October 2016

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Branding matters. Whether it is for business or for a region. As we begin a serious conversation regarding branding the greater Washington region, it is important to clarify what exactly a brand is.

Many evaluate brand strength by two factors: awareness and ubiquity. Take Google, which has become so synonymous with the act of conducting an online search that it has actually been adopted as a verb in the English language. Google it and you will see.

“Silicon Valley” is now used as shorthand for a region where innovation occurs, rather than the corner of California where the semi-conductor industry got its start.

People look at brands as something that prompts the brain to immediately “know it when they see it.” This assumption — the belief that with a catchy name and enough money a brand can be created — wastes a lot of money and time. As a business owner and policy maker, I have participated in branding exercises, gathering in a room with outside consultants to brainstorm on the catchy name for a business or the perfect logo.

However, a successful brand is not simply the outcome of a creative process. It is a successful execution of a business strategy to provide something valuable to a customer. A brand is a shorthand descriptor of a business’ value proposition.

Consider Google and its ubiquity. It is successful because it provides a search technology perceived as better than its competitors. It offers something of high value, not easily replaced. Imagine the countless decisions that go into creating a business supporting such a high value: hiring top-level creative minds, training them in a strong culture of innovation, investing in emerging technologies, ensuring the resulting software works predictably, and investing in real estate and office surroundings to encourage creativity and employee commitment. All of these are examples of the thousands of business decisions that Google must make, each measured against a common business value proposition: being the best search engine for its customers.

Silicon Valley differs from Google in that its brand has value because of a community’s concerted action. It’s a culture, a shared enterprise, where, after years of customary practices, a common value proposition has emerged. Silicon Valley focuses on individual entrepreneurship, strong connections between research and development and business, legal rules encouraging free movement of technology workers, compensation approaches that reward risk-taking, and a capital marketplace that embraces these values. The value proposition is clear: go to Silicon Valley to be part of a productive innovation culture.

As our capital region now asks the branding question, I am confident that the time is ripe for us to look into the mirror and discover what our true brand is. My work with the 2030 Group, TandemNSI and elsewhere has shown through data that there is a model of D.C. entrepreneurship — a unique way of doing business well; we have a very strong value proposition.

For anyone wanting to change the world and leverage proximity to the regulations and rules that shape our society, greater Washington is the place to be. To build our region’s brand we must proudly exclaim and celebrate this unique value proposition.

Entire column can be found at WashingtonPost.com.

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In case you haven’t noticed, cybersecurity has become the top concern of federal agency IT and program people. Now a new study finds a highly robust cybersecurity services industry in the D.C. region. But the products it uses aren’t made here. Jonathan Aberman joins Federal Drive with Tom Temin to talk about the study.

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Cybersecurity in the greater Washington region is an area of economic opportunity and regional strength, yet there was no single, publicly available list of cybersecurity businesses operating here. Now there is.

The TandemNSI Cybersecurity Industry List was compiled by TandemNSI, a community I launched three years ago to link government agencies and entrepreneurs who want to work with them. Through our work, we see an endless stream of opportunities for greater regional corporation, and the numbers in this new census are enlightening.

There are 967 cybersecurity businesses operating in the Washington area: 45 in D.C., 332 in Maryland and 590 in Virginia.

The census tallied businesses providing cybersecurity products, services or solutions and doesn’t include those supporting the cybersecurity industry such as lawyers, real estate brokers or human resource professionals, or businesses where cybersecurity is an ancillary offering. The census focuses solely on businesses driving the industry — the core resources against which supporting activities are arrayed.

An accompanying report entitled “The Cybersecurity Industry in the Greater Washington Region” explains the methodology used in the census, and provides insight to help those interested in growing our region’s cybersecurity industry.

Most of the businesses that met the criteria to be included in the count were service or solution-oriented. Product-oriented cybersecurity companies are a small percentage of the overall number of businesses we found — 38 out of 967.

This composition matters. Generally, service-based businesses aiming to scale up and grow quickly are limited by how easily they can hire and train new people. A business with an innovative product, on the other hand, is able to grow more rapidly because productive capacity is often as easy as making another copy. The most rapidly growing businesses in our national economy are more often product-oriented.

