May 2018

Experts agree that artificial intelligence’s capabilities are multiplying at an exponentially increasing rate. AI software can exercise intelligence that matches or exceeds our own at more and more tasks. Once software can make its own decisions, what is left for the human to do?

The autonomous cars on our roads, the automatic pilots flying our planes and the customer service software that measures our purchasing intent are all real-world examples of how rapidly AI’s capabilities are expanding and touching more aspects of our lives.

The key is that AI can make more and more decisions without human input and act autonomously. But aren’t we still the only beings with intelligence? Shouldn’t that be the criteria for who gets to make decision? Paul Scharre, a local expert on the military’s use of AI and author of the new book “Army of None,” pointed out to me that “intelligence is the ability to take in information and accomplish a task. This is not something that is unique to humans, nor is it inevitable that we will always be the best at applying intelligence to a particular task.” Humanity must have a plan for dealing with this new reality.

This question of applying autonomous AI to the military is getting much of the public attention of the tech industry and academic community. For instance, tech leaders such as Elon Musk have called for an outright ban on autonomous AI in warfare.

I believe this is happening for two reasons. First, the focus on autonomous AI’s use in war arises from peoples’ distaste for having software decide who lives and who dies. Second, individuals who will benefit financially from AI’s deployment in the civilian sector affirmatively use the military issue to deflect the conversation away from their own activities and plans.

The talk about banning military autonomous AI really is putting all our energy in the one problem that societal rules and norms already address. Scharre suggested to me that we should evaluate the likely use of AI in the military the same way we view nuclear weapons and other advanced military technologies. If we do, we realize that what prevents their use is the likelihood of similar response from an adversary. I agree with him. Is it sad that we develop technologies that can make our ability to kill one another ever more efficient? Absolutely. But we have at least figured out how to deal with the technologies’ implications.

Outside of the messy but addressable military issue there is a bigger and fundamental issue arising out of AI that many are dancing around. AI, particularly autonomous AI, will be more efficient than humans for many, many tasks. AI software won’t get tired, have a bad day or get distracted. In many cases, it will make decisions much faster than a human could.

Because our economy rewards efficiency, applying AI in business will be financially rewarding. This takes us to the issue fewer seem willing to discuss. We must discuss whether and to what extent we can tolerate the efficiency gains autonomous AI creates in a capitalist society if it makes human labor irrelevant or comparatively more expensive.

We do not have social norms or anything close to a political consensus on how to handle the inevitable job displacement of a population that in many instances is not only computer illiterate, but which also doesn’t have adequate reading and math skills. Moreover, there will be many highly educated people who will also find their jobs disappear. We need to address their situation in a long-term, comprehensive way. The world is about to get more competitive because humans will no longer be competing just with other humans for employment.

Although killer robots trigger a visceral emotional response, as should any weapon of mass destruction that can kill humans efficiently, we urgently need a societal commitment to become a country of people who understand AI and thus can work with it. We must develop a technically skilled population with critical thinking skills and the creativity necessary to excel at the unique, non-repetitive tasks that humans will remain better able to do for the foreseeable future. Failure to do that will marginalize more and more people, and eventually challenge the legitimacy of a democratic and capitalistic society.

We can co-exist with AI, but we must get ready by making immediate, substantial and forward-thinking investments in education at all levels. Killer robots are scary, but not having a plan for what AI is going to do to our economy is much more frightening.

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Greater Washington needs a new approach to growing its technology startups. Unless we change what we are doing, the talent drain will continue, and economic activity will lag behind that of our competitors.

Ten years ago, the region’s technology economy was also at a tipping point. The enthusiasm and activity for starting tech companies had been driven by the first internet wave until it ran smack into the Great Recession. The world was rapidly running away from financial and business risk. Angel investors stopped funding startups and many people chose not to take the risk of starting new technology businesses. Meanwhile, the stability of working in federal employment, or selling to it, became compelling in comparison.

I and other members of our tech community rapidly reached consensus on two things we needed to do if the local entrepreneurial community was to stay focused on tech startups. The first was to reassure people that starting a tech company was still a risk worth taking and to advocate strongly for entrepreneurship as a positive career choice by sharing our stories and enthusiasm widely. The second was to mentor those who wanted to take the risk of starting a business by sharing our experiences to help new founders learn from our mistakes.

