Startup Science: Foundations for Succeeding in the Innovation Economy
Brief Contextual Table Setting for the Book:
A healthy world requires a healthy global economy with sustainable and continuous economic growth. If the total economic pie of the world is not expanding, but instead stagnant or shrinking then the laws of zero-sum games come into effect and the result is roughly a Hobbesian world that is short, nasty and brutish. It is the potential of growth that opens up co-operation, happiness and prosperity. The dawn of the Industrial Revolution in mid-18th century brought us the greatest growth engine the world has ever seen. And that engine has been chugging away for more than 200 years now, enabling the construction of world that allows billions to have a standard of living that the kings of yesteryear could not even dream of.
Unfortunately, the engine of the Industrial Era is no longer working. The Industrial era has ended and we are now in the Information Era. But the world has not fully embraced this transition. The majority of the world’s economic, political, financial and business systems are still running on Industrial era infrastructure, mindsets and processes. The corporations that drove economic growth over the last century are no longer producing the results they used to. Over the past 45 Years, U.S. companies have had a 75% decline in Return on Asset (ROA) performance, despite increasing labor productivity over the same time frame. Meanwhile, the success of market leaders is increasingly short lived, with the length of time a company remains on S&P 500 declining by almost 80%. Whatsmore, from 2002 to 2012 50% of the S&P 500 was entirely replaced. At the current rate of replacement, an S&P 500 company is being replaced about once every two weeks. If the trend continues, approximately 75% of companies on the index will be replaced by 2027.
In brief, the cause of these problems could be summarized as the old paradigm for running large companies has reached its expiration date. The old paradigm was built for the industrial era, where efficiency and cost-cutting were paramount, the pace of change was slower, certainty was higher and the world was a much less interconnected place.
If we want a healthy and prosperous world in the 21st century then we must Redesign the World for the Information Era. One of the most important systems to redesign, which this book will focus on, is the economic system, in particular the economic sub-system of the Management Science for Entrepreneurship and Innovation. As it is this discipline which is most intimately connected with the creation of economic growth in the Information Era.
In the Information Era, continuous innovation, speed and agility are paramount.The pace of change is extremely fast, the world is volatile, uncertain, complex and ambiguous, and the marketplace is global and highly interconnected.
In the Industrial Era, once a company created a successful product, such as a consumer product good like Wrigley’s gum they could profit off of it for a century or more. Wealth creation in the Industrial era was like a long, slow arc. The shape of wealth creation in the Information Age is significantly different.
However, at present, a paradigm for the management science of entrepreneurship and innovation doesn’t exist yet. The closest the field of Entrepreneurship and Innovation has to a paradigm right now is “The Lean Startup Movement”.
Using famed academic Thomas Kuhn’s model for paradigm evolution, we would describe the Lean Startup and the field of the Management Science of Entrepreneurship and Innovation, as being in the “pre-paradigm phase”.
The goal of this book, provisionally titled, Startup Science: Foundations for Succeeding in the Innovation Economy, is to lay the foundation for a bonafide paradigm of the Management Science of Entrepreneurship & Innovation by developing a model that unifies the disparate threads of the field today, into a coherent and comprehensive whole.
I have been working on developing this Management Science intermittently since 2010, wherein I started working at Stanford with one the field’s most prominent thought leaders, Steve Blank. I made some key advances in my work with Steve and decided to drop out of Stanford a quarter later to create the Startup Genome Project. In 2011 and 2012, the Startup Genome Project gathered and analyzed data on 34,000 companies, the largest dataset of early stage companies in the world. The team released 5 Reports on Startup Success, Startup Failure, and Startup Ecosystems that have been downloaded more 100,000 times, covered in WSJ, HBR, PBS and Economist, and read about by more than 1,000,000 people. The reports also became a part of the Entrepreneurship curriculum at 100+ Universities including Stanford, Wharton, UC Berkeley and others. In the process, the Startup Genome Project arguably became the strongest scientific brand for startups in the world. The Startup Genome Project later evolved into a data analytics, software as a service company called Compass.
