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10 responses to “Andy, You’re Late and You’re Wrong About Jobs…”

  1. James H. Murphy

    Mr. Warfield,

    When you read anything Andy Grove writes you should bear in mind that he is not a liberal arts major speaking in generalities but an engineer who speaks very precisely. Dr. Grove did not say small companies are not the engines of job creation. What the article says is that the largest number of jobs created by tech startups are in manufacturing and if the manufacturing is done overseas then tech startups will not be the engines of job growth that they have been in the past when the jobs were created here.

  2. Bob Warfield

    James, lets be precise engineers and do the math then.

    Grove says very clearly that Startups are a wonderful thing but that by themselves they do not increase Tech employment. I don’t see how you get to the convoluted parsing that needed to interpret either that the majority of their jobs are in manufacturing, or that these startups are doing their manufacturing overseas.

    Yet, even if they are, the statistics are very precise in showing quite a different picture, which is that they still create the vast majority of the jobs that are created domestically. Even more interesting is that they have been doing so since before companies shipped such jobs overseas.

    Can it be that no amount of engineering or precision can obscure those simple facts?

    Cheers,

    BW

  3. kcbill13

    Bob,

    There is no doubt that small companies do hire a lot of people statistically. You might look a little further than a single white paper though when considering jobs for America.

    Perhaps you might consider that the trends Andy discusses are scaling up to manufacture in America, and the conventional wisdom is that we should not bother manufacturing in America anymore, as many economists and government officials seem to be convinced that is correct. But when you consider that economists use arguments for that view that are defined by what economists said 200 plus years ago, about country one making wine, and another producing cheese, and letting each country flow naturally to the areas where they have a competitive advantage.

    In today’s fast paced and totally interconnected world, what Grove is saying is that we have to commit to doing enough manufacturing in the USA to have jobs for our people who
    will then have money to buy products that we make at home. To try to dismiss Groves message because he is not speaking to small business encouragement is counter productive. When you have lost over 8 million jobs in the last three years, and many more during the bush/cheney era, promoting small startups alone will not soak up those jobs in the millions of new job range.

    Why wouldn’t there be room for both options in a industrial policy? Isn’t what Grove really saying is advocating for a policy of job creation in the USA as a much higher priority than it is now? It seems as if Grove is onto an important issue here, and nowhere in his article is he citing that we should not try to make it easier for small startups to have regulations that were designed for bigger firms, like Sarbanes/Oxley.

    But his message is strongly advocating for a more common sense approach for jobs in America, and he is trying to reject a conventional wisdom myth that we should not be manufacturing in America anymore, that is his point.

    Although you wish to make out like he is wrong because he is not touting small startups, his point is different from the argument you making, and justifiably so. His expertise is scaling up to manufacture in the US. Have you ever seen the Intel’s manufacturing facilities, (such as in Sacramento), which are quite impressive, and they have built a lot of product in the USA. That is his background, and a big part of his expertise, the building up manufacturing right here in the USA. I agree with Grove here, and from your article, think you might too. You just chose to write about a different point than Grove was making.

  4. Bob Warfield

    Bill, we can save the argument about what America should do about manufacturing for another day. What Grove specifically did seek to address was jobs. That was clear from the title and content of his post, and I completely agree that should be the foremost thing on our agenda in this economy. If nothing else, rebuilding a manufacturing economy that has been torn down over the course of many years is going to take many years to build back up. We can’t wait that long for jobs.

    It was also clear from Grove’s post that he thinks it is a myth that small business can create jobs. That was not something said in passing, it’s a point he wanted to make to drive home his desired solution. It’s also not accurate. As for the white paper, go back through my post and read the links. There is a lot more than one white paper there and many more to be found if you go search. This argument that small business creates the jobs is not a new thought, nor is it a controversial thought for anyone that has reviewed the data.