I helped lead two significant community groups that emerged as leaders of this movement toward mentorship and advocacy. The first was StartupAmerica, an initiative launched by Steve Case, and the second was FounderCorps, a not-for-profit I launched with a group of prominent regional entrepreneurs. Both initiatives focused on bringing experienced entrepreneurs into contact with emerging startup founders so that they could share their war stories, lessons learned and enthusiasm for the entrepreneurial journey.

In retrospect, these efforts were very successful. Many of our region’s best-known accelerators, incubators and mentorship programs were started by FounderCorps members and StartupAmerica leaders, including StartupVA/DC/MD, 1776, iCorps, TandemNSI and Connectpreneur. We were also able to influence various governments, as some of us worked directly in federal and state government in leadership roles. Today, of the more than 120 accelerators and incubators in our region, many have FounderCorps and StartupAmerica alumni providing active mentorship.

The positive results of these initiatives show that when our region’s experienced entrepreneurs work together we can make a difference to our tech ecosystem. By acting in concert 10 years ago, we helped ensure that our region remained committed to tech startup entrepreneurship and people continued to take the risk of starting tech businesses. As the broader economy recovered, the tech startup ecosystem we supported was still around to benefit from renewed access to risk capital and the greater risk tolerance of potential employees.

Today, we face new problems that threaten our tech ecosystem.

The first is that our collective focus on startup mentorship was so effective that we have helped to create an oversupply of places where startups can be formed, but the regional venture capital market has not grown at the same rate. This isn’t just a risk capital problem; it’s also an expertise problem. The lack of venture capital means that fewer companies get to benefit from the focused business scaling expertise that venture investors bring along with their funding.

The second problem is our region’s technology entrepreneur community has become far too reliant on the delivery of technology through consulting or build to suit, rather than the creation of technology products. Because many entrepreneurs took our enthusiasm and advocacy to heart and stayed in the game by selling to the federal government, the government’s technology purchasing practices and preferences shaped many of our region’s technology businesses and drew them away from the commercial market and product creation.

Both problems have resulted in other regions of the United States developing better ecosystems for creating commercial technology product companies. Venture capital prefers to scale product companies, and commercial customers prefer to buy products. This means that entrepreneurs who wish to build product companies move elsewhere, where there is funding and product company talent, and many of our entrepreneurs that do stay have a harder time building a team and scaling their businesses.

We are at a crossroads that can’t be solved through enthusiasm and advocacy. Although mentorship is enormously valuable for episodic advice, we need to create an ecosystem that will fill the void in scaling expertise created by a lack of venture capital through the creation of focused skill development. It’s no longer enough to make people excited; we must teach them how to develop commercial products.

As I did 10 years ago, I’m now talking with other experienced entrepreneurs and hatching a plan. Watch this space and get ready to help.

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Last week, an essay in a The Washington Post Magazine got my attention by asking an interesting question: Has Greater Washington become too cool to be the nation’s capital?

The essay used “cool” to describe a city with great apartments, trendy bars and modern condos that attracts and retains young talented workers but, in the process, replaces unglamorous but needed local businesses and changes neighborhoods. The essay argued that by working in a cool place our national government policy makers and workers are unable to empathize with Americans who don’t live in cool places and vice versa.

The essay suggests redistributing government workers across the country as a solution to the perceived “coolness problem.” I agree that our government should be more responsive to its citizens, but the suggestion that the solution is to deprive our local economy of one of its economic advantages is not something that I can accept. Let me explain why.

That solution — a legislated step toward equalizing regional incomes by distributing government spending around the nation — shows how this is really a conversation about economic development, focusing on how a region approaches issues of opportunity and fairness. The reality is that market forces determine whether a region becomes cool and how long its cool factor lasts. In a market-based economy, once people satisfy their basic requirements, those with discretionary income spend it on things that they enjoy. If a region creates high-paying jobs that attract highly educated knowledge workers, communities necessarily change to satisfy their tastes and expectations. Their higher salaries do drive housing costs upward and change the composition of neighborhoods. By competing for workers on a national scale, we do create the conditions for coolness and displacement to occur.

Speaking specifically about our region, let’s be clear that there are many likely reasons why the national government is becoming less connected with its citizens. I hear many more experts blame the Supreme Court’s decision in Citizens United and the weakening of our party system for giving a small number of wealthy families disproportionate influence on politics than those that blame gentrification. I also hear often that gerrymandering gives rise to political extremism, since candidates no longer worry about the general election, where they would have to appeal to a broad range of voters.

