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The Chenope Blog

We bring more things to light

September 1, 2017
by chenope
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The Aftermath of “The Memo”: Revisiting The Topic of Diversity Issues in Silicon Valley

Quite a while ago, I wrote a blog post about diversity issues in the valley. The motivation at the time was the slew of news stories about whether Marissa Mayer was being unfairly criticized because of her gender.  My point at the time was that there was indeed a giant diversity problem in the valley, but that its root cause was a lack of diversity of thought rather than anything else. Otherwise put, if one strives to surround oneself with very likeminded people, one automatically increases the probability of hiring / promoting / funding people of similar backgrounds, and to a lesser extent, ethnicity, gender, etc.

The number of things that can’t safely be questioned in the valley seems to expand each year.   The list is in fact quite diverse. For example, prior to the last presidential election,  the outcome could not be questioned (which in large part explains why none of the big tech companies failed to accurately predict the outcome, even with their troves of “big data.”)     The influence of the large valley companies on the thoughts, behaviors, and purchasing decisions of the average person can’t be questioned: it is understood to be self-evident (despite there being relatively scant objective evidence of it.)  The superiority of the tech companies over their counterparts in other industries is likewise self-evident, especially in areas such as innovation. Yet, over the years, one hears more and more about “innovations in business model” such as Uber or AirBnB in the tech business rather than groundbreaking technology innovations – the logical consequence of the vast majority of dollars in the valley being funneled into advertising-related applications and the fact that most large companies outside the valley couldn’t afford Uber-style business model innovations that come with $3B losses. Questioning any tenet of political correctness is also right out.

Which brings us to the topic of The Memo.   The Wall Street Journal rightly excoriated Google’s management for firing the 28-year old engineer who opined that there could be biological differences between the genders that accounted for the gender disparity among programmers.  The WSJ noted that in a recent response to a Department of Labor inquiry into whether Google was systematically underpaying women,  Google had itself made some of the same arguments that James Damore did with respect to the relative scarcity of female engineers in The Memo. A WSJ editorial worried aloud about the professional judgment of those who had so much power over information.

Oops.

Clearly Damore did not understand Google’s culture at all, or he would have never hit the “send” button.   Clearly Google’s senior management failed to comprehend the backlash that was sure to arise from firing Damore as opposed to any number of other less severe – and private – disciplinary actions that could have been taken, and which would have quelled any internal screams of tolerating gender discrimination.  But the failures were of very different kinds. Damore failed to understand that expressing a verboten opinion would not be tolerated by his employer. He was simply young and naive, failing to recognize that when you hear no divergent opinions, there’s probably a good reason for it.  Google’s senior management on the other hand failed to understand that independent judgment was still being exercised by many outside the valley, such as the good folks at the WSJ. Even worse, they failed to understand that in this day and age of social media, firing Damore created a first in the annals of business: a low-level, individual contributor employee gaining copious big media air play for writing a memo that exposed no giant bombshell of corporate malfeasance but yet globally damaged their brand.

So is there a diversity problem?  You bet there is.  But gender is the least of it.

 

August 11, 2016
by chenope
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Oops – World’s Largest Advertiser Determines That FB Targeted Ads are “ineffective”

Billions of dollars of wealth have been generated in the valley in the last small number of years based on the largely unquestioned premise that targeted social media ads work.     Such targeted ads are very arguably both Facebook’s and Google’s secret sauce – not to mention that of the large ecosystem of companies around them.

But is it actually true?  Are these ads truly a kazillion dollar a year secret sauce that merit the premiums that brands pay for them? Not according to the world’s largest consumer brands company and global advertising spender P&G (Procter & Gamble.) P&G is known for being fastidious measurers, for being both a good process company and an innovative one. P&G may not be a household name, and may not be especially sexy, but it is virtually impossible to live in the Western World and not have at least several of their products in your home.  P&G has a large number of brands, everything from shampoos to toothpaste to diapers, soap to toilet paper, razors to cosmetics.

In yesterday’s WSJ, there was a front page article noting that P&G was generally discontinuing the use of targeted ads on Facebook.   The below is a short excerpt from it:

Procter & Gamble Co., the biggest advertising spender in the world, will move away from ads on Facebook that target specific consumers, concluding that the practice has limited effectiveness.

Facebook Inc. has spent years developing its ability to zero in on consumers based on demographics, shopping habits and life milestones. P&G, the maker of myriad household goods including Tide and Pampers, initially jumped at the opportunity to market directly to subsets of shoppers, from teenage shavers to first-time homeowners….

P&G’s shift highlights the limits of such targeting for big brands, one of the cornerstones of Facebook’s ad business. The social network is able to command higher prices for its targeted marketing; the narrower the targeting the more expensive the ad.”

In other words, P&G found that targeted ads didn’t help it sell toothpaste and other daily essentials.   Objectively, there is little reason to think that it would. Facebook may well not know – or be able to infer – what toothpaste you use for example. Nor is there any real reason to believe that you are likelier to purchase a given brand of toothpaste because your friend uses it.

