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Alongside the well-established Thanksgiving traditions of eating turkey and playing touch football exists Black Friday deal hunting. We love a deal, and we really don’t care where that bargain comes from. Incoming President Donald Trump wants to bring manufacturing jobs back to America but our love for cheap stuff might make it impossible.

When cost is not an issue, Americans are very patriotic. A recent survey by Consumer Reports shows a substantial majority asserting willingness to buy an American-made product over one manufactured abroad.

But what is an American-made product? Most of what we consume — electronics, clothing, automobiles and packaged goods — involve multiple steps of production and combinations of raw materials, components and labor.

The value chains, as they are known, are complex for many popular American products. Even for many foreign-manufactured products, a significant portion of their economic value inures to American workers. For example, a recent study by the Wharton School shows that 40 cents of every dollar of imports from Mexico went to American businesses. Another analysis shows that 75 American companies manufacture components incorporated into an iPhone imported into the US from China.

These small data points are part of a larger trend: the merchandise we snatch up on Black Friday — even the imported stuff — usually incorporates the productive activities of our citizens. Identifying where they are involved is salient: from creating and manufacturing complex components to selling and servicing completed products.

Jobs in the middle — the combination of components and American intellectual property — are the jobs being done elsewhere. Companies choose to structure production overseas for a variety of reasons: Labor rates are cheaper, workers have less negotiating leverage, workforce conditions are less stringent and international tax rules encourage allocation of portions of the value chain outside of the United States. In other words, companies are being encouraged to use non-U.S. workers to make the products we consume.

Supporters of international trade point out that this allocation of labor — the separation of roles between the workers who create things, and those who build them at scale — allows for nations and businesses to specialize and be more efficient. This efficiency results in lower prices for the consumer or higher profits to the creator.

And therein lies the reality of the issue. Our workers miss out on manufacturing jobs because the cost of their labor is comparatively expensive. It’s not that we can’t do more manufacturing here, we are simply making a choice not to.

We must accept that many of our products would become more expensive if we kept a bigger chunk of the value chain in the United States. Try telling that to a Black Friday shopper.

Consider how resistant many of our largest employers and political leaders are to raising the minimum wage or encouraging unionization. Would they be willing to pay more to use American labor, or would they expect our workers to be satisfied with the wages and workforce conditions that prevail in India, China or Vietnam?

While American consumers say they want to purchase American-made products, they will only do so if they are priced the same as a foreign-sourced alternative.  A recent Associated Press/Gfk poll shows 71% of Americans would not pay more for a U.S.-sourced product if a cheaper foreign-sourced alternative were available.

Shoppers at the checkout with a flat screen TV or a cashmere sweater for Dad surely realize that low price comes with a cost. We talk a great game for bringing manufacturing jobs home. But are we truly willing to pay for it?

Originally posted in WashingtonPost.com

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Our 45th president will be a businessman who promised to change government, and our nation is poised to find out whether change management principles applied in commerce can work in public office. After years of working to change how government works in relation to technology and innovation, I have some hard-learned perspectives.

Changing large organizations is a tough challenge. Most organizations reach a point in their operational history where they lose their way, and their methods no longer provide the profits and growth necessary for survival. The reality in the private sector is that a business must have profitable growth to survive. Growth creates opportunities for employees and wealth for the owners.

The subtext here is highly important. Growth in business creates personal satisfaction for those involved who feel like what they are doing matters, and that their daily activities have consequences. And, conversely, stagnation and decline cause dissatisfaction and accelerate business decline.

To grow a business, impediments such as unproductive employees, products that are no longer compelling, antiquated technology or unappealing working conditions must be removed and overcome. The status quo must be disrupted.

Organizational change requires a few things to succeed. First, a compelling vision for others to follow. Second, a targeted core group of individuals within the organization excited about the shared vision. Third, a way to restructure the environment around employees to reinforce company goals. And, lastly, the ability to encourage those who do not adapt to change to find employment elsewhere. Simply put, you can change an organization by rewarding employees who “get with the program” and trim those who don’t. That is the nature of business.

Massive change of large business organizations is possible. Consider how IBM modified itself from a main frame computer business to a consulting services and software provider. Or, how Netflix went from a DVD rental business to an over-the-top content provider challenging the primacy of traditional networks and cable companies.

However, changing government is a very different thing, with two types of issues: the mechanics of government —how government benefits such as programs, entitlements and rules are provided to society, and government itself — what is appropriate for government to do.

