Marina Gorbis's Blog, page 1412

More Robots Won’t Mean Fewer Jobs

Ever since the earliest concepts of humanoid robots were introduced into popular culture, the idea of robots replacing people in various capacities has never been far behind. Science fiction movies tend to portray the dark side of this imaginary equation, with robots eventually becoming smarter than their human makers and deciding to eliminate them in some grand fashion. While this concept has sold a lot of movie tickets, the reality is a lot less sinister. The same holds true for the debate surrounding robots taking jobs.

Arthur C. Clarke, a famous science fiction writer from the 1950s, is reported to have said, “We overestimate technology in the short term, and we underestimate it in the long term.” This sentiment has been borne out repeatedly over time. Despite the incredible advances in artificial intelligence, mechatronics, and human-machine interaction made over the past several decades, as a society we tend to overestimate what robots are capable of today. The simple act of tying one’s shoes can be taught to a 5-year-old in minutes, but the combination of cognitive and physical interpretations that need to happen to make this task second nature to the child are incredibly difficult to replicate inside the control system of a robot.

So while it’s possible today to program a traditional SCARA industrial robot to perform a physical task in a way that is superior to a human doing it (for example, moving an object faster and in a blink placing it more precisely than a person can), the downsides of this approach the high cost and technical difficulty preclude it from being used universally throughout a facility to “replace all the people.” There are simply too many parts of the process (whether that process is in a manufacturing plant or in the checkout line of the local fast food restaurant) that require a human’s dexterity, reasoning, and intuition to effectively replace an entire workforce with machines today.

That said, it is becoming increasingly feasible and cost-effective today for robots to assume many of the repetitive, labor-intensive tasks that are part of many people’s jobs. “Smart” robots that can work safely next to people, are aware of their environment, and are able to modify their behavior according to those circumstances are fortunately becoming more and more commonplace. And yes, I do mean fortunately, because it is often these tasks that define the least meaningful and rewarding aspects of a person’s job.

For example, TUG robots from a company called Aethon in Pittsburgh are in hundreds of hospitals across the U.S., taking dirty dishes and sheets from patients, and allowing the nurses and aides who did that previously to spend more quality time with their patients doing what they do best – administering care. The PackBot from iRobot largely took over the life-threatening task of investigating roadside bombs in places like Iraq and Afghanistan, saving the lives of many soldiers in the process. And my current company’s robot Baxter is now performing many of the simple, repetitive packaging and material handling tasks that used to take up the time and effort of factory workers in the many facilities who have adopted this technology over the past year. As a result, those same people are being redeployed to other tasks within the plant, in some cases with a promotion and a new job description to show for it.

In each of these cases, the robot has effectively assumed the responsibility for the dull, dirty or dangerous task – but has not replaced the human responsible for getting that job done. The robot in this equation is a tool – not at all unlike what a PC is for an office worker, a tractor is for a farmer, or a nail gun is to a home builder. All of those technologies were once speculated to be replacing or at least reducing the need for the humans that wielded them. Yet all of those professions still exist today, and the workers in those fields are better, happier, and more productive because of them.

Which brings me back to part two of Mr. Clarke’s assessment, that we underestimate the value of technology in the long term. I believe we do this today as well, and it concerns me that we as a society are not producing robots and other technologies quickly enough to ramp up to the expanded needs we will soon have for them.

Over the next 40 years, we are going to see a dramatic drop in the percentage of working-age adults across the world. And as baby boomers reach retirement age, the percentage of folks in retirement is going to change dramatically in the opposite direction. That means there will be more people with fewer social security dollars competing for services, and fewer working people available to deliver those services to them.

We will need robots to help us deal with this reality, doing the things we normally do for ourselves but that get harder to do as we get older.  Things like getting groceries, driving cars to visit people, and helping us move around more safely and efficiently as physical ailments settle in.

Before you dismiss this vision for a highly automated society, think about it the next time you put a load of laundry into your washing machine or hit the start button on the dishwasher as you head off to bed. These are tools that have automated unpleasant and time-consuming aspects of our lives, and given us more free time to pursue more productive or pleasurable activities.

