Will Gen Y Entrepreneurship be a Disaster?

On October 19 Steve Tobak published a blog post on BNet “Why Gen Y Entrepreneurship Will Be a Disaster.” The post has attracted some attention and it raises some real questions. As one who has spent most of my life in start-up land, and who encourages young people to do the same, it made me stop and think a bit. Below I respond to each of Steve Tobak’s points, and end with some thoughts of my own.

Why Gen Y Entrepreneurship Will Be a Disaster (and my responses)

1. The question of necessity versus choice is actually an important one. If it’s necessity - bad economy, no capital, no jobs - then where’s all the capital going to come from to fund all these startups? And who’s got the cash to buy all the new products and services all these new entrepreneurs will be creating? That’s right, nobody.
   
   It is not just a ‘bad economy’ it is a changing economy and where there is change there is opportunity. The Japanese economy has been stagnant since their own asset bubble burst back in the early 1990s and the realities of shrinking population economics sunk in. Nevertheless, many of Japan’s 40 wealthiest people have made their fortunes in this period. People are not going to magically stop buying things, though the kinds of things they buy and how they buy them will change.  
   
   Start-ups do not always, or even usually, require large amounts of capital. Many can be, and are, bootstrapped, grown with sweat equity and through early revenues. And one of the best times to invest sweat equity is when you are young. Lean start-up is becoming a well understood methodology. It takes a lot less money to start many kinds of companies now than it did even five years ago.
   
   
2. If, on the other hand, Millennials are turning to entrepreneurship by choice, what impact will that loss of next generation executive talent and leadership have on corporate America? What impact will that have on a nation trying desperately to compete with China and India in a global economy? Not a good one, that’s for sure.
   
   Some people are suited to be entrepreneurs, others are not. I doubt this is a real problem. And if it is it just reinforces the failure of imagination and determination at large companies. It may well be young start-ups that bring manufacturing back local and who unlock the innovations and potential that we need to compete. Local Motors is an interesting example of this.
3. How about their careers? If you haven’t spent a lot of time with entrepreneurs who’ve spent their entire careers in startups, here’s a dose of reality. Sure, they’ve got great instincts for what their generation wants to see in a video game, but as for management acumen and business savvy, forget it. Where are they going to learn that stuff? Big company experience taught me everything I know about management and leadership.
   
   If “Big company experience taught me everything I know about management and leadership” it almost certainly did not teach you enough. The best career path is likely to move back and forth between larger organizations and smaller ones, between the public or non-profit sector and the private sector, between management, the professions and the skilled trades. As we live longer we will have more and more varied careers.
   
   
4. Sure, startups run by entrepreneurs can succeed, but an important ingredient has always been a rich pool of operating managers with big company experience to complement the entrepreneurs’ lack of management experience and business savvy. If that talent pool is dry or significantly reduced, that’s half the equation for successful ventures, gone with it.
   
   This is a good point, start-ups need to be able to draw from a diverse talent pool in order to grow. But does anyone really think large companies are going to disappear over night? There will be companies of many different scales for many years to come.
   
   
5. Besides the virtual world, Generation Y also has a passion for all things green and sustainable. How do you think that supply will fulfill the demands of a nation of wealthy baby boomers who could care less about video games and whether their cars are gas, electric, or nuclear, but are in desperate need of major advances in medical technology and health care? Not well. Looks like more importing technology and exporting jobs overseas.
   
   This is silly in several ways. I don’t know anyone who can speak for all or even most baby boomers. I know many, including myself (I am a grandfather) who are passionate about things virtual and sustainable. On his death bed my father was delighted to be able to connect to his grandchildren and his brothers on FaceBook. And many of my peers cycle commute, compost, buy electric or hybrid cars … building a green and sustainable economy is important to at least some of us baby boomers. And it is likely to be even more important to our children and grand children.
   
   In any case, there are start-ups in all sectors of the economy, including healthcare, and everyone from big pharma to the hospital chains have largely outsourced innovation to start-ups. We for sure need a lot more innovation in health care, but it is naïve to think that this is going to come from large companies. If you want innovations in healthcare services and treatments these are likely to come from start-ups.
   
   One of the most interesting start-ups at the October 2011 Vancouver Angel Forum was Aeos Biomedial. A company with an intriguing concept for surgical tape started by a commerce student and engineering student when they were in 4th year at Simon Frase University in British Columbia. They got some of their early financing from doctors.
6. What we really need to do to get the economy growing again is to figure out how to bring manufacturing jobs back to America. Instead we’ll have a workforce that, having been denied those types of jobs, gave up and went their own way. Unfortunately, internet and green businesses only exacerbate our shift to becoming a service nation that outsources all its manufacturing jobs.
   
   It is not start-ups or the Millennials that abandoned US manufacturing. There is a crisis in American manufacturing and the loss of basic skills is a serious thing. But I doubt that corporate America is going to do much to change this. At one level we need to reinvent apprenticeship and trades programs and encourage our children to consider the skilled trades as professions that are as valued as management. We need to learn to think with our bodies and hands and not just our keyboards and calculators.
   
   One of the most exciting areas for start-ups is new models of local manufacturing. See Local Motors (mentioned above) or the coming explosion in 3D printing technologies. Over the next twenty years we are likely to see a renaissance in US manufacturing using new technologies of just-in-time manufacture, user-generated design, and cradle-t-cradle design. I am looking for investments in this area and expect to have at least one company of my own. It may be that we end up thanking China for helping us to get rid of our antiquated plant and equipment and opening the way for the next stage of growth.
7. While small businesses are nearly half the U.S. economy, the vast majority are boring old mom and pop businesses like auto repair shops, gas stations, cleaners, and fast-food franchises. I could be wrong, but how’s that unglamorous, hard working, long hours kind of lifestyle going to play out with folks who grew up dreaming about designing video games and futuristic cars that can drive themselves?
   
