January 2018

 

The challenge of knowing whether what you read online is true has gotten national attention. It is proving harder and harder to separate factually based writing from intentional misinformation or click-bait. This problem is about to get exponentially worse.

We should all be concerned about living in what Peter Horan, a long-time veteran of the Internet industry, describes as a “post-truth society” — a society where “whether or not it has a foundation in fact, anything that is repeated often enough is believed to be true.”

The Internet has driven down the cost of producing content and distributing it broadly to effectively zero. It has also made the cost of reviewing written information for probity and integrity higher in comparison. Sadly, insuring that something is true requires more time and expense than making something up.

Until recently, the cost advantage that drives the ubiquity of false written information did not prevail for video images. A recent study by the Belfer Center at Harvard highlighted that since the invention of the photographic camera, “the technology for capturing highly reliable evidence has been significantly cheaper and more available than the technology for producing convincing forgeries.” This allowed people seeing images of a politician taking a bribe, a celebrity staring in a sex tape, or other sensational images, to be relatively comfortable that the depicted event actually occurred.

Last week, a number of technology blogs alerted us to the proliferation of inexpensive video editing software that creates realistic pornographic videos of celebrities. As inexpensive video editing technology is combined with artificial intelligence, creating fake videos have become indistinguishable from reality.

This development will challenge our society. But, it should also create an economic opportunity for our region.

Our largest regional industry, national security, sees the degradation of the fidelity of information as an existential security challenge. Chuck Howell, chief scientist for dependable artificial intelligence at the research contractor MITRE, points to an “arms race over various kinds of deception” attracting the attention of our national security establishment.

Many of our largest private businesses – media, consulting, advertising and other highly skilled knowledge worker businesses – depend upon the reliability of information and a consequent shared reality. More than many others, our region’s economy depends on informational expertise and having insights that are expensive to generate and correspondingly scarce. A world that does not share facts and informational integrity has no way to value informational experts. In that world, many of our businesses will suffer.

Therefore, our region has a very stark choice to make. It can either accept that the erosion of the quality of information is an irreversible technological trend, as many national observers have suggested. Or it can meet the challenge and fight for information quality and objectively demonstrable facts.

When I asked Kurt Roberts, chief innovation officer at RP3 Agency, about the threat posed by technology cheapening information, he told me we should “flip the notion on its head” and focus on using technology to help people know whether something is true or fake. This point was echoed by Adam Zuckerman, founder of the Fosterly community that promotes regional entrepreneurship. For him, technology is neither good nor bad. It just is a tool, and how we use it is an opportunity.

Any entrepreneur will tell you that the biggest businesses are often built by solving society’s biggest problems. We have the technologists and entrepreneurs to come up with new technology applications and the means to ensure that our society is based upon a shared reality and facts. We also have large customers that need that those solutions now more than ever.

Informational integrity may be a political issue for all, but for our region it is also a large business opportunity.

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Many in the greater Washington business community woke up this morning to a very uncertain work week. A federal government shutdown, whether it lasts days or weeks, raises serious challenges to our region’s economic prospects.

Virginia Gov. Ralph Northam (D) in a public statement on Friday said the federal shutdown would have a disproportionately negative effect on our region’s economy and would put jobs and economic growth at risk, adding it was “past time for leaders in Washington to get their act together and come to an agreement on long-term funding solutions for the federal government.”

The already extant business uncertainty caused by past short-term funding agreements and sequestration will be exacerbated by this current shutdown. Bobbie Kilberg, chief executive of the Northern Virginia Technology Council, pointed to the many members of her group doing business with the federal government that would lose revenue in the near term and have a difficult time planning for future growth. Since our region’s government contractors receive approximately $1.3 billion in revenue each week from federal government procurement, a shutdown or the unpredictability of short-term spending deals

In addition to the potential harm to businesses, the federal shutdown will leave hundreds of thousands of federal employees with a lot of spare time and no paychecks. Federal rules do not allow non-essential individuals to work for the government without pay, so many federal workers will be furloughed for the duration of a shutdown. Just look at the numbers: The federal government is responsible for 367.900 civilian jobs in the Washington area with a weekly payroll of $777 million, along with another 64,500 military jobs accounting for $122 million in weekly payroll and benefits.