A generation ago, these machines were looked at with skepticism and sometimes ridicule. Today, they are staples of modern life that most of us would be hard-pressed to live without.  I hope and fully believe we will be saying the same thing about robots a generation from now.

Narrowing the Chasm Between PR Professionals and Wikipedia

Public relations and communications professionals—and the academic programs that train them—find themselves operating in a radically new environment. As Emily Yellin describes in her book Your Call Is (Not That) Important to Us, “public relations” was the phrase initially used to describe customer service. But, over time, most PR work focused on pitching journalists who worked for professional media organizations. As a result, a symbiotic relationship was established, with communications professionals providing information, context, statements, and experts for journalists working on stories, who—in return—were paid to wade through the various pitches from PR pros to find what would best aid their story and, presumably, their audiences.

Now, PR professionals are trying to figure out how to build relationships with members of actual publics, rather than solely with other paid professionals who see coordinating with corporate communicators as part of their day jobs. One of the most important of these publics is the Wikipedia editor community.

Corporate representatives have earned Wikipedia editors’ skepticism—and, increasingly, cynicism—with a steady stream of missteps. Consider:

Employees, entrepreneurs, and agency partners have flooded the site, pasting in marketing copy for every company product, adding the official bio for each and every senior executive, and including voluminous details of every CSR initiative to their organization’s corporate page.
Some corporate representatives have been caught trying to remove unflattering information from their company’s pages, or adding unflattering information to competitors’ pages.
A few organizations in the PR industry have overtly sold their ability to “create and fix Wikipedia pages” in ways that violate the very spirit and purpose of the Wikipedia project.

Not all of these are acts of bad faith (although some of them certainly are). Many of the more venial sins are the result of a widespread lack of understanding and education about Wikipedia’s standards about conflicts of interest.

If you’re used to emailing with media professionals, the democratization of information that Wikipedia represents brings with it some notable challenges:

One of the most popular information sites on the Internet doesn’t have an editorial hierarchy to appeal to for retractions or incorrect information.
Wikipedia is a “publisher” that takes no legal responsibility for any existence of misinformation on its site (meaning is has no vested interest in prioritizing updating an inaccuracy or mischaracterization).
The expansion of content at the site has grown at a rate much higher than the community of dedicated editorial volunteers can fully vet.
Not only is Wikipedia’s open-editing policy significantly different from traditional models, but the project also aims for accuracy and objectivity and has a communally accepted conflict-of-interest policy.

Wikipedia editors who have dealt with, or repeatedly heard about the influx of conflict-of-interest edits have grown resistant to listening to edit requests even from transparent PR professionals who are trying to bring their concerns to more objective editors “behind the scenes,” rather than making edits directly or who are seeking factual updates to the page (replacing 2013’s annual revenues with 2014’s, for instance, based on sourced official information).

That, combined with the fact that there are nowhere near enough volunteer editors to fully vet the information that is added and edited on the site on a daily basis, means requested edits or additions made “the right way” can languish for months.

Meanwhile, corporate representatives grow ever-more frustrated at incomplete, incorrect, or outdated information sitting on one of the most popular sites on the internet for months on end, while their requests go unanswered, and may face increasing pressure to find someone who can “fix it.”

In response to this untenable situation, representatives from several leading communications firms gathered in Washington DC in February with some of Wikipedia’s volunteer community and scholars who study the issue. We talked candidly about the strained relationship, and how we might start fixing it.

As a result, 11 agencies (I work for Peppercomm, one of the agencies involved)—who, combined, manage well more than a billion dollars in annual fees—have committed to a clear statement about how seriously we take the goals of the Wikipedia project and the ethical standards each of our firms adhere to.

The statement, published today, commits our organizations to act in adherence to Wikipedia’s guiding principles, policies, and guidelines.

We have promised to continually seek greater understanding of the project’s goals for our employees and clients, and to investigate and seek corrective action in any instance where a potential violation of Wikipedia’s policies arise based on the work of our respective agencies. And we have committed ourselves to push our industry as a whole to have more deliberate conversations about a high standard of ethical engagement with the Wikipedia project (and similar initiatives) as well as better education in our field for what the Wikipedia project is striving to achieve.

