Can Your City Be the Next Silicon Valley?

Can Your City Be the Next Silicon Valley?

 

prairie 02

Cities around the world have declared their intent to become “the next Silicon Valley”. New York’s Silicon Alley, Austin’s Silicon Hills, Portland’s Silicon Forest, London’s Silicon Square, New Zealand’s Silicon Welly, Louisiana’s Silicon Bayou, Israel’s Silicon Wadi, Scotland’s Silicon Glen, and Kenya’s Silicon Savannah testify to the power of this idea. Promoters have even resorted to puns or worse, e.g., Santiago s Chilecon Valley, Philadelphia’s Philicon Valley, and (you cannot make this up) Cape Cod’s Silicon Sandbar.

But why not? After all, every city knows the key ingredients. Why shouldn’t an ambitious town simply round up a bunch of entrepreneurs and venture capitalists, stir in some startup lawyers, accountants, and angel investors, recruit a bunch of engineers who want lower cost housing, and build ties with the local university? How hard can it actually be?

The fundamental confusion is between emergent systems that are organic, unplanned, and uncontrolled and engineered systems that are linear and guided. In their book Competing on the Edge: Strategy as Structured Chaos, Shona Brown and Kathleen Eisenhardt offer a useful metaphor: rebuilding a prairie. We know all of the ingredients of a prairie. We understand precisely the dozens of plant and animal species that comprise the ecosystem that once stretched from the Rockies to the Mississippi. They point out however, that even with perfect knowledge, if you were to acquire land near O’Hare airport, prepare the ground, and introduce the appropriate plants and animals, what you end up with would not be a prairie. Indeed, it would potentially be nothing like a prairie. (And yes, we have a Silicon Prairie, somewhere in Nebraska I think).

It turns out to be very difficult to re-create an ecosystem, even when we know all the ingredients. To start with, emergent systems are grown, not assembled. And they are not grown from scratch. The actual starting point matters because emergent systems are highly path dependent: past choices shape and constrain future ones. That means that simply introducing seeds and prairie dogs into an acre of land is more likely to result in a patch of weeds than “amber waves of grain”.

Worse, we usually don’t quite know all of the ingredients of most organic systems. Some are highly contextual (meaning your required ingredients and mine may vary) and some are contingent (they only work some of the time, mainly because our understanding of them is imperfect). It matters what sequence you introduce ingredients — much like a souffle that collapses unless the beaten egg whites are added last.

Technology regions and prairies are two examples of complex, emergent systems. There are many others, including companies and markets as well as governments and polities. As they grow in complexity, these organizations increase exponentially the number of components and the number of interactions between their components. They become more complex, organic, and self-organizing — which means you cannot predict how these systems will evolve, much less reproduce this evolution once it happens.

Can systems like this be led? They can be guided successfully only by leaders with a deep appreciation of unintended consequences. In any emergent system, the second and third order consequences of any decision are likely to overwhelm the intended first order effects. You can even look at your life as an emergent system, which is why, as Steve Jobs famously noted, you can connect the dots into a coherent post hoc narrative looking backwards, but you cannot “connect the dots going forwards”, i.e., predict anything very meaningful about your life long before it happens.

Douglass North is a wonderful economist who understands the organic and emergent nature of economic systems better than most of his fellow practitioners. He shared the Nobel Prize in Economics in 1993 for documenting the confounding role that institutions, culture, and history play in economic outcomes. Shortly after receiving this award, he was asked whether, since institutions matter so much, he had any advice for Russia.

He thought for a moment and replied: “Get a new history”. That is one starting point for any city or region looking to start the next Silicon Valley. The other is provided by Emily Dickenson, who in 1755 had given a lot of thought about how “To make a prairie”. Her famous verse, worth contemplation by the ambitious bees of the world:

To make a prairie it takes a clover and one bee,
One clover, and a bee.
And revery.
The revery alone will do,
If bees are few.

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Why I Dumped my iPhone for Google Android

Why I Dumped my iPhone for Google Android

 

android apple switch

I bought an iPhone as soon as Steve Jobs started selling them in June, 2007. It was obviously the phone of the future. I sent my first one back because it struggled to manage email or calendars hosted by Exchange — something my Blackberry did effortlessly. Within three months however, the iPhone was ready for prime time and I was hooked. I have owned nearly every iPhone since and naturally grew to regard Android phones as inferior wannabes.

The iPhone is the single most revolutionary piece of technology that I have ever owned. My 6+ was my constant companion: beautiful, fast, and long-lasting. Over the years iPhones have improved and I have grown accustomed to their idiosyncrasies. Until recently, I thought it was a stable marriage.

So it surprised me a bit that yesterday, I broke things off. A few days with Google’s new Nexus 6p made me realize how much I was missing. The Nexus 6p has fewer irritating habits and is noticeably smarter and more considerate than my iPhone ever was. It may not strut a polished Apple body, but the camera, screen, and battery are solid and practical. The hardware has no shortcomings that I can find. With the Nexus 6p, Android has surpassed the iPhone because Google’s latest mobile OS, dubbed M or Marshmallow is a smarter operating system. So I lobotomized my trusty companion and listed it for sale on eBay.

In many respects there isn’t much to choose between them. Apple and Google smartphones are similar: both sport outstanding cameras. Both take full advantage of advanced battery extension technology, predictive features including apps you are likely to use next, fast and accurate fingerprint readers, and an extensive permissions architecture. The Nexus uses a USB Type C rapid charging technology, but Apple is introducing it as well.Apple has ForceTouch, which Google or others might copy if it turns out to matter. The companies copy each other’s UI swipes, reveals, and taps; at the moment, Android’s is newer and the UI is quite nice. For example, you can shut the phone ringer off for two hours while you watch a movie and it will come back on by itself (I could never do that on an iPhone, but Apple could decide to fix that tomorrow). Things like location based security mean that if you are home, the device stops nagging you for PINs, etc. Again, replicable by Apple. The Android OLED screen is more pixel dense and works outdoors — but you have to master a few tricks to keep the battery from draining too quickly.

Other differences reflect Apple’s control preferences, some related to security. Apple severely limits the ability of non-Apple apps to access third party apps. Android doesn’t, so apps like Dashlane or LastPass can unlock applications as well as websites — a huge advantage if you hate logging in all the time. Similarly, app linking means that if you click on a New York Times link, you go to the app, not to a web page that requires a login. Android has always had a user accessible file system, which makes some operations vastly easier. Apple relies on iTunes for access to media files — and Apple has tortured and twisted iTunes for so many years that it now leaves all but the most rabid fanboys cursing their screens.

More notoriously, Apple does not let you control your default apps, so you either jailbreak your phone or live with Apple’s choices. On an iPhone if you click on a date, iOS takes you to Apple Calendar even if you dislike the app. Click a link and hello Safari — even if Firefox is your browser of choice. Click an address, it’s Apple Maps, which may not be as horrible as it used to be, but is still not nearly as complete as Google Maps or Waze. If you want to play a game, you are part of Game Center, like it or not. Apple is very unlikely to fix these things because of their commitment to a controlled user experience that drives you to their apps. Android tries to accomplish the same thing by making the apps work together so well that you don’t want to leave the Google ecosystem — but you can leave any app if you want to.

In Nudge, a classic book on choice architecture, Cass Sunstein and Richard Thaler make the case for “libertarian paternalism” — a philosophy of giving users a nudge towards healthy choices but permitting any choice that does not harm others. Set the fresh fruit at eye level, but make the chocolate pie available for those willing to reach for it. Apple ignores the libertarian part of this principle — it is all paternalism. You cannot even delete the Apple native applications from your device (something Apple seems likely to change, if only because there are now so many native apps). Marshmallow is just as paternalistic — but at the end of the day, you can gorge on sweets if you are determined to do so.

This is not a small matter, as is obvious the minute you try Google Now on TapGNT is TNT — a G2014/04/on-a-city-bike-all-traffic-lights-are-yellow.htmloogle technology so powerful that the Wall Street Journal called it Google’s “nuclear weapon” in its fight with Apple. Google Now on Tap leverages Google’s massive advantage over Apple in data and predictive technologies. It means that in almost any situation, Android gets you more useful data faster and more accurately. As the Journal concluded, “it’s hard to imagine how Apple could match it.”