   Pretty well I would guess. People at start-ups learn to work long hours, be self sufficient and self directed, to solve problems and to deal with people. The underlying assumption that Millenials are only interested in on-line games is questionable. And many of the Mom-and-Pop business of the near future will weave in sustainable technologies and blend the virtual with bricks and mortar.
8. Startups are indeed the flywheel of corporate America, but for every Google, Facebook, and Twitter, there are hundreds of banking, transport, and consumer goods companies. Who’s going to create, manage, and grow the next Walmart, Starbucks,GE, Boeing, FedEx, Southwest Airlines, or Procter & Gamble?
   
   At least some large companies like to hire people with start-up experience. Why? People at start-ups learn to work long hours, be self sufficient and self directed, to solve problems and to deal with people. Moving from a start-up to a large company (if one is lucky through an acquisition) and after gaining experience moving back to a new start-up is a very credible career path.
9. The virtual world is one of empowerment and entitlement. Everybody’s got a voice, everybody’s got a platform, and everybody’s a “CEO of one.” Well, like it or not, corporate America was built on a foundation of organizational structure, work ethic, and discipline. Sure, flatter organizations where decision-making is in the hands of those closest to the problems and the data are more effective, but only to a point. I’ve written about what a democratic workplace might be like. It isn’t pretty.
   
   Well, this will be interesting to watch. But given the management failures at so many big companies maybe this command and control structure is not all it is cracked up to be. The era of “the visible hand” may have be past its prime. In any case, as we learned from Ronald Coase’s work the reason we have companies at all is because of transaction costs. As new communication technologies change transaction costs we can expect both the internal structure of organizations and the size distribution of companies to change, sometimes radically. None of us know how this will play out, but we can all place our bets by making investments.
10. Finally, my biggest concern: Gen Y entrepreneurship will fuel the mother of all Internet and green tech bubbles. And when those bubbles slam into that brick wall of Baby Boomers who want no part of it, they’ll burst like never before. And when that happens, we’ll look back at our current sluggish economy, high unemployment, and Occupy Wall Street protests, and realize that was just the tip of the iceberg.
    
    Who are these “Baby Boomers that want no part of it”? There are a lot of different people in the Boomer generation, lots of different points of view, different lifestyles and beliefs. In any case, “bubbles” may well be an important part of the economic cycle, one in which many different options and innovations are created and explored, only to be culled when the bubble bursts (in an economic analog to punctuated equilibrium). Bubbles drive large waves of investment and can leave us with important infrastructure. The uses of this infrastructure may be completely different from what the inventors imagined, and the economic advantage may flow to people other than the investors – ah the beauty of ‘creative destruction. The world’s wealthy cultures are entering a phase shift, one driven by shrinking population economics (see ‘demographic trends’), global competition for resources, the threat of resource depletion, and the general failure of old models. An innovative bubble followed by a deep retrenchment may well be coming. We will see (if we live long enough) if this is a good or a bad thing. I am an optimist.

So, I will continue to encourage young people to get involved in start-ups. I will support them and invest in them when I can.

Comments

[Jenny Uechi]

Thanks for this post, Steve. I read it, read the piece by Steve Tobak, and was struck by the culture gap between the two. It's irking to see someone make breathtaking assumptions about Gen Y (a very diverse group depending on background), and even more worrisome when someone assumes the baby boomer generation to be composed of selfish consumers who couldn't care less about sustainability or virtual products ("video games", as he belittlingly calls it). Obviously people like you and many more are passionately interested in keeping the earth for more than one generation of one living species (humans).
Very good rebuttal. Consumption DOESN'T mean buying more cars and plastic gadgets headed for the dump. The economy won't tank if people stop buying/producing physical products. Wal-Mart/Starbucks aren't companies to be held up as paragons for the next generation to emulate. Our planet can't sustain it.

[Grayspective]

Really enjoyed your rebuttal. Great take, and great job blowing up some brutal generalizations put forward by Tobak!

[jeh]

This debate has nothing to do with Gen Y. It is just another manifestaion of the age old contention between creator & preserver, innovation & status quo, royalist & republican.

While is certainly value in Tobak's general instinct for a prudent throttling back of very rapid change, I think he misses the point.

The exponential growth of technology cannot/must not be slowed/stopped in general, only becuase of some fuzzy notion of inherent risks. And certainly the attempt to preserve the economic status quo is shortsighted.

Where Tobak's conservative instincts would be more productively directed is in critically examining the moral & ethical impact of exponentiating technology development.

But he does not appear to have an appetite for that and so I dont find his take either useful or interesting.

[StevenForth]

Thanks for the feedback. I believe we are entering a major cultural inflection point and that we are going to need to question many of our deepest assumptions. That is hard to do, and we all need to keep looking hard at ourselves and questioning each other.

[thealzel]

Excellent rebuttal. Shifts happen continuously - demographic, technological, cultural - and with it, continual societal changes. What is happening now is no different than the shifts that accompanied the Industrial Revolution - or for that matter, when humans harnessed the power of fire. Rather than bemoan the "demise" of the current economy, you are absolutely correct to point out that people who seek out the opportunities in a "changing economy" will profit from it. Never underestimate the ingenuity of our species.