Superficial Entrepreneurs: Rising Hype and Misleading Narratives Hide Failing Startups, Declining Tech, and Falling Science
Jeff Funk (his articles on this topic were recently published in American Affairs (https://americanaffairsjournal.org/2021/02/the-crisis-of-venture-capital-fi,xing-americas-broken-start-up-system/), Scientific American and Issues in Science & Technology, and are forthcoming in Slate
Remember when people said, “it’s not the answers you give, but the questions you ask,” or “you can’t see the forest for the trees,” or when people did back of the envelope calculations to illuminate big decisions. Managers, consultants, and engineers did this long before so-called “innovation speak” became popular, using buzzwords such as disruptive innovation, opportunities are everywhere, and scale is the key to startup success. While the ostensible purpose of these buzzwords was to get funding, they were also used to push away doubt, doubt that is an essential part of making startups, new technologies and science work to the benefit of societies. We must use this doubt to explore the viability and approaches to startups, technologies, and science, and to push away the superficial analyses that currently dominate these topics.
This book examines today’s most valuable startups, talked about technologies, and discussed advances in science to describe a better approach to startups, technologies, and scientific research. And a better approach is needed. The consistently huge losses by today’s startups such as Uber and Lyft, the slow diffusion of hyperloop, driverless vehicles, and other technologies, and the endless waiting for fusion, nanotechnology, and quantum computers, along with the slowdown in productivity, suggest that something is terribly wrong with America’s R&D system. This something can be better understood and analyzed if we ask the right questions and do the right types of analyses, analyses that consider the big picture of costs and performance through back of the envelope calculations.
This book uses the term superficial entrepreneurs to characterize the decision makers who want to avoid thinking deeply about startups, technologies, and science. Focusing just on startups, from founders and venture capitalists to business schools and consultants, superficial entrepreneurs have focused more on growth and hype than on the real economics of new technologies and their businesses. Whereas entrepreneurs of past decades commercialized semiconductors, disk drives, computers, networking equipment, enterprise software, and the Internet, technologies that drove dramatic improvements in productivity and progress, today’s entrepreneurs have bet America’s future mostly on smart phone apps, cryptocurrencies, and other low-tech businesses that have not, nor probably ever will achieve productivity advantages over their predecessors. And without productivity advantages, profits and progress are unlikely to emerge.
Included in this book’s definition of superficial entrepreneurs are also engineers, scientists, university professors, the media, and other participants in America’s R&D system. These experts have created a misleading narrative of rapid technological change and increasing productivity growth, one that supports the superficial entrepreneurs, but cannot be seen in recent productivity figures. Their misleading narratives claim that breakthrough technologies, from driverless vehicles, artificial intelligence, commercial drones, Internet of Things, blockchain, virtual and augmented reality, and even nanotechnology, quantum computing, and fusion, are quickly emerging from America’s universities, disrupting existing companies and creating wealth for all Americans.
The book is conveniently organized into three parts with Part 1 devoted to startups, Part 2 to technology, and Part 3 to science. The three parts provide evidence for the promise, reality, and hype of startups, technology, and science, respectively. Each part also builds from the previous part, showing that a lack of breakthrough technologies prevents startups from succeeding and one reason for insufficient breakthrough technologies is the slow emergence of science-based technologies such as nanotechnology and superconductors coming out of universities. The three chapters on hype also build from each other, showing how different groups of people use the Internet and social media to hype startups, technologies, and scientific research.
These three parts also offer a better way forward for startups, technologies, and scientific research. By pushing away the hype, asking the right questions, looking at the forest not the trees to see the overall system and its cost and performance, common sense analyses can find better technologies and better designs for the technologies, and identify better value propositions and customers for the startups. Pushing away the hype will also enable us to devise a better approach to scientific research, one that can increase the number of commercialized products, processes, and services.