We realize that we will have to show Wikipedia editors, rather than just tell them, that this is our commitment.

But we hope this statement is a first step toward a productive conversation about how ethical corporate communicators can productively serve the editor community. We hope we are making it clear that much of our industry—and, at the very least, our respective agencies—take the principles of the Wikipedia project (and other open-source projects like it) seriously and similarly support those ideals. And we hope that putting this stake in the ground helps drive others in our profession to follow suit and to foster a better education about what ethical engagement with the Wikipedia community looks like.

We don’t want the Wikipedia editor community to ever cease being skeptical and asking critical questions; such instincts are crucial for maintaining the principles behind the site. But we do hope to establish a trust so that corporate communicators can better use our resources to improve Wikipedia when and where it’s appropriate, while working in conjunction with editors who can be objective on the pages in question.

What Uber Should Do With the Money

By now, you’ve likely heard of Uber’s staggering US$1.2 billion funding round that values the business at US$ 18.2 billion. One can debate the merits of the valuation, but whatever your opinion, the folks at Uber will have a ton of resources to fund their next strategic move. So to us the interesting question is what Uber should do with the money and, perhaps more importantly, what it shouldn’t.

Let’s look at some of the options. Ones that Uber should probably look at include:

Value proposition: Uber’s 20-25% commission is high by most standards. The fact that incumbent taxi medallion owners and black car booking agents had even more usurious rates helped Uber get away with this pricing model. This is not going to last. Uber’s next competitors will be other apps (perhaps one that might be baked into a mobile operating system or a mapping product) and these will be far more serious competitors than the old ones. Further, Uber’s product by its very nature has limited sticking power; it will need to continually upgrade its experience and charge lower commissions if it wants to retain its dominant position in the US and elsewhere.

International markets: Uber is the big daddy of ride-hailing platforms in the US, but its dominance is far from global. In many international markets it faces strong competitors. Rocket Internet-funded EasyTaxi is prominent in many markets in Asia and South America; GrabTaxi is building market share far faster in Singapore; China has its own homegrown players.  Intermediation platforms like Uber are natural monopolies, which means getting to scale early on is critical. Given that Uber already lags behind in many international markets, it will take substantial resources to get up to speed in these markets.

Culturally sensitive local teams: Uber must acknowledge that it is not just a technology company, it is a real-world intermediary in a decades-old industry. As with previous disruptions of existing industries there will be winners and losers. This has important political consequences and handling these requires a culturally sensitive, country-specific strategy. For instance, the arguments around market efficiency that Uber makes work far better in Germany and the US than in France, where customers value equality and fairness over efficiency. Uber must use some of its resources to build culturally sensitive and locally empowered teams that can effectively create country-specific strategies, rather than simply bringing its aggressive playbook to new markets.

There are also some talked-about options that Uber should probably not explore:

An on-demand courier service: One of the most talked-about avenues for Uber is to use its instant on-demand platform to match supply and demand for transporting products as well as people. Our research into the economics of such peer-to-peer transport systems indicates that while the model is great for achieving very quick delivery times, it is also a poor use of transport infrastructure and makes little sense for all but the most time-sensitive deliveries.

Self-driving cars: The technology is definitely impressive, and some have called for Uber to invest in this trendy new area. While the experience of a self-driving car feels futuristic and magical, they don’t make business sense in an era of decreasing real wages for semi-skilled labor (like drivers). Further, Uber has the DNA of a business model innovator, not that of a technology company, which means this move is unlikely to work.

We have been Uber users and fans from the very early days. We see it as a game-changing transportation innovator in the tradition of Henry Ford, whose business model (standardization, mass production, welfare capitalism) made the automobile accessible to ordinary people.   The next few years will reveal whether Uber will realize this potential.

When and How To Let a Conflict Go

There’s lots of advice about how to tackle difficult conversations but there are certain discussions you’re just better off not having at all. Some conflicts with co-workers, neighbors, or spouses should be left alone; knowing when to let it go is just as critical as knowing when to engage.