The heavy focus on service and solution-based cybersecurity businesses in the region is less surprising given the relationship they have with the federal government. At least half received money from the federal government under a direct contractual relationship to provide cybersecurity services or solutions. And it appears that the percentage is likely significantly higher, given that many others are subcontractors and therefore not easily identified through public sources.

The data unveils clear evidence of an untapped opportunity: despite tremendous commercial talent engaged in cybersecurity in our region, it is not concentrated in product-oriented innovation. And our region’s largest local customer — the federal government — has made it plain that product-oriented cybersecurity innovations are of high interest. It has opened offices in Silicon Valley and Boston because it is looking for innovation in places it perceives to have a higher concentration of product-oriented cybersecurity businesses.

Two immediate challenges: first is how to help our region’s large service and solution-oriented businesses acquire product-oriented businesses and facilitate integration into the federal government’s goals. Second, how to reshape our region’s strong cybersecurity talent into product-oriented innovators.

Both challenges will require significant investment and commitment. Before being able to solve a problem, it first needs to be identified. Now that we have a baseline against which to measure, we can build a stronger industry.

This column originally appeared at WashingtonPost.com.

 

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Verizon may have given Yahoo’s stockholders one billion reasons why cybersecurity matters last week when it hinted it could push to reduce its purchase offer for Yahoo.

The prospect of Yahoo’s stockholders losing $1 billion (or more) as a result of a cyberattack is a bellwether moment in quantifying the need for cybersecurity. Let me explain why.

It was widely reported a few months ago that Yahoo was the target of a sustained and successful theft of the online credentials and information of 500 million Yahoo users. The attack occurred in 2014 and was only disclosed by Yahoo two years later. Initial press coverage focused on the question of how attackers could have pulled it off and it served as yet another example of the insidious threat of cyberattacks.

Yahoo’s data theft was quickly subsumed into larger stories of cyberattacks that seem to occur with greater frequency, even though it was one of the biggest ever.

Meanwhile, the electoral cycle become more and more colored by state-sponsored data theft. The Department of Homeland Security brought to public attention an ongoing conversation in the cybersecurity industry: could our voting machines be hacked? The United States government accused the Russian government of cyberattacks to undermine our presidential election.

Yet people seem somehow numbed to the magnitude of the problem. I suspect that for many, the issues of data theft don’t register because there is no direct effect on their pocketbooks. After all, the expenses of addressing theft are usually high, but borne by the business. Costs usually come out of operating income or cash reserves, so stockholders don’t usually feel the pinch.

Costs to consumers are rarely passed on. Consider what liability a credit card holder has for charges made on his or her account after a data theft, and how differently that consumer would view the crime if it had direct and personal effect.

Yahoo may be the moment where that calculus changes.

Because Yahoo was in the middle of a sale transaction with Verizon when the news of the breach was released, the disclosure may have given Verizon some legal ammunition to reduce the amount of its offer for Yahoo.

If the purchase price for Yahoo drops, that reduction will be a loss for Yahoo stockholders. They will get less for their shares in a sale to Verizon and be directly harmed by the hack in a way that few have been. This will officially mark the moment where a data breach has a direct and immediate effect on stockholders.

With our corporate laws, the most likely remedy available to the stockholders would be to sue Yahoo’s board of directors and management. This in itself is not unique; boards get sued all the time, and generally have the benefit of insurance to pay claims that succeed.

However, in certain circumstances, such as in infamous accounting frauds like MCI, Worldcom and Enron, board members can face personal liability if they are found to be grossly negligent. When this occurs, board members have to pay damages out of their own pockets.

Even if consumers don’t care about cybersecurity, …

Read entire column at WashingtonPost.com.

 

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Whether you are voting red or blue on November 8, you probably agree that as this tumultuous campaign continues, Democrat Hillary Clinton and Republican Donald Trump are being graded on a curve.

As a professor, I know all about the concept of grading on a curve — taking a group of individuals and assessing them on a relative basis, meaning objective achievement is not measured.

There is an old joke about two campers awakened by a grizzly bear outside their tent. The first camper jumps up and runs out of the tent barefoot. The second takes a moment to put on his sneakers and ties them up. The first camper yells to the second, “What are you doing? The bear will catch you!” The second camper answers, as he runs past the first, “I don’t have to outrun the bear, I only have to outrun you.”

The camper doesn’t have to be fast on an absolute basis, just fast enough to outrun his delicious friend.