Nevertheless, we must acknowledge that coolness reflects underlying economic conditions that should be identified and addressed: What role should questions of economic fairness have in a market-based economy? Should economic development be based on winner-take-all thinking or on a system that leaves something for others? That’s really what any conversation about coolness and gentrification is about.

This is a hard conversation to have. As tempting as it may be sometimes, winners can’t just spike the football and gloat. There must be room for acknowledgement of others. Unless the winners take the time to create a broader shared stake in our communities, they will create social instability and resentment among whoever ends up on the losing end. Anyone who cares about the benefits of a market-based economy should be paying close attention to this. It’s great to be cool, but it’s smart to also be kind.

Distributing the federal government around the nation into smaller pockets won’t make it any more responsive to its people. Let’s be clear. The issue of coolness is not limited to our region, nor will it disappear in any place where there are market-based determinations of how resources and opportunities are allocated. Instead of running from the problem, let’s meet it head on.

Years ago, D.C. was established with a belief that it should be a different place — an exemplar for the nation of how to grow and manage a capital city. This is just as true today.

Creating connections and balancing cool with the commonplace is a goal that every region of the country should have, whether it’s the nation’s political capital or not. But here in our region we have a unique opportunity, because we are the nation’s capital, to provide leadership and an example of how you can be cool and kind.

It’s not our region’s proximity to the national government that makes this important. It’s our responsibility as citizens.

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Maryland recently enacted two new cybersecurity industry tax credits — good news for Maryland’s cybersecurity industry and also an example of how a business-oriented group can turn advocacy into results.

The first tax credit will promote investment in Maryland’s cybersecurity product companies by providing a credit for individuals and entities that invest at least $25,000 in those businesses. The second tax credit encourages small businesses to purchase cybersecurity products or services from Maryland-based businesses, by giving them a tax credit equal to 50 percent of qualified spending. The aggregate amount of the tax credits available for both purposes is $10 million over the next two years.

If you have been paying attention to diverse groups such as The 2030 Group, the Montgomery County Economic Development Corp. and TEDCO, you know that each has been advocating for greater investment in building cybersecurity product companies and encouraging regional businesses to buy local when purchasing technology. They and others have also often pointed out that small businesses are actually the most at risk for cyberattacks, since they often do not have the resources to purchase cybersecurity technologies. Based on this, it shouldn’t be surprising to learn that the creation and promotion of these tax credits results at least in part from strong business community engagement.

Somewhat surprisingly, the Cybersecurity Association of Maryland Inc. led the charge on this legislation. I’ve always found CAMI interesting. It is a not-for-profit that was formed by Art Jacoby to promote the growth of Maryland’s cybersecurity industry. Art formed the group because he saw a need for it; he was an entrepreneur who saw a market need that needed to be filled. CAMI wasn’t formed as a legislative advocacy group. Its mission was to show which companies were growing in Maryland’s cybersecurity industry via its on-line directory of cybersecurity companies and to create opportunities for these companies through business connection events. CAMI’s leadership took a small budget, and, like many entrepreneurs I know, bootstrapped CAMI’s way to relevance.

Talking with Executive Director Stacey Smith, I learned that CAMI had looked at the Maryland cybersecurity legislative landscape and decided to take an entrepreneurial risk. Legislation that would have accomplished many of the objectives of the recently adopted tax credits had languished during last year’s legislative session. Rather than wait for others to advocate for these credits, CAMI decided to take the financial risk of hiring a legislative expert and jumping into the legislative process. CAMI went from connecting members of the cybersecurity industry with one another to connecting these members with legislators.

As is often the case when members of the business community start to speak with a single voice, policy makers paid attention. For example, Guy Guzzone, a Maryland state senator from Howard County, shared with me that CAMI’s engagement in the legislative process was a “very significant” reason why the cybersecurity industry tax credits were adopted on a bipartisan basis.

Smith had worked in the Maryland government before taking on the leadership of CAMI. She sees the tax-credit process as a template for how the region can grow more rapidly. Because cybersecurity is a very fast-moving industry, government policy makers often cannot move quickly enough to keep up.

“What works best is to have a partnership of collaboration between the public and private sector, with the public sector providing some of the resources and connections needed by the private sector while seeking insight from the private sector and relying on the private sector to execute on the plan,” she says.

I see in CAMI’s actions a successful model for how to combine entrepreneurial energy and engagement with the government to achieve a business community objective. It’s another example of how the region’s business leaders can accomplish meaningful changes when they work together.

