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Startups Save The World
Many complex societal challenges can be solved by startups.
We’ve discussed how economic growth reduces poverty, and how startups disproportionately contribute to economic growth, but startups aren’t only helpful to the extent they impact economic growth. Startups also work on solving some of the hardest problems directly in ways that government and non-profits cannot.
Complex societal challenges fall into a couple of different buckets. There are existential risks. There are global endurable risks that might cause great destruction but can be recovered from (e.g. pandemics). And then there are persistent global problems like low growth, global poverty, and poor governance. Each one of these buckets is best addressed by startups.
There are ways to solve these problems that don’t involve startups, but when compared with startups, other ways of solving problems tend to be poor in quality, inefficient, take a long time to implement, or involve some form of coercion.
Startups are particularly good at solving complex social problems because they are small, new, growing fast, and well-governed. Being small gives a startup a unique advantage in changing direction. It is easier to realign a startup to a new tactic or strategy quickly. To quote Thiel:
“A new company’s most important strength is new thinking: even more important than nimbleness, small size affords space to think.”
Being small isn’t the only advantage startups have, however. Being new means that startups lack the ossified bureaucracy that slowly develops in larger, more established organizations, due to Pournelle’s Law:
“In any bureaucratic organization there will be two kinds of people":
First, there will be those devoted to the organization's goals. For example: Dedicated classroom teachers in an educational bureaucracy, many of the engineers and launch technicians and scientists at NASA, even some agricultural scientists, and advisors in the former Soviet Union collective farming administration.
Second, there will be those dedicated to the organization itself. For example: Many of the administrators in the education system, many professors of education, many teachers, union officials, much of the NASA headquarters staff, etc.
Pournelle’s Law states that in every case, the second group will gain and keep control of the organization. It will write the rules and control promotions within the organization.”
Over time, organizations drift from being mission-driven to being dedicated to the organization itself. Newness helps you optimize on the correct target: the mission.
Governance is the final area that gives startups an edge in solving societal problems. Startups are uniquely well suited to solving coordination problems. They are small and generally founder-run, which means that they have low communication costs, and they are not oligarchies, the governance type that slowly subsumes older organizations.
In addition to being uniquely suited to solving complex societal problems, startups cannot rely on tools that governments use to solve many of these challenges. Instead of coercing a consumer to do the right thing, startups are forced to provide an alternative that makes doing the right thing easy. Startup-driven solutions to global challenges often provide an option that makes the consumer and the world better off.
For example, we’ll look at startup solutions to several global problems: climate change, factory farming, and global poverty.
Take climate change. The traditional solution to climate change is to implement carbon taxes and agreements to limit carbon emissions. These fail because of collective action problems (carbon-emitting industries can just move to non-treaty-abiding countries).
The startup solution to climate change is Tesla. Tesla is effective in fighting climate change because it provides an alternative to greenhouse-gas-emitting vehicles that is a better product, thereby aligning consumer self-interest with a larger problem we need to collectively solve . No one has to sacrifice by driving a Tesla. In fact, a Tesla is a better car than its ICE counterparts.
Factory farming and the mistreatment of livestock is another complex problem that is best solved through startups. Traditional solutions to factory farming and the mistreatment of livestock are to convince everyone to be vegan or lobby the government for better treatment of animals. These solutions do not work because becoming vegan entails making personal sacrifices. In fact, 84% of vegans and vegetarians eventually lapse back into eating meat. You can no longer eat food you might enjoy, and your friends might judge your choices.
The startup solution to the mistreatment of livestock is Impossible burgers and cell-cultured meat. This startup solution works because they provide an equivalent (or better) alternative to traditional factory-farmed meat. People do not have to sacrifice by doing the right thing. In fact, they benefit from doing the right thing.
Global poverty is another area that is best solved through startups. Traditional solutions to global poverty traditionally involve sclerotic institutions like USAID and large cash transfers. These rarely go to the optimal place and are often hoovered up by corrupt governments. It’s difficult to calculate how much global aid money is lost to corruption, but estimates range from 5% to as high as 29%.
The startup solution to global poverty is fintech startups. Fintech startups such as Wave have the opportunity to increase the GDP of countries such as Senegal by several percentage points just by lowering transaction costs for remittances and money transfers. Migrant workers currently pay $30 billion in fees every year to send remittances back home. Additionally, over 1.7 billion people are unbanked in the world. Being unbanked can decrease the real wealth of the world’s poorest people by increasing the difficulty of accessing credit. Fintech startups like Nubank are giving bank account access to people across the developing world.
Throughout this post, we have demonstrated that growing the Startup Economy doesn’t just mean getting more economic growth. It means getting more solutions to the most pressing problems facing humanity because startups are the fastest, most efficient way to solve complex societal challenges that we have.
Thanks to Will and Sachin