The role of startups in the economy
Why disruption is healthy for the marketplace
It’s well known that startups contribute directly to job creation and economic diversity at a rate superior to mature businesses. As pointed out by the Kauffmann Foundation: “Without startups, there would be no net job growth in the U.S.” However, what may not be so commonly known is the role of startups in the healthy overall functioning of an economy.
As technologies create new opportunities, startups take advantage of these opportunities, creating massive value over mature businesses. This is what generates the ‘disruption’ we hear about, and ensures the economy evolves along with the opportunities technology affords. Such progress generates a massive competitive advantage over those businesses that are slower to identify and take advantage of opportunities to create greater value.
Often, young businesses not only piggy-back on new technologies, but develop new innovations themselves to generate create value, solve problems and increase efficiencies. An example is the infinite number of apps now available. How many apps do you use? All of these services and the platforms they are hosted upon (Apple, Microsoft, Android) are/were recent startups. The phone you use, the computer you work on, the gadgets in your car; brought to you by successful, new businesses.
Large companies enjoy many strengths that often emerge from their market dominance. But they are renown for being slow-changing when faced with evolving consumer needs. Conversely, upstarts can quickly and effectively probe consumer needs and optimize their products to satisfy those needs. Their success is founded in a very dynamic, upward feedback value-creation loop.
There are those who bemoan the “disruptive” aspect of startups but, as the Heritage Foundation emphasizes, “Startups are a critical component of the experimentation process that contributes to restructuring and growth in the U.S. on an ongoing basis.” ‘Restructuring’ is really just a nicer way of saying ‘disruption,’ and this core role must be understood in its greater context of maintaining an economy’s competitive advantage.
As an example, in the early 20th century, automobiles were disrupting the antiquated transportation system preceding it. This resulted in a harsh blow to the horse-whip, saddle, and carriage manufacturing and distribution network, suppliers, workers, etc…. Despite the hardships that resulted in those industries, can anyone argue this was not a positive disruption? Positve change can only happen if the new system is providing greater value than the old.
So, shall your next Uber pick you up by horse and buggy?
Our history is one of economic evolution and progression that almost exclusively happens as the result of new companies providing a better product and/or service than existing companies that were too slow to respond to the needs of consumers. This is the process that has generated the unprecedented material and economic wealth we enjoy today.
Because startups are more nimble, they provide economic flexibility and dynamism necessary for a thriving and responsive economy. By constantly measuring, tracking and responding to consumer needs in a way with which entrenched companies have historically struggled, startups inject the competitive forces that guarantees a highly-successful economy.
Michelle is a startup facilitator, having worked with Colorado startups and entrepreneurs for the past 10 years. She has been volunteering with Peak Startup since she moved to Colorado Springs in 2013, served as the program coordinator in 2015, and became a Board member in 2016. Prior to moving to Colorado Springs, Parvinrough was involved in the Denver startup ecosystem while managing the Bard Center for Entrepreneurship (now Jake Jabs Center) at CU Denver. Her passion is in facilitating betterment in people, in society, and in life.
As an associate with Summit Economics focused on energy and environmental economics, Doedderlein brings more than 20 years of energy industry and sustainability experience, including financial modeling, financial forecasting, research and analysis. He received an engineering education through the Naval Nuclear Power program, an undergraduate degree in Political Science from the University of Massachusetts – Boston, and an MBA from the University of Colorado-Denver with an emphasis on finance.