It also provides an additional lesson of broader application. The overall financial amount of the tax credits — $10 million – is a far smaller amount than dollars made available to attract large businesses. It will be interesting to see over the next two years how many Maryland cybersecurity businesses will benefit from these tax credits. My suspicion is that the number will be significant. There’s no better way than finding new customers to help a business grow – getting financial assistance to find them is a big deal.

Although policymakers will often focus on hunting elephants – searching for the next large company to locate in their jurisdiction – the best solutions are often found in helping the businesses that are already there. Asking them what they need and finding ways to promote their growth is just as important as elephant hunting, if not more so. And it’s usually easier and cheaper to accomplish.

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What does it take to be a founder of a cybersecurity startup in the Greater Washington region? Prior experience, according to a new study from American University’s Kogod School of Business.

Professor Erran Carmel led a team at Kogod’s Center for Business in the Capital that looked at the founding teams of 177 pure-play cybersecurity companies – businesses that operated exclusively in cybersecurity. A previous study that Carmel and I had done showed that our region had more than 850 cybersecurity companies, which was important and useful information. But as Carmel put it, “I thought there was something missing. We knew how many companies were engaged in cybersecurity, but we didn’t know who was starting them. I thought by focusing on pure-play companies, I would get a clearer picture of where our cybersecurity company founders come from.”

His report has some eye-opening observations. Almost three-quarters of these firms had at least one founder with prior experience either as a vendor to the national security establishment or as a government employee working in that area. More than half had a founder with government service in their background. This struck me as an important confirmation of what many had sensed – that our local cybersecurity industry is tied closely to the national security sector.

Another significant finding was about the level of prior experience of the sampled cybersecurity founders. Almost nine out of 10 founders had prior cybersecurity experience. Unlike some other technology sectors where founders could have more varied experiences, there appears to be a close connection between developing hard technical skills in the cybersecurity domain and business formation. If this is true, then cybersecurity is clearly not an area where you can wing it.

Carmel’s other findings should also encourage policymakers. Almost eight in 10 founders were residents in the Greater Washington region prior to starting their most recent firm. Moreover, more than a quarter were serial entrepreneurs, which means that experienced individuals are staying in the region to start new companies. Generally, a technology community’s effectiveness is evaluated by how well it does at retaining entrepreneurial talent. This makes Carmel’s latest report good news for the region.

What concerns me, however, is how the new data reinforces a troubling conclusion from our earlier work together. Greater Washington’s cybersecurity industry is far too dependent on delivering its technology as part of consulting engagements. Previously, we had shown that only 5 percent of all cybersecurity companies in the region were product-oriented, with the vast majority delivering technology as a service. Even when Carmel focused on pure-play cybersecurity businesses for his recent study, the percentage was still low: only 10 percent.

I shared these findings with a number of our region’s leading cybersecurity entrepreneurs and investors to get their reactions.

No one was surprised by the prior experience point, although a few were surprised the percentage was so high. Venture investor Stephen Smoot of Lavrock spoke for the group when he observed “entrepreneurs obviously lean on their prior experience when starting a company. Given that the majority of cyber talent in this region cuts its teeth in and around government customers, I’m not surprised.”

The bigger area of concern was the lack of product companies. Some, like Anup Ghosh, the founder of Invincea, a commercially successful cybersecurity product company, put the blame squarely on a shortage of venture capital, pointing out that “product oriented companies typically require more startup capital,” making access to capital a key challenge for entrepreneurs in the region. Kevin DeSanto, co-founder of Kipps DeSanto and a merger and acquisition expert in cybersecurity, thinks that the lack of capital properly leads entrepreneurs go grow service businesses, since customer revenue from the government is where they find the money to grow in the absence of risk capital.

Work like Carmel’s gets us closer to understanding our region’s innovation ecosystem and being better able to diagnose our challenges and to see opportunities. With respect to new company creation, we are fortunate to be proximate to the national security establishment because it is a tremendous developer of cybersecurity talent and a key customer. Our efforts to grow new companies should reflect that this is not an industry for the inexperienced, but one that rewards proven competence and expertise. It is also an industry that remains heavily reliant on less profitable business models.

As we consider how to grow our technology economy, this most recent data reinforce that if we focus on experienced cybersecurity technologists and giving them the support they need to grow product-oriented businesses, we can accelerate regional economic growth.

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