Shifts in technology lead to transformative shifts in human consciousness.
The last big one happened during the 1960s, after the arrival of television.. For the first time, images from faraway lands traveled into our living rooms. As Marshall McLuhan wrote, “The plight of the slum child, via the TV image, is increasingly extended to the entire population.”
The protests of the Vietnam War exemplify its cultural impact. The protests against it were so heated because Americans saw the blood of warfare and the tears of destruction with their own eyes through the television.
Today’s children have a new way of thinking. Instead of only consuming images and videos, they produce them for a global audience. Teenagers can use GarageBand to make music or high-definition smartphone cameras to make videos. Then, they can publish their music to SoundCloud or their videos to YouTube.
TikTok accelerated the trends. The algorithms on Twitter, Facebook, and Instagram are built upon the “friend graph,” meaning that people you friend or follow are more likely to show up in your feed. But TikTok works differently. The algorithm aims to deliver engaging videos — no matter who made them or where they come from. Away from the spotlight of friends and family, people on TikTok don’t feel the same pressure for perfection that stops them from sharing on other social media platforms. Thus, the percentage of consumers on TikTok who also produce content for the platform is much higher than other social media platforms.
The Internet is a global talent show, and TikTok is the American Idol contest. Anybody anywhere can go viral. Kids know this and grow up thinking about how they can make videos for the entire world. In an age of near-infinite information, their rate of learning is limited only by discipline — not access to information or instruction. Creators don’t need teachers or help from adults. The costs of failure are low, so they know to ignore the conventional wisdom that learning should come before doing. They take action, improve their craft, and follow the incentives of the algorithm — the same attitude that drives entrepreneurs.
But first, let’s focus on the state of the American Dream.
The Fall of the American Dream
The American Dream has suffered even as technology has improved. American dynamism is falling in almost every measurable way, partially because of globalization.
American industries felt the negative effects of globalization during the last three decades of the 20th century. Consider the car industry. The big three American car companies (GM, Ford, and Chrysler) had a virtual monopoly on the American car industry for 50 years, from 1920 to 1970. Then, foreign car companies such as Japan’s Toyota and Germany’s Volkswagen showed up and shook the market.
The effects of globalization rippled through the economy. International airlines and hotel chains led to an increase in travel, standardized shipping containers lowered the cost of transporting goods, and international trade agreements reduced the barriers to global trade. To be sure, globalization has room to continue to grow. Trade barriers still block the movement of goods, financial restrictions still block the movement of money, and Internet restrictions still block the movement of information.
As globalization emerged, the American Dream began to wither away. Some regions were hit worse than others. Today, American cities vary widely in the upward mobility prospects of their residents. In cities like San Jose or Salt Lake City, more than 12 percent of people who start in the bottom fifth of the income distribution will climb to the top fifth. But in cities like Atlanta and Charlotte, the odds of making the same jump from the bottom to the top are lower than five percent — less than any developed in country where we have data.
As Harvard economist Raj Chetty has shown, the share of children who eventually earn more than their parents — one definition of the American Dream — is falling.
Source: Brookings Institution
Meanwhile, the American economy has shifted from a focus on tangible goods to a focus on intangible ones. In 1975, 83% of the stock market value for the average company came from tangible book value. But today, the influence of tangible and intangible value has flipped like a see-saw. Today, intangibles account for more than 80% of the average company’s market value.
What’s the difference between tangible and intangible goods?
Tangible goods can be touched. They include cars, food, and machines. Factories used to be loud. Now they’re silent. Due to the rise of robots and information technology, the percentage of Americans who work in manufacturing has fallen from 30 to 7 percent.
In contrast, intangible goods are digital or abstract. They include patents, brands, and other intellectual property. The spread between tangible and intangible investment is closing because companies are investing more in intangible assets such as patents, brand names, and customer lists. Back in 1975, healthcare and information technology companies represented 12% of the market. Today, they represent 38%.
Source: O’Shaughnessy Asset Management
Knowledge workers now compete for jobs against a global army of labor. Naturally, many people are scared. Workers who live in low-cost regions are just as effective as those in high-cost regions at simple tasks, but since their cost of labor is so low, the low-cost workers can undercut them on price. When I started my career, the threat of foreign competition was my main motivation to work hard and build a differentiated skill set that can’t be trained at scale. In my work, I work with a course creator in Mexico and a podcast editor in Indonesia.
But with the threat of global competition comes the rise of global markets. Yes, you have to compete against global workers. But if you build a software product, it can scale to any corner of the world at zero marginal cost. In the Internet economy, achieving the New American Dream starts by taking advantage of the smartphone in your pocket and turning the scale of the Internet from a weakness into a strength.
Given the shifts in the economy, how can we revitalize the American Dream?
The Rise of the American Dream
Software-enabled businesses offer a path to the American Dream.
America is still the best place in the world to start a business. It’s home to six of the 10 most valuable companies in the world: Facebook, Microsoft, Apple, Amazon, Visa, Berkshire Hathaway, and Johnson & Johnson. Meanwhile, the United States is a cultural beacon for the world. America exports its customs through movies, music, and sports. American prospects loom large. In the entire history of humanity, there is no better place and time to live than the United States of America in the 21st century.
