Removing Bottlenecks to Starting Companies
In a previous post, we discussed why growing the startup economy is a key point of leverage in promoting economic growth and human progress, and why increasing the global supply of builders is so critical to making that happen.
The truth is that, while we have more founders building quality companies than ever before, we need more. This constraint is one of the biggest things holding back the growth of the global startup economy.
How can we tell we need more startups? One indication is the continuing rise in early-stage startup valuations, which suggests that too much money is chasing too few startups. Typically high prices signifies a scarcity of something. When oil prices are high that means there’s a scarcity for oil.
The good news is that there is nothing inevitable about this supply constraint: we have lots of talented people who aren’t founding startups, but could be. (And also, to be sure, lots of talented founders who just haven’t found the right idea, right co-founder, or right investor yet.)
Many of the most talented and ambitious people in the global economy are currently trapped working on suboptimal problems. For example:
The best scientific minds are stuck in academia. Instead of optimizing for breakthrough solutions to problems like climate change and the real-world impact they could have, they are toiling away optimizing for citation count on papers that only other academics will read.
The best operators are stuck in large consulting firms like McKinsey. Instead of contributing value to deep tech companies, as (like General Groves at the Manhattan Project), the best operators are building market segmentation powerpoints to help sell more soda. For instance, fully a third of Yale’s class of 2019 went into either consulting or finance.
The best engineers are stuck at FAANG. Instead of building the next generation of software, talented engineers are being monopolized by big tech companies where they are shackled by golden handcuffs and the allure of “work/life balance.”
This state of affairs is far more costly to the world than most people appreciate.
It matters what the most ambitious people do with their lives. Humans are good at solving problems they pay attention to, but their attention is limited. Talented and ambitious people are likewise a finite resource, so it matters what they choose to do with their time and attention.
Therefore, it’s essential that talented people go out and build things that can contribute lasting value and allow them to fulfill their highest potential, rather than default into high-status jobs like consulting or banking. We need to make it so that fewer talented people feel compelled to compromise on long-term value and career fulfillment for the sake of stability, legible status, and comfort.
Right now, many of the people who might be best suited to solve the most pressing challenges in the world are working on problems that don’t matter because of poor incentives, lack of knowledge, and lack of slack.
The good news is that there are thousands of potential founders sitting on the sidelines, whose entry into the startup ecosystem could change the trajectory of growth for the global economy. All we need to do is remove the bottlenecks that are preventing them from entering the arena.
I think there are six big ways we can remove bottlenecks and encourage more talented people to become founders.
First, we can make it easier for founders to find an idea, a co-founder, and a community. This can be done by:
Helping founders understand how to find a co-founder by giving them the best practices to find a successful match and introducing them to a network of potential co-founders.
Giving founders easy access to hireable talent and a like-minded community of peers to provide them with belonging, support, feedback, and shared knowledge from other members.
Second, we can teach founders the “rules of the game” by giving them:
The best practices around fundraising and how to raise capital, including how much to raise, when to raise, and who to raise from.
A legible signal of founder quality (membership in a curated fellowship or community, for example) and demo days or events that bring investors to founders.
A playbook for finding your first ten customers which teaches founders how to sell and interview users, while also giving them intros to potential customers.
A playbook for hiring your first ten employees which teaches founders how to find and source talent, while also introducing them to a network of potential early hires.
Third, we can remove a huge bottleneck by helping founders solve immigration challenges, including helping make it easy for interested founders to immigrate to the United States (or wherever else they choose). This could be done by sponsoring an immigrant petition on their behalf, securing a visa, helping with Green Card applications, and giving founders the information they need about their visa options.
Fourth, we need to give people a “hero license” to go and do something extraordinary. Most people don’t accomplish great things because they don’t try to accomplish great things. They don’t try because they don’t think of themselves as the kind of person who could accomplish great things. Reframing this mindset is critical to get people to prioritize opportunity over safety. Raising other’s aspirations, as they say.
Fifth, we can reduce the cultural friction of becoming a founder by making the act of starting a company the default path for ambitious people around the world—or at least the default eventual path—joining a startup is great training for this! This could help get potential international founders off the sidelines, where starting a startup is not as well known or culturally acceptable as it might be in the United States. For example:
In Singapore, ambitious people tend to go into the Civil Service. Ever since Singapore's meteoric rise and development driven by Lee Kuan Yew, this has become the legible career path for the smartest and most ambitious young people. If you asked parents what they wanted their kids to do when they grew up, they would tell you that they would want them to join the government.
In China, ambitious people join the CCP. Due to the structure of Chinese society (one-party rule) power — and therefore prestige — has accumulated in the CCP. Therefore, ambitious and talented people in China join the party to get ahead.
In the UK, ambitious people go into banking. London, the UK’s biggest city, is ruled by high finance and banking, which is the highest prestige job. As a result, this is where the most talented and ambitious people go when they graduate from Oxford or Cambridge.
Sixth, and finally, we can reduce the risk of becoming a founder by making median founder outcomes closer to average, while removing economic friction by mitigating the downside risk of becoming a founder.
This can be done by providing runway funding to founders to cover living expenses and encourage people to leave their jobs, which might otherwise feel like a leap without any kind of safety net. We do this at On Deck with our ODF advance program, which gives potential founders up to $25,000 from the On Deck Access Initiative to quit their job and explore starting a company.
Additionally, founder pooling or diversification can help improve median outcomes. Startup outcomes are distributed in a power law, meaning that the majority of value accrues to the top and the winners take most, while risk is evenly distributed. The biggest startups will be much bigger than their next biggest cohort mates. Founder pooling and diversification can give founders VC-like expected returns and help founders reach the efficient frontier.
Lastly, Healthcare for founders and their families is a huge stumbling block. Healthcare costs have ballooned, so the potential downside for not having health insurance can be a huge obstacle to starting a company. Providing subsidized or free health insurance can give founders the slack they need to start. Childcare, too!
Ultimately, removing all these six major bottlenecks can have a huge impact on increasing the global supply of founders, but they will be most effective if and only if we increase the cultural awareness of the value of becoming a founder.
We all have a finite amount of time in our careers. For those of us that want to maximize the amount of impact we have on the world with our time, joining or starting a high impact company ought to be the most appealing option for more people because of how much leverage it provides for the time invested.
Life is short, and you have one shot to do as much good as you can. Staying on the default path might seem like it’s low risk on the surface: your peers won’t laugh at you, everyone will nod their heads in recognition when you explain what you do at a party.
Becoming an entrepreneur can be made easier and less risky, but the act of entrepreneurship will always involve some degree of risk and challenge. To frame this reality in its proper light, we need to remind potential founders that real risk is that, if your goal is to be a founder, you want to get enough shots on goal to have a chance.
Thanks to Will and Sachin for co-writing