Another Buzzword Bites the Dust

August 8, 2014 1:55 PM

FiveThirtyEight's Ben Casselman has crunched the economic numbers and determined: Corporate America Has NOT Been Disrupted. "By a wide range of measures, the advantages of incumbency in corporate America have never been greater." There are fewer startups hiring fewer people and failing more often. Considering that "entrepreneurship is a critical source of jobs in the economy (and) a major driver of productivity growth", a more accurate 'd-word' may be Derangement.
posted by oneswellfoop (27 comments total)

Related: The Disruption Machine - What the gospel of innovation gets wrong.
posted by PenDevil at 2:05 PM on August 8, 2014 [8 favorites]

No shit Sherlock. Was this really even a belief?

Look at Microsoft. Look at IGT. Look at GM. Are you really going to tell me that these companies' continued existence is due to anything but incumbency?
posted by PMdixon at 2:15 PM on August 8, 2014

Sounds about right.
posted by edheil at 2:18 PM on August 8, 2014

Startup myths:

The answer, of course, is that the number of people setting up companies has nothing to do with the creation of innovative high-growth firms. Increasing the former doesn’t make the latter any more likely...

The typical entrepreneur is more like someone who starts from an underprivileged position (people with good jobs are less likely to start firms), uses his/her savings to start a low-productivity firm (e.g., a fish-and-chip shop), in an established highly competitive market (e.g., a town with two fish-and-chip shops, but a market that can only support one). As a result, if they are still around in 2 years, which is unlikely, it is only because they have displaced a similar marginal firm. Such firms create a lot of jobs, but also destroy a lot of jobs, and while their owners are happier, they have a fairly marginal impact on the economy.

Most contribute very little to economic growth, simply creating churn by putting other firms out of business before going out of business themselves.

posted by TheophileEscargot at 2:35 PM on August 8, 2014 [13 favorites]

Related: The Disruption Machine - What the gospel of innovation gets wrong.

Jill Lepore is a national treasure--and that's a really interesting read; and given that she's not usually a mean writer, a pretty vicious evisceration of Clayton M. Christensen's scholarship.
posted by yoink at 2:39 PM on August 8, 2014 [3 favorites]

But, but, liberty! Freedom! Meritocracy!
posted by wuwei at 2:45 PM on August 8, 2014 [4 favorites]

The typical entrepreneur is more like someone who starts from an underprivileged position (people with good jobs are less likely to start firms), uses his/her savings to start a low-productivity firm (e.g., a fish-and-chip shop), in an established highly competitive market (e.g., a town with two fish-and-chip shops, but a market that can only support one).

I didn't see in the linked paper any discussion of why they tend to be in "established highly competitive market[s]" - did I miss one? Or is just tautalogous from "highly competitive"?
posted by PMdixon at 2:48 PM on August 8, 2014

While I agree with the underlying premise, the analysis is pretty crap.

I was expecting something more interesting and I don't think this does what he thinks it does.
posted by JPD at 2:49 PM on August 8, 2014

The sad thing is, if you tell others that you have no interest at all in owning your own business, you quite often get the sort of disbelieving stares and responses as if you had told them you find infants quite delicious, so strong is this bullshit "entrepreneur" culture we live in. And it's damned pervasive. It's even trickled into discussions about unemployment, where many of our leaders genuinely believe that many of the unemployed merely need to hang their shingle out and start their own business. That good old American self-reliance, y'know.
posted by Thorzdad at 3:02 PM on August 8, 2014 [28 favorites]

And what business are doing the disrupting and which are disrupted? Well, Amazon disrupted the small bookstores, Starbucks disrupted the local the local coffee houses and Walmart disrupted damn near everything else smaller than it. Which returns to my concept that "trickle down" is a Big Lie until you realize it's the billionaires and megacorps that are really at the bottom of the flow.
posted by oneswellfoop at 3:15 PM on August 8, 2014 [13 favorites]

JPD: What do you think would do what he thinks the article does? (What else would you like to see in the analysis? Just curious.)