The decision of whether to bring up and try to resolve a conflict — difficult feedback you’d like to give, a criticism you want to offer, or a case you feel you need to make — should be a rational decision. Therefore the first question to ask yourself is: Am I too emotional right now? If you’re angry or upset ­— or your colleague is — it’s not a good time to engage. It won’t help if either of you is yelling or pounding the table. There’s lots of research (see here and here) that shows that our emotional and rational minds work in parallel – when our emotional mind is on top, rationality goes out the window.

In these cases, instead of productively discussing the issue at hand, we end up in a negative emotional spiral, where both sides escalate the conflict, say hurtful things or even make threats, and aren’t able to disengage. This is spurred on by our natural mimic reflex. We start to imitate the emotions someone else is expressing. When you’ve gotten to this point, it can be almost impossible to clear the air.

But heightened emotions aren’t the only reason to walk away from a conflict. The goal of engaging in a conflict discussion is to reach a resolution. If you don’t think you can change something with the conversation, it may not be worth having. If your colleague is stuck in her ways and has never demonstrated a willingness to concede, what do you gain by pushing her yet again? If the damage is already done ­— say the project was defunded last week and you’re just finding out about it — it’s probably better to let it go.

The exception to this advice is when it will make you feel better to express your opinion even if you know it won’t change the circumstances, for example, if you want to go on record as opposing the defunding. Integrity is important in professional settings and you may need to speak up as a matter of principle. But before you do that, think about collateral damage: Will engaging in the conflict damage your reputation or hurt your colleague’s sense of self-worth?

If you decide to let go of a conflict, what do you do instead? Do whatever you can to leave the situation, or at least postpone the conversation. You might say something like: “I’m not ready to have this conversation right now. I’m going to step outside to clear my head and then perhaps we can meet tomorrow to talk about this.”  You can take a walk. I had one student tell me that he walked around in freezing cold weather instead of engaging in a workplace battle and it helped him address the conflict constructively later on when he cooled off. You may want to vent with a friend or a trusted colleague — someone who can talk you down or give you insight into why the other person is behaving the way he or she is. If you choose not to confront the issue directly, you need to tell yourself: “I chose to let this go. I’m not going to ruminate or retaliate because it was my decision to let go.”

Of course, whether or not to engage is not always up to you.  If it’s the other party who’s having the problem, you may not be able to completely avoid having the conversation. The person may approach you after a meeting, or catch you on the phone. The best you can do in these situations is to stop yourself from getting into the negative emotional spiral. When Anne Lytle, Debra Shapiro, and I were studying dispute resolution in the late 1990s, we found people used several ways to avoid or break up a negative emotional spiral.  Since then I’ve seen them work in many real-life conflicts.

First, it’s important to remain calm. It’s hard not to yell back when you’re being attacked but that’s not going to help. To help you remain calm while your colleague is venting and in the process, perhaps even hurling a few insults, visualize your coworker’s words going over your shoulder, not hitting you in the chest. You might physically take a step aside. Don’t act aloof; it’s important to still indicate that you’re listening. But if you don’t feed your counterpart’s negative emotion with your own, it’s likely he or she will wind down. Without the fuel of your equally strong reaction, he or she will run out of steam.

To defuse an emotional situation, it can help to talk about the process instead of the content. You might say, “You can yell at me and I can yell back at you but this isn’t going to solve our problem. Let’s try to see how we might fix this.” Label the interaction in its current state as unproductive and then suggest you set that process aside.

In our research on conflict resolution, we saw that most people started the conversation out on an emotional level—claiming that they’d been mistreated, framing the discussion in terms of what’s fair and what isn’t, and sometimes making threats. That behavior just cued the other party to make threats back. When you open with negative emotions, you’re virtually guaranteed to enter the conflict spiral. So you had better know how to break it. Try not reciprocating. Instead of threatening back or making your own claim to fairness, focus on interests—what you and your counterpart actually want from the situation and why. You might say something like: “Help me understand why this is such a problem.” By getting at the underlying issues, you can remain rational and hopefully defuse your colleague’s anger.

You might need to counter a claim your colleague is making — “I do think this new policy is fair,” for example — but then immediately acknowledge that you see things differently. “I have a completely different perspective, but clearly you think this is unfair, so talk to me. How can we fix this?” Focus the person on the underlying causes of the problem and what you can do together to solve it.

