Change is a healthy sign for a growing economy. The number of companies that rise and fall in the global economy over time is striking. Key benchmarks like the Fortune 500 or Dow Jones Industrial Average have a healthy turnover of members. For example, only 60, or 12%, of the Fortune 500 companies in 1955 where still on the list in 2017.
There is economic theory behind the turnover of top firms. Joseph Schumpeter, an austrian economist, promoted the positive effects of Creative Destruction. Schumpeter observed that, in a healthy economy, new products and business models destroy incumbent players. The continual emergence of new leaders is a sign of a well-functioning economy.
Status quo in Latin America
This type of change seems less prevalent in Latin America. Large business groups and economic inequality combine to drown out innovation and cause economic stagnation. Success stories do exist of large businesses that were built from scratch, but the reigning leaders seem to solidify their dominance and stay at the top for a long time.
Last year, I saw a challenge by political scientist Joaquín Rey that resonated with me: “en el empresariado . . . toca renovación.” He was reflecting on CADE, an annual conference for business leaders in Peru. I agree with Joaquín and believe that the startup community, led by founders, has an important role to play in this renewal.
Startups add a dynamic element to the economy. They grow quickly, often die out, but always provide a way for a relentless team to jump in and create disruption.
Pivots, customer churn, and employee turnover all occur in a startup’s natural lifecycle. Though excruciating, they are necessary stopovers in a startup’s path to success. While individually they are often seen as failures, together, they are the spark plug for disruptive changes. The type of changes that can impact an entire economy.
Investing behind startup founders is one important way to make positive economic and social impact. Startup-led innovation will lead to the creative disruption that Peru’s economy needs. A dynamic startup ecosystem feeds off change and destruction to drive the creative forces that will grow the economy.