April 2017

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Maryland’s technology industry has never been short on talent or ideas, thanks partly to the federal government’s local presence. National Institutes of Health installations bolster a sizable biotechnology industry in Montgomery County, and the National Security Agency’s headquarters in Fort Meade supports a thriving cybersecurity sector in the D.C.-Baltimore corridor.

But most of that work is closely related to serving the federal government. Some regional economic experts would rather see a local technology industry linked to commercial markets, possibly enabling wealth creation of the kind seen in places like Silicon Valley. Efforts to create a broader commercial industry have been piecemeal, with some of the region’s most promising firms leaving for other cities in search of funding.

“This is a big problem that’s going to require a lot of money and a lot of concerted effort,” said Jonathan Aberman, a Virginia-based technology investor.

Maryland has tried to solve that problem by handing out small taxpayer-funded investments each year to promising start-ups in the earliest stages of development. Maryland’s Technology Development Corp. (TEDCO) hands out $100,000 investments in state-appropriated money to start-ups deemed to show potential.

But officials have found that the small investments, typically given to companies with only a few employees, aren’t enough for some firms.

On Tuesday, the state announced a program called the GAP Investment Fund. The fund is designed to make investments of $200,000 to $500,000. The plan is to cater to start-ups that…

Read entire news story in The Washington Post.

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As the greater Washington region prepares for the promised cuts in government spending, the question is whether the private sector will be able to pivot and provide new employment opportunities.

This will depend upon whether our region’s private businesses can grow. To help our local business owners get ready to meet this challenge, I asked the members of FounderCorps, a group of experienced entrepreneurs, for advice on this important topic: how do you grow a business?

For most of them, the answer is straightforward. To grow, a business must create something that people want and keep giving it to them. Alex Murphy, founder of WorkHarmony, a company that builds apps to bridge the skills gap, got to the heart of the matter: “Growth comes from doing something much better than anyone else.” What you offer a customer must “make a difference” to the customer.

Chris McAuliffe, co-founder of Theragen, sells medical products and innovations. For him, success always comes from the same place. “You must be better than your competition” in satisfying your customers.

Eric Koefoot, founder of PublicRelay, a public relations monitoring and analytics service, believes in “obsessing” about customers and whether they are happy with the product and services they are getting. If they are happy, they will tell their friends, new customers are created, and the company develops an even better reputation. For him the bottom line is simple: “without super happy customers, growth is virtually impossible.”

Mark Walsh, a board advisor to many well-regarded start-ups, adds that keeping customers happy is more efficient than finding new ones. “Taking care of your current customers is the easiest and cheapest path to growth.”

It’s also important to recognize that not every potential customer is necessarily a good one. Narrowing the customers on which the business will focus will accelerate the ability to achieve a higher level of competence.

Lee Weinstein, CEO of technology sales and consulting firm NewbridgeTuring and member of the board of directors of EagleBank, believes that the customers a business turns down are sometimes more important than the ones it serves. Having laser beam focus on customers’ needs makes it easy to satisfy their demands.

Many I asked pointed out that once a good customer fit is identified, the challenge is then on how to replicate this fit again and again, while growing the team, finding new customers and entering new markets. “There is no Miracle Gro for business,” is how Yonald Chery, chief technology officer of DataTribe described it. To succeed, there is no magic potion or secret sauce. Growing a business was just repetition of a formula that works.

The greater Washington region has a vibrant business community; indeed, it is the number one region for business formation in the United States. But, many of its most committed business owners are involved with serving the federal customer. Because of the nature of government purchasing rules, issues of customer attachment and building relationships are typically not part of the process of building businesses, because federal contracting rules are designed to eliminate the direct relationship between individual customers and vendors.

When we talk about having the region’s private sector grow, it is important to note the elemental truth of business growth in the private sector: connecting with the customer. It is not intuitive for a large portion of our workforce and business leaders here. We need to find as many opportunities for our region’s experienced business owners who sell to private customers to share what they have learned.

Is our region entrepreneurial enough to survive a shrinking government? It is not a lack of entrepreneurship that will challenge us. It is whether we can adopt to the dynamics of business growth through customer connection.

This column originally appeared in The Washington Post.

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Beyond the boom of younger workers flooding in, Washington is grappling with longer-term economic challenges

The Washington, D.C. economy is preparing for the day when younger workers break up with it.

The fading of a Millennial-infused population boom in the nation’s capital that carried through the Obama years, combined with Trump’s efforts to slash the federal workforce, are but two factors that have the local economy locked in a painful transition from skyrocketing growth reliant largely on its federal patron to a more diversified and self-sustaining market.

The 68-square-mile city could be in for some more growing pains as the Trump administration has directed agencies, effective Thursday, to hire only in line with levels proposed in the president’s “skinny budget” submitted last month.

