Biology, Not Economics, Explains America’s Startup Strength

We can look to mother nature for business innovation

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By Victor Hwang

What do honeybees and startup companies have in common?

Biologist Edward O. Wilson has spent a lifetime observing ants, bees, and other social critters, and how they function together in groups. In contrast, my own profession—as a practicing venture capitalist—seems to be worlds away. Surprisingly, I have found that the ideas of Wilson, my former college professor, are profoundly more relevant to my work than those of traditional fields like economics or business.

On the surface, biology and technological innovation seem distinctly different. But if we adjust our perspective slightly, it’s remarkable how useful Wilson’s ideas are to understanding Silicon Valley and America’s startup economy.

E.O. Wilson needs little introduction. A legendary professor at Harvard, he is a two-time winner of the Pulitzer Prize and considered by many to be the second most important biologist in history, after Charles Darwin. His new book, The Social Conquest of Earth, is considered his “magnum opus.”

In my work, people often describe communities like Silicon Valley by using the label “innovation ecosystems.” But they only do so metaphorically. Can the ideas of E.O. Wilson inspire us to push beyond mere metaphor? What happens when we think of highly innovative human networks as real biological systems? Human beings, after all, are animals, too. Shouldn’t human society count as a form of biological system?

Our recent book, The Rainforest, attempts this improbable fusion of ideas. If we view communities like Silicon Valley through a sociobiological lens, we discover an entirely new way to view human economic phenomena. The term “rainforest” then becomes more than an analogy: innovation ecosystems actually behave like real biological systems in many ways.

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So, let’s apply biology to tackle one of the world’s great challenges: why do certain communities like Silicon Valley generate such extraordinary and sustainable innovation and economic output, while the vast majority of places—even those with large helpings of smart people, clever ideas, and capital resources—fail to do so? To answer this, it helps to examine human nature.

This notion seems simple enough. In practice, however, we don’t usually think that way. The study of neoclassical economics has primarily drawn from cold-blooded concepts in fields like theoretical philosophy and Newtonian thermodynamics. The traditional MBA curriculum teaches students to aspire for numerical precision, as a way to overcome the randomness of human foibles.

In his new book, Wilson reverses decades of conventional thinking on evolutionary biology and human nature. Citing evidence that stretches across mathematics, neuroscience, anthropology, and other disciplines, he contends that while selfish individuals tend to win against other individuals, groups of altruists tend to win against other groups. It is this evolutionary tension—between individual needs and group interests—that explains why only a few species of animals, including bees, wasps, ants, termites, and human beings, have developed complex social instincts enabling them to take over much of the planet.

But how is Wilson’s lens useful in understanding Silicon Valley, not to mention the entire American startup economy? Does the connection between micro (single animal behavior) and macro (animal group behavior) in biology help bridge the gap in our understanding between, say, microeconomics and macroeconomics in human social systems? The emerging answer appears to be yes: the evolutionary tension between individual and tribe—and its implications—is a powerful puzzle piece for creating a new economic paradigm.

When it comes to human beings, our tribal tendencies are both our greatest strength (think of the complex social web and distribution of specialized labor it takes to build an iPhone) and our most dangerous Achilles’ heel (think of war throughout the ages). What, after all, is a startup company but the formation of a temporary tribe to address a new real-time problem?

Viewed through this lens, a key difference in social behavior between bees and humans is that bee tribes are static and hard-coded, while human tribes are dynamic and soft-coded. If a predator attacks a bee colony, that colony has to fend for its own survival. If a large corporation attacks a startup company, however, that startup can recruit needed talent from around the world.

In human society, unlike bee populations, the boundaries of tribes can be redrawn continuously to address evolving needs. Diverse human beings come together constantly to rally for common, temporary, pragmatic goals. That’s true everywhere. But what sets Silicon Valley apart is how relatively easy and inexpensive it is to assemble such diverse groups on a continuing basis.

My colleagues and I have worked with startup companies on every continent except Antarctica, and in most places, we easily observe how loyalty goes first to family, clan, or neighborhood. If evolution has wired us to work in groups, it has also wired us to distrust people from other groups. E.O. Wilson cites evidence that shows how our brains are tuned for tribal behavior based on race and other characteristics. With modern fMRI neuroscientific imaging techniques, we can actually watch tribalism happen in the human brain in real-time.

In most of the world, when building startup teams among people with diverse skill sets, one frequently finds that strangers have a tremendously hard time trusting one another. Either deals don’t get done, or when they do happen, they are lawyered in thick contracts. People have fully prepared for failure, which makes such a result even more likely to be self-fulfilling.

Contrast that to Silicon Valley, where loyalty is generally not to the employer, which is temporary, but to the game of innovation itself and to one’s fellow players in that game. Call it a meta-tribe. What makes Silicon Valley special is not just its rich resources of talent, ideas, and capital. It is that the process of organizing dynamic teams of people who control those resources happens so fluidly.

The microscopic, day-to-day, transaction costs of organizing highly diverse teams in Silicon Valley are arguably the lowest in the world. In other places, these cumulative micro-costs can make the difference between a deal that takes many months to close and one that takes a few days. Facebook’s billion-dollar acquisition of Instagram in less than a week is just one high-profile example of this culture in action, but think of the millions of micro-transactions happening every day, perhaps as seemingly insignificant as passing along an idea or a referral to a stranger.

Silicon Valley is the result of a lucky historical accident—the opening of the American frontier—which created a community-based culture without traditional tribal structures, yet with extremely low transaction costs for assembling new tribes. Handshakes are much cheaper than contracts. Altruism is more efficient than selfishness. And trust matters. It streamlines the mechanics of day-to-day business, but more importantly it tilts the entire system away from bad tribalism (my startup versus yours) to good tribalism (we all belong to the meta-tribe of startups together).

E. O. Wilson has spent a lifetime trying to explain the inexplicable, but he may have done even better than he realized. His insights on biological systems may just have helped answer one of the great riddles of economics: what makes certain networks of homo sapiens so extraordinarily productive versus others?

8 August 2015

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