Start-Ups Are Now Employing More Technology Than People

First it was other countries with well educated but less expensive labor.

Now, technology itself has begun to take over those good jobs, the ones that Americans and Europeans hoped could never be exported because of the skill and training required. Just as in the movie classic '2001: A Space Odyssey,' where HAL the computer turns on his human inventors, technology is being employed to perform tasks previously done by human programmers.

According to the Kauffman Foundation, which focuses on trends in entrepreneurship and innovation, new start-ups are hiring, on average, about three fewer workers per business than they did in the 1990s.

Classical economics argues that this is a positive development because it signals the efficient deployment of capital which will eventually generate greater wealth for all. However, technology adoption cycles can run as long as 40 years. It's how that word 'eventually' gets defined that is causing some anxiety. JL

Angus Loten reports in the Wall Street Journal:

New businesses are getting off the ground with nearly half as many workers as they did a decade ago, as the spread of online tools and other resources enables start-ups to do more with less.

The change, which began before the recession, may be permanent, according to some analysts.
There's something long-term at work here," says Dane Stangler, research director at Ewing Marion Kauffman Foundation, a Kansas City, Mo., research group.

Start-ups are now being launched with an average of 4.9 employees, down from 7.5 in the 1990s, according to a recent Kauffman Foundation study. In 2009, new independent businesses created a total of 2.3 million jobs, more than 700,000 fewer jobs than the annual average through 2008, the study found.

Meanwhile, the overall number of start-ups has "held steady or even edged up since the recession," according to the study.

Led by start-ups, small employers have generated 65% of net new jobs over the past 17 years, says the Small Business Administration. As such, steady declines in start-up size, which stretch back more than a decade, could explain the slow labor market recovery following the previous recession in 2001, as well as today, according to Brian Headd, an economist at the SBA's Office of Advocacy.

"This is a significant change and not necessarily tied to business cycles," says Mr. Headd.

Rather than purchasing the tools and manpower needed to run their companies, more small firms are renting, sharing or outsourcing resources, typically through online services, according to Steve King, a partner at Emergent Research, a research and consulting firm for small businesses.

By tapping into Web-based business tools, Sam Rogoway earlier this month launched Near Networks, a nationwide video production firm, with only four employees. An entrepreneur based in Santa Monica, Calif., Mr. Rogoway says tasks that used to require extra workers can now be done online.

"You don't need an IT person or an accountant. It's become so streamlined and user-friendly," Mr. Rogoway says. "We all wore different hats and collaborated on everything."

Last year, Gil Harel launched BiteHunter, a search engine for restaurant discounts, with just three employees. Based in New York, the site used shared screens and other communications tools to work with developers in Russia, Uruguay and Israel.

"Just to build the infrastructure to get a business off the ground used to take a lot of money and people. But things that you couldn't do in the past, you can no w do on your own," Mr. Harel says.

Most small companies now buy supplies, pay bills and manage payroll on Web-based services, according to the National Small Business Association, a Washington, D.C.-based lobbying group.

A recent survey of more than 500 small firms by Zoomerang, an online polling firm based in San Francisco, found a small but growing number are using shared, network-based applications—or so-called cloud computing—for everything from data storage and email, to customer service, mobile commerce, and finance and administration.

Evan Saks, the founder of online mattress maker Create-a-Mattress, says manufacturing technology that ties orders to production—known as just-in-time manufacturing—and Web-based tools have done away with the need for inventory managers or warehouse staff, among other workers.

After launching in May 2010 with five employees, Mr. Saks says he now relies on just two part-time workers—even as the business is growing.

"I didn't have visions of building an empire. I just wanted to create a nice profitable business," he says