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The Chenope Blog

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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.

 

 

January 17, 2015
by chenope
13 Comments

More Tech, More Privacy (Expectations)

Since an old Merc interview of mine is now finally showing up in print, the topic for this week’s blog will be the interplay between technology innovation and privacy entitlements.

There are two constants when discussing privacy and technology:

  • Each new wave of technology adoption brings with it expanded privacy entitlements.
  • Privacy is always a trade-off with something else. And it always will be. What does change is what the ‘something else’ is.

Back in the day, privacy was most often traded-off against simple convenience. Sure, you could take the few minutes to go outside with your cell phone – or in the dark ages, walk to a pay phone – to avoid those in neighboring cubicles overhearing your conversation. Or you could just break down and risk your co-workers overhearing bits and pieces of your conversation. With old technology or new, you still had to go out of your way for privacy. Cell phones certainly brought more privacy – for one thing, you could take them anywhere – but also vastly greater expectations of privacy. Think about it: most people these days would rather have a friend or stranger rifle through their wallet than browse their cell phone contents.

In more recent years, the privacy trade-off has increasingly been with the desire for unfettered online self-expression in forums such as Twitter, FB, etc. For example, a woman delighted with the cool new pair of shoes she just bought may want all of her friends to see how fashion-forward she is, and so will likely post a photo of said shoes. There’s no problem at all with that, until/unless the shoe maven in question feels like she is being stalked if all she sees for weeks afterwards are ads from the brand of the shoes and competitors of same – as she very well may. But it can be far worse still: what if it turns out to be the case that buying a certain type of shoes (say stilettos) at a certain time of week (say Friday afternoon) is strongly correlated to the purchase of particular types of lingerie or condoms within the same few hour period? The relevant ads from nearby stores are all but certain to find their way to her cell phone in a timely manner, potentially causing giant embarrassment.

But is that really a violation of privacy – given that shoes were purchased at a popular store on a well-trafficked street where there was no privacy – or just brands playing the real world probabilities? And even if it is the former, at what point does the average person come to understand that there is a certain amount of randomness in all of this? That even if the ads aren’t random in a purely statistical sense, the correlations are often weak ones – if still profitable. Our shoe maven may have simply fallen in love with the shoes, and just happened to be passing the shoe store on the way to visit her grandmother. In other words, you can’t judge a person by the ads which target them. When viewed in this light, unfortunately-timed ads are not so much an invasion of privacy as just plain unlucky. If you do think that this example is a violation of privacy, you ought to consider the following question. What if a shrewd lingerie store a block away from the shoe store strategically stationed someone outside the shoe store to hand coupons to anyone who comes out with a shopping bag? Would that also be a violation of privacy?

The right to online complaining – and just outright venting – is just as much of an entitlement as is bragging. If, for example, you complain online that United’s baggage-handling robots literally pulled your brand new luggage apart, you’ll likely soon get ads offering deals on a new suitcase. Hard to complain objectively about that: for one thing, maybe the ads are actually useful given the circumstances, and for another it is hard to argue that privacy should attach to a publicly made complaint. Still, even in this scenario, one can understand why the ‘right to be forgotten’ – forgive the twisting of the European catch phrase – could be desirable; for example, if each time you see one of the suitcase ads, you become incredibly aggravated because it reminds you how shabbily you were treated by the airline.

Nonetheless, at the end of the day, few people are willing to give up their rights to self-expression online. So while there may be much hand wringing and pontification about privacy, most will not change their behavior. Effectively, at least in the U.S., the tradeoff has been made.

The question however remains on how many things in the so-called Internet of Things will reach the level of addictiveness or need such that privacy concerns are all but neutered. Even leaving aside concerns about hacking, there are legitimate concerns about what kinds of data could be collected, and what correlations could be drawn from them. In today’s WSJ, there was an article about Google suspending the sale of Google glass. It cited privacy concerns and lack of real world usefulness as the two main reasons. No surprise on either count. Few people can honestly say that their glance hasn’t lingered over long on something that it really should not have – call it the rubbernecking effect. Right there, there is a lot of potential bad juju to have to outweigh with irresistible value that has yet to be identified. Likewise, I suspect most people don’t want their cars telling them – or worse still, others – how well they are driving when they are having a hellaciously bad day. And while there may be something to be said for major appliances who send email about needed maintenance, or upgrade offers based on actual usage patterns, this could very quickly become irritating if more than very occasional. At some point it isn’t even a question of privacy so much as of common sense. Of course, many ‘things’ have limited privacy impact, if probably also limited value. My internet-connected toaster or fridge might not provide me all that much value, but is very unlikely to do me any harm either.