Grading on a curve is a method used when you know that at the end of an evaluation you have to give everyone a grade, and some people must get As.

In the context of a U.S. election, one of the candidates must win — someone will “get the A.”

The negativity surrounding Clinton and Trump — whatever the source and cause — is leading many Americans to state that they have chosen their candidate because he or she is the lesser of two evils.

The candidates and their advisors now understand that it’s not really about being objectively better but being relatively better. They don’t care about outrunning the bear, only that their challenger gets devoured.

However, grading on the curve does not have to be about being the best among relatively bad choices. It can in fact be a tool for making a fine distinction between excellent choices. As I have learned from my own experience as a grader, the curve forces distinctions to make a grade distribution; it does not provide a mechanism to qualify the participants.

The segmentation of our political discussion adds complexity. It masks the reality that most Americans do have common criteria against which they evaluate politicians. If you look at how people feel about the institution — Congress or the Presidency — you can get a sense of these common objective criteria. We broadly expect our politicians to be honest, hardworking, smart and interested in looking out for our interests.

Ideological differences add an additional level of criteria — consider for example, how important a decisive leadership style is to a Republican voter or empathy is to a Democrat. Our current political environment reinforces those differences in ideological criteria as a way to get us to grade against the curve. We do not talk about the commonality nor do we measure against the broader criteria we all share. It’s not about being excellent — it’s about being just better than the other guy. And that’s why our political campaigns are so negative.

In order to allow the United States to break this cycle, there are two choices available. We could, like many other nations, include in our system the concept of a no-confidence vote to trigger new elections when politicians don’t do their jobs. Or, through its nominating processes the parties could utilize our common objective criteria as the first guiding principles for candidate selection.

In short, let us be able to choose excellence. How can we get our political system to facilitate that?

This commentary was originally published on Huffington Post.

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People starting a business or looking for a job are often told to “network.” They dutifully follow that advice, attending countless networking events and drinking many coffees — and yet accomplish nothing.

Sadly, the advice is flawed, because it doesn’t distinguish between networking and building a network.

I am a member of FounderCorps, a regional organization of serial entrepreneurs — and they know a thing or two about networking.

Unquestionably, these entrepreneurs differentiate between going to an event simply to meet people and working to build a network. Member Pat Sheridan, co-founder and chief executive of the product studio Modus Create puts it this way: “Networking is helping people, not meeting people. It’s building trust through a demonstration of your value as a helpful resource.”

Giving to get is a consistent theme. “It’s engaging with people on a meaningful level, where you seek first to help and provide value for the other person,” says Tien Wong, chairman of tech services companies Tech 2000 and Lore Systems.

People who are overtly transactional when they are with others are probably not going to be good at building networks. Eric Koefoot, founder of the media monitoring firm PublicRelay, points out that he avoids those who are “too self-serving and/or have an agenda.”

“Just taking is not networking,” says Alex Murphy, founder of the business consultancy Epic59.

By the same token, networking should have an outcome. Daniel Gonzalez, a principal at the real estate firm Avison Young, has a colorful analogy. “When networking, I always figure out as soon as possible whether this is only a ‘Barney Relationship’ or whether there is more to it. You remember that purple dinosaur? His song was ‘I love you, you love me…’ Networking should be about action, so assess quickly whether you can help each other. If not, and you still like each other, call it what it is: friendship — a Barney Relationship — and don’t force what’s not there, business-wise.”

Understanding that networking should have an outcome doesn’t mean that the first time you meet someone you should expect to achieve anything. Building a relationship takes time. “As the Chinese say, ‘once a stranger, twice an acquaintance and maybe three times a friend’,” says Terry Hsaio, founder of the communications firm Hook Mobile.

If done well, networking is worth the effort. Stefan Midford, CEO of the workforce management firm Natural Insight, says the technique provides value to an entrepreneur in three ways. To succeed, you must network “up” to mentors or leaders you want to follow, network “with” peers who have similar challenges and network “down” with start-up entrepreneurs to share and contribute back.

These FounderCorps members agree that the most important lesson is that you must be an effective networker to be a successful entrepreneur. “It is a core ingredient, on par with persistence,” Murphy says. “All business is relationship-based,” Sheridan added.

