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The Startup Revolution Series — Part 1: The Great Transition: Industrial to Information Revolution

January 8, 2015 by Compass

By Bjoern Lasse Herrmann and Max Marmer

For the past decade or more, Max and I have either heard or experienced endless stories of startup failures. We took as a given that more than 90% of startups go bust instead of bang, but we were also inspired by the amazing success stories — from Salesforce to Google to Kickstarter — that built new industries, created tens of thousands of jobs and transformed society.

And so we asked ourselves one day in the backyard of a house in Atherton: What if that failure rate could be reduced by even a small percent? How much could society benefit if 1% fewer startups failed? 2%? We became bolder. If the code could be cracked on what factors led to more favorable outcomes, could we actually help maximize success rates??

The following series of posts is a detailed look at why, at this unique moment in human history, we firmly believe that nurturing startups is critical to the well-being of our world.

So we reached out to entrepreneurs across the globe, and over the past several years have been overwhelmed by the tens of thousands of people who have shared their data in service to the entire startup community. The findings from our communal efforts have been published in reports, articles and blogs, have been incorporated into the curriculums of hundreds of universities and have been referenced by the Obama Administration, Chancellor Merkel and leaders in dozens of countries.

Then we built benchmarking dashboards to help individual companies, partners and ecosystems make more informed choices, given their unique circumstances and peer groups. We continue to refine Compass Benchmark, Compass Monitor and Compass Ecosystem, and have many releases in process.

Does this mean we’ve achieved our mission? Hardly. For all we’ve achieved as a community, there are always more questions to be asked, more data to be analyzed, more algorithms to be refined. So we continue to chip away at the code of startup success, with a special focus on delivering an updated version of The Startup Ecosystem Report in spring of 2015.

In the meantime, here is a look at the series of posts that will lead up to its release.

As we begin the new year, we wish you the greatest possible success with all your ventures.

— Bjoern Lasse Herrmann, CEO of Compass

The Startup Revolution Series Overview

Part 1: The Great Transition: Industrial to Information Revolution

Part 2: The Decline of the Blue Chip

Part 3: The Rise of the Startup

Part 4: The Critical Role of the Startup Ecosystem

Part 5: Startup Ecosystem Report 2015 (coming soon)


Part 1: The Great Transition: Industrial to Information Revolution

— By Max Marmer, Compass Co-Founder Emeritus

Have we reached a critical tipping point in the transition between the Industrial and Information Eras? It is always difficult to define a precise moment at which major periods of societal transformation take place, but there is an increasing amount of data that points to a significant decline in businesses founded in the Industrial era and operating on Industrial era principles. At the same time, one can hardly fail to notice the explosive rise of the information age.

If we look at the performance of the types of companies that have sustained the economy for several centuries, we see worrisome trends. The Shift Index, by the Deloitte Center for the Edge, notes a 75% decline in return on asset performance for US companies over the past 45 years, despite increasing labor productivity. At the same time, the success of market leaders appears to be increasingly short lived, with a decline of almost 80% in the length of time an S&P 500 company could expect to remain on that list.

Meanwhile, over the last 15 years, a significant portion of job and economic expansion in the U.S. has come from high-growth technology companies such as Amazon, Google, Salesforce, VMware, Facebook, Twitter, Groupon and Zynga. And while Apple was officially incorporated in 1977, it was the company’s reinvention of itself when Steve Jobs returned to helm in 1997 using the process of what one might call disruptive technology intra-preneurship that led to the later development of the iPhone, iPad and their corresponding app ecosystems. These new product innovations transformed Apple from a struggling organization to the company with largest market cap on the planet — quadrupling its value in just the past five years alone.

Consider this: the entire US GDP is $15 trillion. Collectively, these 9 companies that barely existed a decade and a half ago, have directly created almost a trillion dollars in new wealth. Will the trend of multi-billion dollar tech startups that have a disproportionate effect on the needle of the global economy continue? As we will discuss in these series of blog posts, many signs point to yes. The virtual explosion of startups below the radar is so big, the Economist recently likened it to the Cambrian moment of species evolution.

Humanity doesn’t see transitions between eras very often, but when they come, every aspect of society gets reinvented: government, business, finance, education, health, energy, technology, art and science all get upgraded. In fact, most historians would argue there have only been 3 such transitions before: 1. foraging to horticulture 2. horticulture to agriculture 3. agriculture to industrialization. The Industrial Revolution was the last great societal transformation, and the scientific enlightenment that ensued gave rise to modernity. With two billion broadband internet users and billions of smartphones entering circulation, the necessary tools and infrastructure are now in place for the Information Age to burst into full bloom, moving beyond the confines of the technology industry to all aspects of society.

The role of technology entrepreneurship in our global economy is now more important than ever. Increasingly it is becoming clear that technology entrepreneurship will be the primary growth engine of this new economic era. Having gone through a fairly severe dot com boom and bust cycle only fifteen years ago, it is understandable that many people imagine a similar fate for the current tech boom. Rightly or wrongly, it is human nature to look to the past as a way to envision the future. Yet that thinking is also short-sighted. Based on the data we have, the larger context of this epochal transition from the Industrial era to the Information era appears to be a harbinger of long-term exponential wealth creation as the era continues to mature.

But the development from one era to the next requires dangerous periods of transition, where a society can either slide into turmoil or rise to the occasion. We will have to be thoughtful but bold about how we shed our industrial skin — and the institutions, business, jobs, culture and traditions that have come with it.

Change is hard. But if we can adapt, if we can adopt new skills, beliefs and and values appropriate for a new age, we can reap the full benefits of a prosperous and thriving world. The Industrial Revolution brought wealth and prosperity unseen before in the likes of human history. In 1750, the total wealth of the world sat at an estimated $126 billion dollars. Today the world’s wealth is over $70 trillion. It also brought unprecedented advances in education, transportation, medicine and civil rights.

But the hard truth is that what got us here, will no longer take us further. To successfully make the transition to the information era, much of the socioeconomic fabric of society needs to be reinvented for our new era. If we do not adapt and release much our now expiring industrial era mindsets and practices, then the dark days of the 2008 economic recession may return. To avoid this fate, we must let go of the past and engage with the future to ensure that the greatest era in human history is in front of us.

This series will explore what we can do to nurture the flame of progress, keeping the world on a path to greater prosperity by investigating the growth engine of the new Information Economy and harmful Industrial Era patterns we must relinquish.

Together we can lay the groundwork for a successful transition into the new socioeconomic era of the Information Age.

Let’s dig in.

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In the spirit of this transition, please help rank your startup community for the 2015 Startup Ecosystem Report by filling out our survey here.

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