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During speeches while President of the Cato Institute, John Allison would often say that there were “thousands of Googles” before Google. Allison’s point was that the company which has come to define search technology wasn’t the only Silicon Valley start-up to attain funding based on its idea for a search engine. Countless start-ups funded, countless failures, and lots of learning from those failures, led to Google.
As this column regularly points out, most Silicon Valley start-ups go belly up. Over 90 percent according to Valley eminence Andy Kessler. The previous number is more evidence that the road to Google’s gargantuan valuation was paved by the decline of many companies like it that didn’t make the cut.
What’s important is that as opposed to impoverishing the U.S. technology sector, the high rate of bankruptcy within it is a major driver of its extraordinary wealth. Failure crucially informs the sector about what is and isn’t working, plus it quickly releases improperly utilized economic goods and labor from poorly run companies so that they can be snapped up by businesses with a stated objective to deploy them more skillfully.