The results can be shocking. Google tries to figure out what you need to know or do next: create appointments, reserve a restaurant table (if eating out was in the email), or find an example from an artist if they were mentioned. It is highly addicting. Reading about Donald Trump? Tap the home key and Google offers up his Twitter account, details on his kids, or forthcoming campaign appearances in your area. (Not saying that you were following the Donald — but you get the idea.) Google Now Tap also works in many third party apps.

Can Apple match this? Nope — they deliberately don’t gather much data about you, so they don’t know you very well This badly limits Apple’s capabilities. Google, on the other hand, gathers everything and knows you incredibly well. Apple knows this and has suddenly embraced privacy and ad-blocking — in order to make a competitive weakness into a public virtue. (For the record, I commend their efforts — and I am happy with the vastly more extensive privacy controls that Android offers).

But iOS users can simply download Google apps: Maps, Mail, Calendar, Photos, and Google Search (like Now) and get the same advantage, right? Not really. When the operating system can integrate these apps and apply predictive analytics across them, magic happens. This is one reason why Google’s version of Siri (which needs a better name than “OK Google”) is so vastly smarter and more accurate than Siri is: Google simply knows you better. The second reason is that the OS understands you better, mainly because for the past decade, Google has hired more PhD linguists than any organization on the planet.

Will I miss Apple? A bit. I was sad to imagine saying goodbye to Apple Music, which for my money is simply brilliant. So I was stunned when Apple announced that they have made Apple Music available on Android. (In fairness Google Play also seems quite good — I have not tested it and now don’t plan to).

In short, I dumped my iPhone for the same reason guys dump and get dumped every day. I discovered a solution that is both smarter and less irritating. If you put both phones side by side, I am confident that you would make the same decision.

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China, After 32 Years

China, After 32 Years

I visited China for about 25 days in November of 1974. Nixon had opened the country with his visit to Mao in 1971, the US ping-pong team played in Beijing in 1972, but generally “Red China” was as closed to visitors during the reign of Mao as North Korea is today. My visit occurred during […]

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China, 2006Politics

The Finger Factory

1. The Finger Factory

Shanghai, China By November of 1974, Shanghai was down and out. The Great Leap Forward with its backyard steel mills and mass starvation and the Cultural Revolution with its rejection of culture, breakup of schools and families, and utter disruption of remaining Chinese economic life had left the city shabby — a rock star after […]

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Soldiers and Soap Operas: Notes on moving around in China

3. Soldiers and Soap Operas: Notes on moving around in China

Beijing, China Bikes. Some people pay instinctive attention to buildings; others notice sounds, hemlines, or textures. I always notice bikes. My kids tease me because I often notice the make and model of oncoming bicycles while driving. I clearly recall the black Flying Pigeons and Phoenix beasts that dominated Chinese cities and countryside in 1974. […]

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The Ashtray of History

5. The Ashtray of History

Beijing, China Outside of Tienamen and the national currency, Mao Zedong has now been reduced to a cultural relic. Mao ashtrays are the height of Beijing kitsch, available in the local flea markets. Mao statuary, posters, and Little Red Books are available as well, but these sell mainly to tourists. Vendor: “Get Little Red Book! […]

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Walling and Ducking

6. Walling and Ducking

Beijing and Hong Kong, China Veterans of Beijing business travel early on coined a term for the experience of being received by Chinese hosts: “walling and ducking”. Calvin was right when he told Hobbes that “verbing weirds language”, but there is a good case for an exception here. We did our share of walling and […]

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The 2008 Iowa Caucuses

The 2008 Iowa Caucuses

 

Click here for a narrated photo album of the trip. ————————————————————————————— At Thanksgiving over turkey I realized that the 2008 Iowa caucuses were going to be such an incredible political showdown that I had to go out and see it for myself. Both parties are hosting their most open Presidential primaries in memory — no […]

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Iowa, 2007-8Politics

Revolution in Iowa

Revolution in Iowa

 

Click here for a narrated photo album of the trip. ————————————————————————————— Where but America can a politician with no obvious advantages apart from being well-organized, energetic, thoughtful, and eloquent go from unknown to political powerhouse in a few short years? A race with more than a dozen candidates is now focused on Barack Obama and […]

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Iowa, 2007-8Politics

The Future of the House of Clinton

The Future of the House of Clinton

 

The Clintons simply didn’t believe it was possible, so they ignored the threat until it was very late. Worse, when finally they saw it, they had few options. They were beaten in Iowa not by a policy difference that they could defend — Clinton and Obama don’t disagree on anything. They were not being badly […]

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Iowa, 2007-8Politics

 

 

The Shrinking of a Former President

The Shrinking of a Former President

 

Bill Clinton is a slimeball. Like Bob Reich, I say this with more sadness than anger. He has been race-baiting Obama — continually reframing the election to be about race. Witness his unprompted comparison of Obama’s victory in South Carolina to Jesse Jackson’s. Clinton is good at reframing debates while appearing not to. It’s easy […]

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Iowa, 2007-8Politics

Nostalgia: Not as Seductive as it Used to Be.

Nostalgia: Not as Seductive as it Used to Be.

Nostalgia Midnight in Paris Movie

With my wife grounded by a nasty ankle injury, we took in three movies and I escaped to a rock band reunion. Oddly, they all confirmed the same lesson: nostalgia is a temptress — fun, but wholly unreliable. 

Owen Wilson is the hero of Woody Allen’s new movie, Midnight in Paris. He is a Hollywood screenwriter working on a piece about a nostalgia dealer even as he visits Paris and is transported in style back to the Lost Generation of the 1920s and 30s. The film is complete with a hysterical Hemmingway, a brilliant Stein, and appearances by Dali, Picasso, and both Fitzgeralds. It is a romp — the sort of film that Allen made in the good old days before he married his step-daughter.

nostalgia paris

Allen understands that mature cities are built on memories —perhaps Paris most of all. Memory is impossible in emerging cities (in Beijing today, the drivers frequently get lost because entire neighborhoods are transformed so thoroughly that they seem foreign). Mature cities are often wealthy enough to be politically liberal but most are culturally conservative, even as they attract the great minds of every age. Inevitably, the Golden Age of any great city is thus built by people who idolize an earlier Golden Age. Into this vortex steps Wilson, a Texan version of the traditional Woody Allen romantic, neurotic schlurb. It all works well, with the obvious exception of Carla Bruni, who should stick to her day job as the first lady of France. (Unable to cut her from the film altogether, Allen simply created a new character, wonderfully played by Lea Seadoux, to take over 90% of the role offered to the hopelessly wooden Bruni). nostalgia surise

We also treated ourselves to a pair of movies I passed on when they first came out but have since been told by many constitute the best romance films ever made: Before Sunrise and Before Sunset. Both films consist almost entirely of conversation between Ethan Hawke and Julie Delpy. Once again, there are ties to Paris and nostalgia, and some of the ties are subtle. For example, the second film opens at Shakespeare and Company, the famous bookstore founded by Sylvia Plath and frequented by Hemmingway, Dos Passos, and other characters out of Midnight in Paris. Plath famously published James Joyce’s Ulysses, which takes place on a single day, June 16, Dublin. Before Sunrise takes place during a single day in Vienna and ends with our two lovers agreeing to reunite in Paris the following summer on, you guessed it, June 16. The second film opens with viewers wondering whether either had shown up. The movies are wonderfully rendered, brilliantly acted, and an ode to the trap of powerful memory, especially powerful romantic memories. Very highly recommended and available for streaming on Netflix.

nostalgia bridge 2010 buffalo springfield 10 24 richie fist

On the advice of a friend, I caught the Buffalo Springfield reunion concert down the street at Oakland’s the newly restored Fox Theater. The theater is beautiful, but tells a powerful political tale. It was refurbished by Jerry Brown as mayor using redevelopment money, despite the Paramount, a landmark Art Deco theater one block away. The Paramount was empty the night of the Springfield reunion — and Jerry Brown is now proposing, quite rightly, to eliminate California’s wasteful, zero-sum, redevelopment spending.

