Scott Adams Blog: The Economic Value of a Business Startup 07/14/2011

The Economic Value of a Business Startup

Jul 14, 2011 General Nonsense | Notify

A hundred years ago, if you had a good idea and you had good execution skills, your odds of making money were also good. It didn't matter that someone in another state had the same idea and the same skills. In those days, another state was like another planet.

Today, no matter how good your idea is, and no matter how well you can execute, there is probably someone who already filed a patent on some part of your idea, and someone with more resources who is already working on it. And thanks to the Internet, anyone can sell just about anything anywhere. And anyone can acquire through the Internet whatever skills and resources they need. So if your product is a hit today, it will be knocked off tomorrow.

Yeah, yeah, I know. You're going to mention Facebook and Twitter and a few hundred other startups that are big successes. There will always be exceptions. But in general, my hypothesis is that the incentive to start a business is plunging because the odds are shrinking that you'll come up with a novel idea that isn't patented and isn't being worked on by a dozen different startups right now.

You've seen on this blog that any idea I suggest is met with comments saying someone is already working on that very idea. And I get a lot of private email saying, "Damn you! You just described to the world the secret startup I'm working on."

On the plus side, getting a regular job at an existing company is no picnic either. People will always be attracted to start ups because of the glamor, the lifestyle, and the non-zero chance of being a Facebook-like success. The number of entrepreneurs might continue to climb while the potential payoff for each of them trends toward zero.

The good news is that capitalism is mostly fueled by failure. Most startups fail, but during the process of failing they provide jobs for a lot of people. And most established businesses will eventually fail too. The economy is almost entirely comprised of companies that will fail soon and companies that will fail later.

The other good news is that the global reach of the Internet means that your potential market is gigantic. On the risk-reward scale, an 80% chance of having a thousand customers isn't as good as a 5% chance of having millions of customers.

Given all of that, here's my question: Do you think the odds of success for the average startup (Internet or otherwise) are trending toward zero, staying about the same, or improving?

Votes: +35

Comments

plenipotentiary

Jul 19, 2011

Ha! I call out your implicit assumption that there is a finite amount of success (however defined) in the universe.
Hypothetically we could one day we will have a galactic economy spanning the Milky Way, there will be a software company in it so humongous and rich that Microsoft, Google, Facebook, Intel, IBM combined will look like a village basket weaving business by comparison. Your assumption automatically rules this unlikely and discounts it.

coffeeas

-2

Jul 18, 2011

our website:â˜†â˜†â˜† <a href=" www.betterwholesaler.us" > www.betterwholesaler.us </a>
â˜…â˜…â˜…

â˜†â˜†â˜†
watches price 75$
Air jordan(1-24)shoes $30
Nike shox(R4,NZ,OZ,TL1,TL2,TL3) $35
Hndbags(Coach lv fendi d&g) $35

Tshirts (Polo ,ed hardy,lacoste) $16
Jean(True Religion,ed hardy,coogi) $30
Sunglasses(Oakey,coach,gucci,Armaini) $15
New era cap $10
Bikini (Ed hardy,polo) $25
â˜…â˜…â˜… â˜†â˜†â˜† â˜…â˜…â˜… â˜†â˜†â˜†
FREE SHIPPING,accept paypal
free shipping
accept paypal credit card
lower price fast shippment with higher quality
BEST QUALITY GUARANTEE!!
SAFTY & HONESTY GUARANTEE!!
FAST & PROMPT DELIVERY GUARANTEE!!
â˜…â˜…â˜… â˜†â˜†â˜† â˜…â˜…â˜… â˜†â˜†â˜†

<a href=" www.betterwholesaler.us" > www.betterwholesaler.us </a>
â˜…â˜…â˜… ****

Drowlord

Jul 17, 2011

Websites rely on content. No set of features will adequately replace content. Facebook started as a Harvard-only website where Zuckerberg had taken the school "facebook" and manually loaded profiles for the entire harvard class. regardless of features, nobody would have given a crap about it, if it didn't have that content as a starting point.

Raymee

Jul 16, 2011

@cashstore

[Gone are the days when Bill Gates could revolutionize an industry by tinkering in his garage. Sure, it might happen, but you may as well buy a lottery ticket.

And when hardworking, college educated, and above average people like myself can't come up with a business idea that is worth taking the risk on ... come to your own conclusion.]

Dear cashstore,
Here is the conclusion:

When people such as yourself have no ideas, you either:

1. Buy into a franchise and declare yourself a mover n shaker OR

2. Remain an employee and go on vacation once a year

Creative people still live and are among the mere mortals. They have too many ideas, thus are starting a biz, then selling it to the uncreative as to move on to the next idea. We are always happy to give you a functioning biz for 200k and ta-da! You be a entrepreneur!

crogers23

Jul 15, 2011

>A hundred years ago, if you had a good idea and you had good execution skills, your odds of making money were also good.