There is an interdependent relationship between theory, data and tools. From one perspective they move in a sequential cycle. Part of a theory is developed, it is then tested and refined with data and then formalized into a tool. The story in the preceding paragraph describes how I went through the first cycle of Theory -> Data -> Tools. Now it is time for the next cycle — by taking what was developed as part of the Startup Genome project and constructing it into a full theoretical paradigm of Management Science for Entrepreneurship and Innovation.
The Promise and Peril of Pre-Paradigm Entrepreneurship Management Science: Why a Fully Functional Paradigm is Needed
The results of companies doing entrepreneurship and innovation today are simultaneously both extremely promising and ultimately lackluster. Consider the following diametrically opposed trends.
On one hand:
The Kauffman Foundation found high growth startups are responsible for ~70% of net job creation. [1,2]
Over the last 15 years the top 9 most successful tech startups are responsible for nearly $1 Trillion in new wealth creation— in contrast, the entire U.S. GDP is $15 Trillion.
In 2015, the tech industry gave birth to 70 new “Unicorn” companies that crossed the threshold valuation of $1 Billion dollars.
On the other hand:
More than 90% of startups fail, primarily due to self-destruction rather than competition.
From 2000 to 2010 the Venture Capital Asset Class as a whole had a negative 2% return.
We believe the best explanation for this is that the old paradigm of management science has expired — so the old ways are no longer working— while the new paradigm of management science has yet to be fully formed — so the new ways deliver promising but shaky results.
Put another way, the recent ineffectiveness of the old methods of management science has created a vacuum where the standard of performance required for new startups to succeed is extremely low, enabling new startups that are in many ways dysfunctional, to still achieve multi-billion dollar outcomes.
If dysfunctional companies can manage to achieve multi-billion dollar outcomes, imagine the economic growth that is possible once the Management Science of Entrepreneurship is fully developed and disseminated.
The History of Management Science
The world’s first multinational corporation, the Dutch East India Company was formed in 1602. Two to three hundred years later Frederick Taylor, Henry Ford and Alfred Sloan had laid the foundations for the paradigm of Management Science of Business. They developed a scientific approach for making businesses incredibly efficient, creating workflows like the assembly line, systematically eliminating waste, standardizing best practices and formalizing knowledge transfer between workers. Their approach was then formalized in Business Schools, which trained hundreds of thousands of managers in these methods and enabled corporations all around the world to flourish.
While Entrepreneurship and Innovation does not yet have a comparatively well developed paradigm, it is ahead of schedule, as high growth, venture-backed tech startups in their current form are only about 40 years old. And the time is ripe now for this paradigm to take shape as many of the necessary pre-paradigm pieces have now been developed: over the last 40 years, many people working in the field of Entrepreneurship & Innovation accumulated enough experience to begin crystallizing the patterns they noticed played a significant role in determining success and failure. In the last 10 years there has been a huge proliferation in the chronicling of these patterns in blogs, books and conferences. And many rich communities of practice have coalesced around what could be called the sub-disciplines of the Management Science of Entrepreneurship and Innovation. These are known by names like: Lean Startup, Customer Development, The Business Model Canvas, Design Thinking & Growth Hacking.
How Startup Science Will Develop a Full Paradigm
Startup Science will lay the foundation for a new paradigm of how Entrepreneurship & Innovation is managed and capitalized in the first half of the 21st century. This book will outline a broad, comprehensive paradigm capable of evolving to capture a near totality of the new perspectives, methodologies, tactics and principles generated by the Startup community in the years ahead. Startup Science will succinctly describe a unified field of Entrepreneurship and Innovation by explicating a meta-theoretical model, based on the principles of Integral Theory and Evolutionary Developmental Systems Theory that will fluidly show how all the other sub-disciplines of the management science of entrepreneurship fit together.
However, to be clear, fleshing out the paradigm’s breadth is not ours to do. We merely intend to lay down the conceptual framework and architecture through which many of the rooms in this vast house can be designed and decorated by those most suited. We would like Startup Science to become platform where many Startup Thought Leaders can describe explicate the elements of creating a successful startup within the orienting and organizing context of a unified Business Operating System.
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You can learn more about the Startup Science System in this introductory talk.
We also are accepting a limited number of readers for a draft of the book. If you’re interested in getting early access in exchange for providing feedback and commentary, please email me at startupscience@maxmarmer.com and write a few sentences about why you're interested in being an early reader.