Here in the greater Washington region, where there is always another networking event to attend…

Read entire column at WashingtonPost.com.

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One day, police or firefighters rushing to the scene of an emergency may be able to study a camera feed of the situation while they’re en route, sent from a drone hovering 200 feet above.

If so, they might have Brandon Borko to thank. Credit would also be due to the people who funded his Arlington, Virginia startup: not some tech-savvy crowd of Silicon Valley financiers, but the U.S. government. The same government that’s often derided as clumsy and clueless when it comes to innovation, and compared unfavorably with a pioneering private sector.

In fact, federal investment in research and development, from cancer treatments to the Internet to multi-touch screens, has saved or enriched enough lives — and seeded enough economic growth — to make you wonder why there isn’t more of it. Yet seven years into an anemic U.S. recovery, in an election season that’s seen both candidates promise to loosen the purse-strings, the focus is elsewhere: on infrastructure. It’s not a straight either-or, of course, and no one’s denying that America could use better roads and bridges. But there are other, perhaps more productive ways the government can spend money.

Borko’s idea might be a case in point. It involves something called swarm technology, which programs flight-paths for drones. He did run it by a bevy of venture capitalists, and he says they were excited; but they balked at writing a check because the rules on robotic flight are so restrictive.

‘Experimental Tolerance’

The Pentagon’s Defense Advanced Research Projects Agency, spotting a potential battlefield use, took the risk. Borko has a different application in mind: he envisages a 911 switchboard operator taking down an address and plugging it into software that automatically dispatches the drones from their beehives to assess the emergency scene.

“If people can’t see where the industry is going, it won’t be developed by the private sector,” said Borko, who’s 30. “There is a lot more experimental tolerance in the government.”

Maybe so, but there’s limited tolerance for fiscal loosening in Congress. Spending caps imposed under a 2011 law make it difficult for lawmakers to steer dollars toward research without cutting elsewhere.

When it comes to infrastructure, a battalion of economic heavyweights — led by Harvard professor and former Treasury Secretary Lawrence Summers — has been taking regular shots at congressional penny-pinching. Hillary Clinton and Donald Trump are persuaded. The former secretary of state proposes spending $275 billion over five years; Trump said he would spend “at least double” that amount.

‘Bang for Buck’

There’s nothing like that mobilization to lobby for research spending. There should be, according to Robert Atkinson, president of the Information Technology and Innovation Foundation, a Washington think tank.

“If you have a dollar to spend in the U.S. government and you say, ‘What is the biggest bang for the buck, roads or research?’ — there is no question it is going to be research,” he said. Atkinson’s job title suggests a vested interest but he’s been on both sides of the debate, serving as chair of an infrastructure commission under President George W. Bush.

Research and development accounted for 3.72 percent of federal outlays in 2014, according to National Science Foundation data. That compares with 2.74 percent for transportation and water infrastructure, according to the Congressional Budget Office.

It’s easy to see why politicians might want to tilt the other way. Economic inequality plays a growing role in the national debate, and construction programs create jobs for low-income Americans who’ve seen their traditional industries eroded by trade. They’re redistributive, in other words, and the transfer begins as soon as shovels hit the ground.

Research jobs typically go to a more educated workforce that has higher earnings and lower rates of unemployment. And there are concerns that corporations can piggyback on taxpayer-funded science to reap profits that mostly accrue to their owners or shareholders.

At least one U.S. politician has spoken out on the issue. Democratic Senator Elizabeth Warren says it’s time for the government to take a bigger cut from companies whose profits depend on technology that germinated in federally funded research. “The current generation of corporate winners must step up and pay its fair share,” she wrote this month in a New York Times op-ed.

One reason that’s a hard sell is because the government is outgunned by corporations when it comes to public relations, according to Mariana Mazzucato, an economics professor and author of the 2013 book “The Entrepreneurial State.” In fields like technology or pharmaceuticals, she argues, big business works hard to label the government as a meddler not an innovator, even though those same companies reap massive benefits from state-backed research.

Unexpected Places

The overall economy benefits too, though it’s hard to measure exactly how much. New technologies, or even theories, can take decades to yield dividends, and when they do it’s often in unexpected places.

It’s a complex picture. But anytime one corner of it is put under the data microscope, the results are startling.