The Springfield are nothing these days if not nostalgic. The concert opened with On The Way Home: “When the dream came, I held my breath with my eyes closed”, which pretty much described the graying, cannabis-mellow crowd.

Buffalo Springfield reminded me of the new atomic elements reported in today’s Times. Like all of the heavy particles, it is highly unstable and blows apart after a split second. The three founders still seem deeply incompatible. Stephen Stills is a classic rocker and always has been. He looked pretty good, he has lost some weight, but he can no longer sing. Furay is a pop singer, good at the girl songs, who should have joined the Eagles. He can sing, but his guitar playing is like a guy leading church camp. Which figures, since Furay has been a Christian minister for the past three decades, but apparently needs another 15 minutes of rock star fame.

Then there is Neil Young (who Stills once wrongly accused of being “a folk singer who wants to play in a rock band”). Young is just more talented, more committed, and all around more bad ass than Stills or Furay. Young played off to one side, but the stage always tipped his way. In the encore, he broke loose and lit up the place with Keep on Rocking in the Free World, which revealed Stills and Furay to be what they always were: Young’s backup band. The idea that these guys in their 20s and on drugs even practiced together, never mind made albums and toured, is hard to imagine. The reunion produced some memorable music, but ultimatelyno nostalgia can overcome the core incompatibility of the band’s founders, who stayed together less than two years.

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Kwik Fixin’ Oakland

Kwik Fixin’ Oakland

I love Oakland. It is immigrant, black, and blue collar. The town has a great history and a solid soul. Ours were among the first neighborhoods in America where all of the whites did not move out when blacks moved in. Of course, along with a heart of oak, the town also has a brain of well mashed potatoes. We celebrate diversity beyond parody and indulge in thousand clown politics“somewhere to the left of whoopee!”. Our schools work with immigrant kids that show up speaking more than two dozen languages (actually, nobody speaks two dozen languages. That’s the problem. Each kid speaks one. A different one). Like our libraries, these schools are collapsing under the weight of dodgy managers, paleolithic unions, and ineffective parents (not necessarily indifferent, just collectively ineffective outside of Crocker Highlands). My part of town, near Lake Merritt, has been brought together by a weekend farmer’s market and by the perpetual comedy of the Grand Lake Theater billboard (typical offering: “Prosecute Dick Cheney for torture” followed by “Kick Ass II”). We have a terrific neighborhood association which, like most neighborhood associations, is where liberals go to be conservative. Ours is earnestly opposed to rich corporations. And to poor corporations. But perhaps not to Trader Joe’s, because they are German and cool. Also not to Peets, because he was Dutch, their coffee is cool, and they come from Berkeley. (Starbucks: you are clearly suspect). We like “small local businesses” because they are so small and local. The Gap is a dilemma. It is local, but not small — so like Starbucks, we tolerate but do not embrace. What matters here is not whether you create stable, well-paying jobs with health care benefits or even whether you deliver useful goods or services. What matters most in Oakland is that you are small, local, and (ideally) ethnic. Our motto: we love you. Unless you succeed. Which pretty much rules out McDonalds. In 2004, the Golden Arches wanted to take over Kwik Way, a burger joint that had been abandoned for years. In 1980, Commander Cody and his Lost Planet Airmen memorialized Kwik Way in“Two Triple Cheese” on their Lose it Tonight album. The lyrics suggest that the Commander lived in this part of town, even if he takes liberties with the street names. His ode to saturated fat, salt, and cholesterol now enjoys a place of honor in the permanent collection of the Museum of Modern Art in NYC. Watch it below: it’s pretty good. Post Cody, the Kwik Way became an abandoned dump and a favorite haunt of sketchy crackheadswho sold stuff in plastic tubes and left them lying all over the massive drive-in parking lot. McDonalds offered to renovate the place, hire local kids to run it, and keep it swept up. The arches might have framed the Grand Lake Theater quite nicely, but no wayThe ‘hood mobilized against the would be corporate trespassers. Conveniently ignoring the KFC next door, we stopped Big Mac by asserting that the traffic would snarl up the place (we argued, in short, that “we gotta stop this restaurant because it might be so popular”). Gleeful idiocy of this sort mixed with strong coffee is what keeps Oakland running. Truly if you polled my neighbors, 65% would nod solemnly at the assertion that McDonalds was responsible for Dick Cheney and his Guantanamo torture. (The sordid truth, of course, is that McDonalds has killed more people than Dick Cheney ever dreamed of and quite likely contributed to the Veep’s own lousy ticker. But the Oaklandish among us objected to the crowds that McDonalds would attract, not to the celebrated American tradition of serving cardiotoxins to teenagers.)Kwik Way crumbled until it was finally sold to a local developer with an appreciation of mauve, ecru, and other soothing colors. He relaunched it as a higher priced burger joint a couple of weeks ago. The place sells food that is arguably more salty, fatty, and sugared than McDonalds, but hey, it is small and local. Here is a video of the opening (a prime specimen of neighborhood values appears at the 1 minute mark). Comparing the two videos,who wants to argue that we have made real progress?