Resolving both issues involves the interplay of politics and policy. However, only the first is suitable for a business approach to organizational change.

Business principles of organizational change to government were recently applied to the Pentagon’s DIUx or the GSA’s 18F innovation programs. However, the take-it-or-leave-it attitude to resolving the question of what government should do is not an option — it’s not in the nature of a representative democracy.

The U.S. Constitution provides for separation of power and delegation of authority for a reason: we can’t just fire our citizens if they don’t agree with a vision. While that might be great reality television, it’s not how our country works.

This very important distinction is why being the chief executive of a company is not the same thing as being the president of the United States. Change is possible, but it requires finesse and the utmost respect for how government works.

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Entrepreneurs love disruptions. A shake-up in the status quo is when the most inviting opportunities occur. And we can all agree that last week’s election result is shaking up Washington, D.C.

Our region’s innovation community has a chance to grow under the new administration — if we know where to look.

Very few Americans know exactly what to expect after Inauguration Day, but we can infer from president-elect Donald Trump’s campaign and Republican policy goals expressed in the last Congress some important data points — and use them to capitalize on changes ahead.

I’m already on record touting personalized medicine as a specific business opportunity for our region. Now, big changes are promised in the federal government’s role in health care delivery, and the dynamics of health insurance and services could also fundamentally change.

Watch for these changes to drive two big innovation trends. There will be a market to provide more efficient health care to people with less money and at the other end of that spectrum, a growing demand for high value-added health care to those who can afford it. Both trends could be a boom for personalized health care.

Cybersecurity is another of our strengths and this election certainly clarified why cybersecurity matters.

The greater Washington region would benefit from a renewed federal focus on innovation. The Obama administration is tightly integrated in Silicon Valley as a conduit for innovation, with many of the most publicized efforts including government tech hubs called DIUx, 18F and others reflecting this integration. The incoming administration does not have the same level of existing interconnectedness with Silicon Valley, creating an opportunity for a “reset” of the perceived role of our region in providing technology innovation.

Federal spending on national security is also expected to increase, driving opportunities for our region’s federal contracting businesses — particularly the most innovative. Innovation for national security will continue to be important because our adversaries are not standing still, and many national security challenges require small and creative teams in areas such as cybersecurity, artificial intelligence, autonomy and space exploration.

In the past, increased demand for talent in the national security sector crowded out those otherwise available for start-ups. For the greater Washington region, this has been the good news/bad news of proximity to the federal government.

Expected dynamics in the coming years will make this crowding out less likely. First, much of the required agility in innovation is more suited for small teams building technology products. This will drive technology product start-up growth; expect regional government contractors to be more active participants and partners in the start-up community as a result.

Second, promised tax cuts will free up significant amounts of capital to invest. Risk capital is the lifeblood of start-ups.

Third, start-ups will be affected by changes in regulation — or lack thereof — in two unexpected ways. It will be less likely that rules to encourage business competition by limiting concentrations of economic power (think net neutrality or antitrust) will be enforced. This will provide an advantage to large scale businesses operating in maturing industries, and make it harder for smaller businesses to compete and grow in existing industries.

Conversely, the lack of government intervention will allow start-ups creating something innovative to reach customers more quickly. With less friction, nimbleness is more likely to be rewarded.

The Trump administration will change Washington, D.C, and the politics and policies that affect these changes will be profound and likely hard fought.

Our region’s innovation community is used to pivoting, and although we don’t know what exactly will replace the status quo, we do know that the agile will be the winners.

Entire post at WashingtonPost.com.

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The $112 million partnership to bring a University of Virginia School of Medicine campus to the Inova healthcare complex in Fairfax is an important addition to an emerging industry in the greater Washington region. We have given lots of regional focus to cybersecurity, and now, personalized healthcare needs similar attention.

As we look to grow our economy off our strengths, personalized healthcare is an essential opportunity here in the capital region. It delivers therapeutic technologies based on a patient’s genetic and proteomic makeup. It allows doctors to choose medications that work best on a specific patient, and to customize guidance on how to avoid illness and live better quality lives.

As an industry, personalized healthcare shares with cybersecurity certain growth characteristics that make it attractive for our economic development — especially because of how we now know our region innovates and grows winning businesses.

Through Amplifier Advisors comprehensive analysis of our region’s entrepreneurial and innovation ecosystem, we can point to a consistent model of successful D.C. entrepreneurship. Leaders of businesses such as Capital One, AOL, Cvent, and MedImmune grew and successfully sold their businesses by taking strategic advantage of being at the crossroads of a unique entrepreneurial ecosystem that combined capital, talent and proximity to the federal government.