The Internet will catalyze an explosion of American entrepreneurship, driven by social, technological, and theoretical factors.
I’ll take each in turn.
Social: Earlier this week, I had dinner with a friend from college who wants to leave his corporate job. When I asked him what he wants to do instead, he replied, “Start a business, of course.” His words echoed what Tyler Tringas said more explicitly: “The New American Dream is to build a profitable, sustainable, remote software business that can be run from anywhere, scales nicely, and prints money.” Starry-eyed dreamers have grown up seeing entrepreneurs like Tim Ferriss and Emily Weiss on the cover of Forbes and Time Magazine. Like them, some want to start major venture-scale businesses. Others want to bootstrap smaller franchises and software-enabled businesses with recurring revenue and comfortable margins. Those who can start profitable businesses are showered with the praise of social applause, which is amplified for everybody to see on social media.
Technological: The new creation tools are so powerful that they shorten the time it takes for people to go from novice to expert. Much of the knowledge that people used to need is now embedded in the software itself. Musicians, for example, once had to calibrate their ears to become tone literate. Now, GarageBand guarantees a pitch-perfect track and a consistent eight-count beat. Likewise, Unfold makes it easy for creators to publish beautiful Instagram stories because the app’s default settings guarantee a well-balanced image.
Almost all of these platforms have a Software-as-a-Service business model, so entrepreneurs who use them can pay little at the beginning and increase their commitment as their business grows. Here are some examples, inspired by Tyler Tringas:
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Scalable Server Infrastructure: Heroku and Amazon Web Services
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Social Media Platforms: Facebook, Instagram, Twitter
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No Code Platforms: Zapier, WebFlow, Airtable, Shopify, and Squarespace
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Basic Operations of Software Businesses: Bench Accounting, Stripe, ConvertKit, Gumroad, Zoom, GreatAssistant, and UpWork
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Ways to Find and Validate Businesses: Traction, Lean Startup, Main Street
You no longer need to be an engineer to build a software-enabled business. I was able to teach more than 400 students in Write of Passage last year because of these tools. I run my live sessions on Zoom, integrate my APIs on Zapier, save my ideas in Evernote, host my curriculum on Teachable and my website on Squarespace, and communicate with you every Monday through ConvertKit.
Theoretical: We’re moving towards a more entrepreneurial economy, which will lead to an explosion of niche software-enabled companies. Investors like Fred Wilson and Marc Andreessen like to recommend a book called Technological Revolutions and Financial Capital. The author Carlota Perez studied the four major surges of technological development:
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Industrial Revolution: 1771 – 1829
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Age of Steam and Railways: 1829 – 1873
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Age of Steel and Heavy Engineering: 1875 – 1918
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Age of Oil, Autos, and Mass Production: 1908 – 1974
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The Information and Communications Technology Revolution: Started in 1971 and still happening
According to Perez’s theory, these cycles unfolded in similar ways. As Jerry Neumann explained, “Each is characterized by some critical factor of production suddenly becoming very cheap, some new infrastructure being built, a laissez-faire period of wrenching innovation followed by a bubble, a post-bubble recession, a re-assertion of institutional authority, and then a period of consolidation and wide spread of the gains in productivity from using the new technology.”
Today, we are moving into the “Deployment Age,” characterized by widespread acceptance and application of the new paradigm of information and communications technology. For example, during the Age of Steam and Railways, technologies like the high-pressure steam engine, precision machine parts, and improved metallurgy transformed the global economy by reducing the cost of moving goods quickly and cheaply. Joint-stock companies were born, national markets were for trade and the repeal of tariffs preventing free trade led to economies of scale, and people moved away from their hometowns en masse for the first time. New businesses built upon these new foundations — in the same way, today’s entrepreneurs are building upon the foundations of new information and communications technologies.
Just as Perez’ theory predicts, the majority of companies in the coming entrepreneurship explosion will find markets with existing demand and serve them by integrating existing technologies. Crucially, entrepreneurs move away from risky exploratory projects and towards sustaining innovations with less technological volatility and fewer business failures. Companies created at the end of a technological paradigm are relatively low-risk because their products are cheap to fund and easy for customers to validate.
The combination of these social, technological, and theoretical forces have seeded the coming entrepreneurship explosion. These new companies will be built upon cheap software and founded in industries with low market risk. Thus, they’ll be mostly founded by bootstrappers, and those raise money won’t need much of it.
As predicted by my Naked Brands thesis, people on the Internet are increasingly becoming companies. Creatives use the Internet to shrink the world and connect with like-minded people at the tails of the bell curve for obscure interests. Building an online audience is already a leading indicator of entrepreneurial success.
There’s a clear market opportunity for schools, investors, and coaches who focus on teaching people how to create bootstrapped software-enabled businesses. Entrepreneurs with online audiences attract better employees, acquire customers at a lower cost, and benefit from developing specific knowledge in their area of expertise.
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