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Freedom Comes Out

Freedom Comes Out

Gay Freedom does not matter yet to most Americans — but it will, soon enough. Andrew Cuomo’sprofile in political courage in mobilizing the New York legislature to allow gay marriage is a civil rights landmark. It is also more evidence that public attitudes have tipped. Twenty years from now, people may wonder what the fuss was all about, but today Cuomo deserves our profound thanks.Watch Cuomo in 2016. One of the great strengths and great weaknesses of humans is that we form tribal attachments. We are drawn to people like ourselves, which allows us to form families,  communities, enterprises, and governments. Tribes enable science, education, commerce, and religion. Tribes probably enable language itself. The problem, of course, is that the bonds that tie can also enslave. Tribes have boundaries and reject those who cross them. They have to or it isn’t a tribe. Children have a known tendency to wander from their parent’s tribe. Thank God for that —human progress surely depends on the freedom to form and demolish tribes. In general, the more of both the merrier. Tribes matter — we cannot and will not do without them — but they rarely evolve. Gay freedom is at least in part about the ability of people to re-form or reshape our tribe of birth. Most members of the LGBT tribe were not born into it and most people outside the tribe are nervous about their kids or friends joining it. It’s an unusual tribe because, unlike being female, black, or Asian, being gay or lesbian isn’t visible. Imagine the history of feminism if first, one had to acknowledge the socially unpopular fact of being female. This is the context for Tales of the City, the exuberant musical now on at San Francisco’s ACT. It is a huge, sprawling, production based on bits from the beloved books by Armistead Maupin. The play, (like The Beginners, featuring George Plummer as a man who comes out at age 75) is saved from a meandering and implausible script by wonderful characters and spectacular acting, just as the music is saved from forgettable melodies by terrific lyrics and enthusiastic performances. I have not enjoyed myself at a musical this much since Avenue Q, (the talented Jeff Whitty wrote the libretto for both). Even three years ago, following the passage of Prop 8 in California, it was not clear that New York, backed fully by Wall Street and large numbers of business Republicans, would endorse gay marriage. It was very clearly not true in 1976, the setting for Tales of the City. But some small decisions made that year have rippled forward to the present day. Recall that in 1976, San Francisco mayor George Moscone prevailed in a campaign to legalize homosexuality by repealing California’s sodomy laws.  That same year, San Francisco was gripped by the trial of Patty Hearst for helping an apparently drug-addled group called the Symbian Liberation Army to rob a bank. Patty was the granddaughter of William Randolf Hearst, the American publishing magnate who printed, among other rags, the San Francisco Chronicle. Then, as now, the Chron was not a real newspaper. We bought it to find out when movies were playing and to read Doonesbury. Also Herb Caen, the irreverent cataloger of left coast life and father of three dot journalism…When interest in the SLA trial began to wane, the editors of the Chronicle decided to try something new: a serialized novel. Printing a novel in daily installments in the local newspaper was an old idea, not a new one. It is how much of Charles Dickens, first came out (US papers would plagiarize each episode without paying Dickens or his publishers a dime. Made him mad as the dickens…). The Chron ran a column by writer nobody had ever heard of. Armistead Maupin, who called his column Tales of the City. Oh. My. God….the effect was amazing. It was like soap opera — you hated to miss an installment. Pretty soon you actually cared about the friends and neighbors at Barbary Lane — the fictional community invented by Maupin. The plots never made any sense (a cult of cannibals at one point took over St. Mary’s cathedral on Nob Hill), but it was a helluva lot of fun. And not only that, it was outrageous gay fun — which at the time seemed considerably more fun than the sort the rest of us were having. This was the year that George Moscone nominated a respected community leader, Jim Jones of the People’s Temple, to San Francisco’s Housing Authority and banned roller-skating on public streets. It was the year that Bob Dylan, Eric Clapton, Joni Mitchell, Neil Young, Van Morrison, Muddy Waters, and Ringo Starr performed “The Last Waltz” with The Band at Winterland, which Martin Scorcese made into a fine movie. Within two years, Maupin was a successful author and an important voice of a gay community that continued to grow in power. In 1978, the Gay Freedom march drew 250,000 people —double the size of the San Francisco antiwar marches of a few years earlier. Reaction was swift: orange juice commercial queen Anita Bryant launched a Save the Our Children Campaign, a crusade that received national attention and politically galvanized conservative churches. The gay community retaliated, boycotting Florida Orange Juice, costing Bryant her lucrative endorsements, and driving her into bankruptcy. John Briggs, the Orange County Republican, tried to ban gays from teaching positions in California. But the cause of Gay Freedom seemed only to grow, spreading from San Francisco and New York to major cities around the country and the world. What could stop this sort of delirious progress? It was a dizzying, naive, and stupid time — wonderful and amazing to recall. To preserve the momentum hes saw building, Moscone played hardball: he led San Francisco to district elections. This meant that San Franciscans voted by neighborhood. For the first time, they elected a Chinese-American leader, an African American woman, a single mother, and, most incredibly and for the first time in US history, an openly gay man: Harvey Milk of the Castro. Those who wondered when the progress would end soon found out. San Francisco was forming new tribes and demolishing old ones at a record pace. Some tribes were crazy like SLA wannabes such as the Red Guerrilla Family and the New World Liberation Front. Or the People’s Temple. Moscone responded by installing metal detectors in City Hall. But in November, Jim Jones, who had left the Housing Authority and taken his followers to Guyana, killed 900 of them in a mass suicide. Nine days later, Dan White, a disgruntled Irish Catholic cop and former supervisor who had lost out in district elections, assassinated both Moscone and Milk. He avoided Moscone’s metal detectors by crawling in through a basement window. Within three years, gay men were being diagnosed with an illness nobody understood. Doctors knew that it was an immune disorder, but had no idea what triggered it, so they could only call it a syndrome, an acquired immune deficiency syndrome. The disease is now a global pandemic and has killed more than thirty million people. Nearly two million people die from AIDS each year, even though it is now a disease that can be medically managed. I can think of no social movement in human history that has been so disproportionately affected by a contagious illness that targets its members. AIDS slowed the cause of gay rights by at least twenty years. Which makes this week’s victory all the more powerful. Liberty and the pursuit of happiness cannot happen in a closet and often cannot happen in one’s tribe of birth. Those who care about freedom, and that is a very large group, need to defend the freedom of all people to define, discover, and celebrate their own identity at least as vigorously as we protect our ability to form tribes.

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We are Going to Pass” -10 Reasons VCs Turn Down Startups

“We are Going to Pass” -10 Reasons VCs Turn Down Startups

Every few years, Silicon Valley grows strong, flies high, makes beautiful music and then, like the Phoenix of ancient myth, burns to ashes and starts the cycle again. At the moment, the Valley is a frenzy of startups. The rest of the country may be in the economic doldrums, but dozens of technology companies are being formed here every day. Many seek to raise capital and at the moment anyway, money is flowing. Angel and venture investing will surely set new records this year. During the past two months, I have helped three technology startups raise early stage growth capital and casually advised several others. Each business is in a completely different market: mobile, pharma, cloud computing, crowdsourcing, global communications, etc. Each has unique strengths and weaknesses. The entrepreneurs have wildly different backgrounds and personal qualities. Not all have completed their funding, but in the process each team has learned similar lessons in how best to approach outside investors (investments from friends, family, and fools doesn’t count. They apply different criteria.) Although I managed to raise tens of millions of dollars for early stage businesses, mainly Alibris, I have personally made most of the mistakes listed here and I have made some of them more than once. Nor is this list particularly unique: investors and experienced entrepreneurs write about them all the time. So here is my list of the top ten mistakes that entrepreneurs make when they try to raise money from outside investors:

1. No story.  Entrepreneurs try to convince investors that they have a winning business – but investors have no idea which businesses will really work. It’s just too complicated. So investors do what human brains are wired to do when confronted with bewildering complexity: they listen for a coherent story.They listen for a particular kind of story that nearly always has three parts: a strong team that achieves impressive traction solving a big problem. These may be called Team has Traction on Trouble or Management has Momentum in a big Market, but to sell your company, you need to tell your version of this story.


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Amazon.com: America’s #1 Tax Evader?

Amazon.com: America’s #1 Tax Evader?

== Update:

On September 7, Amazon relented and made a deal to pay sales taxes on shipments to California (no doubt the trenchant analysis that follows persuaded them to do the right thing). For details of the deal see http://goo.gl/kNwjQ.

Now every other state in America needs to make a deal with Amazon — even if they have fewer than California’s 10% of the population. This reinforces the need for Congress to enact a cross-border VAT and to rebate 100% of the funds to the state to which the product ships.

==

Amazon’s refusal to collect sales taxes is bad for the company’s reputation, bad for honest retailers, and bad for state governments. Six states have taken modest steps to level the tax playing field, causing Amazon to respond with a business, political, and legal offensive to protect its tax-avoidance strategy. The first battleground will be California, where Amazon and national retailers will fight a very expensive ballot initiative. Longer term however, Congress should close the unintended sales tax loophole created by Article I of the US Constitution. 

Unlike almost every modern country, the US has never had a national sales tax. Most states tax sales within their state but are rightly prevented by the Constitution from taxing out of state transactions. Amazon has turned this important limit on state tax authority into a major piece of its business model. Unfortunately, a smart tactic is becoming a stupid strategy. Congress needs to level its head — and then level the playing field. From its first day of business, Amazon.com has taken extraordinary measures to avoid collecting sales taxes. It locates distribution centers in low population states to minimize the number of customers for whom it must collect sales taxes. It builds complex software to ensure that every possible product ships across state lines so that customers have no tax obligation. It puts engineers and logisticians to work in shell corporations even if they work on Amazon’s retail website just to avoid creating “taxable nexus” — which obligate Amazon to collect sales taxes. It hires legions of attorneys to minimize and manage the inevitable tax claims. When states like Texas attempt to collect taxes, Amazon retaliates by closing facilities and filing f-you lawsuits. When states declare that Amazon’s hundreds of thousands of third party sellers and affiliates amount to a physical presence in the state, Amazon simply closes the programs — as it did last week in California. Today Amazon went even further: they filed a state ballot initiative in California that will let Californians vote on whether or not to pay sales taxes on third party purchases. National retailers are gearing up for a mammoth fight.

Amazon is now America’s Number One Tax Evader. The company says that if you buy Hot Freddy’s Thai Salsa from a Los Angeles seller on Amazon, the sales taxes on the transaction are for you and Fred and the state to sort out. Unlike the corner grocery store, they won’t collect these taxes. Nobody disputes that Fred owes taxes on his sales to Californians, but Amazon says that collecting them is Fred’s job, not theirs. Since, as a practical matter, it costs California more to chase Fred than it is worth, Amazon’s policy needlessly costs California tax revenues and denies Californians badly needed public services. So California sensibly joined five other states that require Amazon to collect sales taxes on the intrastate sales of third party sellers. The law goes further, and declares that third party sellers or affiliates (sites that earn commissions on traffic they send Amazon) constitute taxable nexus — as do subsidiaries. Jerry Brown signed the measure into law on June 30, whereupon Amazon immediately notified all California third party sellers and affiliates that they were discontinuing their program. Amazon has built its business model around a court decision. In 1992, the Supreme Court ruled  in Quill Corporation v. North Dakota that a state can compel a company to collect taxes only if they have a physical presence, or a nexus, in the state. Absent nexus, the court held that online retailers and mail-order companies can sell products across state lines without collecting the tax. This decision reflects the current law and our national architecture as a republic formed in an era when very few goods were traded across state lines. It also reflects an odd twist in the way the US collects sales taxes: by taxing transactions based on where the seller does business not based on where the buyer lives, we effectively tax selling, not buying. In old fashioned Main Street America it doesn’t matter: every sale is local. But the rise of mail order and online retail meant that our peculiar approach created a giant loophole. I am aware of no other country that makes this mistake. 
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Promising not to promise

Promising not to promise….