    Manufacturing did not disappear over this 3 year horizon you’ve raised. It has been going on a for a long time. If you want to bring back jobs quickly, the facts are clear, that’s done by stimulating small business. Yet, almost all of the “stimulus” emphasis so far, and all of the emphasis in Grove’s article is aimed at big business, which has not proven to be the big jobs creator in recent history.

    However much you and I may admire the big companies or wish for a revitalized manufacturing economy, if you want to solve the problem we face today with jobs, the answer is to mobilize the small businessman. Fix the jobs and you will have a healthy consumer again that will lift the whole economy and create still more jobs. But, it starts from the little guy, not the big one.

    Sincerely,

    BW

  5. Colin K

    I agree with a lot of the criticism but I do think you’ve drawn the lines somewhat differently than Grove did.

    First, I think age of firm would be a better way to define startups than size. Nearly every pizza parlor, corner market, and doctor’s office employs fewer than 50 people, but nearly none are what anyone around here would consider a startup. Conversely, Google, Amazon, and Salesforce were adding 1000+ new hires a year within 5 years of their founding, and less than 15 years on, have added 50,000 new jobs between them. Contrast that with GE, which today employs 100,000 fewer people than it did in 1980 (when Apple, now 34,000, was prepping for its IPO–surely well under 1,000 FTEE). My guess is that successful firms create the vast majority of their jobs in the first 10-30 years, after which growth comes from productivity gains.

    Second, that chart refers to all jobs, whereas Grove seems concerned mostly with manufacturing jobs. I have no idea of how that chart would look if it were filtered. Either way, Grove is not the only person who makes a fetish of factory jobs, but it is worth asking why. Between 1900 and 1970–one human lifespan–we lost perhaps 95% of the total number of agricultural jobs.

    Ultimately things worked out (I’m taking some liberties here) because those jobs–back-breaking, poorly-paid, etc.–were replaced with factory jobs that were marginally less miserable. But from the start of the Depression it took 10 years for WWII to get going, and 10 more for the postwar boom to start–long enough for the older parts of the agricultural workforce to age out of the job market altogether. Economic growth will create new, perhaps better jobs, but it may not create them in time for people who are nearing the tail end of their careers.

  6. kcbill13

    Bob,

    Thanks for your engaged reply. I do realise that the argument you make is not just about the last three years, but the last 3 years have seen us lose 8 million jobs, and many more during Bush/Cheney years. And I want to emphasize that I am all for startups, and am for small business entrepreneurs, as I am a small business practitioner. So a few questions for you.

    What is your definition of the number of employees of a small business?

    How many employees does a typical start up employ year by year statistically?

    And isn’t the discussion about manufacturing central to Groves argument about jobs?

    Sincerely,

    Bill

  7. Bob Warfield

    Bill, take a look at the chart I provided from Jeff Cornwall. The back row where most of the jobs are being created is companies in their first year. There is another growth spurt in the front right quadrant, representing older companies that are still small. Lastly, there there is some growth along the back right among large firms.

    Those clusters tell you all you need to know about startup definition and hiring.

    RE what America should do about manufacturing, I don’t think it is central to Groves’ argument about jobs. That’s my point. If what we’re worried about is getting more jobs quickly, and that’s what we should be worried about, Groves’ plan is actually not very helpful because at has to wait on rebuilding factories and the rest of the manufacturing economy. That will take too long. We need help this year, preferably today.

    While manufacturing may not be the antidote short term, it is an interesting discussion whether we shouldn focus some public policy around revitalizing manufacturing in the medium and long term, but it should be the subject of another post.

  8. Bob Warfield

    Colin, why can’t we consider any small business a startup? Because it isn’t Tech? Well we have a lot of others that aren’t too. Because they don’t take Venture Capital? Not entirely clear what the signature value of that is. Ask 37Signals what they think of it, for example. Angel companies can clearly be startups, and so can bootstrapped companies.
    If it is age, the chart calls that out specifically, and low and behold, the younger the better.

