Startups as status

Status

My internet education has taught me to see the world in terms of status.¹ Keeping tabs on status inflows and outflows can give a plausible explanation to almost any social puzzle. Why do people say X in conversation? (A: To be the high-status individual). Why do people do [tacky thing]? (A: it’s high-status in their social sphere, not yours). What explains big chunks of modernity? (A: We’re — allegedly — drunk on status).

Status has a lot of explanatory power, and this convinces me it has great social power as well. Self-reflection should support this. Everyone has felt the tug of status. It’s what can power a preference for the Good School versus State School, or the Big Firm versus Small Firm. It’s part of why your chest swells on mentioning you’re a math major, but it’s dreadful to say you major in philosophy. When you talk to upper-middle class high schoolers, they’ll say they don’t know what they want to do, only that they want to be successful. I read this as a desire for status, regardless of how it comes about. Perhaps you were/are one of those kids. In their minds, status is desirable for its own sake.

You don’t need to think status is a shining intrinsic good to want it, though. The literature gives us plenty of reasons to be status-hungry. High social status may come with health benefits, even when controlling for income. One study found an inverse relationship between social status and prevalence of mental illness. The tie between status and health could also extend to nonhumans. High-status wild baboons heal faster from injuries, despite controlling for age. To the extent physical attractiveness contributes to status, there are additional effects. Attractive Economics PhD’s are more likely to get better jobs and receive more citations on their papers. Homely men may earn $230,000 less over their lifetimes than their comely counterparts. ²

Tyler Cowen has also said “high status people get better answers [to questions] than do low status people.” His advice to people looking for good answers? “be high status.”

Startups and status

A nice feature of status is that distributions are fluid. A single organization, object, or activity will not retain allure forever. Pineapples are no longer high-status, and neither are top hats. This creates room for status usurpers.

Startups are one such usurper. Throughout most of the 20th century, the high-status thing to do was work for a large corporation. GE. NBC. Bank of America. The companies with names that sound more like government ministries than private organizations. Or, perhaps you became a professor in a university. For the bright, ambitious, and status-conscience, those were roughly the options.³ The idea of a “startup” was foreign and unsexy.⁴

Paul Graham describes it:

when I grew up, the ambitious plan was to get lots of education at prestigious institutions, and then join some other prestigious institution and work one’s way up the hierarchy. Your prestige was the prestige of the institution you belonged to. People did start their own businesses of course, but educated people rarely did, because in those days there was practically zero concept of starting what we now call a startup: a business that starts small and grows big. That was much harder to do in the mid 20th century. Starting one’s own business meant starting a business that would start small and stay small. Which in those days of big companies often meant scurrying around trying to avoid being trampled by elephants. It was more prestigious to be one of the executive class riding the elephant.

But attitudes change. Through some confluence of technological/economic/social forces I don’t fully understand, people realized startups could compete with large companies, and eventually become large companies themselves. In Graham’s terminology, you could start small on a donkey and scale up to an elephant relatively quickly. For someone growing up in the 21st century, this is not an abstract thought. Many of the companies we interact with were small, donkey-like organizations within our lifetime.

The result is startups are sexy now. We know many elephants were once donkeys, and each donkey has the potential to be an elephant, so donkeys rise in status. See how legacy high-status institutions attempt to align themselves with the status parvenu by describing their workplace environment as “entrepreneurial” or throwing cash at “startup resources.” Observe also how the number of high-schoolers and students at elite universities who are working on “a startup” is rising.⁵⁶ These are the young adults most sensitive to status, so what they choose to do with their time is informative.

Big companies can be sexy, too, but only those that were startups in the recent past. Working at Google is high-status, even though it is probably as much a corporate monolith as HP was in the 20th century. We can probably explain a chunk of this by noting as early as 2000 the company was the same sort of fledgling startup you see today. ⁷ Perhaps Google employees now can mentally participate in some of the tech-startup mythos without sacrificing the perks of big company life. ⁸

Startups using their status

What’s wonderful about the amount of status startups have is that the term “startup” is general. It’s industry agnostic. It can represent any sort of company, as long as it starts small and tries to grow big. It’s concerned with the ambitions of the founders, not the product they sell or the industry they’re in.

The implications for human capital allocation are huge. If bright people are attracted to high-status things, and calling almost any sort of company a “startup” raises its status, bright people have an additional incentive to work in industries they otherwise never would have. We can think of this as the “startup” label providing status compensation for being in unsexy places. Two people might spend their days sifting through zoning laws and municipal paperwork, but one works for a “startup in the construction industry” while the other works for a “construction company.” Imagine the different reactions each description would garner at a dinner party.

The result is startups have the potential to lure high-quality human capital to where their marginal contribution is high. With all due respect to construction, corporate training, manufacturing, and other unsexy fields, they do not look attractive to the top of the recruiting class. These industries, then, get second pick as to who works for them, and likely have a relatively low level of human capital. Now, imagine transplanting your most competent, consultant-esque friend into such an unsexy industry. They could make a massive impact by picking all the low-hanging fruit nobody else bothered to pick, and then some. A consultant in an unsexy field is a force of nature. A consultant in consulting is just another consultant. ⁹

Increasing the status of startups sends signals. Ideally, it says success is more about starting small and growing big rather than throwing yourself somewhere with diminishing marginal returns. It says taking risks doesn’t incur huge status-dings. It tells young people there are as many opportunities to work with interesting people as there are good startups. Perhaps most importantly, it says your industry is secondary to your ambition.

Footnotes