Tech startups A Cambrian moment

This digital feeding frenzy has given rise to a global movement.

• Most big cities, from Berlin and London to Singapore and Amman, now have a sizeable start-up colony (“ecosystem”).

• All these ecosystems are highly interconnected, which explains why internet entrepreneurs are a global crowd. Like medieval journeymen, they travel from city to city, laptop not hammer in hand. “Anyone who writes code can become an entrepreneur—anywhere in the world,” says Simon Levene, a venture capitalist in London.

Here we go again, you may think: yet another dotcom bubble that is bound to pop.

But this time is also different, in an important way. Today’s entrepreneurial boom is based on more solid foundations than the 1990s internet bubble, which makes it more likely to continue for the foreseeable future.

• One explanation for the Cambrian explosion of 540m years ago is that at that time the basic building blocks of life had just been perfected, allowing more complex organisms to be assembled more rapidly.

• Similarly, the basic building blocks for digital services and products—the “technologies of startup production”, in the words of Josh Lerner of Harvard Business School—have become so evolved, cheap and ubiquitous that they can be easily combined and recombined.

Some of these building blocks are

• snippets of code that can be copied free from the internet, along with easy-to-learn programming frameworks

• Others are services for finding developers (eLance, oDesk), sharing code (GitHub) and testing usability (UserTesting.com).

• Yet others are “application programming interfaces” (APIs), digital plugs that are multiplying rapidly. They allow one service to use another, for instance voice calls (Twilio), maps (Google) and payments (PayPal).

• The most important are “platforms”—services that can host startups’ offerings (Amazon’s cloud computing), distribute them (Apple’s App Store) and market them (Facebook, Twitter).

• And then there is the internet, the mother of all platforms, which is now fast, universal and wireless.

Startups are best thought of as experiments on top of such platforms, testing what can be automated in business and other walks of life. Some will work out, many will not.

Hal Varian, Google’s chief economist, calls this “combinatorial innovation”.

In a way, these startups are doing what humans have always done: apply known techniques to new problems.

Technology has fueled the entrepreneurial explosion in other ways, too.

• Thanks to the web, information about how to do a startup has become more accessible and more uniform.

• Global standards are emerging for all things startup, from programming tools to term sheets for investments, dress code and vocabulary, making it easy for entrepreneurs and developers to move around the world.

Invent yourself a job

Economic and social shifts have provided added momentum for startups.

• The prolonged economic crisis that began in 2008 has caused many millennials—people born since the early 1980s—to abandon hope of finding a conventional job, so it makes sense for them to strike out on their own or join a startup.

• A lot of millennials are not particularly keen on getting a “real” job anyway. According to a recent survey of 12,000 people aged between 18 and 30 in 27 countries, more than two-thirds see opportunities in becoming an entrepreneur. That signals a cultural shift.

Lastly, start-ups are a big part of a new movement back to the city.

• Young people increasingly turn away from suburbia and move to hip urban districts, which become breeding grounds for new firms.

• Even Silicon Valley’s centre of gravity is no longer along Highway 101 but in San Francisco south of Market Street.

In essence, software (which is at the heart of these startups) is eating away at the structures established in the analogue age.

• LinkedIn, a social network, for instance, has fundamentally changed the recruitment business.

• Airbnb, a website on which private owners offer rooms and flats for short-term rent, is disrupting the hotel industry.

• And Uber, a service that connects would-be passengers with drivers, is doing the same for the taxi business.

So instead of outlining what these start-ups do, this special report will

• explain how they operate,

• how they are nurtured in accelerators and other such organisations,

• how they are financed and

• how they collaborate with others.

It is a story of technological change creating a set of new institutions which governments around the world are increasingly supporting.

More ominously, start-ups may destroy more jobs than they create, at least in the shorter term.

Yet this report will argue that the world of start-ups today offers a preview of how large swathes of the economy will be organised tomorrow. The prevailing model will be platforms with small, innovative firms operating on top of them.

Read the whole review of the Special Report at The Economist

Read the Special Report at the Economist:

Testing, testing

From leafy to lofty

Getting up to speed

Rocket machine

All together now

Founder’s blues

Hacking Shenzhen

Something to stand on

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