article blog paul-graham business web startup import:delicious
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18 Feb 08
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17 Feb 08
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It's a pattern we see over and over in technology. Initially there's some device that's very expensive and made in small quantities. Then someone discovers how to make them cheaply; many more get built; and as a result they can be used in new ways.
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This pattern is very old. Most of the turning points in economic history are instances of it. It happened to steel in the 1850s, and to power in the 1780s. It happened to cloth manufacture in the thirteenth century, generating the wealth that later brought about the Renaissance. Agriculture itself was an instance of this pattern.
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15 Feb 08
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13 Feb 08
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29 Jan 08
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21 Jan 08
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31 Dec 07
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28 Dec 07
Adriana Lukasfrom twisted plumbing to one big pipe. overtones of VRM in the last paragraph too. nice to see the sentiment is general not just confined to one initiative
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20 Nov 07
Adam Crowe"What students do in their classes will change too. Instead of trying to get good grades to impress future employers, students will try to learn things. We're talking about some pretty dramatic changes here."
startup business beta failure investment innovation learning entrepreneurship career
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22 Oct 07
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20 Oct 07
ken .A history of revolutions (textiles, steel, power) reaching startups - Standards, lower Barriers to entry, low cost=>less need for permission (investors), can take risks, more competition, faster (unlike big-biz), meaning of "graduation", commodity
business competition cost education finance history patterns risk startup technology
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17 Oct 07
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11 Oct 07
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viniciusjlThere's something interesting happening right now. Startups are undergoing the same transformation that technology does when it becomes cheaper.
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Ian ForresterPaul Graham's epic and depressing essay from the Future of webapps expo in london
essay paulgraham startups future fowa startup london education college siliconvalley
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10 Oct 07
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09 Oct 07
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08 Oct 07
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06 Oct 07
Ricky RobinsonAn eloquent essay. Must read for NICTA people, I reckon.
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05 Oct 07
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Lance Traceypad
The Future of Web Startups
October 2007
(This essay is derived from a keynote at FOWA in October 2007.)
There's something interesting happening right now. Startups are undergoing the same transformation that technology does when it becomes cheape -
Tristan BaileyAt Y Combinator we still only have four people, so we try to standardize everything we can. We could hire employees to help us, but we prefer to be forced to discover ways to do things more efficiently. We want to be forced to figure out how to scale inve
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04 Oct 07
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