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The Startup World’s Debt to the Public Sector

A lot of entrepreneurs don't understand that government's support is critical to many of the innovations they rely on.

Elon Musk speaking about SpaceX
(TNS/Los Angeles Times/Lawrence K. Ho)
Over the last few years, I've been heavily involved in the fast-growing startup scene in the St. Louis area. My wife manages a startup incubator, and I owned my own startup before taking a role as vice president of entrepreneurship for my county economic development agency. I deeply admire people who are brave enough to start their own businesses. It isn't easy -- in fact, it's the hardest thing I've ever done.

It's so hard that succeeding at starting your own business can result in overconfidence. It isn't uncommon for successful founders, or even aspiring ones, to believe that the skills and lessons that come with entrepreneurship can be applied to any problem society faces.

In other words, there is a tendency in the startup world to believe that the world's biggest problems will all be solved by scrappy groups of developers surviving solely on ramen and Red Bull. One of the manifestations of this worldview is the nearly god-like status bestowed upon Elon Musk, the PayPal/Tesla/SolarCity/SpaceX magnate who seems confident that there is no major societal problem that he and his engineers can't solve.

Wean America off the internal combustion engine? Heat our homes with solar power? Figure out how to transport human beings hundreds of miles in minutes in a people-sized version of a pneumatic bank tube? Elon Musk believes he can do all of that, and the world will undoubtedly be a better place if he succeeds.

However, what's often overlooked, ignored or even unknown is the essential role the public sector and public policy plays in helping startups solve major problems. Across all of his companies, Musk has received almost $5 billion in financial support from governments at all levels, everything from grants to tax breaks to payments from the Air Force and NASA for launching rockets. Musk is also the beneficiary of the years of research that occurred in publicly funded universities across the nation that led to the development of the lithium-ion batteries that power Tesla vehicles.

Not just anyone can be Elon Musk -- it takes talent and brilliance to use a base of existing technology as a foundation to create something the world has never seen. That said, Elon Musk wouldn't be Elon Musk without the help of the public sector.

The world's biggest problems won't be solved solely by startups, and they won't be solved solely by government. They will be solved by the two working together, using the resources and longer time horizons of the public sector to research and develop new technology, and the nimbleness of the private sector (including startups) to deploy that technology in new and innovative ways.

That's an obvious idea, but it seems to be one that has been almost forgotten in the startup world.

At a recent event honoring some of the St. Louis area's most promising startups, I struck up a conversation with a really bright student who was completing his MBA at Washington University in St. Louis, one of the nation's best business schools. During our discussion, I brought up the fact that Silicon Valley became Silicon Valley in part because of the investment the federal government made in the defense industry in that region, and that the Bay Area likely wouldn't have become the birthplace of some of the world's most innovative companies without the government making that investment.

The MBA student didn't know that, and didn't really understand the link between the public sector, startups and innovation. It wasn't because he lacked intelligence. It was because for years our dominant political narrative has portrayed entrepreneurs and the public sector as being something close to enemies.

That notion might help some politicians get elected, but it isn't reality. Entrepreneurs, startups and government at all levels working together were behind some of the 20th century's most important innovations. You might not agree with me, but there is a good chance you'll scroll to the next thing you'll read on an internet developed by the Department of Defense, and that you'll be using the touchscreen technology created by the National Science Foundation and the CIA before Apple purchased it in 2005.

Entrepreneurs and startups are essential to economic growth. No one would argue that. But if those entrepreneurs are going to solve the world's biggest problems, there's a good chance that they will do so by partnering with the public sector -- whether they know it or not.

CEO and founder of McKissen + Company
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