The same is true today. You don't need patents to be a lawyer, doctor, plumber, or restauranteur. And it still doesn't matter if someone in another state is doing it.

shagbark

Jul 15, 2011

Re. cashflow's comments:

"Moreover, in the 19th century it was still possible to invent something with little more than a fundamental understanding of physics and chemistry - the lightbulb and steam engine come to mind. Anything that cannot be duplicated by $1 per hour wage monkeys in China requires a patent and to be on the cutting edge. Good luck with that."

The lightbulb and the steam engine both required many years of research, and a lot of research funding. The steam engine in particular was a venture capital success story that almost didn't happen because of the large amount of funding that was needed for many years.

SondraGail

-1

Jul 15, 2011

Well, there's an interesting point. On a blog comment list, about whether it is worthwhile to start a business, we find an insidious entrepreneur advertising without shame. I suppose if you are willing to be that person you might have a chance.

snowboarding

Jul 15, 2011

I always wonder how much $ the spammer guy is making. He must be doing OK as you still see all the ads for $15 Oakleys and $20 Air Jordans in this blog.

It is amazing that people would buy stuff from a site like that. The internet/email/blogs are inundated with similar dubious shopping sites - so it is amazing that one more person can start something like this (scam or not) and people will still click on it.

mikea105

Jul 15, 2011

Personally, I think the chance of individual entrepreneurs making any money on anything is pretty close to zero. Nowadays, we've got so many senseless patents and so many patent trolls that buy them up and instantly litigate on any pretext ("Hey, your idea uses metal -- and so does our patent!" ) that there's no point in trying to start up anything unless you've got a good legal staff and lots of money and time for litigation. Look at the crap going on with Android and Larry "Need MORE Money" Ellison claiming he should own it all. Or go back to the idiotic SCO and Linux situation where SCO actually sold "licenses" to something they didn't invent, but threatened to use the legal system to crush anyone who didn't pay. A little guy trying to start out doesn't have much of a chance these days.

And what do I mean by senseless patents? I mean basic ideas that Captain Obvious would come up with can get patented. For example, I, and many, many other programmers, "invented" date windowing to handle the Y2K issue. It's a pretty obvious solution to anyone who thinks like a programmer. And yet some a$$hat went out and got a patent on it and can sue anyone who used date windowing. I don't know that the holder of that particular patent has sued anyone, but they certainly could. And we've all seen enough stupid patent lawsuits to make anyone sick. And don't get me started on "business method" patents like "one click ordering"! Captain Obvious strikes again!

The legal system favors the ones with big money and nowadays the world pretty much belongs to them. The little guy doesn't have much chance. No matter what you invent, someone with a lot of money can easily misuse the legal system to crush you. Even if you would eventually "win" in court and get the right to use your own idea in business, you'll long since be totally bankrupt from legal fees -- unless you've got a large enough war chest that you could just retire and live on the beach, anyhow, in which case why don't you just do that and let someone else have all the problems?

uniquerob

Jul 15, 2011

I think you are missing a point here. Most entrepreneur's work in a narrow field. For example with facebook that was a field that included only people who are skilled at web development. Youtube was the same, any idiot could tell that getting video out on the web was going to be huge, but only a few had the skills to be able to bring that to reality.

As soon as you narrow the field like that you get to a situation where the number of people who can exectute the idea with any kind of skill is very limited. So sure, a person's odds of sucess with an idea in a very open field are limited and that makes coming up with any such idea a very rare event. However a person's chances of sucess in a field where you have a competetive advantage in skills are I would say very high (even if the idea is not that great).

Look at your own career. Your idea was to start a career as a comic book writer, a field in which only those with the skill and drive to push this out could suceed. I am not particularly talking about drawing skill here, but the skill in executing a good comic.

Ideas are nothing, execution is king.

callcopse

Jul 15, 2011

As many have pointed out it depends on your definition of success - many people are happy just to scratch out a decent living - roof over head, holiday every year, acceptable food, time to pursue interests - I say that because it describes me anyhow.

In terms of the entrepeneurial types I might say there seems a tendency to build a business to get to a level, flog it for a what you can get and retire - say $5 million or so. I think us in the West could do with more entrepeneurs of a long term mentality - to build a business of a truly world class that produces actual goods that will stand the test of time. Or is that just me and what I see?

hbmindia

Jul 15, 2011

The odds of success for an average startup are probably decreasing because the size and reach of businesses is increasing. Therefore a business has to compete and win against a lot more other businesses in order to be a success. Big money is required and one has to compete with businesses all over the globe.

However, the rewards, once having succeded are disproportionately high - simply because one can sell one's business on the stock exchange at 10-20 (and more) times annual profit - an avenue that was not available earlier. In the olden days, no individual businessman would pay the sort of multiples that can be got today, simply by flipping the company on the stock market.