Ample data now supports the conclusion that the cybersecurity industry provides opportunity for D.C. entrepreneurship. Almost 1,000cybersecurity companies in the region, as well as the presence of many federal labs and universities, have created a large, impressive talent pool.

The federal government is both a primary funder of research and development and a customer for cybersecurity technologies. It is also where issues such as privacy, legal liability for corporate boards when data breaches occur and national security coordination of threat responses are determined — issues that must be addressed and resolved for our cybersecurity industry to reach its potential.

Entrepreneurial activity in personalized healthcare is not yet at the level of cybersecurity, however, the growth opportunities are very similar.

The greater Washington region has a large and growing concentration of talent to support a dynamic personalized healthcare industry. The addition of University of Virginia School of Medicine at Inova amplifies existing activities at Johns Hopkins, George Washington University and George Mason.

The federal government is a large funding source for research in personalized healthcare, with the National Institutes of Health being the best known but not sole example. And, as in the case of cybersecurity, resolution of important policy issues is needed for the personalized healthcare industry to grow — issues such as privacy, insurability considering genetic disposition for disease, government healthcare reimbursement and allocation of healthcare resources.
There are two other important reasons our region should applaud efforts to grow more entrepreneurial activity in personalized healthcare.

First, the conversion of research and development into commercial production occurs most frequently in healthcare, especially for university-derived technology transfer. Therefore, by focusing more regional efforts on personalized healthcare, we make it more likely that our universities and supporting organizations will create exciting new businesses that will accelerate regional growth.

Second, the development of cybersecurity and personalized healthcare in the same region will provide an important multiplier effect. Many of the technologies underpinning the medical wave of the future — data analytics, sensors, man/machine interface and artificial intelligence — are also highly relevant to the development of the cybersecurity industry.

And, of course, the concentration of highly confidential patient data is a huge market for cybersecurity technologies.

There is still significant work to be done to integrate our region’s innovators into these opportunities. But, knowing where you want to go is a condition to success. And each day that is becoming clearer.

Entire column at WashingtonPost.com.

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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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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, …

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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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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…

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The first generation of Americans to grow up in a digitally connected world both rely on and distrust the connectedness they take for granted.

I engage with millennials in my work as a business school lecturer and investor. Digital natives are now the largest demographic in our society, slightly edging out baby boomers. Their views on the digital world — both the veracity of the information they receive and how they manage their own digital persona — are illuminating and somewhat disheartening.

In speaking with them, it strikes me how clearly they distinguish between the real world — a world of physical connection with close friends — and the digital world.

“I do not think that who we portray ourselves to be online is who we are in the real world,” offered Jennifer Rosen, a student at University of Maryland. “People dress, pose and post in a certain way so that they can try to establish an image of themselves.”

“I believe that who we are on the Internet is not a true showing of who we are actually are as a person,” added Greg Cistulli, a student at Christopher Newport University. The Internet does not provide us with insight into others, he says, because “people only put what they want others to see.”

I hear this type of commentary a lot. Millennials use the Internet as a promotional tool, as a way to stay connected on a superficial level with a broader group of people, and not as a way to create “real” relationships. In a way, they view social media more like a large, multiplayer video game than as reality.

Yet, it is a game they feel that they must play, because the digital world is engrossing. “I know that if I leave my phone away from me for even a few hours I feel like I missed quite a bit in life,” says Deepak Salem, a student at University of Maryland.

Evan Monroe, a student at Christopher Newport University put it best “More often I find myself communicating” through digital means such as texting and Snapchat “instead of face-to-face conversations or even phone calls.” Yet he doesn’t welcome this tendency. “I believe that this is the future we are moving towards and I do not believe it is for the better.”

Digital natives also stay informed through their connectedness. A study released last year by the Media Insight Project proved that digital natives get most of their information about the world around them from social media. In one sample, the study found that out of 24 sample news items, 20 were sourced to digital natives through social media. They may have friends in the real world, but that is not where they get their news.

This is troubling. Digital natives gather news from an information source that they may not even trust for veracity. As one digital native described it to me, “there are very few occasions when I think that something is completely true on the Internet.” So the doubt exists, but the time and patience needed to fact check or use critical thinking doesn’t.

Read entire column at WashingtonPost.com.

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