Disruption: why is the US so different for startups?

AVC’s¬†Fred Wilson wrote a post recently looking at platform monopolies and why they’re great targets for disruption.

It’s clear that almost everything about the US is different for startups. A lot of it is just its sheer size – having ten times more people than Australia changes everything. Probably the biggest complaint in Australia though is the lack of VC funding and a reduced appetite for risk.

It’s not clear to me which one of these is the chicken and which one is the egg. Is the startup scene awesome because of the VC? Or does the VC exist because of the startups?

Since moving to the US, the most striking thing I’ve noticed here is the prevalence of these large, giant “platform monopolies” – but not just in the tech space. Many aspects of daily life in the US seem to be managed by these giant institutions. Navigating these large institutions is cumbersome and tiring (especially if you’re a foreigner and have no idea how things are glued together) – and as a result, there are a lot of middlemen that try to make the process easier.

For example, if you’re looking for health insurance, trying to deal with the insurance companies is a real pain. So, there are hordes of health insurance agents and brokers that sit in between you and the insurance companies to try to make that easier. They take a small fee.

If you’re starting a company and need to pay your employees, you need to be aware of the specific tax issues in your state and federally. Even for a one person company this is challenging; I can’t imagine what a headache it’d be if you were trying to set up in multiple states. But don’t worry – there are many payroll companies that specialise in this, all for a small cut. (The first time I ran a payroll here in the US I was staggered by the fact that the company used UPS to courier me an actual payslip on an actual piece of paper. )

Near where I live there’s an entire business that appears to exist solely to cash cheques – a form of payment that is basically extinct in Australia, but because it’s so common here there are these weird cheque companies that exist. I assume that they must make a bit of money on each cheque they cash.

The list goes on. Almost anything complicated you want to do, there’s a support system that seems to sit in the middle to make your life easier.

Fred Wilson comment on this in his article:

The Internet, at its core, is a marketplace that, over time, removes the need for the middleman. That is very good news for the talent that has been giving up a fairly large part of its value to all of the toll takers in between them and their end customers.

This is where a lot of the interesting disruption is happening in the US – people tired of these old, monolithic systems looking to make a change. The payroll issue is being addressed by companies like ZenPayroll. I have no idea what people are doing about cheques but I thought it was entertaining to see that you can deposit a cheque here now by taking a photo of it. And everyone¬†is trying to crack the healthcare nut – health industry startups abound and appear to be highly favoured as targets for funding (hey, the US spend more money per person on healthcare than any other country – it’s good business).

There are many other examples, including ones with global application – Uber and Lyft are probably the most significant and most recent examples; their impact on the transport industry is still being felt. The music industry is another one – all those poor record company executives are going to be a relic of days gone by.

Every country, every society, every community has its own entrenched systems, their own way of doing things. The bigger the environment and the longer they’ve been around, the more likely you are to find middlemen. Technology makes it possible to go back and re-evaluate the old way of doing things. Better automation, communication and integration means a lot of the old ways of doing things are ready to be swept aside – and that’s where a lot of the disruption is happening.

Ultimately I think that it’s this potential for disruption that makes the US startup scene so vibrant and interesting. It’s the fact that every opportunity to change the status quo has the potential to pack a huge punch – even capturing a small percentage of the market here can mean a big business. The bigger the established players in a sector become, the more naturally resistant they become to change – meaning a lot of opportunity for smaller players to start to carve out a niche.

When you encounter someone saying “this is just how we’ve always done it”, pay attention – you might be on the verge of something big. These are tough fights to pick, but – as is being shown by Uber – if you make the right moves at the right time with the right technology, you can revolutionise a space.

Leave a Reply

Your email address will not be published. Please enter your name, email and a comment.

Quick maths to prove your humanity! * Time limit is exhausted. Please reload CAPTCHA.