How to thrive in the next Industrial revolution

Will the next economic game changer happen online or on the shop floor? Two new books look at making stuff in America.

 

Erin Seaman

If there’s a theme that unites Democrats and Republicans in this, the most partisan of American seasons, it’s the idea that the Unites States, once a manufacturing power, would like to become one again. Americans don’t build things anymore, the narrative goes—they buy them. And if the country wants to resuscitate its middle class and retain its status as the world’s largest economy, it will have to get back to building.

And while this might conjure visions of hard-working men and women pulling on welding masks, those looking for clues to what it means to build a successful business in the 21st century would do well to look at a pair of new books: The Launchpad, veteran tech journalist Randall Stross’s inside look at how to get a high-tech startup off the ground, and Makers, which posits that new technology allows almost anyone to set up a mini manufacturing plant in his basement.

In The Launchpad, Stross introduces the reader to Paul Graham, the founder of San Francisco–based business incubator Y Combinator. As Graham once wrote, a community needs only two things in abundance to become a hub for startups: rich people and nerds. Graham, once a nerd, is now very rich, and in Y Combinator he has created Silicon Valley’s most fertile breeding ground for new media startups.

In the past seven years, Y Combinator alumni have launched businesses worth an estimated total of more than US$4.7 billion—including file-storage service Dropbox, vacation-property facilitator Airbnb and Heroku, a back-end service provider for websites and businesses. In 2011 alone, Y Combinator has spawned hits including Code Academy, Rap Genius and Parse, the last of which drew US$7 million in angel investment immediately after finishing a Y Combinator term. The success has turned Graham into something of a Silicon Valley sage, while the Y Combinator name has become a shibboleth for investors hoping to get in early on the next billion-dollar tech craze.


 

Stross spent more than three months immersed in the so-called school for startups. Along the way, he answers questions that many in Silicon Valley have muttered to themselves for years, like what exactly does Y Combinator do, and why has it been so successful? In a richly reported narrative, Stross recounts how Graham made his fortune in the 1990s, during the first tech boom, having sold an online shopping tool he’d developed with two partners to Yahoo for US$50 million. He founded Y Combinator, Stross writes, because he wanted to help others skip the first failed stage of his own startup experience. The idea was to fund and help develop companies that were willing to embrace one key principle: “Make things customers actually want.” To do that, Graham enlisted his old startup partners, Trevor Blackwell and Robert Morris, along with his future wife, Jessica Livingston, then an investment banker in Boston.

Y Combinator offers small chunks of seed money—between US$12,000 and US$20,000 in exchange for a 7% stake in any projects—along with an intensive mentoring process to groups of would-be entrepreneurs. The partners select cohorts twice a year from an application pool in the hundreds. The first batch of eight “founders,” as Y Combinator calls them, started in the summer of 2005. The group Stross followed, in the summer of 2011, began with 64 different founders. (One dropped out midway through the program.)

From the outside, the Y Combinator program can seem a bit like American Idol for tech geeks: the teams relocate to Silicon Valley for the duration of the three months and are expected to attend a weekly dinner with other founders, but that’s about it. Graham and the other mentors offer office hours, but their advice can usually be summed up as “work all the time.” At the end of the cycle, the teams pitch the businesses they’ve developed to rooms full of California’s wealthiest angel investors.

Graham has very particular ideas about who will succeed at Y Combinator: hackers, usually, and young ones at that. He believes startups thrive when the founders have no mortgages, no families and little to lose. With that in mind, the mentors often pick teams less for the ideas they already have than for the potential they represent. One of the best businesses of the 2011 cohort—the website Code Academy, which offers online coding lessons—came about only after the founders had failed at and discarded two previous ideas. So while the formula boils down to one of trial and error, it’s remarkable just how often it results in an elegant solution.

But while virtually all of Y Combinator’s wins come from companies working online, Chris Anderson argues that the next tech business boom will come offline, in the real world of physical objects. In Makers, the Wired magazine editor and author of The Long Tail, presents the case that new technologies such as 3-D printers and laser cutters are erasing barriers between inventors, entrepreneurs and large-scale developers. “The digital revolution has now reached the workshop, the lair of Real Stuff,” he writes, “and there it may have its greatest impact yet.”

Like an Internet-age Sy Sperling, Anderson isn’t just a pitchman for what he dubs the Maker Movement—he’s a participant. In 2009, he launched a DIY robotics company from his living room and now sells parts online to make small helicopters and drones. The technologies that allowed him to do that, he believes, have the potential to remake the entire global economy. It’s nothing short of a new Industrial Revolution, he says.

Anderson is less journalist than he is relentless booster for the next big thing. Makers is written in a tone of such breathless enthusiasm that it’s hard to judge the merits of his arguments. While The Launchpad is told through its subjects, Makers is told primarily through Anderson. As a book, it can be messy and repetitive. That’s not to say Anderson is wrong. Digital and DIY manufacturing may well remake some industries. But unlike The Launchpad, Anderson’s book doesn’t offer a road map.

Richard Warnica is a staff writer at Canadian Business and inventor of his own sad fate.

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