In yesterday’s New York Times, Warren Buffett argues that super rich folks should pay higher taxes. Had I asserted that the rich should pay more, it would be an entirely unremarkable example of the famous ditty by Senator Russell Long (“Don’t tax me, don’t tax thee, tax that fella behind the tree”). These days, you can substitute “cut” for “tax” and make the same point. But as the world’s third richest mogul, Buffett seems to be arguing against his own economic interest. Buffett might assert that higher taxes, a more stable economy, and even less inequality are in the long term economic interest of the super rich. Might be true, but it is still unusual for people to campaign against their short term interests. As a group, his fellow moguls are not only fighting for tax cuts, but for cuts in public spending that will not affect them either.  At a minimum, Buffett is showing off the contrarian view that made him rich. Buffett provides an interesting contrast to Congress, where arguments against interest are as common as snowballs in August. Congress is, by some measures, more divided than at any time in the past 120 years. We badly need Congressional leaders who will argue against their political interest: Democrats who will fight waste, Republicans who will support short term fiscal stimulus. What we get instead is a culture of pledges designed to prevent this.

  • The Tea Party is circulating the short, radical, and malign “Cap, Cut, and Balance” pledge, which has been signed by most Republican presidential candidates.
  • Other Tea Party members are circulating a more comprehensive “Contract From America“, signed by more than 300 elected leaders.
  • The Susan B. Anthony list is circulating an anti-abortion pledge, promising to cut all funding for Planned Parenthood and close all abortion clinics. It was signed by  by Michele Bachmann, Newt Gingrich, Ron Paul, Tim Pawlenty and Rick Santorum.
  • Most GOP members have signed Grover Norquist’s Taxpayer protection pledge
  • Norquist is also backing the pledge to support the Parental Rights Amendment, which massages the erogenous zones of the conservative family values crowd
  • The American Council for Immigration Reform is circulating a Congressional pledge to oppose amnesty in any form for illegal aliens
  • The made for Jon Stewart Marriage Vow promises to to oppose same-sex marriage, reject Shariah law and pledge personal fidelity to their spouse . Good luck with that.

These pledges represent a promises not to think, not to negotiate, and especially, not to compromise. The pressure to sign them is intense. Only one leading Republican, Jon Huntsman, has refused on principle to sign pledges (although he joined the band of imbeciles in Iowa who promised to reject a hypothetical budget deal that offered ten times more spending cuts than tax increases).  Huntsman’s campaign is imploding and stuck in single digits. Certified theocrat Rick Perry, who looks from here to be the likely nominee, won’t even have Huntsman as VP. Democracy is built on negotiation and messy compromise. Pledges subvert this, and are fundamentally anti-democratic. Compromise means your interest does not always prevail — we don’t always tax the fella behind the tree. A leaders takes an oath of office and recites a pledge of allegiance. That’s all they should commit to: on principle, no leader should ever sign an interest group pledge.

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Will Obama Ask Biden and Clinton to Swap Jobs?

Will Obama Ask Biden and Clinton to Swap Jobs?

Should the President ask his VP and his Secretary of State to trade jobs? This is one of those too-delicious by half ideas that builds up as beltway buzz and becomes the stuff of gossip columns and talk show chatter. Increasingly however, the idea is not crazy if Obama gets the timing right. It cannot cannot happen mid-term, because under the 25th Amendment, the Republican-controlled House would have to approve the switch — and strengthening the Democratic ticket is not high on Speaker John Boehner’s list of things to do.

Why ask them to swap when both Clinton and Biden are by all accounts doing a great job? Mainly because it would revitalize and unify the Democratic ticket, which will face a formidable opposition, contrary to popular wisdom. I don’t know whether the Republicans will nominate Perry or Romney, but I have a pretty good idea of who the short list for VP will be — and Sarah Palin and Michelle Bachman don’t need to wait by the phone.

The strongest VP candidates for Perry or Romney are David Petraeus and Mario Rubio. Petraeus is unlikely to do it. He is a Rockefeller Republican, who Romney could not appoint. He just began a job running the CIA, which takes him out of domestic politics. I hope. He is not Tea Party certified and while he clearly brings huge strengths to any ticket, is not an experienced campaigner (military campaigns don’t count, although the differences are fewer than many realize).

Rubio is a different matter entirely. He is young, son of Cuban exiles, the politically savvy former Speaker of the Florida House, telegenic, and a Senator from a battleground state. He is fully credentialed by the TP crowd. A Romney – Rubio ticket will begin with massive strength in the south and will be very tough to beat in Florida. Romney will play well in the Midwest, where his father was a popular governor, and to conservative parts of New England. Rubio would energize Hispanic voters and extend the Republican base beyond the rich, the pugnacious, and the certifiably looney. It would be a tough ticket to beat — and Obama knows it.

Hillary helps Obama to rally Democrats and Independents. She is a formidable, even relentless, campaigner and she works harder than anyone in politics. It is not simply that she has handled problems in North Korea, Iran, and Israel without upstaging Obama, or that she has been supportive of the president and has been serious, intelligent, and energetic. It’s not just that people in the State Department like her — and some like her a lot — or that she has kept her husband out of the limelight, despite the fears many had. It’s that, unlike Joe,Hillary has a devoted constituency. She draws women, independents, and blue collar voters in much larger numbers than Biden or Obama. She adds deeply to the ticket.

The case for Biden as Secretary of State is also clear: it is the job he has always wanted and he would be very good at it. He was the ranking member and often the chair of the Senate Foreign Relations Committee, he has the requisite rolodex, and he likes diplomacy. He will rely more on personal relationships with foreign leaders than Hillary has, but that’s fine. Biden has built a very solid relationship with Obama and would continue as a senior advisor — a role he enjoys and excels at.

The timing of the Great Swap is constrained by the Constitution. Section 2 of the 25th Amendment states that “Whenever there is a vacancy in the office of the Vice President, the President shall nominate a Vice President who shall take office upon confirmation by a majority vote of both Houses of Congress.” At the moment, that confirmation would be far from assured, so Obama is not likely to ask Biden to resign, appoint Hillary VP, then appoint Biden to State (where his Senate confirmation would be a cake walk). Instead, if he decides to do this, he would plan the move now and nominate Hillary at the convention. Once nominated, Hillary would resign her position and Obama would name Biden to fill it immediately. No House vote needed.

Will Obama make the Great Swap? A lot can go wrong with moves like this — but Obama knows better than anyone that a Presidential campaign requires imagination and energy. Much can and will change before the convention, but we can count on this: Obama is considering this move.  

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Hang 30: Time Surfing

Hang 30: Time Surfing

Been awhile since we showed first rate surfing videos. This one from Aussie Rip Curl, uses a “30 camera array” and six world class surfers to enable editors to shift perspective, freeze frame from a combination of angles, and create the “Matrix” like illusion of perspective. Pretty cool.

They also produced a video on how they produced the video. Worth a look.

