December 2008For nearly all of history the success of a society was proportionateto its ability to assemble large and disciplined organizations.Those who bet on economies of scale generally won, which meant thelargest organizations were the most successful ones.Things have already changed so much that this is hard for us tobelieve, but till just a few decades ago the largest organizationstended to be the most progressive. An ambitious kid graduatingfrom college in 1960 wanted to work in the huge, gleaming officesof Ford, or General Electric, or NASA. Small meant small-time.Small in 1960 didn't mean a cool little startup. It meant uncleSid's shoe store.When I grew up in the 1970s, the idea of the "corporate ladder" wasstill very much alive. The standard plan was to try to get into agood college, from which one would be drafted into some organizationand then rise to positions of gradually increasing responsibility.The more ambitious merely hoped to climb the same ladder faster.[1]But in the late twentieth century something changed. It turned outthat economies of scale were not the only force at work. Particularlyin technology, the increase in speed one could get from smallergroups started to trump the advantages of size.The future turned out to be different from the one we were expectingin 1970. The domed cities and flying cars we expected have failedto materialize. But fortunately so have the jumpsuits with badgesindicating our specialty and rank. Instead of being dominated bya few, giant tree-structured organizations, it's now looking likethe economy of the future will be a fluid network of smaller,independent units.It's not so much that large organizations stopped working. There'sno evidence that famously successful organizations like the Romanarmy or the British East India Company were any less afflicted byprotocol and politics than organizations of the same size today.But they were competing against opponents who couldn't change therules on the fly by discovering new technology. Now it turns outthe rule "large and disciplined organizations win" needs to have aqualification appended: "at games that change slowly." No one knewtill change reached a sufficient speed.Large organizations will start to do worse now, though,because for the first time in history they're no longer getting thebest people. An ambitious kid graduating from college now doesn'twant to work for a big company. They want to work for the hotstartup that's rapidly growing into one. If they're really ambitious,they want to start it. [2]This doesn't mean big companies will disappear. To say thatstartups will succeed implies that big companies will exist, becausestartups that succeed either become big companies or are acquiredby them. [3]But large organizations will probably never againplay the leading role they did up till the last quarter of thetwentieth century.It's kind of surprising that a trend that lasted so long would everrun out. How often does it happen that a rule works for thousandsof years, then switches polarity?The millennia-long run of bigger-is-better left us with a lot oftraditions that are now obsolete, but extremely deeply rooted.Which means the ambitious can now do arbitrage on them. It willbe very valuable to understand precisely which ideas to keep andwhich can now be discarded.The place to look is where the spread of smallness began: in theworld of startups.There have always been occasional cases, particularly in the US,of ambitious people who grew the ladder under them instead ofclimbing it. But till recently this was an anomalous route thattended to be followed only by outsiders. It was no coincidencethat the great industrialists of the nineteenth century had solittle formal education. As huge as their companies eventuallybecame, they were all essentially mechanics and shopkeepers atfirst. That was a social step no one with a college education wouldtake if they could avoid it. Till the rise of technology startups,and in particular, Internet startups, it was very unusual foreducated people to start their own businesses.The eight men who left Shockley Semiconductor to found FairchildSemiconductor, the original Silicon Valley startup, weren't eventrying to start a company at first. They were just looking for acompany willing to hire them as a group. Then one of their parentsintroduced them to a small investment bank that offered to findfunding for them to start their own, so they did. But starting acompany was an alien idea to them; it was something they backedinto.[4]Now I would guess that practically every Stanford or Berkeleyundergrad who knows how to program has at least considered the ideaof starting a startup. East Coast universities are not far behind,and British universities only a little behind them. This patternsuggests that attitudes at Stanford and Berkeley are not an anomaly,but a leading indicator. This is the way the world is going.Of course, Internet startups are still only a fraction of the world'seconomy. Could a trend based on them be that powerful?I think so. There's no reason to suppose there's any limit to theamount of work that could be done in this area. Like science,wealth seems to expand fractally. Steam power was a sliver of theBritish economy when Watt started working on it. But his work ledto more work till that sliver had expanded into something biggerthan the whole economy of which it had initially been a part.The same thing could happen with the Internet. If Internet startupsoffer the best opportunity for ambitious people, then a lot ofambitious people will start them, and this bit of the economy willballoon in the usual fractal way.Even if Internet-related applications only become a tenth of theworld's economy, this component will set the tone for the rest.The most dynamic part of the economy always does, in everythingfrom salaries to standards of dress. Not just because of itsprestige, but because the principles underlying the most dynamicpart of the economy tend to be ones that work.For the future, the trend to bet on seems to be networks of small,autonomous groups whose performance is measured individually. Andthe societies that win will be the ones with the least impedance.As with the original industrial revolution, some societies are goingto be better at this than others. Within a generation of its birthin England, the Industrial Revolution had spread to continentalEurope and North America. But it didn't spread everywhere. Thisnew way of doing things could only take root in places that wereprepared for it. It could only spread to places that already hada vigorous middle class.There is a similar social component to the transformation that beganin Silicon Valley in the 1960s. Two new kinds of techniques weredeveloped there: techniques for building integrated circuits, andtechniques for building a new type of company designed to grow fastby creating new technology. The techniques for building integratedcircuits spread rapidly to other countries. But the techniques forbuilding startups didn't. Fifty years later, startups are ubiquitousin Silicon Valley and common in a handful of other US cities, butthey're still an anomaly in most of the world.Part of the reason—possibly the main reason—that startupshave not spread as broadly as the Industrial Revolution did is theirsocial disruptiveness. Though it brought many social changes, theIndustrial Revolution was not fighting the principle that biggeris better. Quite the opposite: the two dovetailed beautifully.The new industrial companies adapted the customs of existing largeorganizations like the military and the civil service, and theresulting hybrid worked well. "Captains of industry" issued ordersto "armies of workers," and everyone knew what they were supposedto do.Startups seem to go more against the grain, socially. It's hardfor them to flourish in societies that value hierarchy and stability,just as it was hard for industrialization to flourish in societiesruled by people who stole at will from the merchant class. Butthere were already a handful of countries past that stage when theIndustrial Revolution happened. There do not seem to be that manyready this time.Notes[1]One of the bizarre consequences of this model was that the usualway to make more money was to become a manager. This is one of thethings startups fix.[2]There are a lot of reasons American car companies have beendoing so much worse than Japanese car companies, but at least oneof them is a cause for optimism: American graduates have moreoptions.[3]It's possible that companies will one day be able to grow bigin revenues without growing big in people, but we are not very faralong that trend yet.[4]Lecuyer, Christophe, Making Silicon Valley, MIT Press, 2006.Thanks to Trevor Blackwell, Paul Buchheit, Jessica Livingston,and Robert Morris for reading drafts of this.