To be fair, P&G isn’t lowering their overall spend with Facebook – at least not for now.  And, as the WSJ article duly notes, some specific, highly directed types of targeting (e.g. expectant mothers for diapers) are effective.  But if the targeting in the general case is no longer perceived as an advantage for which large brands will readily pay a hefty premium, it isn’t clear that Facebook will be able to command either the percentage of advertising spending that they do now. Likewise for Google.

The main thing that is interesting in all of this is how long the assertion that all of this just magically works has been effectively unchallenged, even in the face of common sense and day-to-day experience.  When is the last time that you deliberately clicked on a product ad?  Weeks? Months? Actually bought something that originated with such a click?

Sure, it is true that seeing an ad for a given brand somewhat increases the chance that you’ll buy it – but only if it is a category of thing that you anyway buy, and you don’t already have a strong preference for a competing brand.  But this raises the interesting question of whether the combination of a proliferation of ads, and a generation that spends a good part of its waking hours glued to one screen or another, will result in the latter adapting to the former to such a degree that most of these ads effectively become invisible to them.    It is highly doubtful that anyone is researching such a possibility, since it would be hard to imagine who would fund such a thing.

For all the moaning and groaning about big data and the invasion of privacy, the reality is that most ad targeting that works is of the simple “if single-thing-X then…” variety such as the expectant mothers example above.  Much of the rest really doesn’t work very well, even with the massive amount of data being collected and the billions of dollars spent to analyze it. There are three main reasons for this:

Lack or sparsity of data: Everyone may buy toothpaste for example, but few people talk or tweet about their toothpaste. And the reality is that many more things are at the toothpaste end of the spectrum than the fashion one.    For many types of products, that just may not be a fixable problem.

Limitations of current technology:  To understand how limited the current technology is in many respects, just consider how many of the ads you see are for things that you have already long since bought.   For example, when my coffee maker broke, I bought a new one pretty much immediately.   Most people would do the same. Yet for literally months afterwards I was barraged with coffee maker ads. This might make sense for a luxury purchase that many buyers may ponder for months, but not a commonplace small appliance that many people consider a necessity.  Or a few months ago, when I was looking for a power of attorney form for a particular state, for weeks I got useless ads for attorneys.   I am now getting ads for cemeteries – I truly have no idea why.   I could go on and on. In short, it is still mostly the low hanging fruit that is being picked, even billions of dollars later.

Business Incentives:  Obviously Facebook, Google et al are strongly incented to sell what are tantamount to “qualified leads” to their advertisers.   The more factors that are considered in the targeting, the fewer targets there will be for which to charge a premium.   More targeted ads are more expensive, but that’s irrelevant if the target pool to offer for sale is miniscule. While of course the advertisers have some say over what dimensions and parameters to target, they are limited by tools, by the available underlying technology, and doubtless in many cases by expertise.

None of this is to say that FB, Google, etc aren’t highly valuable advertising platforms even despite this at this point, just that their advantage over other forms of media and platforms is objectively less than what had been claimed. For example,  having comparatively less data about their users for ad targeting purposes was one of the big knocks against Twitter.   I doubt that this overdue revelation will harm the stock price of either FB or Google much, and certainly not to the $20B extent that one of the large pharma companies was punished in market cap for the clinical trial failure of one of its drugs recently. For one thing,  there is not as direct a relationship to revenue, and FB will likely be quick to push customer testimonials that rebut P&G’s findings.  And we are talking advertising, not blood tests: it may not actually matter whether the much touted thing works or not.

 

 

 

May 28, 2016
by chenope
1 Comment

Why The Theranos Debacle Is Likely To Be More Than A Pin-prick For The Valley

There’s an old joke in Northern California about the surest way to make a small fortune:  start with a large fortune and invest it in a winery.   It turns out that running a successful winery is very hard and requires both a tremendous amount of wine-related know-how and real world business acumen.  So it is no surprise that the vast majority of the newly minted wealthy who try it fail.

Of the many hundreds of Silicon Valley venture-funded startups – and by this I mean not only those based in the valley, but also those elsewhere who exist within the local model – the number that have a legitimate business is vanishing small.  By a “legitimate business” I mean one that possesses each of the following 3 attributes:

It is profitable. Or at the very least, is on a clear road to profitability.   And it is profitable in reality, not just on paper.   In other words, not collecting 1/4 of the the revenue officially claimed, as an enterprising journalist at Buzzfeed recently caught the well-known unicorn Palantir doing: https://www.buzzfeed.com/williamalden/inside-palantir-silicon-valleys-most-secretive-company?utm_term=.du2Zl8l8g#.kgWN2p2pv.  (I was once quoted in the Wall Street Journal something to the effect that “real startups don’t run of out money. They just earn more.”   I learned later that at least one startup made a copy of this and stuck it on the wall of their office. Unsurprisingly, they were in the Midwest.  Unlike Palantir, they actually have to collect money from their customers, not just allegedly earn it.)