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Seven Forces that Doom Bookstores and Publishers

During the past few years, the music industry has been hammered. As music went digital, it was pirated, deconstructed, and mashed. As music stores and labels disappeared, their lobby, the RIAA, screamed bloody murder. But amidst the carnage, a funny thing happened: the music industry grew larger even though it had fewer labels and far fewer retailers. Revenue from CDs was replaced by revenue from live concerts, ring tones, downloaded singles, merchandise, and sponsorships. The new industry has its challenges (many of them traceable to lousy music), but it has hardly collapsed. This transformation presages the coming destruction of traditional book publishing and retailing, even as their overall publishing industry grows. Here are the seven reasons that bookstores and traditional book publishers are doomed. 7. Americans have stopped reading books. This is a non-trivial problem (after all, we did not stop listening to music). But the landmark National Endowment for the Arts study “Reading at Risk” confirms what we intuitively know: Americans read less than we used to. 43% of Americans read no books outside of work or school — a number meaningfully lower than Canada or most European countries. Those who do read books, don’t read many of them. About 24 percent of Americans read eight or more books in 2002, a lower percentage of “strong readers” than two thirds of European countries surveyed. Only 16% of the US population reads a book or more each month. According to Morgan Stanley, 20% of all book buyers purchase a majority of all books. Men read much less than women. NPR reports that among active readers, women typically read nine books in a year, compared with only five for men. Women read more than men in all categories except for history and biography. When most of us read, we prefer magazines and online articles that are shorter and less demanding than books. Kind of like you are doing right now. 6. Many of the books we read are crap.The largest single book category is still romance novels — a fact so embarrassing to the New York Times and other tastemakers that they exclude the category entirely from best seller lists. These bodice-rippers, together with religion, self-help, fantasy, and thrillers, account for a majority of books sold in the US (Gothic romance, which did not exist before 1972, by itself accounts for a majority of all paperback sales). Nearly all of these sales are to women, but women buy and read a lot more books than men even if you adjust out the Harlequins. Part of this is, no doubt, that brains exposed to constant media are not well wired for long form reading. We prefer writing that is built around tidy lists…oops. Nice essay to this effect by Alan Jacobs (hey, if you have read this far, you can manage it). 5. We can easily get books for free. Just Google “Torrent” and “Books” along with anything else and you will be directed to many sites that enable you to download books as pdf files easily readable on a tablet or an eReader. The site I checked helps you steal any of several dozen books on religion, most of which presumably counsel the reader against theft. It is always hard to estimate the economic impact of illicit downloading. I wonder if the net effect isn’t positive, even if authors howl. WordPerfect marketer Pete Peterson had a sensible point when he said that “if someone is going to steal software, I hope they steal ours”. Every illegal download is not a lost sale — but every time a reader finishes a book and raves about it, the marketing leads to new sales. Realizing this, most publishers will let you read the first chapter for free anyway. If we see publishers offering books for free but with advertising, we will know that the torrent sites have struck a nerve. My current bet is that it won’t happen for the same reason that iTunes curbed illegal music downloading. Customers like the ancillary content and the reliable file quality enough that if the experience is frictionless and the price sensible, we will pay. 4. “Books” are mutating.  Like music and movies, books are becoming a service, not a product. Today Amazon launched its Kindle Lending Library, which turns books into a service like Spotify for music or Netflix for movies. The number of publishers who have embraced this idea?Zero. These guys would rather face the Torrent sites than let Amazon loan their books. But publishers need to monetize their back list. Over time, they will do a deal with Amazon, even if they require Amazon to purchase a new copy after a finite number of rentals. Many publishers require libraries to do that now — and would doubtless oppose libraries as socialist if Ben Franklin hadn’t established libraries before they got organized. 
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Three Dimensional Science

Three Dimensional Science

The World Science Forum currently underway in Budapest is a summit of academics who have traded their lab coats for leadership positions atop public and private agencies that promote and fund scientific research. These are fine people who support some of the best work in the world — balancing real, complex science with often Byzantine organizational and national politics to advance the intellectual work that drives our world forward. To an outsider (that would be me), they are also convivially self-parodying academic Eurocrats and lobbyists who could have walked off the pages of a David Lodge novel. The United States maintains posh embassies around the world to host worthies from events such as these and our current ambassador to Hungary did not disappoint. Obama’s emissary is Eleni Tsakopoulous Kounalakis, Berkeley grad but Stanford donor, daughter of a real estate tycoon and a California-based Democratic activist of the Phil Angelides school of progressive realtors. She raised more than a million bucks for Hillary, which made herambassador material. Budapest isn’t bad duty (one can imagine her politely passing on an opportunity to serve in Athens, the family homeland). She was a fine hostess and thoughtfully included entrepreneurs from interesting Hungarian startups including Prezi,UStreamLogmein, and NNG (formerly iGo). But the highlight of the reception and dinner hosted at the embassy came when Koualakis tapped my shoulder to introduce a short, shy, graying fellow “I’d like you to meet Erno Rubik”. I fought back the urge to bow, shook his hand, and realized that he, like many others in the room, would rather be working. Rubik is, of course, the inventor of the world’s most popular toy — the maddening twistable puzzle instantly understood by any child and rarely solved even by accomplished adults. It has spawned an industry of competitions, including speed-cubing, foot cubing (current world record for solving a Rubik’s cube using only your feet is a bit over a minute), and blindfold cubing (look at the scrambled cube, get blindfolded, and work from memory. Good luck with that.) We were all challenged to complete a scrambled cube (yeah, I know. There is an app for that. You photograph the cube and it shows you how to solve it. Erno even earns royalties on every download. But for once, I resisted). Personally, I always thought that the real innovation behind the cube was the weird bit of plastic in the middle that can be twisted every which way without breaking. And yes, I have taken a cube apart to see it, although I admit that there was a hammer involved. (If you want to try it, just twist the top 45 degrees and you can pop the thing apart pretty easily. Of course, you can reassemble it solved — that’s how many people do it). Naturally neither America’s top scientists nor Hungary’s top entrepreneurs, people who solve three dimensional problems in their sleep, could restore a scrambled cube, which got me to wondering: which came first, the mathematics of the cube, or the puzzle itself? Surely a brilliant Hungarian mathematician like Rubik had computed the various solutions to a cube. Perhaps he had even tried to solve the “God number” question: what is the fewest number of moves that will restore any cube? The God number turns out to be 20 for a 3*3 cube, and a lot of mathematics together with 35 years of Google-donated CPU time went into figuring that out. Turns out however, that Rubik is an architect and game designer, not a mathematician. There are of course, people who make solving Rubik’s cubes look incredibly easy. For example, the world’s record for solving a cube is….you won’t believe it. So watch — but don’t blink or you’ll miss it.

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Protection That Makes You Weaker

Protection That Makes You Weaker

I have taken up running and, like boomers everywhere, I worry about hurting myself. Data suggest that between a third and half of runners get hurt running every year, making running a surprisingly high risk exercise. Why is this? Journalist Chris McDougall wondered why he was getting hurt when humans have been running for two million years. His best-selling book, Born to Run, is a well-told tale of people who run barefoot without getting hurt and of researchers who discover a paradox: support can make you weaker, not stronger. The more support a running shoe gives you, the more it weakens your foot, ankle, and calf muscles and the more prone you become to injury. McDougall presents the stories that led to the science and the science that has led to a resurgence of barefoot or minimal shoe running. He visits the Tarahumara, an impoverished clan of long distance runners living in the very remote Copper Canyons of Mexico. McDougall romanticizes their lives, describing men and women of all ages routinely running for dozens of miles in sandals over hot, steep mountains. Scientists have studied the Tarahumara for years because their isolation makes them good subjects. As roads arrive, the Tarahumara embrace modernity: their diet goes from corn meal and long runs to pickup trucks and Hohos. Epidemiologists have documented the diabetes, cancer, and heart disease that result. McDougall looks past this, focusing instead on the propensity of the canyon-dwelling Tarahumara and some of their more crazed gringo brethren to race ridiculous distances wearing heuraches cut from old tires. Back home, McDougall consults a Stanford track coach who refuses to let his athletes wear expensive running shoes and discovers data suggesting that both the extent and severity of injuries go up with the price of shoes. He interviews Daniel Lieberman, a Harvard biomechanics professor, who explains precisely how the support a of a running shoe makes most runners over stride and heel strike, which delivers a much sharper blow than a barefoot runner who lands mid foot. A good video of Lieberman explaining his research is below. The peer reviewed work is here in Nature. Lots of testing and learning is still being done both by individuals and by researchers, but nobody these days takes for granted that running shoes are always helpful. Shoe companies are trying to shift their designs and their message to promote “minimalist” shoes, some of which are now best-sellers. Is this just a fad? Of course any shoe can become a fad if well marketed. On the other hand, humans have run barefoot for two million years but have worn running shoes for only about 30. I would not bet against barefoot running, given the injury rates that shod runners experience. Protection turns out to be deceptive. It seems completely normal to me that as a runner, I would prefer a protective shoe. I want lots of cushioning. I want to avoid pronation, which must be awful because it sounds so bad. It would be simple to sell me orthotics — hey, my knees hurt sometimes. Although some people surely do fine in running shoes, for many people, highly protective shoes are like a cast. They reduce your mobility and your foot gets continually weaker as a result. Economists, of course, know that protection often makes competitors weaker. They believe instinctively that competition strengthens counterparties, be they muscles, individuals, teams, companies, or regions. I have even argued that those who want stronger labor unions need to force unions to compete. Economists left and right can show that trade protection weakens both parties, although this knowledge never stops companies, communities, or workers who are hurt by trade from seeking it. Doubtless some similar principal applies to parenting: too much protection weakens your kids. Fine, now buckle your damned seat belt. To evaluate social programs or parenting, we need the equivalent of the Tarahumara — a group isolated from extraneous influences that can test whether social protections produce more benefits than costs. Fortunately, an impressive young economist has shown thatmany of our protective programs are testable. Esther Duflo is an MIT professor, a MacArthur genius grant winner, and the winner of the  2010 John Bates Clark Medal for the best economist under the age of forty. Watch her fascinating TED talk on how she tests programs to fight malaria, educate kids, and immunize children. This isbarefoot economics at its best.Testing of this sort requires an appetite for failure. Politicians, business people, and scientists each approach tests differently, depending on how failure affects them.