Thorzdad: I would say the own-your-own-business thing has less to do with starry-eyed entrepreneurship worshippers and more to do with people hating their job and boss. (and also less people actually owning their own business so they don't really get how much it can suck)

Disruption can mean a lot of different things to different people. For starters, there's no inherent incompatibility between disruption and consolidation. E.g. one corporation taking over the whole economy is incredibly disruptive. We can define disruption as firm births and deaths, but that's only a proxy.

When we talk about disruption we may be talking about:
-firm churn
-the impartial way that demanders select suppliers using different technologies
-new technologies replacing old technologies
-incumbent powers being replaced by new ones

Big questions:
-How is technology shaping churn, consolidation, and market power?
-Where are the rents and are they functioning in a way that distributes wealth and power in a way we are happy with?
posted by ropeladder at 3:32 PM on August 8, 2014 [2 favorites]

Whenever I hear startup acolytes preaching about 'disruption', I keep thinking of the Bowel Disruptor Gun.
posted by benzenedream at 4:13 PM on August 8, 2014 [2 favorites]

I don't know specifically what I would have wanted to see.

Things like aggregate return on capital for companies more than ten years old over time. Perhaps specifically in Tech and Telecom.
Employment in tech businesses less than ten years old
Startups broken out with more granularity by type
Some particular analysis of startups taking in third party capital (I suspect this is really the universe you want to attack)
Maybe a look at VC investors - returns, prices paid, capital invested (As opposed to raised)
Marketshare changes in areas that have been "disrupted" like TMT.



I think your four bullets are pretty solid. There could be more. Frankly - I'm not writing the piece so I've not spent time thinking about what work I would do were I trying to do that analysis.
posted by JPD at 4:49 PM on August 8, 2014

a pretty vicious evisceration of Clayton M. Christensen's scholarship.

Which made him very sad and super condescending.
posted by Horace Rumpole at 4:49 PM on August 8, 2014 [3 favorites]

The more pessimistic explanation is that government regulation or some other structural shift has made it harder for upstarts to take on established companies.

Seems to be the consensus.
posted by IndigoJones at 4:57 PM on August 8, 2014 [1 favorite]

Yeah, I think that's generally true, though not in the sense it's usually deployed in (GOP cudgel). Regulations generally have the effect of increasing the barriers to entry in a given industry, e.g. you can't just put whatever you want into jars and sell it as a cure for cancer, but a lot of those regulations protect the public from dealing with the externalized costs of the business. However, the effect of deregulation on many industries has been rampant consolidation, which also increases the barriers to entry. There's this mythical notion that an unregulated market defaults to competition, but it's just not borne out by any reasonable view of history.
posted by klangklangston at 5:09 PM on August 8, 2014 [6 favorites]

Exactly. A lot of those regulations are explicitly designed to prevent established businesses from unfairly wielding the power of their incumbent advantage to keep other competitors out of the markets (that is, the rules may actually be anticompetitive from a certain standpoint, as their effect is to protect weaker competitors from the market making power of established competitors). Competition only eliminates competitors from the field. That's it's only consistent function.
posted by saulgoodman at 5:22 PM on August 8, 2014 [1 favorite]

Maybe the greatest "barrier to entry" for all Entrepreneurship is the Benefits (physical and psychological) to having a job working for somebody else, with most of the physical bennies being Government Mandated. Quit your job, hire one or more employees and BANG, you're feeling the opposite effect, and usually without an HR department to help. But of all the places I've worked, it's the smallest, the 'family-owned' ones where I've been gladdest that the "damned regulations" the bosses complained about were there to protect me.
posted by oneswellfoop at 5:35 PM on August 8, 2014 [4 favorites]

The more benign explanation [for the decline in entrepreneurship] is that something, perhaps improved technology, has made it easier for companies to become more efficient on their own.

The more pessimistic explanation is that government regulation or some other structural shift has made it harder for upstarts to take on established companies.

Or perhaps an explanation is that the largest economic slowdown since the great depression coupled with increasing inequality and the erosion of the social safety-net in general has made people less comfortable with assuming the risk that comes along with starting a business.

I wonder if the studies authors took that into consideration?