    The thing is, most small business isn’t Silicon Valley Tech. So if what we’re about is creating jobs, let’s start more small businesses whatever and wherever they are. Let’s help them to be successful by minimizing regulatory costs and legal costs (patent reform desperately needed), Heck, we had a plan to give stimulus to small companies to hire. I like it. Let’s expand it and keep it going.

    Here in the Valley, I know a lot of people working on boostrapping small business because they can’t get capital to start a company and they have time on their hands due to unemployment. Some good may come of that. But, a lot of small business can’t start that way. Your pizza company needs to buy an oven, for example.

    RE your agriculatural example, isn’t it interesting that we are the World’s Bread Basket. We lost a lot of jobs, but we outproduce the rest of the planet and are probably better at exporting food than anything. So a lot of it was we got more efficient and automated.

    It turns out we did the same in manufacturing to some extent. Yes, we compete with cheap labor in China and other places. But, automation in the form of CNC and Shop Floor robots makes it possible for an individual working in manufacturing to be a lot more productive. We remain (at least for a little while) the World’s largest manufacturer.

    With that said, chip fabs are some of the most automated manufacturing facilities there are, yet companies like Intel still chose to put them overseas. Nobody has commented on the second proposition in my post, but I still think it’s cheeky for Grove to take this position as someone who clearly had a role in moving a lot of manufacturing offshore.

    Cheers,

    BW

  9. Colin K

    Bob,

    I skimmed the study that chart comes from, and I think the picture it paints is more complicated. One of the issues is that smaller firms in general, and young ones especially, have a high propensity to shut down, sell, or otherwise exit in ways that eliminate all or most of their jobs. These are rapidly replaced by other smaller/younger businesses, but the rates of job creation actually increase with the size of the firm, though they still decrease with firm age. See Figure 12 on page 29 of the study for an example.

    As to what makes a startup a startup, I do think it’s worth distinguishing between pizza parlors and software companies. The US actually has one of the lowest rates of self-employment in the developed world–see this article:

    http://www.theatlantic.com/business/archive/2009/08/actually-america-isnt-a-small-business-country-at-all/23219/

    A locally-owned pizzeria is a wonderful thing–I’m from New York, and worked in one all through high school–and small/local business plays a role that is important beyond just GDP. But, pizzerias and corner stores do not create growth the way that the companies of the Valley or Route 128 did in the post-WWII era. These businesses not only created jobs that benefited their own employees, they created products and services that made their customers wealthier as well. I don’t think a board member from Kleiner Perkins is necessary to be considered a “proper startup,” but I don’t think all businesses are equal when it comes to impact on growth.

    As for Grove, the cynical view is that he’s just mad that the losers in Detroit and New York got hundreds of billions in government money, while Silicon Valley got bupkis. As to why Intel has plants all over the world, I’d bet that politics is a fairly significant factor–most countries in the world are considerably more protectionist than the US, and as a chip fab is something of a crown jewel, siting one in a country is a great way to make friends. Beyond that, I suspect relaxed environmental standards also play a significant role….

  10. kcbill13

    Bob,

    Thanks for the interactive discussion, and I would like to suggest that discussion on manufacturing. I tend to think that small business is a growth driver, and having grown up in Kansas City, and as a child of the USA, that there is a drive to succeed within the small business community that is a wonderful thing.

    My main concern with your article was that in calling out Grove for whatever reasons you had, was that I saw it as a good thing when somebody who fell for the economic arguments for outsourcing/offshoring, he was repudiating that belief.

    If we are going to base these kinds of decisions on 200 plus year old economics arguments, we need to discuss that concept of benefits to the offshoring nation needs to be balanced with real arguments about the cost to our society in the form of unemployment, and costs to communities. I would contend that may not be sustainable in an interconnected and fast moving economic world such as what we live in.

    I also contend that the “free market” without proper regulation is a major problem, and the GFC has proven that, yet we still seem to be giving credence to that argument, although I want to see balance in that smaller firms should have less barriers in their way to form and create wealth.