It is sustainable.   Sustainability often seems like an old-fashioned and even irrelevant concept in the valley, but in the rest of the world, sustainability is an absolute requirement.  It means that your startup doesn’t have “a sell by time it or else” date. Sustainability can be achieved in more than one way of course, but for technology companies, one would really like to see true technology differentiation that is one of the core “unfair advantages,” as legendary author and startup scholar John Nesheim refers to it.   Clever business models are after all far easier to replicate than is some kind of deep technology.    Yet in recent years, the vast majority of the valley companies are the former rather than the latter.

It is organic.   By this I mean that the revenue that it has is real, that the majority of comes from satisfied customers who had a real need that is filled by the startup, and who will spend more with the company in future.  Frequently, when one looks closely it turns out that the vast majority of valley startups’ customers are – drum roll – other Silicon Valley companies.    That should raise red flags: a good product is a good product many places, not just in a 100-mile radius of Google.

Until recently, there was one well-understood – if rarely stated – self-preservation principle that all of the locals held to: stick to stuff that isn’t a matter of life and death, and in which the very worst thing that could happen is a civil product liability lawsuit – which are extremely rare owing to a number of factors including how most commercial software licenses are written.    In short, no matter how extravagant – and usually untrue – the claims of “breakthrough” technology made to attract the all-important venture-funding are, the probability of any serious real-world blowback from them is slim to nil.

Now enter Theranos.  It is no wonder that it attracted as much attention and admiration as it did.  It broke that universal principle. It purported to solve a serious, real-world problem, not just enable you to chat with your friends in a cooler way.   Inexpensive, easy to perform, and accurate blood tests made widely available would almost certainly save a great many lives each year. It would also reduce the cost of care substantially, and increase quality of life for people with conditions that could be recognized early and treated more effectively.  In particular, poorer people who would be put off by the cost of a traditional blood test. And those morbidly afraid of big scary needles, since the Theranos technology required only a very small amount of blood.

Better still, it had a 19 year old, attractive female CEO who was the purported inventor of the revolutionary technology, rather than a bland PhD who had spent a decade or more in a lab and was considered a leader in his field (as would normally be the case with biotech investors, who operate in a very different ecosystem.)  It was backed by one of the name valley firms, DFJ, that had also backed Twitter, rather than obscure biotech funds with more limited cash and connections. It was a modern day fairy tale of what was possible to achieve.    Investors anywhere would salivate at the prospect of such an opportunity.

Yet, as any investor should know, that which seems too good to be true probably is.   Or at least warrants very close inspection.   As recent exposés in the Wall Street Journal and elsewhere have documented, no one outside of Theranos ever was given access to one of the proprietary “Edison” devices to verify that it worked.   No one, not once.  Promises were made by Theranos to provide the devices, but only a limited prototype was provided whose nature was such that there was no real way to benchmark it against traditional devices.

One of the main revelations in the WSJ reporting is that vast majority of the blood tests performed by Theranos were done using traditional machines.   Many of the tests that were performed on Edison devices have now been voided by the company because of accuracy issues.    Outside of the valley, there is a single word to summarize this situation: fraud.

Theranos offers a compelling example of a startup that achieved worldwide fame and a $9B valuation based solely on hype and braggadocio.  Many different venture firms invested in it.   Not only did none of these investors require a neutral expert to evaluate a working machine during the due diligence process,  they failed to notice all kinds of gigantic red flags.  For instance Theranos must have spent a lot of money running all of those blood tests on machines purchased from others and/or outsourcing test results.   Even an investor who understands nothing at all about science should have easily spotted that.

Had they been looking.  The key takeaway here is that clearly no one did.  No one looked because no one cared.   Not until regulators started shutting down Theranos labs, and threatening Theranos executives with a 2-year suspension from the industry.   Now civil – and likely also criminal – lawsuits will be flying, and everyone involved in this particular debacle will be running for cover.  If it turns out that people died because of inaccuracies in Theranos’ blood tests – and let’s hope that this is not the case – it will really get interesting.

The blowback will reach far beyond Theranos as more and more revelations are revealed. Bill Gurley recently wrote a excellent (if long and quite technical) blog post http://abovethecrowd.com/2016/04/21/on-the-road-to-recap/ . Gurley refers to the first WSJ piece on Theranos as “a seminal bubble-popping event.”  The main gist of the blog post is that sensing an impending bubble burst, other unicorns will agree to so-called “dirty” term sheets.  These are term sheets that preserve, in theory, the sky high valuations, but in reality are inserting fairly horrifying terms in return.  The headlines however will be that the unicorn valuations remain insanely high.  The proverbial can will have been kicked successfully down the road.

The real question is whether the number of current startup-related scandals and “emperor has no clothes” revelations – and Theranos is just one –  starts to have any broader impact on the cash-printing machinery in the valley.  That only time will tell.  Maybe though, all involved – including the investors in the various venture firms – should stop to consider that the same types of abilities needed to run a successful winery are also need for a (genuinely) successful tech company.