Jeannette Chapman, deputy director and senior research associate at George Mason University’s Stephen S. Fuller Institute, cautioned that the harm from a short shutdown was more reputational than economic. A short shutdown would reinforce the view held by many nationally that the D.C. region is defined by government dysfunction. She believed the actual economic harm from a short-term shutdown would be small, “somewhat similar to a snow storm,” and any lost economic activity would be mostly made up post-shutdown.

However, the longer the shutdown lasts into weeks or longer, she identified much greater economic harm. Chapman pointed to households of government employees that do not have savings to cover expenses during the shutdown, workers that generate income from government contracting jobs who get paid hourly wages only when they work, and family-owned businesses that serve government personnel (such as restaurants and dry cleaners) as all being particularly vulnerable.

She was also concerned that there was no assurance that government workers would receive back pay after their furloughs ended. There is no federal obligation to pay back wages, leaving the issue to be addressed in federal legislation when the government reopens. After each prior federal shutdown, legislation was passed to provide for back pay, but that might not happen in the current political environment. The economic hole created if furloughed government employees are not paid back wages could be significant. Chapman pointed out that even if only 30 percent of furloughed civilian workers didn’t receive back pay this would take $233 million out of our region’s economy for each week of lost pay. This is money that will be lost forever – dragging down our economic growth and creating financial distress for many families.

Our region is disproportionately and adversely affected by a national political dispute in which our region’s economy is collateral damage. This is the downside of our region’s strong interdependence with the federal government, a relationship that over time has created significant wealth and business opportunities.

As we look at the likely harm to our region, we should be justifiably angry at our national politicians for endangering our region’s economy as a result of their failure to govern. However, we should also turn our anger into energy that we focus on the opportunities before us.

Bob Buchanan, president of the local advocacy organization 2030 Group, reminded me that the shutdown is juxtaposed with Amazon identifying our region as having three of the 20 finalists under consideration for the home of its second headquarters project. We shouldn’t lose track of the desirability of our private sector work force and our community.

He is right. I know from my own work that a growing number of businesses are locating in our region and growing in areas such as healthcare, software, education, consumer products and hospitality without any connection to the public sector at all. The reality of our region’s economy is that we have a vibrant and growing private sector business community.

In life, we often learn much about ourselves by how we react to adversity: are we victimized by circumstances or do we meet challenges head on? This can be a moment when we take stock of the many advantages our region has, and we increase our commitment to growing our non government business community.

We can choose to endure the dislocation of a federal shutdown, and hope for a return to business as usual. Or, we can take the opportunity to show the world that Washington, DC is much more than a company town and celebrate our economic diversity.

I think our region is up to this challenge. What do you think?

 

 

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Jonathan Aberman was quoted in this article on CNN/Money “Three Amazon Fnalists are Inside the Beltway. What gives?

“Real software and tech innovation isn’t just product innovation, it’s services solutions, and just being skilled at managing technology, and we’re really the leaders in that in the world,” said Jonathan Aberman, a D.C.-area tech investor. “So I think Amazon’s interest in this region shows how informed they are about the nature of technology talent.”

Given its longstanding desire to diversify away from the federal government and businesses that depend on it, the D.C. area could benefit enormously from having a large Amazon campus in any of the three jurisdictions, Aberman said.

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It’s critical that community leaders understand our region’s workforce trends. A recent workforce report from LinkedIn is essential reading.

 With more than 143 million individual members in the United States and 3 million job postings a month, LinkedIn has a large and current data base to use in identifying employment trends.

LinkedIn’s report shows that of the 20 largest metropolitan areas in the United States, Washington, D.C. and its suburbs have the slowest percentage increase in hiring during 2017. Measured against an average hiring increase of 10.8 percent, our region had a hiring increase of only 3.5 percent. That’s worse than the San Francisco Bay area, which had a hiring growth rate of 3.9 percent. Places with diversified local economies and affordable housing performed much better than the national average, with the three fastest growing areas being Houston, Phoenix and Dallas-Fort Worth.

LinkedIn also follows migration of workers and population based upon the profile locations of its members. This effort highlighted the troubling fact that nationally two of the 10 largest losers of workers were nearby: Norfolk was fourth and Baltimore was ninth. The areas with the largest number of lost workers were Providence and Hartford.