There’s a limit to the abuse you can — and should ­— take from a colleague. These tactics work to avoid or break up conflict spirals and therefore limit that abuse.  But, they also go further, in that they redirect the conversation from emotions to interests — what’s causing the emotions — and so they open the door to resolving the problem.

Inclusiveness Means Giving Every Employee Personal Attention

Several years ago, a large, global company asked me to help improve their employee engagement. I suggested a strengths-based approach to the problem: a search for “hot spots” in the organization where people were highly engaged and performing well. By understanding what was working, we could harness and replicate these factors across the greater organization.

We surveyed thousands of employees from all over the world. Our findings were fascinating, but one key factor emerged: from the Netherlands to India to the United States, those who were most engaged had bosses who gave them personalized attention.

 I’ll never forget the story we heard from one very junior employee. An assertive, high-ranking (and potentially intimidating) leader of the business unit in which she worked sat with her and asked her to walk him through her perspective on an issue. Think about the kind of impact that interaction must have had on the young woman. A senior executive was genuinely curious about her point of view and her opinions. This strategy was integral to the way he led his team, and, as a result, the group was performing exceptionally well.

This is what “inclusive leadership” really looks like.  Too often the term is used as a buzzword, read through the lens of demographics. When someone says a leader is inclusive, we might assume that he’s a supporter of women and minorities. But inclusiveness is about more than gender, racial or cultural diversity. What matters most is a fundamental mindset that embraces every person as an individual and helps them bring who they are – both their backgrounds and their opinions – into the workplace.

To increase inclusiveness into your organization, encourage the following practices:

Be aware of biases. Social psychologists have found that even people who do not intend to discriminate are likely to hold implicit biases against certain people, perhaps those who are new or less senior, or who represent a certain function. Inclusive leaders actively fight against these tendencies. Make note of potential blind spots:  unconscious favoritism, conformity, or silence in certain situations. Proactively address those problems and be receptive to feedback from every employee.

Create a shared identity. Inclusive leaders also create a sense of shared identity and purpose within their teams. This doesn’t mean groupthink. Instead, our research found that the most effective leaders had frequent conversations with team members – both one-on-one and in group settings – about what was important to them. This practice advanced an explicitly held set of values and enabled people to learn about and connect with one another. It is in this context that inclusive behaviors emerge.

Be attentive to emotions. Inclusive leadership also requires an emotional skill-set:  the ability to recognize emotion, to understand what’s being felt and why, and to use emotion effectively. For example, a leader who can’t spot the emotional angst on an excluded employee’s face will not be able to chance her behavior to make him feel more included.

Organizations that want to boost employee engagement should start by cultivating more inclusive leaders. These executives will need to spend time looking not only at demographic breakdowns but also at the people in front them. Interest and attention help employees thrive.

That Persuasive Tweet Could Be from a Sneaky Bot

Although Twitter monitors tweet traffic to weed out “socialbots,” these automated accounts are hard to detect as they tweet their preprogrammed, synthetic messages. After a team led by Carlos Freitas of the Federal University of Minas Gerais in Brazil set 120 socialbots loose, they not only infiltrated social groups but became influential in them; 20% picked up 100 or more followers, while only 38 were suspended by Twitter. MIT Technology Review says the concern is that bots could be designed to influence opinions, such as about politics.

Universities Are Missing Out on an Explosive Growth Sector: Their Own

Education is on the brink of rapid change that will create a lot of value for innovators. But still sitting on the sidelines? Those who make the decisions and control the purse strings at legacy higher education institutions.

One representative example: April’s Education Innovation Summit, where more than 2,000 people energetically discussed how technology and markets are charting the future of education globally. The summit’s organizers claimed that 80 universities were in attendance, but a closer look at the attendee list revealed only a handful of high-level decision makers — and exactly one university endowment. Most of the attendees from post-secondary institutions were professors or deans of schools of education. Meanwhile, the halls were filled with hundreds of investors and hundreds more entrepreneurs.