 

Note to readers of this blog: Sorry for the long absence, but I’ve been too busy to keep up with it regularly. I will try to do better in future.

 

December 23, 2015
by chenope
1 Comment

Why Sylvester Stallone Should Be Inspirational for Start-up People

Sylvester Stallone’s actual real life story is far more improbable and impressive than that of Rocky Balboa, the part that he wrote for himself in the movie that catapulted him from literal poverty to worldwide stardom.

Although it is very hard now to imagine anyone but Stallone playing Rocky Balboa, the part-time mob enforcer, part-time club fighter down on his luck, in fact the movie studios originally wanted the screenplay but not Stallone in the role.   Stallone only managed to obtain the starring role by refusing to sell the screenplay otherwise.  This was no small dice roll at the time, as Stallone was so broke that he barely had enough money for dog food; yes, the dog in original Rocky movie was in real life Stallone’s beloved dog Butkus.   But he doubtless recognized that there would be no better vehicle for him.   So he took the risk, held his ground and ultimately prevailed.

Stallone was himself from the tough Philadelphia neighborhood featured in the movie. No Hollywood actor could have been nearly as authentic. It is in fact the resounding authenticity that really makes that movie.  The characters seem real. Their environment, though dismal and gray, seems real. This makes the fact that Rocky goes the distance against the champ – though he doesn’t win – also seem realistic.

Even once Stallone passed this initial hurdle, he still had a tough row to hoe.   The first Rocky movie was a very low budget affair. Use of the authentic South Philadelphia locations were obtained mostly by groveling.   This I know purely by circumstance. The house which in the movie belonged to Rocky’s love interest, Adrianne, in real life belonged to distant cousins of mine.  Initially bemused when a group of strangers showed up at their door and pleaded with them to use their house, they agreed.  It was a story to tell: “Hey, can you believe some idiot wanted to use our living room in a movie?”  Their living room, as was, was the set, with the exception of a few  knick knacks such pictures of the actors that were brought in by the crew. For the use of their house, my cousins were either paid no money, or a very small amount – I don’t recall.    To say that they were beyond astonished when the movie became a worldwide phenomenon would be a gross understatement.

Since all of the houses in these working class neighborhoods are very similar to one another – there are long rows of literally identical houses street after street, hence the term “row house” – there was by definition nothing at all special about my cousins’ house.  I can only therefore conclude that they were the first people who agreed, but were far from the first people asked.  For all I know, they were the hundredth people asked.   They surely could not have been the first.  It is hard to imagine now that Stallone and his crew went door to door in that fashion just to get the use of a very ordinary living room for a small number of hours to shoot several scenes.   But that is very much part of the universal experience of starting a startup as an unknown.     Even after some initial success has been achieved, it remains hard to get most people to take you seriously.    One must just persevere through that stage, as Stallone did.

Forty years after the release of the original Rocky film, Stallone brings back the Rocky character in Creed, now in movie theaters.   Creed is essentially an updated take on the first Rocky movie: underdog fighter training in the same neighborhood goes the distance against the current champ (but likewise doesn’t win.) Creed is not a great movie, but is a generally good one. It is doing well at the box office.   Rocky Balboa, though seventy, is still clearly the same character as before, just a lot older.   In other words, the branding is unchanged and still is relevant 4 decades later.  That is a claim that very few software companies, regardless of their size, will be able to equal.

December 16, 2015
by chenope
0 comments

Great Example of Why Europeans Fret Over Privacy Issues

Last week when I was interviewed by a member of the German media, I was reminded in just how low esteem many Europeans hold the big Internet companies.  There are of course a number of reasons for this ranging from the well known privacy and antitrust concerns, to the minimal amount of taxes paid in Europe by these companies, their not infrequent public contempt for European law – and of course, envy.

Nonetheless, the privacy issue to most people is by far the most significant.  I was personally reminded of why just a few short days after the interview.

A month earlier, I had been rear-ended at fairly high speed.  I had muscle spasms and some pain and so went to my doctor, and learned unsurprisingly that pretty much all of my ribs were somewhere other than where they should be.  My liver was also a bit tender to the touch.  So my doctor suggested that I take an over the counter liver supplement for a month.

That night I was a bit tired and had a headache.  The extra few keystrokes to run searches looking for a good liver supplement through an anonymizer didn’t seem worth the effort, though it is something I am usually prone to do for anything even remotely health or security-related.  The same night I searched for a power of attorney template for a totally unrelated, routine matter.

Since that night, I have been barraged with ads and spam mails for rehab clinics and for local attorneys.  This has been going on for a couple of weeks now and counting.   In my case, I’m just irked at my own laziness every time yet another one of these pops up. However I could easily imagine how this torrent of emails and ads could do great harm to a junior person or a temporary worker whose boss might jump to the conclusion that the employee (or perhaps a family member of the employee) was alcoholic and maybe even had been involved in a DUI.  Doubtless, a big data app is out there that would connect those dots. Worse still, in most cases, the boss would jump to the conclusion silently; asking questions could trigger ADA problems.    If the employee is at all unlucky, she could easily lose her job and be left to only speculate at the reasons.