Meanwhile, businesses, economists and policy makers are grappling with bigger challenges for D.C.:

1. Population and the Millennial boom

From 1990 to 2000, D.C. was alone against the 50 states and Puerto Rico to see a decline in population, of 5.7 percent. In the decade following, Michigan earned that dubious title while Washington made up ground with a 5.2 percent increase. And in the more than half-decade since, the city enjoyed a 12.6 percent boom while the country saw population growth of around 4.5 percent.

The outlook depends on Millennials, who flocked to the city as a haven for jobs after the last financial crash. While the city remains attractive for its job and income prospects relative to other urban hot spots, expensive childcare could prompt outflows of those younger residents, according to a March report on millennials in D.C. by American University and commissioned by Kaiser Permanente.

For Neil Albert, president and executive director of the DowntownDC Business Improvement District, the city’s still doing just fine in this respect.

“We have strong assumptions of population growth, and the population continues to grow at a pretty healthy clip,” at around 800-900 residents a month, he said.

2. Homelessness and housing prices

Beneath the lush opportunities for young people and other middle- and higher-income job holders in the city is a still-plentiful army of homelessness, helping to show why the city remains challenged by rampant inequality. Washington ranked worst in homelessness among 32 cities whose mayors are members of the U.S. Conference of Mayors Task Force on Hunger and Homelessness, according to the group’s December report.

For homeless people to climb into an earnings bracket that will allow them to afford their own housing, the stock of low-income homes will have to increase.

“The elephant in the room is there’s no place for people to live — there’s not low-cost opportunities for people to live when they are trying to come out of homelessness,” said David Whitehead, housing program organizer at Greater Greater Washington, an advocacy group and community blog.

Rob Wohl, tenant organizer at the Latino Economic Development Center, said the city is putting forth “unprecedented” spending on affordable housing development, but is “still losing more low-cost housing than we’re building.”

An index of housing prices in Washington has increased nearly 30 percent to 217.12 since the post-recession trough in April 2009, exceeding the 26 percent rise nationally, according to S&P CoreLogic Case-Shiller data. Renting is also incredibly pricey, with the median monthly bill for a two-bedroom apartment listed at $3,050, the fourth-most expensive of the 100 largest cities in the country, Apartment List data show.

The soaring housing bills have pushed many longtime Washington residents out to the suburbs, though they also threaten the viability of city living for the middle class.

“I’d be worried that not investing enough in affordable housing could damage the ability to have a diverse economy and draw in the kinds of young people who could stay for the long term,” said Ed Lazere, executive director of the D.C. Fiscal Policy Institute.

3. Federal share of jobs

For decades, the economic engine of the city has relied on what Yesim Taylor calls “Fortune One,” or the government, rather than any Fortune 500 firm. Taylor, the founder and director of the D.C. Policy Center and former director of fiscal and legislative analysis for the city’s government, laments that the region isn’t diversified enough and has failed to attract high-value companies to house themselves alongside the federal government.

While the government’s share of jobs in the region has ebbed, it’s still quite high, according to Jeannette Chapman, deputy director of the Fuller Institute at George Mason University. In the immediate two years following sequestration, ending in March 2016, government jobs increased just 1.8 percent while all jobs in the Washington metropolitan area grew 3.5 percent, according to tallies by the Institute, which studies the city’s economy.

Chapman said she’s also concerned that most of the newly created jobs have been low-skilled, “resident-serving” jobs such as retail that simply respond to population growth and don’t build the economy for the longer term. Advanced industry jobs grew just 1.9 percent during that two-year period.

Even as the tech industry in the region has been “really, really, really, really good at delivering innovation in the services model,” the sector hasn’t yet adjusted as it should to a more product-oriented approach, said Jonathan Aberman, professor of entrepreneurship at the University of Maryland’s Smith School of Business.

“What you have is a very clear picture of an innovation community that is configured completely wrong to deal with the coming tsunami of government spending changes on technology,” said Aberman.

4. Restaurant glut?

One part of that shift in the mix of D.C. jobs has been a boost to the restaurant industry, in a city once mocked for its lack of foodie…

Full article at Bloomberg.com.

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Lean start-up methodology, a tool used by many successful entrepreneurs, has been used to describe the Trump Administration’s approach to governing.

While “failing fast and breaking things” is a phrase uttered by many entrepreneurs using the lean start-up approach, I am just not sanguine about its application to government leadership.

Lean start-up methodology starts with a key insight: that large and small companies are very different from each other. A small business is not a mini version of a large company. In fact, a fledgling company is not even a business at all; it is a small team with only one activity: discovering the fit between a product and potential customers. Start-up folks call this activity “customer discovery.”

During the customer discovery period, expenses are kept low and founders get out and talk with potential customers. Armed with at most an inexpensively built prototype, entrepreneurs hit the pavement even before the commercial product is completed. The goal is to first find out whether anyone will want the product before incurring significant expense or wasting years on a fruitless quest.

Frankly, I wish more entrepreneurs applied lean start-up tools. As an investor, I have met countless innovators who have built a product or service offering through considerable sacrifice and expense, without first determining whether a market for the product actually exists. Technology is surprisingly fungible, but the ability to satisfy a customer is rare.