  • Politicians pay a huge price for failure. This forces them to simplify problems and promise sound bite solutions. If they do not do this, they won’t be elected and they won’t be politicians. Politicians cannot say “wow, this is a tough problem. Let’s try a bunch of things, fail at most of them, and learn what works.” Most politicians suffer from what Tim Hartford calls the “God Complex”. Hartford writes the Undercover Economist column for the Financial Times. He has published a terrific book calledAdapt: Why Success Always Starts with Failure. You can get a flavor of his thinking at his fantasticTED talkThe God Complex is the equivalent of intelligent design: certainty that complex systems can best be managed centrally and that complex questions can be answered without the painful process of trial and error. Parents, CEOs, physicians, gods, and anyone else who pays a high price for failure are especially vulnerable.
  • Business people embrace trial and error mainly because markets force them to. Hartford notes that ten percent of all businesses fail every year.  A market economy can be looked at as a huge, ongoing experiment that evolves, like every complex system, because of variation and selection. The best leaders of complex systems acknowledge that leading edge problems don’t have obvious solutions and encourage a structured process of trial and error. Hartford’s book discusses the value of lots of small, low cost trials that are decoupled so that they don’t spill over and of carefully documenting and interpreting results. An important and highly recommended read.
  • Scientists love failure. It’s how they learn. They understand that humans have evolved as complex systems through millions of years of variation and selection. They reason either deductively from data or inductively to ask have we evolved to run? Evolutionary biologists have long noted that the unique way we sweat for thermoregulation, our hairlessness, our odd bipedal design (more energy efficient than any quadruped), our unusual ability to breath multiple times per step, and our highly engineered feet, ankles, and hips all suggest anatomy designed to run.

But until the 1980s, researchers were stymied by one big problem: we are slow. Why on earth would running matter, when every mammal worth eating can outrun us?  It fell to David Carrier, a graduate student at the University of Utah, to notice something that had escaped other scientists: we are built for endurance, not for speed. The case for humans designed for endurance running is now widely accepted. This is partly because we have discovered a story that backs the data. Hunter-gatherers in the central Kalahari Desert in Southern Africa still practice persistence hunting: they run their prey to death (there is one other group that practices persistence hunting — or at least remembers it. Our pals the Tarahumara). Running down a large mammal takes as little as an hour or as long as 8 hours, but if a human can keep a mammal galloping so that it cannot catch its breath, cool down, or rejoin its herd, it will collapse of exhaustion before the human does. It appears that before we invented spears, humans survived by high-endurance, persistence hunting. Barefoot. The BBC managed to film a group of men in the Kalahari hunting a kudu this way. Despite the drums and the breathless narration, it is a stunning film. Notice that the runners are shod in cheap shoes that do not let them heel strike. They look a lot like the sneakers we all wore as kids.

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Memo to the New Chancellor: Saving UC Berkeley

Memo to the New Chancellor: Saving UC Berkeley

 

Dear Newly Appointed Berkeley Chancellor:

Congratulations! Even though as of this writing, you have not yet been named, you take over the leadership of UC Berkeley at a critical time. At the end of your tenure, the world’s premier public university will either have found a sustainable path forward or will have entered a period of long-term decline. Do us a favor — do not screw this up. You arrive at a moment when higher education is in wonderful and overdue ferment. Online education is challenging your  traditional business model and unsustainable tuition increases. Badges and other alternative credentials threaten your historic right to certify talent. Most of all, Berkeley like other public universities that serve as engines of knowledge-creation and social mobility are under unprecedented financial pressure. Berkeley, in particular, has a lot at stake. It is, as I noted here, an amazing public institution, despite its bottomless capacity for self-parody (as you know, my wife is a dean at Cal). 48 out of 52 Berkeley doctoral programs rank in the top 10 of their fields nationally — the highest share of any university in the world. By any measure: NSF Graduate Research Fellowships (#1), National Academy of Sciences members on the faculty (#2 behind Harvard), members of the National Academy of Engineering (#2 behind MIT), membership in the American Philosophical Society, the American Academy of Arts and Sciences, or winners of National Medal of Science — Berkeley excels. It is by a considerable distance earth’s finest public university. And it serves a public mission. Berkeley’s single proudest claim, ahead even of its 24 national rugby championships, is that it enrolls more students on Pell Grants than all of the Ivy League schools put together. A Pell Grant is a scholarship based on financial need. By serving academically qualified students on Pell Grants, Berkeley ensures that smart, hard-working kids from low income families access to a top-flight education. You may regret the flow of private funds into a public university, but you cannot and should not try to prevent it. Actually, you will devote a great deal of time to encouraging private donations so that Berkeley can remain accessible to middle income students who are not eligible for Pell Grants. This requires building organizational muscles that atrophied when Berkeley, like most public universities, avoided the intellectually distasteful but indispensable work of raising private funds. Berkeley is still building the endowment required to sustain these efforts. The endowment matters because over time, money buys quality — just ask Stanford. It is no accident that although many state universities undertake serious research and offer outstanding educations, only three of the “Public Ivies”, Texas, Michigan, and California, make the list of America’s best-endowed universities. You realize, of course, that the endowment data shown here are misleading in one important respect: the University of California is less a university than a federation of ten highly autonomous campuses ranging from prestigious broad spectrum research institutions like Berkeley, UCLA, and San Francisco to campuses with pockets of excellence like San Diego, Irvine, and Davis, to schools like Riverside and Merced that are not easily distinguished from the State University. These data also illustrate why the Regents hired your boss. Of the great public universities, only the University of Texas took endowment-building seriously, making former UT President Mark Yudoff irresistible as the current president of UC. But Berkeley, along with San Francisco and UCLA, has begun to focus on endowment building. It is no surprise that taken together, these three campuses now hold three-quarters of all UC endowment funds. Faced with the choice of compromising academic excellence, raising tuition to levels that reduce access to higher education for many students, or undertaking a covert privatization to maintain the finances of their institution, all three of these schools have raised tuition and quietly sought private funds. Your job is to continue this course.Soft privatization is not without its  management challenges however, especially at Berkeley. First, Cal is a state-owned enterprise. The barely functional California government retains full and largely unwelcome control over your budget and governance, even though it contributes less each year to your operating revenue. Second, your boss happily taxes richer campuses like yours to support poorer ones, so to raise a dollar of endowment, you will often have to attract more than a dollar of donations. Third, strong faculty governance provisions, while occasionally improving decision quality, mostly serve to protect the comfortably and correctly tenured and prevent needed program rationalization. Your biggest risk is not privatization — it is paralysis. To get Berkeley fully upright and sailing, you need to mend both a broken income statement (you lose money every year and must stop the bleeding, even if the state makes good on a new round of cuts) and a broken balance sheet (your endowment may be larger than other UC campuses, but it is still pathetic. Look at the data.) Nothing else you do will matter unless you set audacious goals to fix your core economics. I respectfully suggest two:

  • Raise the endowment to $10 billion. This is preposterous, but probably achievable over 7-10 years. It requires that you aggressively take the case for Berkeley to the public, to alumni, and to Silicon Valley. It is an incredibly compelling case, but you need to personify it and champion it consistently, loudly, and effectively. The impressive “Campaign for Berkeley” is a great start that is committed to adding $3 billion to the endowment by 2013. This will be no time to stop. Committing the campus to achieving a $10 billion endowment would ensure access to undergraduate education for all students, the ability to attract and retain outstanding faculty, and a credible case for increased operating autonomy. (And really — if Texas can do it, how hard can it be?)
  • Move to a three semester academic year. You waste a beautiful, expensive campus by using it fully for only 30 weeks each year. Adding a third semester to the academic year earns you $150 million annually, relieves a great deal of pressure to raise tuition, and dwarfs all other growth or cost saving opportunities even if you eliminate Summer Session and make no changes to faculty teaching loads. The move would be rapidly copied by other UC campuses and other top flight universities. This represents low risk, no-brainer money because you fully control both the revenue and costs of the initiative. It would enable you to admit more students, significantly increase the size of your faculty (which won’t happen any other way) and offer each professor an option to earn additional income by teaching the third semester or use it for research, as many do now. You are not dumbing down any degree: students would do just as much work, but those who wish to complete an eight semester undergraduate degree in 2.6 years instead of four could do so. Relative to budget cuts or tuition increases, improving the utilization of your largest and most expensive asset is much less painful or  politically controversial than any other economic opportunity you face.
Granted, $150 million each year does not plug your entire budget shortfall — but it is a serious start that would be noticed by alumni and other donors. You will need to continue to rationalize campus operations and consolidate weaker units or athletic programs (remember Berkeley had a Mining program until a brave chancellor decided to face reality). With everyone else in California, I wish you the very best of luck in your new position. Just don’t mess with the rugby team. Some cows really are sacred.
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Store Closing: the Death of Brick and Mortar Retail

Store Closing: the Death of Brick and Mortar Retail

In 1997, I had an idea: if I could aggregate millions of used, rare, and out of print books from around the world on a single website, I could enable people to find and buy books that were otherwise impossible to locate. Like hundreds of others with similar ideas for selling things online, I started an ecommerce company. As Atlantic writer Derek Thompson points out, that was the year that the US enjoyed an odd service sector convergence: 14 million Americans worked in retail, 14 million in health and education, and 14 million in professional & business services. Fifteen years later, the landscape has changed. “Books You Thought You’d Never Find” is a silly idea. Book retailers are dying. The company I founded has made an impressive effort to transition from retail to services. The employment picture reflects these changes. Health care jobs have grown by almost 50%, professional/business services grew almost 30%, but, as the chart below illustrates, retail grew less than 3%, adding only 26,000 jobs a year. There is mounting evidence that retail employment is about to now decline sharply. Fifteen years from now, these may be the good old days for brick and mortar stores. Retail revolutions are nothing new. Boutiques challenged general stores throughout the nineteenth century. Department stores, arose starting with Wanamaker’s in 1896 and challenged boutiques. Starting in the 1920s, car-friendly strip malls challenged main streets. In 1962, Walmart, Target, Kmart, and Kohls each opened their first store and initiated the era of big box retail. In 1995, Jeff Bezos incorporated Cadabra — but changed the name to Amazon at the last minute, in part because it started with an “A” and most internet search results were alphabetical. Today, e-commerce is not just killing some stores — it is  killing almost all stores. Today there are very few successful brick and mortar retailers. Consider the obvious losers in recent years — none much lamented.

  • Department stores are dying. Sears, like K-Mart before it, is struggling to survive. Credit default swaps that insure investors against a Sears default on its debt obligations trading at record highs because markets believe that it won’t make it. JC Penny is undergoing a major makeover under the leadership of Ron Johnson, who created the Apple Stores. Johnson has changed the look, the targeted demographic, the colors, the brands, the formats, the shopping experience, and the name of the stores (now JCP). The results have impressed nobody, least of all customers.
  • Specialty retailers are not exempt from the onslaught. Online retail is relentlessly taking share in many specialty retail categories, resulting in total dollars available to physical retailers stagnating or even declining.  This is starting to put intense pressure on their top lines. According to comScore, online retail rose to a record $35.3 billion in during the last holiday season — a 15 percent increase from the previous year.
  • Media retailers are dead or dying. Music stores are a fading memory, Borders is gone, Blockbuster, Barnes and Noble and your “independent” bookstore are all next (Barnes & Noble admitted as much when it spun off the Nook reader as a separate entity rather than tie its fate to dying retail stores. Media retailers are dying because of digitization of course — but Amazon offers better prices and more selection even on printed books, CDs, or DVDs.
  • Big box “category killers” like Best Buy, or Staples are being hammered by online sites that translate dramatically lower debt and operating costs into lower prices. Best Buy posted five straight quarters of profit decline before reporting a $2.6 billion loss on March 29.
  • Big box general retailers like Wal-Mart, Target, and Costco are seeing declining sales. Until its third fiscal quarter last year, Wal-Mart had posted eight consecutive quarters of declining sales at stores open more than 12 months. Analysts forecast declining same-store sales and profit for Target this year.

Demographic changes are also putting pressure on stores. Urbanization hurts strip malls. Baby Boomers no longer have kids at home. Their kids are marrying later and delaying having their own children, meaning fewer are buying houses that need to be updated and furnished. As these Millennials hit their peak spending years, they are completely accustomed to shopping online. For many Millennials, shopping malls were a teenage social venue — not a place to buy stuff. It is no accident that shopping malls have yet to emerge from the recent recession. There is good reason to expect this change to accelerate. Physical retailers are typically very highly leveraged and operate on narrow profit margins.  Material declines in their top lines make them quickly unprofitable. As stores close or reduce selection, more customers become accustomed to shopping online, which accelerates the trend. E-commerce maven turned VC Jeff Jordan recently cited the example of Circuit City, which was “preceded by just six quarters of declining comp store sales.  They essentially broke even in their fiscal year ending in February 2007; they declared bankruptcy in November 2008 and started liquidating in January 2009”.  Nor, Jordan notes, did the bankruptcy of Circuit City help out Best Buy any more than the loss of Borders helped Barnes & Noble. “Not even the elimination of the largest competitor provides material reprieve from brutal market headwinds.” There are a few bright spots in the wasteland of retail stores. The need for fresh food and last-minute purchases mean that 7-11, Trader Joe’s, and the corner produce grocer have enduring customer demand. Customers may want to touch some high ticket items before buying them, which gives high margin retailers like Williams Sonoma and Apple an opportunity to offer a fun, informing, hands on retail experiences (although both of these companies do a growing share of their business online and Apple lets you pay for a items under $50 on your phone and walk out of the store without ever talking to a salesperson or cashier). Stores like Home Depot that do a significant share of business with contractors who are time-sensitive not price-sensitive and need a large number of items quickly have sustainable value propositions. Online commerce enjoys enormous advantages, from vastly larger selection, much lower fixed costs and debt, to a more customized shopping experience and 24/7 operations. Small wonder that revenue per employee at Amazon is nearing a million dollars, whereas at Wal-Mart — once a paragon of retailing efficiency — it is under $200,000. Hundreds of websites, not simply Amazon, have benefitted from the explosion of online retail — and tens of thousands of small retailers use Amazon or eBay’s commerce infrastructure to power specialized businesses. Of course UPS and Fedex benefit as well, in part because they make money on both the initial sale and on the subsequent return of wrong sizes and unwanted gifts. Since the dawn of commerce in the Nile delta, humans have have purchased goods in physical markets. No doubt we will continue to purchase, or at least preview, stuff in stores. But if e-commerce achieves a fraction of the opportunity it currently has in front of it, retail stores as we currently know them will become a thing of the past. It is hard to imagine that we will miss them for long.

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