This is exactly the kind of thing that sends many Europeans into a froth.  Of course, this is just a consequence of the ad word economy.   However, that does not make it any less myopic.   The more people who have experiences like this, the more anonymizers will be used for searches – and the greater an incentive for new anonymization products.   Likewise the more people will take steps to shield their identity, block cookies and so on.   And above all, it creates the virtual certainty of ever more regulation. Given that advertising is still ~95% of Google’s revenue and essentially all of Facebook’s, this poses a sustainability problem over the long term.  And not only in Europe.

December 4, 2015
by chenope
0 comments

The Benefits of Not Totally Drinking The Koolaid

There were two big pieces of news in Silicon Valley this week: the Zuckerberg announcement of his plans to donate 99% of his estimated $45B worth of Facebook shares to charity over the course of his life and the news that Yahoo is finally being positioned for sale.

Some speculate that Zuckerberg was trying to distance himself from his less than flattering portrayal in the movie “The Social Network”of a few years back, and perhaps more generally set himself apart from the Silicon Valley Big Internet Company crowd that is losing its luster, especially in Europe.

I suspect that it is more than that.  Part of the reason that the aforementioned movie is so very good is that the essence of Facebook from a user perspective lent itself very well to Aaron Sorkin dialog.   The notion that exclusivity, not technology, was the key differentiator is explained in a brilliant scene.  (Initially one required a harvard.edu account to join Facebook, then it spread to Ivy League Schools and Stanford, then more broadly.) Indeed an earlier, generally comparable social network company named Friendster tanked largely because its user base skewed quickly and early towards the Philippines.   The Philippines has the largest expat community in the world, and Friendster provided a free and easy way to communicate with and send pictures to far away family and friends.  Unfortunately for Friendster, that Filipino user base wasn’t valued by the big dollar American advertisers.  Friendster was eventually sold to a Southeast Asian company and forgotten about.

Except perhaps by Zuckerberg, who has been quoted publicly as expressing surprise that Facebook remains so popular. Indeed, perhaps the reason that Aaron Sorkin’s latest film, the Steve Jobs one, was a flop is that Steve Jobs’ many contributions to the computer industry cannot be captured with a couple of cleverly written scenes about the value of exclusivity – and the invention of the all important “relationship status.” This is not to say that Facebook is not an innovative company, or that Zuckerberg won’t go on to do deeper and more varied things.  But I think it is fair to deduce that in the meantime, he wants to be known for something more. And not just promising to give away that much money, but also by structuring it in innovative way – as an LLC rather than a charitable foundation – so that it can invest in for-profit entities that he and his wife believe will further their philanthropic initiatives.  Kudos to Zuckerberg for managing to maintain a broader perspective.

Yahoo by contrast under Marissa Mayer executed the standard Silicon Valley playbook of a) generate lots of buzz, b) buy overfunded startups at grossly inflated prices, and c) promoting a rock star image complete with red carpet appearances and lavish bashes.   That even Google is having to pull in the reigns somewhat as Wall Street began to understandably fret that despite vast sums of money being spent by Google on so-called “moonshots,” something like 95% of Google’s revenue still comes from its original search / advertising business (on which comparatively little money is spent) seems to have escaped Ms. Mayer.   But there’s a small silver lining for Ms. Mayer in this week’s news: Aaron Sorkin will likely never write a screenplay about her.

September 24, 2015
by chenope
2 Comments

The Starting Up Divide: that initial $30,000 is only the tip of the iceberg

A recent Kauffman foundation study showed that the average cost of starting a start-up was $30,000, noting that this money usually comes from a combination of personal savings, friends and family – also known in Silicon Valley as “friends, family, and fools.” The takeaway is clearly intended to be that the idea of anyone with a good idea can start a start-up is something of a myth.

But this number is in fact deceiving and misses the point.

Back in 1992 when John Nesheim first wrote the book “High Tech Startup” the original how-to book for starting a startup, he clearly noted that one shouldn’t think about starting a startup until one had achieved a real VP-level position in a real company with everything that that entails – significant management and business experience, a high degree of domain knowledge in a given market, an excellent reputation in that market, and a certain amount of just overall life experience.

Obviously things are much different now – as the latest versions of the same book reflect. Most start-up founders these days are in their early to mid 20’s and so have none of the above attributes.  Which may not matter so much: few truly have the expectation of building a sustainable business that could someday perhaps go public. Rather the goal is to sell quickly to a company like Google, Yahoo, or Facebook for a grossly inflated price; such companies will often pay an irresponsible premium simply to acquire promising young engineers with the right pedigrees.  By “quickly” I mean before the start-ups actually have to earn revenue – much less become profitable – which would be an impossibility for the overwhelming majority.

This shift in age tremendously alters the context of this $30,000  number.  A “real” VP at a company like Cisco or IBM back in the day could easily invest that $30K – no problem.   But the moment we’re talking about a 20-something being able to do so, we are indeed for the most part restricting ourselves to the population of those from upper middle class backgrounds or better.