It's almost as if technology / regulations are the foregone conclusions to most exploratory economic papers these days. I find it hard to believe that our recession, stagnant wages and general political climate have nothing to do with this...
posted by jnnla at 6:02 PM on August 8, 2014 [2 favorites]

The national worship of startup culture has not been kind to (gender, race, lgbt) equality, either, as so many FPPs here have noted. It's put the golf-course, strip-club bro boyz on a pedestal, and that is certainly a step backwards.
posted by Dashy at 7:18 PM on August 8, 2014

There's this mythical notion that an unregulated market defaults to competition, but it's just not borne out by any reasonable view of history.


Reality: an unregulated market defaults to corruption.
posted by TheWhiteSkull at 8:08 PM on August 8, 2014 [3 favorites]

Of course, a regulated market also defaults to corruption, but it's more centralized corruption... easier to manage but with not nearly the potential upside.
posted by oneswellfoop at 9:18 PM on August 8, 2014

How can there be disruption when the US government, time and again, has bailed out banks, car manufacturers, and more--signaling a knee-jerk Pavlovian belief that big companies deserve to survive because they are big?
posted by gsh at 6:22 AM on August 9, 2014

How can there be disruption when the US government, time and again, has bailed out banks, car manufacturers, and more--signaling a knee-jerk Pavlovian belief that big companies deserve to survive because they are big?

Possibly because the public is less enamored of what "disruption" actually means in real life than tech evagengelists are.

Wiping out GM and Chrysler wouldn't have resulted in any better outcome.
posted by deanc at 9:03 AM on August 9, 2014

The term "disruption" really needs to go. Jill Lepore's best points are about the startups that misuse the term. Even Christensen doesn't like the word.

But the original theory and later refinements of it are probably mostly right. It is really the only theory that best describes what we are seeing in two huge and hugely important industries: education and healthcare (despite Lepore's odd denial that these are indeed industries as well as fields/professions).

Both are bloated, with costs and prices that have outpaced the value they deliver to people. That's really the crux of the theory. The other part is some mechanism for offering people "lower quality" services/products at lower prices. The trick is that they have to only be "lower quality" in terms of things that people have stopped caring about.

So, in healthcare, that means more procedures performed by nurses and physicians assistants. Or more procedures performed by GPs rather than specialists. Or when Eli Lilly spent $1B developing 100% pure insulin, something that 99% of patients didn't need and wouldn't pay for.

In higher education, tuition goes to paying for things that have very little to do with education -- expensive athletic facilities, highly paid and numerous administrators (and athletic personnel), tenured professors who don't teach many classes, etc. These are things that fewer students are willing to pay for.

This stuff is pretty simple and straightforward, it's almost just economic common sense. Really nothing like what the popular understanding of the word disruption has come to be.
posted by AceRock at 11:17 AM on August 9, 2014 [1 favorite]

But the original theory and later refinements of it are probably mostly right

Except that Lepore shows, pretty much step by step, that the "original theory" was based on utterly tendentious and often flagrantly mistaken reading of the evidence.

And your two examples of healthcare and education aren't describing "what we're seeing" in those fields--they're descriptions of things you hope to see. What we don't know yet is whether those changes will, in fact, be widespread but more importantly we don't know who will lead those changes and profit from them. The theory of disruption isn't the theory that "industries change." Of course they do. That's a self-evident fact that anybody could have told you in 1850. It's a theory about industry leaders becoming ossified and incapable of perceiving the need for change and clinging desperately to the 'old way' of doing things while new, nimbler "disruptive" players come into the field and overthrow the old players. Right now, it's not at all clear that that is what will happen in the medical field or in education. Both will undoubtedly change, but I see no particular reason, as yet, to suspect that the current industry leaders in those fields won't continue to be industry leaders going into the future.
posted by yoink at 12:02 PM on August 9, 2014 [1 favorite]

I was under the impression that the disruption was happening more at a worker level than at the corporate level. Most of the exit plans for these 'disrupting' companies seems to be to either get acquired by or replace the existing corporate actors. It's not 'disruption', it's barely a recasting of existing roles. At the corporate level. Down at the employee and customer level, well, there's a lot of 'disruption', but it's not necessarily a good thing.
posted by rmd1023 at 5:31 AM on August 10, 2014 [1 favorite]