I’ll admit that I’m not an entirely disinterested observer when I look upon the $450 billion currently sitting in university endowments in the U.S. I’m a partner at a venture capital firm, and venture capital has long been a key way for the top-performing endowments to deploy capital. But when I talk to general partners at venture capital funds that focus on education — Learn Capital, where I work, Rethink Education, and University Ventures — they report that university endowments have not been nearly as interested as other institutions in the work we’re doing.  One outside manager of many endowments I spoke to confirmed to me that there has been “no mandate” from clients to be investing in the future of higher education.  “I haven’t heard that at all,” was the quote. At the Education Innovation Summit the only university endowment in attendance was the University of Texas‘s UTIMCO.

The business models of universities are being challenged, and it looks like the universities are out to lunch. The transformation in education technology and markets is happening with the business leaders and money-men of higher education barely present. Not only will the spoils of this sea change largely go to private markets, with those spoils will go the prestige and legacy of those who invented the future. This is a tragic waste, given that universities are not only our greatest repositories of educational talent, but among our greatest repositories of investable capital as well.  Those who manage money for higher education, I propose, need to get much more interested in the market they are in.

The challenges to the traditional higher education model are well known.  This summer, a well-produced documentary, Ivory Tower, will likely sharpen the public discussion.  In a nutshell, the credit hour, the seat in the lecture hall, the tenured professor with a two or three course load, the four-year tuition, and the two-year professional degree will all be up for grabs in the next 20 years.  The more astute higher education administrators tell me they can see this happening now: Tuition discount rates are at record highs, and the summer scramble is on to hit admission targets as enrollments drop. Debt levels are unsustainable, for both students and many universities.   Meanwhile, every post-secondary institution in America is scrambling to bring more full-pay foreign students to their degree programs just to make the numbers work.

Many universities will figure out how to thrive under a new world order, but there are not-so-quiet alarm bells that suggest many will not. (See comments by Clayton Christensen and Mark Cuban). There are examples of universities forging ahead. Arizona State University, Southern New Hampshire University, and Abilene Christian University are names that sit alongside the usual MIT and Stanford.  Still, most colleges are lucky if they can afford even a small team charged with developing new lines of business and new business models. One senior administrator with bold ideas lamented to me that the intention and impetus exists at his well-known college, but there’s just no capital to try to experiment, and thus no room for failure. As a result, his university’s business model is in a holding pattern, and so is nearly everyone else’s.

Many universities manage billions in research funding, but there is usually no R&D budget for their own product, namely delivering education to willing buyers. Those administrators in the position to understand the imperative to innovate don’t actually have control over purse strings. Presidents and provosts will tell you: operating budgets are tight.  Institutions have been raising tuition just to keep the lights on.

Meanwhile, trustees control universities’ sometimes-giant endowments, and most often delegate this control to asset managers who treat the endowments as pools of money with the sole purpose of creating more money.  They’re quite good at it, on the whole.  The National Association of College and University Business Officers Study on Endowments reveals that endowments are performing enviably — with returns of near 12% in 2013. Their top-performing alternative strategy for the year was distressed debt (quite the irony, given all the distressed student and university debt out there).

There’s a systemic Catch 22, one outsourced endowment manager told me.  The trustee committees and endowment managers are fine with  making investment decisions about any old asset.  But when it comes to education, they feel like that’s too close to home, so they pass the buck or avoid the decision entirely.  But if you go to the operational side of the institution, they feel investing capital is the business of their money managers, so they in turn pass the buck or avoid the decision entirely.  It’s a game of responsibility hot potato.

Thus, the asset managers are more comfortable with hedge funds, real estate holdings, and trading strategies than in market opportunities in education. This is a mistake from a purely fiduciary perspective — the new market actors in education are making money in droves. More importantly, if the endowment is there to support the future of an institution that will need to reinvent itself, it should be investing in that reinvention.

There is a precedent for endowment managers to see capital as a tool to help the university thrive — investing in local real estate.  Universities have a vested interest in seeing their surrounding communities flourish as a way to attract students and faculty.  Harvard notoriously owns (and manages) much of Cambridge, Mass., but even my alma mater, Clark University, which has a small endowment by comparison, has actively bought up much of the real estate around it in order to make downtown Worcester, Mass., a better place to be.  This has generally been a successful strategy for universities in both financial and strategic terms. But these days the mantra is “more clicks, less bricks,”  and universities should be using their capital to manage their digital surroundings as well.