Furthermore, that $30K won’t actually get you very far. A large law firm will take easily a third of that amount just to do the incorporation.  By the time the few founders have each bought nice new laptops, printed business cards, and taken care of little else, that $30K will be gone. Poof.

But even that $30K is far less of a problem than having to pay for one’s basic living expenses, especially in high cost areas like the SF Bay Area in which rents are easily $2k – $3K a month.  If the founder’s family and friends can invest in the start-up and/or can financially support him – or her – should the need arise, everything is peachy. But if not, it becomes far more daunting than the one-time $30K because it is essentially an open-ended commitment.

So it is no surprise that Stanford produces a great many entrepreneurs, or that 2/3 of Harvard MBA students intern at startups.  It’s a matter of access to capital, in both large and small amounts. Nor is it a surprise that the overwhelming number of startups these days are focused directly or indirectly on ad revenue generation, and on apps that will mostly be used by those under the age of 30.  These combined filters of youth and wealth restrict broader and deeper technology innovation significantly.  They thus ultimately create an opportunity for pockets of more varied innovation to flourish outside of Silicon Valley. It will be interesting to see in the coming years who, if anyone, manages to seize that opportunity. These are the bigger questions that the Kauffman guys would do well to ponder.

 

September 13, 2015
by chenope
0 comments

History Being Made In Germany

Many here in the U.S. may not be closely following what is going on right now in Germany. And that’s a shame.  German Chancellor Angela Merkel has made the first truly courageous political decision by a world leader that I can remember.  Faced with an onslaught of badly traumatized refugees that is likely to be in the millions, Angela Merkel effectively opened Germany’s doors wide when she decided that there would be “no limit” to the number of Syrian refugees taken in by her country if they reached German soil.  This is in parallel with trying to shame other European countries to carry their fair share of the load.

There has in history never been anything quite like this.

Images abound of refugees holding hand-painted German flags or having pictures of Angela Merkel hung around their necks. When stopped in way countries such as Hungary, the refugees started chanting en masse “Germany! Germany!”  In a direct reversal of World War II imagery, refugees burst into tears of joy upon learning that they had crossed into Austrian territory, hugging policemen; some get down on their knees on arriving in German train stations and kiss the concrete, it finally being German soil.

Many of the Syrian refugees are college educated and are – or at least were – well off; were it otherwise, they could not have afforded to make the costly trip.  After all, smugglers, bribes, and train or plane tickets all cost money.  The refugees are fleeing from a combination of the brutality and general insanity of ISIS, the Assad regime that isn’t much better, as well as well as other assorted regional violence.  Germany’s expectation of 800,000 asylum seekers this year alone is likely to be outstripped; the U.N. estimates that there are already several million Syrian refugees in Turkey alone.  But even the 800,000 number represents close to 1% of the German population.

Only 50% – 60% of the refugees are estimated to actually be of Syrian origin. Many are also from Iraq, especially from areas currently controlled by ISIS.   However the clear majority are fleeing from Islamic extremism from whatever country of origin; a good number are also best understood as economic refugees. This last category if detected is likely to be sent home, and there are many of them. Even so, the numbers will be staggering.

No other European leader has stepped up as Angela Merkel has, even though other countries such as France and the U.K. are starting to bow to pressure to take in at least somewhat more refugees. Reasons for not wanting to do so are both abundant and varied.  Most of Europe is suffering from a poor economy, and has significant unemployment rates. While Germany’s economic growth is modest, its economy is at least still growing, and its unemployment is low.  Further, its population is aging. Its economy needs workers in many sectors.   However fears of letting in terrorists cloaked as refugees are widespread and legitimate. Even if the numbers are small,  so much as a single attack perpetrated by a “refugee” would be likely to provoke a large backlash.   Such fears as well as concerns that many of the refugees will end up on welfare, and/or won’t integrate are true everywhere, including Germany.

The art of politics often seems to involve avoiding making any clear decision that one can be blamed for later – especially big decisions.  But the crisis of the refugees is one in which two decisions were effectively possible:  1) do more or less what she did or 2) use severe force to remove the refugees that were arriving – put bars on train windows, have policemen subdue fleeing refugees by all means necessary and so on – all of which would almost instantly appear on the Internet.  For someone like Angela Merkel for whom WWII is still living memory – she was born just 9 years after the end of the war and so grew up in the shadow of it – door #2 was totally unacceptable. Thus she fully embraced door #1. No half measures for her.

While the decision surely has risks, it demonstrates a level of bravery rarely seen among today’s leaders.  And it may well be that she is genuinely rewarded for it with millions of future new citizens who will be forever grateful, who will do their best to give back and have the will to integrate more than did prior waves of economic immigrants.

Postscript: Just after this blog was posted, Germany imposed border controls at its border with Austria and also suspended train service.   The move is generally seen as a way to pressure other European governments to agree to take in more migrants, and also seemed to reflect a literal capacity problem in shelters and other services.  However, so-called prima facie refugees – in other words Syrians – who reach the border may still be being let in.  I stand by my original arguments above. This is a rock and a hard place and it unlikely to offer anything but very tough choices anytime soon.