Meanwhile, no locality in our region was among the top locations for inward job migration. Places like Austin, Denver and Seattle were top destinations. Our region did rate as one of the most active job markets from the standpoint of inbound and outbound migration taken as a whole, with Washington, D.C. and its suburbs being the sixth most-active region. Austin, San Diego and Orange County, California led the way in migration activity.

LinkedIn also tracks what it describes as emerging jobs–careers where the worker’s skills and role are directly relevant to the growth of technology-driven businesses. Our region attracted workers in many of the emerging job categories, including data mining, business development and relationship management, and sales. It was not alone in looking to attract these workers, however, as our region faced strong competition for these valuable workers from the San Francisco Bay area, New York City, Los Angeles and Dallas.

Unfortunately, according to LinkedIn, we are not winning this competition.

Our region is not attracting workers at the rates of competing regions. In fact, we are losing workers. The top three locations for outbound migration from our region were the San Francisco Bay area, Denver and Seattle. Observers who have suggested that we are losing people who want to be software product entrepreneurs will likely find vindication in this data. Meanwhile, within our region, Washington, D.C. and its suburbs gained workers through inbound migration from Baltimore, Norfolk and Charlottesville. Redistributing workers may create pockets of growth, but does not provide for regional growth overall.

What is clear from the LinkedIn data is that we have jobs going unfilled because we are not attracting, retaining, or training a sufficient number of workers, particularly in emerging job categories. This conclusion is consistent with a recent report produced by the Greater Washington Partnership, as well as past reports prepared by regional experts such as Steven Fuller.

At some point we must acknowledge what data and experts are telling us: without concerted action, our region will have a continued mismatch between our workforce and available jobs. In the long term, employers will either find the workers they need here, or they will relocate their businesses to elsewhere. In the near term, every available high-paying job that is unfilled is an economic opportunity lost.

Unless we ensure that our region is focused on being an enticing place to live, and develop effective processes to develop the skilled workforce we need, we will continue to lag behind competing economies around the nation and the world. And over time we will likely fall further and further behind.

If you aren’t concerned, you aren’t paying attention.

 

 

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The federal government is the primary customer of a substantial portion of our region’s technology businesses. So it bears watching what it does. Industry participants tell me that the coming year looks promising, but even so, there are reasons for concern.

Bobbie Kilberg, president and chief executive of the local trade group, the Northern Virginia Technology Council, and someone with her finger on the pulse of our region’s technology economy, is optimistic that 2018 will be a good year for the government contracting industry. She points to the Trump administration’s attention to IT modernization and innovation, focusing on what she describes as the “plumbing of administration.”

This modernization trend dovetails closely with areas where our local businesses have proven technology expertise. John Wood, CEO of Telos, a company that focuses on data security and integrity, said the federal government’s rapid adoption of cloud-based software should play to a regional strength. Michael Isman, managing director of Deloitte Consulting, said there will likely be opportunities in digital reality, blockchain data storage, and automation.

Anita Antenucci, senior managing director at the law firm Houlihan Lokey, a mergers and acquisitions expert, points directly to our local expertise in serving the specific needs of the government customer. Emerging technologies that are driving changes in the private sector are just as necessary to the government, if not more so. When the government has what Antenucci describes as “demanding and urgent” challenges, it is our local businesses that satisfy the need. She points to cybersecurity as a specific example of this phenomenon. Chuck Brooks, a nationally-recognized observer of technology trends, agreed with Antenucci, adding that “the growth in both the number and quality of cybersecurity companies in greater D.C. has been amazing.”

Owners of businesses that deliver technology solutions and products that government needs will have an additional opportunity: the potential to sell their companies to motivated purchasers. Kevin DeSanto, managing director and co-founder of KippsDeSanto and an expert on mergers and acquisitions, sees current stock market and interest rate trends as providing strong incentives for larger companies to be aggressive about purchasing smaller businesses in 2018. Antenucci strongly echoed this sentiment.

