Wednesday, August 26, 2015

The Impact of Social Media on Entrepreneurship

Many people have observed that social media has the potential to fundamentally change entrepreneurship opportunities. It is beginning to play a key role in many aspects of creating a new business. Facebook, Twitter, and Youtube have emerged as tools to advertise new services and products. Clearly, this is beginning to have an impact on the marketing function. LinkedIn enables startup companies to recruit talent for their new businesses. Kick Starter allows entrepreneurs to raise funds to realize their new ideas. Moreover, new companies are able to buy manufacturing services and programming help on the Internet. Amazon can help a startup in selling a new product. In today’s connected world, theoretically one can be located in a significantly remote area and yet get a product manufactured, marketed, and sold without leaving home. 

Historically, few select places such as Silicon Valley have enjoyed the reputations of being the hotbed of entrepreneurship and the birthplace of many modern technological giants. These places have provided startup companies access to funding, talent, and infrastructure to get going. Has social media reduced the impact of geographical location on the startup creation? In this post, I examine this question from the entrepreneurship culture point of view.

I currently live in the Washington DC metropolitan area. People living in DC area know that chances of a startup succeeding are very small. Many people will tell you that nine out of ten startups fail, so most students graduating from college are not willing to join a startup and instead opt for a safer option. Most of them simply do not have any one in their immediate network who has become super rich working for a startup. This lack of role models discourages them from taking perceived risks.

I often visit the Silicon Valley area to attend meetings. The culture there is very different. People seem to breathe a different air. Even though the chances of any single startup succeeding wildly are not very high, people living there strongly believe that if you simply try enough times you are bound to succeed. Many graduating students from college know people who have become widely successful by taking the startup route. The existence of these role models encourages students to join a startup. They simply do not view startups as risky ventures. Instead, not joining a startup is considered a missed opportunity.

Here is a puzzle for you. Let us assume that you are playing a game in which odds are stacked against you. The probability of you losing the game is ninety percent. What is the probability is that you win the game at least once if you try ten times? Folks living in the Silicon Valley intuitively understand the answer to this puzzle. 

Social media has impacted the functionality needed to get a startup going. However, culture is a very important aspect of getting people to be engaged in startups. Ultimately, the existence of an entrepreneurship culture is what drives people to correctly assess risks associated with the startup companies and view them as opportunities not to be missed. Social media has not yet impacted the entrepreneurship culture in a significant way. Silicon Valley continues to rule the startup world because of its well-established entrepreneurship culture.

Social media certainly has the potential to impact the entrepreneurship culture in a significant way and help free it from geographical constraints. I am not sure how long it will take for this to happen.