February 12, 2015
by chenope
4 Comments

Why ISIS/ISIL Could Be A Real Problem in the U.S.

In the aftermath of the recent terrorist attacks in France, there has been a fair amount of commentary on how much of a threat such attacks in the US are. Most pundits seem to conclude that it is not likely to ever become a significant issue here. Of course, significance in this sort of thing is very much in the eyes of the beholder. Does one count by headline? By number of social media posts? By actual deaths and injuries? By the threat posed to free speech? By whether a particular ethnic or religious group was targeted?

Most of the arguments to this effect cite points that are hard to argue with as far they go. For example:

In continental Europe, one can literally hitchhike all the way to Syria, though it seems that there are terrorists available to help arrange free transport to the battlefield.   This is important because to many of the would-be jihadists, the abstract idea of being part of the creation of an actual new country is very tantalizing in the same way that starting a startup is, but at a vastly more grandiose scale.

The U.S. has never been an imperialist power in the sense that Great Britain or France were for hundreds of years.  Unfortunately the scenes in Lawrence of Arabia about France and the U.K. scheming in secret to divide up greater Syria after WWI are based on fact.  More generally, many of the borders in former European colonies were totally of European making. In some cases such as Afghanistan, the whole country altogether was a European notion.  So the reasoning goes that there’s much more history / mess on the floor in Europe with respect to the Middle East – and much more ingrained history. In contrast, US involvement in the region though dramatic, doesn’t go back very far in time.

And yes, the Islamic population in Europe is larger than in US exactly because of these former colonial and similar relationships.

But this largely misses the point. Though not reported widely in the U.S., many of these would-be European jihadists don’t come from an Islamic religious background.  Indeed, the majority seem to come from atheistic or at least non-practicing-something backgrounds, often garden variety French Catholic.  The main thing that they all seem to have in common is a certain malaise or sense of alienation – for whatever the individual reasons.  Many ISIL recruits note the strong sense of community and purpose that they experienced when they first got involved with ISIL.  One presumes from this that they otherwise lacked such a sense of community and purpose in their lives previously.

While there really are cases of people dropping out of medical school to go join ISIL in Syria,  it is very likely the case that the majority are those who feel marginalized by society, who aren’t looking to the future with much enthusiasm or optimism. (I say it is likely the case since it is impossible to get a complete count and hence demographic analysis of European jihadists and would-be jihadists.)  ISIL and other terrorist groups present such individuals with an alternative reality in which their current disillusionment is in fact a mark that they have been chosen to do great things.

Consider the case of Omar Omsen. A teenage delinquent of Senegalese origin in the south of France whose future prospects were once probably quite limited, he has become very successful and indeed quite famous as a terrorist “cyber-recruiter” with a large social media following and quite a few international media interviews – a sort of terrorist executive role model.  Terrorist recruiting in France in general is quite sophisticated.  It is generally multi-stage in nature; for example, they don’t initially identify themselves when they do outreach to young women who have somewhere expressed a desire to work in a humanitarian field, or to fight injustice.  It is carefully targeted both to the local culture, and the individual.  It includes very slick videos and graphics. (There is an excellent and rather lengthy report on terrorist indoctrination in France available at no cost from Le  Centre  de  Prévention  contre  les  dérives  sectaires  liées  à  l’islam here: http://www.cpdsi.fr/nos-ouvrages-publications/.  Note that it is in French.)

No such sophisticated recruiting effort or celebrity recruiters currently exist in the US.  If and when it does, what exact form would it take? It seems likely that, for purely practical reasons, it would seek to encourage “lone wolf” attacks in the US rather than comparatively improbable and difficult trips to Syria. Who would the primary recruiting targets be?  How would they prioritize the various groups of the disenfranchised?  What injustices, real or imagined, would be the bait to lure potential recruits to engage with them? Above all, if this were done with the same precision as has been manifested in France, what would the result be? Thousands of grass roots jihadists popping up in random places?

Unfortunately, there are marginalized and alienated people to be found everywhere, some fraction of whom could be susceptible to the movie-like fantasy of being one of the chosen ones – if that fantasy were presented in a compelling and accessible way.   It is worth taking a few moments to consider the possibility that this is the dimension that really matters – not geography, history, religion, or ethnicity.

January 23, 2015
by chenope
4 Comments

Is There A Diversity Problem in Silicon Valley?

Recently, I’ve been reading a lot about alleged gender discrimination against women in the valley. While I am a sharp critic of much of what goes in in the valley, and have surely seen many incidents of atrocious behavior of different kinds, I have to admit that I find these claims of gender discrimination rather mystifying.  This is because I’ve never seen any evidence of it. Now of course that doesn’t mean it doesn’t happen. But on a widespread basis, I doubt it.

By way of background, I am a woman who has worked in various technical positions in the valley before becoming a CEO about 15 years ago.  Over the course of time, I have probably hired more than 100 developers.