Instead, innovation in education is mostly happening outside of the university, with entrepreneurs leading the way.  Coursera and General Assembly (both in Learn Capital’s portfolio) have rapidly scaling businesses.  When the Minerva Project can get Larry Summers to chair its advisory board, when Coursera can recruit the former president of Yale as its CEO, and General Assembly can endow a scholarship fund with money from Microsoft and Google, you know that there’s been a real shift in the center of power.

As one university trustee said to me, “We need to get in the game. Right now, we’re road kill.”  It doesn’t need to be this way. There’s a scenario where everyone emerges a winner.  But it requires that we all have a seat at the table, and right now, we’re not even in the same rooms. For universities, joining the league of innovation may require casting aside the firewall between endowment money and innovation in education.

Entrepreneurs Need a Better Way to Cash Out

The most successful, visionary entrepreneurs dream not of millions of dollars, but of a world where their products change culture. But in technology startups, particularly venture-backed technology startups, the current investment climate does not always support that vision. Conventional wisdom suggests that there are only two ways to exit a company: either it grows such that it can hold an initial public offering, or it gets acquired by or merges with a strategic partner. For as long as it has been an industry, these have been the only two ways for a venture capital-backed company to succeed. There has to be a better way.

It is incredibly hard to hold an IPO. The conventional wisdom on Wall Street for the last 20 years, with notable exception of the technology bubble at the turn of the century, is that to do so, a company needs around $100 million of annualized revenue and a couple of consecutive profitable quarters. Lately, some companies have been able to sneak by with lower valuations, because of sufficiently impressive growth. But analysts are judging EBITDA, P/E ratios, quarterly growth, and cashflows – which don’t always correlate with long-term value creation. And, too often, our obsession with these short-term metrics has the opposite effect. This can lead to bad outcomes for entrepreneurs who hope to create lasting value.

Meanwhile, strategic acquisitions sometime work well, but often don’t. Big acquirers cash out founders, management teams get folded into big organizations, cashflows disappoint, and visions flounder.

We need to find a better way to support small and mid-sized businesses, a key element of our economic infrastructure. With a structure that returns the agency to the founder, that focuses on the true, fully realized vision of the business, rather than short-term profit optimization, one might imagine a different class of company could be created.

There are a nascent but growing community of financial backers, both institutional and individual, who have taken the long view: whose investments look more like mezzanine debt, in the stable case, or like common equity, in the growth case. In either case, a dividend allows an investor to see a return without a traditional “exit” on the part of the company.

Debt capital, from family offices to institutions, provides an alternative route, and an increasingly attractive pathway for companies. If a company has enough cash flow to service it, debt capital offers an opportunity for them to borrow from investors, in a form of venture debt that allows them to continue to grow while staying independent. Patient capital sources have taken note of the increased access to information about private businesses, which has been a primary barrier preventing them from investing directly. As a result, these investors have taken to bypassing fund-of-funds and other financial middle men who trade on information asymmetries. This means that pension money, endowment money, and foundation money is increasingly going straight into startup companies. Most of the capital tends toward the lending platforms today, because they are providing returns at a time when U.S. Treasury yields are barely at 3%. And as the shift away from the industrial economy continues, a wider percentage of this institutional capital will go towards innovation startups through a rise in speculative investing, which has been predicted by a number of Silicon Valley venture capitalists.

Ultimately, high-risk venture capital investors need to be rewarded, ideally with high returns, for an ecosystem of innovation to be sustainable. But venture capitalists have focused on specific markets and business models, because of the constraints of the exit, which is how investors have made their returns to-date. By creating a different type of liquidity opportunity at later stages of a company’s life, with an orientation towards the long-term, perhaps the market of companies worth investing in will evolve, and grow.

