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Startups Are More Important Than You Think April 7, 2010

Posted by Peter Varhol in Strategy.
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It’s difficult to opine on technology without occasionally looking at some of the collateral issues in the field.  The ever-controversial Thomas Friedman this past weekend offered a spirited defense of the role of start-up companies in our economic world.  He starts with a fact that few people are aware of – that virtually all net job growth between 1980 and 2005 has come from companies less than five years old.

Yes, that’s right.  While there are older companies that are growing, there are also many that are shrinking (think GM, Lehman Brothers, and about a dozen other top-100 companies we can mention).  In fact, few of the Fortune 500 are adding net jobs of any significant number.

There are a number of implications to this revelation.  Friedman notes that jobs are created by start-ups, not by bailouts or by building more roads.  While he’s certainly right, such activities can be excused in a government that curries favor with voters, or has a more certain obligation to build and maintain the national infrastructure.  But neither bailouts nor building represent any part of the answer.

This also relates to a point I made in a previous post concerning the inclination of more mature companies to serve their existing customers, rather than innovate to attract new ones.

I can add one important thing to his observations.  For those seeking a job, it is best to go to where the jobs are – not to GE, IBM, or Bank of America – but to the countless small startup companies that no one has ever heard of.  And you can’t find them by scanning the Monster board or newspaper help wanted ads (most of which refer to online anyway).  You have to be much more active in a job search than ever.

Friedman recommends two things to improve our ability to create startup companies.  The first is an increased emphasis on education, though he doesn’t offer details.

Friedman also calls for immigration reform.  Now, that is a loaded phrase, and means different things to different people.  He calls for the ability for the US to more easily accept and retain non-US citizens who are educated and have shown the ability to produce in their fields, especially those who have demonstrated the ability to create jobs.

I agree wholeheartedly, and confess that I don’t have a lot of sympathy to those who say that we have to reserve jobs in America for Americans.  While the thought may offer visceral appeal, it suffers from a fatal flaw.  That flaw is the unspoken and underlying assumption that there are only a set number of jobs, and that for every one filled by an immigrant, there is one less for a US citizen.  That is wrong.

It’s true that the system in place also offers the opportunity for unscrupulous or desperate employers to drive down salaries by outsourcing or paying immigrants less than the market rate.  That’s wrong too, but the balance is somewhere between the two.

I have a soft spot for immigrants – my grandparents on both sides were among the second wave that came over from Central Europe in the early 1900s, and their names are recorded on Ellis Island.  The world today is very different from that one, where a strong back and willingness to work was an entry into the working classes of the day.

But the infusion of new attitudes, cultures, and abilities into our society remains just as important today.  By accepting the highly educated and entrepreneurs into the US society, we can have new ideas that create new jobs, rather than argue about the who gets the ones that exist right this minute.

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