America is a Start-Up Nation: a living example of the process that Joseph Schumpeter memorably dubbed “creative destruction.” Other nations may create superior products and even build world-dominating industries, but the very essence of America’s economic and cultural DNA is its ability to generate ever-new generations of startups, spearheading new technologies and business models, creating and transforming whole industries, powering job generation, and raising living standards. While other nations deepen and expand their existing industries and technologies — Germany turns out more and better cars; Japan and Korea stamp out bigger and higher-definition TVs — America generates startups that forever shift the nation’s whole economic structure.
In a book of the same name that I co-authored with my friend and colleague Martin Kenney, I argued that our relentless focus on startups was hampering our ability to follow through — that we were ceding too many of the high-paying manufacturing jobs and technical expertise that flow from actually making things to other nations.
Still you have to ask yourself: On balance, what kind of economy would you rather have — a dynamic, innovative, self-revolutionizing one, or a staid and static one, built around older and potentially more vulnerable industries?
America’s Start-Up Economy emerged out of a half-century or more of painstaking and deliberate effort. During the Great Depression and its aftermath, American thinkers, business leaders and entrepreneurs worried about our economy’s ability to recover its former vitality. Harvard’s Alvin Hansen argued that the country had exhausted its productive force and fallen victim to “secular stagnation” — a story that has a familiar ring today. Schumpeter bemoaned the ways that large corporations were smothering the kinds of entrepreneurial impulses that had formerly propelled innovation and economic development. John Kenneth Galbraith wrote scathingly of the onset of a sclerotic, self-interested bureaucracy. The marxist Paul Sweezy excoriated the shift to Monopoly Capital. And William Whyte depicted the rise of the non-descript, ever-conformist, risk averse, go-along-get along type he dubbed simply the Organization Man.
This system of innovation is based on three key principles: technology, talent, and tolerance. A great university like Stanford or MIT is a necessary but in-itself insufficient condition for success. It’s the same with venture capital. This system, this social structure of innovation and new firm formation, requires a constant flow of especially talented people — and not just scientists and investors, but entrepreneurs with the vision and skills to follow through, executing and building companies. This can only happen in an environment that’s open, meritocratic, and diverse, where it doesn’t matter what you look like or where you are from, or what your ethnic background or sexual orientation is. More than half of all the Silicon Valley startups launched over the past couple of decades have had an immigrant on their founding teams.
Silicon Valley is very much a product of the open thinking and counter-cultural environment of the Bay Area–hippie culture, some might say. Hippies are what Jobs and Wozniak looked like, with their long hair, ripped jeans, and beards. “Doing LSD was one of the two or three most important things I have done in my life,” Jobs famously told The New York Times’ John Markoff. Try to picture Jobs and Wozniak in one of the leading centers of banking or industry- New York or Boston, Philadelphia, Detroit or Pittsburgh — back in the 1970s. They would have never had the chance to pitch their invention — they would have been turned away by the security guards in the lobby. When I met Donald Valentine, the founder of Sequoia Capital and an early venture investor in Apple, and asked him how in God’s name he knew to bet on those two, his answer summed up the spirit of the Valley’s start-up culture. “It’s a mistake to look only at the shell,” he told me. “It’s what’s inside the shell that really mattered.” And he reminded me that it was his job as a venture capitalist to “identify the something special inside [new companies’] shells.”
Some words are well laid, such as the three Ts – Technology, Talent and Tolerance (not his original but from someone else); others are inevitably biased in attempting to make a one sided point: US leads not only by innovation and startup but also by setting standards, by moral values, by free and open culture, by arms and by sunk fortunes.