Entrepreneurs as the New Labor Class

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Venkatesch Rao:

"For the last few months, I’ve been cautiously testing a radical-sounding hypothesis on smart people: entrepreneurs are the new labor. Or to put it in a more useful way, the balance of power between investors and entrepreneurs that marks the early, frontier days of a major technology wave (Moore’s Law and the Internet in this case) has fallen apart. Investors have won, and their dealings with the entrepreneur class now look far more like the dealings between management and labor (with overtones of parent/child and teacher/student). Those who are attracted to true entrepreneurship are figuring out new ways to work around the traditional investor class. The investor class in turn is struggling to deal with the unpleasant consequences of an outright victory.

In the small and incestuous technology world, where I make my living shouting advice from the peanut gallery, standing behind politically charged statements like this can do a good deal of damage, so I’ve been wary about sharing my views more publicly.

To my surprise though, I found a lot of people agreeing with me. In fact, many confided that they’d been thinking the same thing themselves, and even offered more radical formulations than my own. By contrast, I found very few people seriously arguing for the obvious antithesis (a sort of gung-ho “everybody can be a genuine entrepreneur” sentiment, which I find to be a vacuous rationalization of grim economic realities.)

The implications of this new state of play are extremely important, and extend far beyond the startup world to the economy at large. This is not just another quickie X-is-the-new-Y meme. Which is why it is going to take me some time to develop the arguments carefully. In this first of a three-part series, I will cover the history of this particular entrepreneurs-turning-into-labor pattern, which dates to the 19th century. In Part II, I will apply the pattern to our times, mutatis mutandis. In Part III, I will try to look ahead at how the landscape might evolve.

The Politics of the Shift

I should note that none of this is news to anybody even marginally involved in technology entrepreneurship. This entire three-part series is merely my attempt to assemble arguments made piecemeal by many others, into a coherent whole. But I suspect people far from the entrepreneurial world have no idea that all this is going on.

“Entrepreneurs as the new labor” is not necessarily a bad thing, unless you are among those who are attracted to the “masters of the universe” cachet rather than the substance of the “entrepreneur” label. There is dignity to labor just as there is romance to entrepreneurship.

There are many good things about the shift to a de facto management-labor game. Such a game is sorely needed as industrial models collapse and the work of defining an Internet-era corporate landscape, with new institutions capable of organizing work for a much larger population, begins.

There are still enlightened investors who use their new unchecked power wisely, and there are still entrepreneurs who are wily enough to stay inside the system and play the game on their own terms.

But for the most part, the collapse of the balance of power is not a good thing. Nor is a significant disconnect between nominal and actual narratives defining the lives of a significant and important population.

The good news is: this has happened before (in the late 19th century), and the last time around the system naturally self-corrected and defined a new labor class on its own terms, with the “entrepreneur” label being reclaimed by those it actually described. In the process, a new middle class was born. This was an external side-effect as far as entrepreneurs were concerned, but the main outcome of interest to everybody else. That’s the big hope on the horizon here: that the current travails of the entrepreneur class might eventually end with the formation of a new middle class to replace the one that is currently being gutted.

The transition was not without considerable pain, so we can and should learn from the previous episode and speed up the correction, this time around, hopefully with less pain and overcompensation. For those of you tempted to read this series as a blanket tarring-and-feathering of the investor class, keep in mind that they play an essential role, and that things aren’t particularly pretty when entrepreneurs are dominating investors either.

Real entrepreneurship can return, and those playing the new management-and-labor game can learn to understand themselves more clearly, with a new management-labor narrative, instead of an overloaded investor-entrepreneur narrative.

But however you read what is going on, such a shift is politically charged. I like to kid myself that I am a political neutral on these matters, so I’ll restrict myself to sketching out the contours of the new landscape, and leave you to form political opinions about it.

The Entrepreneur Class Today

Before I proceed, I should offer a very important qualification. By entrepreneurs I mean specifically the narrow class the term has come to define in the last decade: specifically technology entrepreneurs who start companies to build products or services with some sort of technological innovation at its core, with the Internet playing an important role in the venture.

This might seem to be a very narrow definition, but due to the dramatic ongoing impact of the Internet in every sector (“software eating everything”), and the collapse of traditional employment paths, this restricted class of entrepreneurs is quite significant in terms of both numbers and economic impact, and is growing rapidly.

My thesis specifically does not apply to other sorts of entrepreneur: the kind who start risky but non-innovative businesses of the coffee-shop variety, or the kind who steer a staid old family business onto an aggressive growth path. In recent years, the term entrepreneur has been glamorized, valorized and mapped to the technology-startup type entrepreneur, so I am using the unqualified term for simplicity.

And within this class I am specifically refering to the sub-category known as hustlers today. Technology startups typically have a hacker-and-hustler founding pair. Though the hustler can often do some hacking as well, the term has come to mean the person leading marketing, product management and fund-raising activities in the early stages.

So a more careful statement of my thesis would be: non-technical hustler founders of technology startups are the new labor.

What about the technical co-founders? Because of their very different risk exposures, compared to hustlers, they end up on a different path that effectively makes them mercenaries rather than entrepreneurs, a path that generally promises smaller jackpots, but better expected outcomes and survivability.

In brief, whereas hustlers have gradually been losing their information advantage with respect to investors (resulting in the balance of power collapsing), hackers have generally been gaining information advantage with respect to both, as Internet-era technology has gotten more complex and specialized. But their advantage does not lend itself well to being directly wielded. So the power of the technical community is organizing itself in other ways, which I covered in my earlier post on the rise of developeronomics.

Before we dive in, here are two versions of the argument that make my views seem almost moderate by comparison. I want to call these out so you can calibrate various positions in these debates (all the way from “everybody is an entrepreneur” cheer-leading to “evil VCs pwn innocent founders” despair).

A friend who works at a hedge fund and is starting to dabble in startups on the side wanted a quick primer from me on the popular Lean Startup model. After outlining the basic idea, I added some of my own cautious critical commentary. My friend immediately leaped to the conclusion that I’d been unconsciously resisting: “So you’re basically saying that lean startups are great for investors, and not so great for entrepreneurs” (he also said “bwaahaahaa!”)

Another friend, a battle-scarred tech veteran, reacted to my views with a metaphor that made even me cringe: “So incubators like Y-Combinator are basically a cloud resource for investors, from which to source interchangeable hustlers, who are prized primarily for their youthful energy rather than any deep market knowledge.” So much for the vaguely romantic notion of startup-founding as being somehow qualitatively different from interchangeable drones in a cubicle farm. Different farm, same metaphor. I think these versions of the argument overstate the case, but viewed as rhetorical exaggeration, they do make valuable points. Lean startup models, applied with wisdom, can work for entrepreneurs. Applied naively, they become back-seat driving mechanisms with which investors can micromanage startups, to the detriment of both. But the model, being a product of our peculiar times, has the asymmetric balance of power between investors and entrepreneurs wired into its very DNA.

Startup incubators and angel investors can sometimes seem more like outsourced job-training for big companies, or even a substitute for college and graduate school respectively (in fact, many commentators proudly advertise that idea, and the “batch” and “graduating” language is a dead giveaway), but there are people graduating with genuine entrepreneurial skills.

So let’s take a look at the entrepreneurs-are-labor model. It is useful to start with the nineteenth century steel industry where a similar emergence of a labor class from an entrepreneurial class happened, with different outcomes for the hustlers and hackers." (http://www.forbes.com/sites/venkateshrao/2012/09/03/entrepreneurs-are-the-new-labor-part-i/)

More Information

  1. Part 2 [1]
  2. Part 3 [2]