Every dollar of the $14.5 billion the U.S. government contributed to mapping the human genome generated an additional $65 in economic output, according to a 2013 study by the Battelle Research Institute. The Department of Defense says its license agreements with industry added about $48.8 billion to the economy between 2000 and 2014.

The Pentagon, whose role in building what became the Internet is well known, is a major player in government-backed research, with deep pockets. The National Science Foundation has a smaller budget, but Maureen Mulvihill says her medical-tools company Actuated Medical was only able to thrive with its help. The foundation provided $2 million in grants to help Actuated Medical Inc. develop a cleaning system for feeding tubes, a project which took four years.

‘Incredible’ Innovation

“This company has done incredible innovative medical devices that a venture capitalist would not have funded because either the market for it isn’t very large, or it’s high risk,” said Mulvihill. Actuated is now using a $1.5 million grant from another government agency, the National Institutes of Health, to develop a similar device for pediatric feeding tubes.

When such innovations succeed, even fiscal hawks find it harder to object to the government’s sponsorship. But they become easy targets when they fail, as many must.

Another common objection to federal dollars for research is that the choice of what to fund is often driven by political correctness or pet causes, not proper science.

Henry Miller, an M.D. and biologist at Stanford University’s Hoover Institution, points to a study by an NIH unit that examined whether cranberry juice had any beneficial effect on recurring urinary tract infections. Not really, it concluded, $2.2 million later.

‘Aha!’ Moments

“That is an insult to real research that elucidates basic biological processes,” Miller said in an interview. “It is really atrocious.”

Jonathan Aberman says the government needs to make tough, strategic decisions about what deserves funding. Aberman is the founder of TandemNSI, an Arlington, Virginia firm which contracts with federal agencies to help find entrepreneurs. He helped Borko’s firm, Sentien Robotics, make contact with the Pentagon’s research arm, which took an interest in his drone project.

Aberman says the government’s choices should be informed about a wider idea of what science can do.

“The question is should our society invest part of its national wealth in discovery?” he said. “If all R&D is done by corporations where it is directly related to what they can sell you today, we lose the meandering, the ‘aha!’ moments, the discoveries that make the next new thing.”

Read entire article at Bloomberg.com.

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Last week Donald Trump uttered something that businesspeople often think, but rarely say. During the presidential debate, he boasted that not paying taxes is “very smart.” The resulting conversation and outrage is important for us to understand, because the system is faulty.

Let’s not beat around the bush here. Americans are driven by a sense of fairness, and the burden of taxes is no exception. The reality is that many Americans do not feel that the tax system is fair. According to Pew Research Center only 54 percent of Americans think they pay a reasonable amount in taxes, while six out of 10 think “rich people and corporations do not pay their fair share.”

In the 1950s, taxes paid by corporations funded as much as a third of the federal budget. Last year, that portion was approximately 10 percent. During the same period, the portion of the government supported by taxes automatically withheld from wages dramatically increased. Something has changed the tax base and where the money comes from.

There are many ways to look at taxes, and data can be found to support many arguments. It can be very confusing, particularly when issues of ideology are added to the conversation.

Trump has essentially highlighted something Americans already suspect: the federal tax code has far too many tax expenditures. Tax expenditures are deductions from an individual or corporation’s tax bill and are intended to subsidize specific behaviors. They end up reducing a taxpayer’s overall tax bill. Examples of tax expenditures include the residential mortgage tax deduction, child care credit, energy exploration subsidies and business entertainment. In fact, last year’s federal budget itemized 169 specific tax expenditures.

Politicians love tax expenditures because their cost is not easy to measure. Specific expenditures are usually linked to a tangible item or outcome, for example a bomber or school lunch program. Their cost is clearly seen.

Tax expenditures are harder to quantify because they do not show up in a budget as a spending item. Their true cost can only be seen after the fact, and quantified if at all as a “but for” number — the amount of tax that would have been paid were the tax expenditure not in place.

Because of the broad range of tax expenditures now in use, just about every American taxpayer benefits from at least one of them.

However, it is only the very poor and very wealthy who are most likely able to use tax expenditures to reduce their tax liability to zero. These savvy tax filers are merely applying the deductions and subsidies available to them under the law. That is how Trump can claim to be smart.

By raising this issue, he brings to light a more important truth: tax breaks…

Read entire column at WashingtonPost.com.

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