HaraldB

Jul 15, 2011

My feeling is that because it's easier than before to start a business and it's becoming less embarrassing to fail at it, there are more failures.

But you don't need a novel idea to be successful at a business. You just need to package it well. For instance, if Facebook had been called Friendbook, it would have failed.

JoetheWebmaster

Jul 15, 2011

@TheShadowNose

No joke about the rust belt... I got the @#%^ out myself and went West.

JoetheWebmaster

Jul 15, 2011

On the web timing is everything... Why do we use Google today? It became synonymous with "search engine", because it gave people what they wanted when the masses were ready for it... Decent non-spammy search results. How do you think an awkward named search engine would do if it came out today? Even if it had a 10 million advertising budget and gave you best results in the galaxy. I'm betting not so good...

When I think of Facebook, all I can think of is AOL inverted. As for Facebook being worth "Billions"... I don't get it. Sure there are lots of eyes, however they are generally not generating income (on or for facebook, certainly not like any other billion dollar biz). Hmm I wonder who the private billion dollar investors are that have to gain with a beautiful profiling machine that is almost like peering into someone's (and ALL associates) life like it's the Truman show. You'd think the sensationalist fantasy movie would cover something so important. Zucker is pony show meant to sucker, lol.

signupforcamp

Jul 15, 2011

You had an earlier post that made the point that it's not the idea, it's the execution. I believe that is true. It really doesn't matter if many others are having the same idea - it all comes down to how well you do it.

Overall, I believe it's easier to have a medium to large start-up success than in earlier times, just because it is so much easier to target niche markets on a grand scale. True, many may share your ideas. But you just need your individual twist, and you can target the world.

However, especially since I'm a SF resident, I think it's brutal to start a local business. Regulation, zoning, real estate costs all make it hard to make a profitable, local business. When I was growing up, the McDonald's franchise owner was a wealthy man (relatively speaking). I can't believe that is the case today.

workerant

Jul 15, 2011

Here in the UK, we believe in making life very difficult for anyone to start a new business. We have draconian tax laws, the threat of being sued instantly if you breach any of the myriad of Health and Safety regs, so much government red tape that you are strangled the day you start and a thousand people all willing to put you down as a failure before you even get going. Add to this, we have no manufacturing base any more (Thatcher killed it off in her utter hatred of the unions) with the only money being made by corrupt banks and sleazy managers and you have a country sliding into debt. It is little wonder that our best brains are leaving.

Raskolnikov

Jul 14, 2011

Bob Cringely's blog has seemed sort of bitter lately, but he posted a relevant opinion yesterday:

"One question I am frequently asked because of my background is if this is a good time to be an entrepreneur â€” a good time to start a company? Understand people have been asking me this question for 30 years â€” a period of time that encompasses some major booms as well as two of our deepest recessions. And the funny thing is that my answer to this question never changes: it is always a great time to be an entrepreneur and start a business. And with the passage of time I tend to think it has only gotten better, even today."

www.cringely.com/2011/07/entrepreneurial-ocd

fledder

Jul 14, 2011

I think you are mostly right here. Its hyper competition on a scale and speed never seen before. It also increases the amount of opportunities, but few can leverage the capital it requires to scale up that quickly.

In addition, I think that consumers in developed countries, those with purchasing power, have little left to desire. At least that's my opinion. If I look at my house and belongings, there is absolutely nothing I can think of that I need or want. Sure, I need occassional replacements and upgrades, but basically, you can't sell me anything unless it is revolutionary. I find that with a materialistically complete life, I have new desires. More human ones. More quality time with friends and loved ones. Less work. Less distractions. Less worries. A simpler life.

Back on topic. Some markets in capitalism naturally lead to monopolies. On a global scale that can be scary. For example, Google's search alghoritms has the power to make or break a zillion companies. I just got into Google Plus. Its quite good. Yet, it integrates email, photos, docs, video, chat, voice, apps, games, you name it. Allmost everything you do on a computer. That's a whole lot of companies out of business who were competing on those services. Your business and your personal life, all in the hands of one, or two. Convenience, or scary?

Judge_Nerd

Jul 14, 2011

Your definition of success is too narrow. The fact that a business opens and closes in less than a decade is not failure. Making the desired impact on society and the marketplace, moving the needle technologically, developing a sufficient resume to land the dream job at a bigger concern or even being purchased by a larger concern are wins, not losses.

The market-based costs and barriers to entry are trending toward zero for more and more entrepreneurs.

The masses have always stared at the wrong asymptote for analyzing success, or perhaps more precisely, most non-entrepreneurs are looking at the startup success asymptote upside down. =D

Showing 1-20 of total 32 comments

Old Dilbert Blog

Share on Digg

Share on Reddit

Woh! What is this thing?!

Email link to a friend

Comments