Starting Small
Today, we associate startups with Silicon Valley, computer science, and venture capital. In the past, it was other businesses, like oil, steel, pharmaceuticals, and telegraphs in the 1800s of the US. The automobile, aviation, and telephone industries can all be characterized as “past startups.”
Eli Lilly and Company is a huge pharmaceutical conglomerate that started out of the back of a pharmacy. Colonel Eli Lilly created a medical wholesale company while working in the back of a drugstore. His first year of business sales were $4,470. Seeing how these companies started out is pretty interesting. When you think about oil, steel, or pharmaceuticals, you do not think, I'm gonna go and start that in a garage. But that's what these people did.
Samuel Kier started an oil refinery on Seventh and Grant in downtown San Francisco, which is insane. An oil refinery is a multibillion-dollar facility. To visualize starting one in your apartment in a city is almost laughable; it’s astonishing to think that's where the oil refining industry began.
In 1921, Banting and Best came up with the idea of using insulin to treat diabetes. By 1922, they had extracted insulin, tested it on themselves, tested it on animals, and put it in a patient's arm. In 1923, Banting and Best won the Nobel Prize.
A timeframe like this is now impossible given the constraints of today’s regulatory environment. Shipping a drug takes ten years and four billion dollars. This is a very important point: you can't just ship a drug. You can't have a drug company whose philosophy is to move fast and break things, at least not in the modern United States. You would need a much more risk-tolerant environment, and that's not where we are today.
When aviation was invented, there was no Boeing and no FAA. From 1903 until the Air Commerce Act of 1926, the skies were wide open, without many rules. Fatal crashes were a common occurrence…and two Wright Brothers could start an airplane company out of a bike store.
Can you believe the Wright brothers went into the air without approval from the FAA or *any* kind of collective decision-making?
They decided to fly just because they could.
These pioneers had some time before competitors and regulations created barriers to entry. The messy process of innovation resulted in many deaths from refinery fires, railroad collisions, car explosions, airplane crashes, and drug overdoses. At first, this was accepted as the price of progress.
Over time, competitors with higher-quality products arose, and regulations effectively criminalized the sale of beta-quality products. Barriers to entry rose, increasing the capital required to challenge incumbents. In these industries, starting a company in your garage became much more difficult.
The most important features of those industries early on were: (1) Low cost of capital to start a business, and (2) Wide-open regulatory, technological, and physical frontiers.
