I found this piece by Jordan Halvorsen at Medium thought-provoking. The author opens with a shout-out to “Schramm’s Law” and ends with a plea for venture capital to refocus its attentions.
Are you aware of the single most important contributor to a nation’s economic growth? It’s not the size of its established companies or the level of foreign investment. It’s the number of startups that grow to a billion dollars in revenue within 20 years. This is known as Schramm’s Law, named after Carl Schramm, the former President and CEO of the Ewing Marion Kauffman Foundation.
What thoughts did it provoke? My first thought was that, although I agree that entrepeneurship is vitally important, I think Schramm’s Law has it backwards. It is an observable phenomenon that large companies actively seek to stamp out upstarts, using every force at their disposal. There are a number of things they can do, almost none of them having anything to do with having a better product at a lower price.
One of them is by acquisition: buy them. That removes the threat. Frequently, the acquisition is followed by discontinuing the competing product. I first became aware of an emerging Underpants Gnome-like business plan almost 40 years ago:
- Start a company
- ?
- Get acquired by Microsoft
I actually had a couple of those as clients.
Another strategy is to sic the government on them. There are all sorts of ways to do that ranging from patents to strategic regulation.
Quite to the contrary I think that you can measure the decadence of an economy based on the role of billion dollar companies in it.
The second thought that occurred to me was to wonder how long has “Schramm’s Law” been promulgated? Based on Google and Bing I see no references to it prior to 2007 and the early references aren’t very helpful. I found no evidence that Carl Schramm had ever made such a pronouncement. Could it be just an evocation, a distillation? I’d sure like to see some quantitative measures of the number of companies that meet the criteria. I suspect it’s a post-Tech Bubble thing.
I think there should be a law that says if you get to make up the metrics you get to prove whatever you want to prove. Schramm’s Law sounds like BS. That said, a billon dollars is a lot but I wouldn’t be surprised if you could find some correlation at a smaller number.
Since I joined my practice we have grown by over a factor of 10. If we did that again we would be close to $1 billion. Would we be decadent? I dont know and I am retiring soon anyway, but I dont think we would be able to continue to do the things that made us so successful up until now. At least for what we do I think the world would be better off if instead of us growing that much again we had 10 other practices doing the same stuff, but the surrounding practices vary between pretty bad and just OK. (Probably why we have been offered the contracts at almost all of our competitor hospitals at one time.)
Steve
I can’t speak to tech etc. The stuff outside blood and guts manufacturing. However, I can think of no examples of such a “law” in manufacturing. Not recently.
And going from VC stage (or even growth equity LBO’s) to a billion dollars. Rare, and I doubt a real engine of economic growth. I think people would be amazed at the number, diversity and growth potential of $50-$200 million rev companies.
As I’ve said I’d sure like some quantification of the claims for “Schramm’s Law”. I can’t think of any non-technology companies that fit the definition and I can’t think of any technology companies that are actually that important to the economy. Practically all are tiny in comparison with manufacturing behemoths.
Now if by “the economy” you mean NASDAQ (or the DJIA), I can see the argument. I might even concede it. I don’t believe that the distance between the stock market and the non-financial economy has ever been greater than at present.