Some of the most important social and cultural infrastructure — including schools, networks of the Red Cross, churches, mosques and temples — in our society today has taken a very long time to achieve meaningful scale, and thus, required patient, purposeful supporters. We need to be more ambitious about our innovative businesses: not only that they create millions of dollars in the short and medium term, but that they last in the long term. And the “exit,” at least in its current incarnation, is the best place to start brainstorming solutions.

Yes, You Can Make Meetings More Productive

High human capital productivity — one key to great financial results — requires hiring the right people, teaming them effectively, and eliminating organizational barriers to high performance. It also requires paying close attention to how people in the organization interact. At many companies, they’re spending way too much time answering emails and attending unproductive meetings.

Why should this be? Blame Metcalfe’s Law.

Robert Metcalfe’s famous dictum states that the value of a network increases geometrically with the number of connected devices. One fax machine is worthless; a million fax machines create a valuable network. But the law has a dark side: as the cost of one-to-one and one-to-many interactions declines, the number of these interactions increases dramatically. And people are interacting more than ever. They are sending scores of emails every day. They are copying many of their colleagues, whether or not those individuals really need to see the message.

Worst of all, they are calling meetings. In the past, organizing a meeting of executives was time-consuming and therefore expensive; assistants had to spend hours on the phone finding times that worked for attendees. Now all they need to do is check Outlook or a similar program and send a quick email. As a result, most executives are spending 20 hours or more every week in meetings. And one meeting usually spawns many more. For example, my colleagues and I found that a single weekly executive committee meeting at a large company generated about 300,000 hours of preparation time each year (the equivalent of nearly 150 full-time-equivalent employees).

But meetings don’t have to get the best of you. You can manage them as closely as you manage every investment. There are four keys:

Don’t hold a meeting for the sake of holding a meeting. Meetings are great for some tasks, like gathering input and coming to a group decision. They aren’t so good for other tasks, such as drafting a strategy document. Before calling a meeting, decide whether it’s really the best way to get the job done.


Manage the invite list. In many companies it’s bad form not to invite lots of people to a meeting. What people don’t realize is that every additional attendee adds cost. Unnecessary attendees also get in the way. Remember the Rule of 7, which states that every attendee over seven reduces the likelihood of making a good, quick, executable decision by 10%. Once you hit 16 or 17, your decision effectiveness is close to zero.


Change the default time on meetings. Not too long ago, most companies called 30-minute meetings. Now the typical default time has grown to 60 minutes, even though every additional minute generates more cost. As my colleagues and I recently noted in HBR, one company established a rule: if a meeting was to last more than 90 minutes, it required approval by an executive two layers up from the convener. This rule quickly cut meeting time.


Improve the effectiveness of every meeting minute. You can boost meeting effectiveness through some simple disciplines. Clarify the purpose of every meeting. Spell out people’s roles in decisions. Create a decision log that captures every decision made in a meeting. (If the log is blank, you’ll find that people begin questioning why the meeting was held at all.)

Recently, my colleagues and I heard a story about a U.S. undersecretary of defense who was managing procurement. She came to her first meeting with contractors and saw some 60 people in the room. So she said, “Let’s first create a big circle. We’ll go around the room, and everyone can say who they are and why they’re here.” Participants rolled their eyes  — did they really have to do something this gimmicky? — but did as she asked.

After the first two had identified themselves, the undersecretary said, “Thanks for your interest, but we won’t need you here. You can excuse yourself.” Others met a similar fate. By the time she got to the 10th person in the circle, people all over the room were getting up to leave, knowing they had no real reason to be there. Eventually the group got down to around 12 members — and the human capital productivity of that meeting rose about fivefold.

So Metcalfe’s Law cuts both ways. Capitalize on its value, by all means, but watch out for the costs hidden in its dark side.

High Returns Prove Elusive for Hedge Funds

A composite index of more than 2,000 hedge funds returned 72% over the past decade while charging substantial fees—the 25 highest-paid hedge-fund managers made $21 billion last year, according to the Wall Street Journal. Meanwhile, for comparison, an index fund composed of 60% stocks and 40% bonds had a return of about 100% over the same period while charging low fees. With pension funds increasingly turning to these firms for higher yields, hedge funds, which bet on and against stocks and invest in equity derivatives, now manage more than $2.4 trillion, up from $865 billion a decade ago.