There is no doubt that small, engaged teams encouraged to experiment are more likely to find a good product/market fit. This can be just as true in politics and government. I have seen customer discovery principles applied to effecting change within government and finding agile solutions to national security challenges.

However, in both business and in governing, there is a significant limitation to the agility and rapid experimentation at the core of the lean start-up process: it doesn’t enlighten a business leader or a government official on how to achieve consistency.

In business, the constant churn of experimentation and revision must evolve into building an organization that can scale and grow revenue through coordinated actions by larger groups who create and execute a business strategy for sustainable excellence. A consistent and predictable approach to sales, hiring, compensation and branding is a must. A constant feedback loop between customers and management is pivotal, so that as customer demand grows, the organization can obtain resources to satisfy its customers.

For governing, the same is also true.

In foreign policy, our allies examine our leaders’ statements and look for consistency in viewpoint. We also see it in the coordination necessary to provide services and engage in national security.

In business and in government, we rightly admire people willing to take the risk of trying something new, and we should encourage the continued use of customer discovery and rapid experimentation as tools to understand how our actions affect those we serve. However, we should not confuse “busyness” or chaos for progress, and breaking things for strategy.

The mistake many make when they apply the principles of experimentation and customer discovery is to forget that it is not the process that ultimately matters, it is the outcome.

Winning in business and in government ultimately requires the same skills: focus, strength and consistency. Mastering customer discovery is not the same as scaling a business. Winning an election through agility and creativity is not the same as governing.

The quicker we encourage the application of the lean start-up methodology to improve delivery of service to citizens, the better. The quicker our presidential leadership proves that deliberate, thoughtful consistency is being applied to the act of governance, the better many Americans will sleep.

This column originally appeared in The Washington Post.

 

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Most Americans are dismayed to learn that intentional disinformation likely affected our recent presidential election. The implications for our nation are large and the stakes are high. Interestingly, many of the questions swirl around who is responsible and what methods were used manipulate our sources of news.

What isn’t being so avidly discussed is why Americans fell for it. Sadly, I think the answer may have more to do with how we do business than we are ready to comfortably admit.

A growing number of Americans are generally disgusted with the status quo. Causes for the discontent include unemployment, technological change, imports, immigration, arguments surrounding morality and spirituality, and insecurities rooted way back to the economic dislocation of the Great Recession. So yes, there was a desire for a nontraditional candidate or approach, However, that does not explain why Americans are easily manipulated by information that is simply not true. That’s where business comes in.

Marketing professionals have long pursued a very simple goal: get people emotionally attached to a product so they will want to consume it. With the advent of mass media, this business model required even further simplification. The broader the reach, the more widely understood a message had to be: use the right toothpaste to get a good date. Drive a high-end car to be respected by others. Drink the newest beer to have a good time.

The evolution of the delivery of the marketing messages, from radio to TV, then to the Internet, onto mobile and beyond, created the conditions for more effective access to targeted consumers. However, each medium created pressure for brevity and spawned further simplification of messaging. All this while mass media expanded beyond anyone’s expectations and innumerable sources of information aimed at consumers exploded into a cacophony.

For marketers, the task of coaxing consumers was compounded by the challenge of rising above that noise. Anthropologists and psychologists have shown how the human mind determines which information to ingest and act upon. When information triggers a deep emotional response — and connects to a primal need — it will have a strong effect on behavior. It’s why so many advertisements are based on the fear of missing out or sex appeal.

Humans adapt to our environments and modify our behavior from what we learn. In an accelerating world of shorter and pithier soundbites, we instinctively seek simplicity by selecting which information suits us best. That, in turn, creates greater pressure on advertisers to find attractive ways to attract consumers’ attention.

Enter the marketplace of news. Decades ago, there were comparatively few journalistic outlets providing news at dedicated times of the day. But today, just like the flow of products competing for our attention, news is unending, often alarming, and all-too-often “breaking.”

Politicians scramble to win in this information environment. They market themselves and their ideas using methods learned from modern media and advertising. It is not surprising that our new president was a businessman, someone comfortable with winning media attention by rising above the noise with messaging that was catchy, easily understood and triggered emotional reactions.

After decades of watching commercials that told consumers what they need and how they will feel if they buy a specific product – where broader concepts are obscured or misstated – many Americans have not honed their ability to think critically about whether information is objectively true. They don’t recognize when a highly complex issue has been crudely summarized by the mass media to the detriment of one’s ability to form an educated opinion. Americans have been subtlety conditioned to value information that triggers an emotional reaction. There was no sinister intent – it was just business.

Long after today’s political scandal-of-the-day is resolved, a bigger issue will remain: Americans’ developed preference for shallow but exciting information. When ideas are sold the very same way soap is sold, the most important nuances will often get lost in the wash.

This column originally appeared in The Washington Post.

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