Almost of all of them were men.  In fact, I believe only once did I hire a woman, and she was really more of a mathematician who subsequently learned to code. In a few cases, I inherited developers who were women, but even these I could count on one hand.

Now why is that?  It isn’t that I needed to do more to recruit women, which is something that I hear said a lot. As most people know, most software developers are men. This becomes even more true the deeper you get in the stack; the further away you get from UI stuff, the male/female ratios get even worse. I don’t claim to know why this is. I would suspect however that there are multiple reasons for it.  Whatever the reasons, I do not see it as particularly calamitous.  After all, what if most women simply don’t find programming appealing?   Is that really so horrible?  Many professions skew significantly by gender – for whatever the reasons.

Discrimination implies that the candidates are there but, whether by omission or commission, are essentially being ignored in hiring and promotion. I would argue that this happens far less in the valley than it does most places.  This is because the incentives to hire and retain women are so particularly compelling in the valley ecosystem.  While some may find the following analysis less than high-minded or cynical, it is extremely practical and is as follows:

  • Larger companies are highly incented to hire and retain women developers.  Any large, persistent gender imbalance makes the company vulnerable to various types of sex discrimination suits, which amongst other things are bad PR. However, having good ratios is good PR – and even better for recruiting, in both genders.
  • Startups may fear lawsuits somewhat less, and are largely immune from statistical standards. But they are at least equally motivated to hire female developers for two reasons.   The first is that in startups, recruiting really is everything.  Having women around, especially in technical roles where they are more accessible, is great for recruiting. For one thing, women are likelier to feel more comfortable joining a group in which they are not the first woman. In high octane startups in which the hours are typically long, dating among employees is extremely common.   And even when that is not the  case, younger male programmers who are often shy around women usually value the opportunity to really interact with women.  (Keep in mind that most people don’t write code for a living after the age of 40, so this is a real issue.) A second reason is the increasing prevalence of so-called “acqui-hiring” in the valley, in which large companies buy small ones based solely on a bounty per engineering head, often $1M per head. Large companies may crave those female developers, so having them is a plus.
  • In addition, tech companies who are often short on basic business fundamentals, place far more value than companies in other sectors on bring trendy and progressive.  Having floors full of men, with the occasional secretary sprinkled in doesn’t cut it.

The reality is that the CEO’s of IBM and HP are both women, though you rarely hear either mentioned as “women CEO’s”.  (For that matter, Mary Barra, the CEO of GM, studied electrical engineering, as did Ginni Rommety, IBM’s CEO.)  I suspect the reason for this is that in both cases, they are “real CEO’s” in situations that are to say the least very challenging and not at all for the faint of heart.   Difficulty in turnarounds is directly proportional to the size of the company; the larger the ship, the greater its moment of inertia – and these are really large, not to mention old, ships.

However both cut far less glamorous  figures than the younger, more attractive Marissa Mayer at comparatively small Yahoo, with its proportionally quite large Alibaba warchest.  In contrast to Rometty and Whitman, Mayer’s gender is frequently cited, but usually in the context of deflecting criticism or concerns about her managerial competence. For example, what seemed to draw the most public outrage on Twitter in the aftermath of an excerpt of Nick Carlson’s book in the NYT was Mayer refusing to hire Gwyneth Paltrow as some kind of guest editor because she didn’t have a college degree. That kind of thinking is problematic, but isn’t in any way gender-related.

Gender diversity though is only one kind of diversity.  My friend the late Frank Schirrmacher, one of the publishers of the Frankfurter Allgemeine Zeitung (essentially the NYT-equivalent in Germany) often lamented the lack of diversity in the valley.  However, his concern was diversity of thought, noting the extreme similarity of the viewpoints expressed by public figures in the valley.  This is a very legitimate concern.  Problems brewing for Google, FB, etc in Europe stem directly from this, but I believe are generally poorly understood in the valley.

Here’s another concern: Increasingly one sees companies getting funded, or given a bye, largely based on a very particular pedigree of school and former employer.   While this narrow-mindedness may not make the gender diversity worse, it surely cuts out those who go to working class schools such as Drexel.  Or veterans who got their degrees while in the military through whatever school happened to be accessible.  Or, as in the above anecdote, don’t have degrees at all, but could make potentially stellar contributions like Ms. Paltrow. Nor will you hear many people with accents that suggest that they hale from south of the Mason-Dixon line.  Nor do you see really overweight people on the Google campus.  I could go on, but you get the point. When viewed in this fashion, Ms. Mayer is getting in trouble not for being different from those around her (e.g. a woman) but ironically for being the same in a context in which it was inappropriate.

Not everyone would consider such things a question of diversity.  Certainly the law is specific about what diversity is actionable legally.  But in the end, it is never good for anyone to only associate with people who are very similar to themselves – and it is even worse for the leadership of consumer product companies.    I think this is a real problem – one of many in the valley that warrant some outside scrutiny.  Attention on non-problems is only de-focussing.