Although reasons for optimism abound, there are also reasons to fear that the pace of government purchasing might be slower than the urgency of the need for new technologies would suggest. Paul Leslie, CEO of Dovel, a government contractor with a focus on health care and life sciences, said in 2017, the pace of government purchasing of technology services was slowed by the steep learning curve of new political appointees getting comfortable with their roles. He was hopeful that with their greater comfort “we will see a release of that acquisition bottleneck this year.”

While that issue is important, the biggest challenge to our region’s government contracting industry is political risk. Wood spoke for many of his peers by observing that while the general public might be inured to it, the lack of a predictable annual budget is a “grossly inefficient way to operate” and makes it very difficult for companies that sell to the federal government. Kilberg agreed this was a serious issue, explaining further that “the serial adoption of continuing resolutions to fund our federal government rather than federal budgets has impeded the ability of businesses to plan or expand with confidence.” Continuing resolutions that extend funding for short periods, and don’t provide for funding for new programs, can be as harmful to our local economy as sequestration or budget cuts.

Based on what I learned, the prospects for government contractors in 2018 reflect both the best and worst of our region’s close relationship with the federal government. This year will provide many of our region’s most entrepreneurial businesses with the revenue opportunities to grow their businesses, while leaving our region more open than are competing regions to economic hardship resulting from political dysfunction.

While some will say that the outlook for our government contracting industry should remind us that diversifying our innovation community is an important goal, I also take it as a reminder that it is essential for those of us who care about our region’s future to remain politically engaged.

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New Year’s Day offers an opportunity to reflect on lessons learned from the prior year. So last week I asked members of the business community the biggest lesson last year had taught them.

For many, the biggest lesson involved politics in some way. Some saw this as a positive thing, pointing out that bringing people together to achieve a goal, a behavior characteristic of successful entrepreneurs, had become a part of politics. Fran Craig, chief executive of Unanet, a software product business, pointed out this similarity: “Everyone can contribute so all can win. This was true in getting out the vote and [in] moving a technology business forward.” This sentiment was shared by Shekar Narasimhan, founder of the real estate investment firm Beekman Advisors, adding that taking an entrepreneurial approach to political action means that “business people can engage in the political arena without fear and can make a difference.”

There were limits to this view, though. A number of respondents thought the polarization of our political discourse meant that business people should be careful to separate what they did personally from their business operations. Chris McAuliffe, CEO of Theragen, a medical device startup, raised the concern that if a business itself became politically active in the current political environment, it risked alienating a significant portion of its market. He advises businesses to “remain politically agnostic in favor of delivering value to your customers.”

Another theme that surfaced was the importance of continued progress in regional coordination. Bob Sweeney, managing director of the Global Cities Initiative, and an expert on our region’s economic development activities, pointed to how greater Washington region’s pursuit of Amazon’s second headquarters  highlighted our region’s ability to collaborate. Sweeney worked with representatives of eight different jurisdictions to promote our region to Amazon, and he was pleased with their ability to find commonality in how they described our region’s assets, providing what he described as a “fantastic regional story.”

Bob Buchanan, chair of the 2030 Group, a regional advocacy group, echoed the lesson learned from the Amazon bid. However, the bigger question for him was whether our region’s political leaders truly listen to the business community or just give the appearance of engagement. His concern is that the “business community does not carry much weight” with our political leaders when it comes to addressing the region’s significant transportation and housing challenges.

Some respondents focused more narrowly on their own experiences and shared lessons for other entrepreneurs. Tien Wong, chairman and CEO of Opus 8, a technology investment firm, shared that his most important lesson of the year was to “always see the positive in every situation, even when it seems to be bad,” because doing so allows more creativity in responding to challenges. Ben Foster, a serial software product entrepreneur, pointed out that even as technology allows businesses to be buried in data about customer behavior, there is still no substitute for actually talking with customers if you wanted to understand them. Jamey Harvey, CEO of Courage, a software services business, added that it was essential to “never take the most important partners in your life for granted.”

What I learned from these responses is that the unique tapestry of our region – the proximity to the federal government, an economy that stretches across multiple political jurisdictions and a diverse range of entrepreneurial opportunities – draws to it many interesting and thoughtful people who get up every morning and make great things happen. It’s why I am happy to live here and why believe that our region is one of the leading entrepreneurial communities in the world.

Happy New Year, everyone. Let’s make 2018 a year to remember for good things.

 

 

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