Part 1 shows that startups are far less profitable than those of 20 to 50 years ago and much slower to achieve top 100 market capitalization status. It does this by comparing the most successful startups of the late 20th century with those of today, examining more than 100 startups mostly in the U.S., but also in China and other countries. By analyzing many of the largest categories of startups, from ride sharing to the consumer Internet, fintech, business software, and deep tech, Part 1 shows there is a lack of breakthrough technologies, breakthroughs that made previous generations of startups very profitable. And those that are available are not commercialized properly because the excessive hype causes entrepreneurs and venture capitalists to do superficial analyses that prevent them from identifying the right technologies, designs, value propositions, and customers.
Part 2 shows that fewer technologies are being successful commercialized than in previous decades, with the last gasp being the iPhone, first introduced in 2007. Using this last gasp as an example, it describes where many breakthrough technologies came from in the late 20th century. It then contrasts these past examples with those of today, and it shows that today’s technologies are over-hyped, poorly designed, and that these designs have far less economic potential than did those of the late 20th century. This hype comes from VCs, entrepreneurs, consultants, and universities, a hype that prevents participants in America’s R&D system from identifying the designs, value proposition, and customers that are needed to make today’s technologies work.
Part 3 shows that fewer science-based technologies are being commercialized. While semiconductors, LEDs, lasers, and fiber optics emerged in the mid- to late-20th century, few if any science-based technologies have emerged in the 21st century, thus leading to fewer breakthrough technologies for entrepreneurs to commercialize. Fewer IPOs are being done in the science-based industries and fewer examples of commercialized university research can be found, despite some technologies being hyped and funded for decades such as fusion, nanotechnology and superconductors. Part 3 also explains the reasons for less commercialized university research: an obsession with academic papers and funding, too much bureaucracy associated with both, and the hyper specialization of researchers. The latter is demonstrated through quantitative data on the number of journals, researchers, and papers, and the narrow predictions of future technologies by MIT’s Technology Review and Scientific American, predictions that are often for scientific disciplines and not technologies.
One theme that runs through all three parts is the concept of a narrative. Narratives are used to justify investments in startups, technologies, and scientific research. These narratives can be easily manipulated in the age of the Internet and social media, particularly when they have received little attention from books, articles, or research by universities. Universities have instead gladly jumped on the narratives created by entrepreneurs, venture capitalists, and consultants to sell more services, be they training, research or consulting. Business schools are the worst offenders, merely accepting these misleading narratives without analyses, critiques, or proposed changes, partly to hype their entrepreneurship and innovation programs. The result is that practicing engineers and consultants do not have the tools needed to assess the narratives that continue to proliferate, tools that this book provides.
This book uses economic analyses of recent startups and their products and services to critique the misleading narratives, propose better ones, and to show how America can better manage startups, technologies, and science through common sense economic analyses. By economic analyses I do not mean economic theories such as long-run cost curves or other statistical methods, I mean the ability to evaluate the current status of a technology, to find evidence of future success, to do common-sense analyses of sub-systems and components, and to develop plausible narratives, things that were regularly done in the past by experienced engineers and consultants. Without such an ability, it is easy to fall for misleading narratives, narratives that distract entrepreneurs, companies, and universities from better ideas. Better ideas are shown through analyses of AI, ride hailing, driverless vehicles, and other technologies, demonstrating that better designs, value propositions, and customers are being ignored because of the rising hype and misleading narratives from superficial entrepreneurs.
Jeff Funk is a retired Associate Professor, author of six books and more than 50 academic papers including Technology Change and the Rise of New Industries (Stanford University Press) and is a recipient of the NTT DoCoMo Mobile Science Award. His research has been covered by the Financial Times (Relax About Robots….), the Wall Street Journal (A Tech-Driven….), and published as editorials by many newspapers/websites. The latter includes his articles on hype in late 2019 for Issues in Science & Technology (What’s Behind Technological Hype?) and Scientific American (The Downside of Hype), an article on AI hype for IEEE Spectrum (AI and Economic Productivity: Expect Evolution, Not Revolution) in February 2020, a three-part series in June 2020 for Mind Matters on startup profitability and IPOs, a weekly series on technology and startups for Medium, and forthcoming articles for American Affairs on America’s failing startup and innovation systems (The Crisis of Venture Capital: Fixing America’s Broken Startup-up System) and for Slate on the failure of AI’s Moonshot Strategy. .