Government to Startups: “We can’t support you because you’re for profit”
When I say entrepreneurship in 2017, what comes to mind? Emerging technologies, youthful exuberance, risk taking and social media platforms perhaps. Government rarely comes to mind.
However, if it wasn’t for the US Government then you mightn’t be connecting with people via Facebook, searching for information via Google or read articles like this on your Apple iPad.
Demonstrating the role that Government can play in facilitating, rather than inhibiting, entrepreneurship and innovation, it was the US Government’s heavy investment in Stanford’s technology research during the Cold War in the 40s and 50s that planted the seed for the birth of Shockley and Fairchild Semiconductor, Varian, Hewlett-Packard and other tech companies that went public in the 50s. The US Government created the ideal conditions for entrepreneurship to flourish, including a 2:1 fund-matching program to encourage venture capital investment, which grew the VC industry 10-fold virtually overnight and would go on to give rise to countless companies such as Digital Equipment Corporation, Xerox and of course, Apple over the subsequent 20 years.
This proved to be a masterstroke by the US Government, with California boasting what is today the world’s sixth largest economy, larger than France, owing in no small part to Silicon Valley (and Hollywood of course).
THE ‘NEXT SILICON VALLEY’
Countless cities around the world have lined up to proclaim that they will be the “next Silicon Valley”, thinking that throwing some money at incubators and offering tax credits will work wonders, while conveniently overlooking the unique historical factors that gave birth to the Valley.
The Stoic philosopher Seneca once wrote “to be everywhere is to be nowhere” so it stands to reason that if everywhere is the next Silicon Valley, then nowhere is the next Silicon Valley.
Entrepreneurs are urged by the likes of Tony Robbins and Tim Ferriss to double down on their strengths instead of addressing their weaknesses. Cities too should organise around their inherent strengths and the unique circumstances of their societies if they are to successfully innovate. In the case of a languishing economy such as Detroit, venture capitalist Marc Andreessen suggests it could use its deep domain expertise in manufacturing and apply it to emerging fields such as 3D printing and drones to become “Drone Valley”.
Simply saying your city will be the next Silicon Valley is not a credible or unique statement.
Governments around the world might want to take a cue from Richard Branson who credits his success with hiring people smarter than him, giving them an inspiring mission and the resources they need to succeed and getting the hell out of the way.
FACILITATE INSTEAD OF REGULATE
It’s about enabling instead of controlling. I recently interviewed Alec Ross on Future Squared, Senior Advisor for Innovation to then Secretary of State Hillary Clinton and author of Forbes Top 10 Technology read of 2016, The Industries of The Future. He says that the role of Government is to facilitate entrepreneurship rather than regulate it.
“Ask the Government a question and they (the Government official) will respond with process”, says Alec. “‘Oh, you’ll need 14 things to be eligible for the tender, and the tender will take nine months’” and “oftentimes, the tender will go to the product that costs the least, not the best product”. Alec goes on to say that “when I think about what I want to have for dinner, I don’t go into the grocery store and say what dinner will cost the least to make”.
ON GOVERNMENT NOT PROMOTING FOR-PROFIT ENTERPRISE
“We can’t promote you because you’re not a not for profit.” Full disclosure: I recently approached Government asking for some awareness building amongst schools for a children’s entrepreneurship program we developed called Lemonade Stand, and was met with a similar response.
The program teaches kids across the country the fundamentals of entrepreneurship, a critical skill-set that is becoming more important with over 50% of today’s jobs facing automation in the next 10–15 years and something that schools have been slow to respond to for a myriad of reasons.
Rather than support initiatives such as these which are ultimately serving to deliver outcomes beneficial to society, we’re often met with this rhetoric. It’s almost as if making money doing good is a bad thing or as Dan Pallotta said in his TED talk, “you know, you want to make 50 million dollars selling violent video games to kids, go for it, we’ll put you on the cover of Wired magazine. But you want to make half a million dollars trying to cure kids of malaria, and you’re considered a parasite yourself”. Or in the words of Babhu Bhat, the Pakistani cafe owner from Seinfeld, you are a very bad man.
Alec Ross calls Government’s unwillingness to work with for-profit social enterprise “ridiculous” and believes that in the 21st Century, the centers of innovation, wealth and job creation will be the more open societies. “Whether you’re in Shanghai or San Francisco, Sydney or London, there are common cultural characteristics and they tilt over to open.”
Alec’s definition of ‘open’ extends beyond the free trade and free flow of people and capital, but to upward economic and social mobility not being constrained to elites. To this point, entrepreneurship has long been the great equaliser and this has never been more true than today, when an internet connection used tactfully can give you global reach, distribution and influence.
There are countless rags to riches stories of entrepreneurs like Gary Vaynerchuk, who immigrated from the Soviet Union to Queens, New York to share a studio-sized apartment with his family of eight, before going on to eventually build a multi-million dollar wine business and media empire.
To be clear, I’ve worked with and supported a number of charities over the years, but truly effective, altruistic and impactful not-for-profits tend to be the exception, not the rule, spawning the effective altruism movement.
THE CHALLENGES FACING NOT-FOR-PROFITS
Challenges are numerous but big ticket items include:
- They struggle to attract and retain top talent because they are usually not able to incentivise people sufficiently (a problem pervasive across not just not-for-profits, but also Government and schools)
- They are unsustainable without access to a consistent base of large donations
- They normally suck at fundraising
- Their distribution of funds often raises questions
On incentives being insufficient, I’ve seen this play out in not-for-profit institutions where mentors give up their time to help a particular cohort of people. After volunteering their time for a number of sessions, they often quit because the realities of life take over. You need to incentivise people to get the right people on the bus but it’s hard to do that when you’re overly dependent on donations. As a private, for-profit social enterprise, you’ve got no such limitations and you’re also doing purpose-driven work.
For-profit social enterprises are sustainable because they solve problems and deliver outcomes. If they don’t deliver outcomes then they fall victim’s to survival of the fittest and go out of business, freeing themselves up to work on more profitable and rewarding pursuits. Customers get something tangible in exchange for their investment, as opposed to the feel good vibes that come with giving to charities, which is more often than not done to appease certain intrinsic needs and is sadly, not all that recurring.
GOVERNMENT CAN’T RESPOND QUICKLY ENOUGH TO TECHNOLOGY CHANGE
The reality is that Government can’t respond quickly enough to the rapid changes in technology so partnering with external experts and enterprise makes sense. Parag Khanna, geo-political strategist and author of Technocracy also appeared on Future Squared recently. He says that the ideal form of Government for the complex 21st century is a “direct technocracy,” one led by experts but perpetually consulting the people through a combination of democracy and data.
Alex Tapscott, author of the Blockchain Revolution, echoed these sentiments in his book, saying that the global financial crisis demonstrated Government’s inability to identify and respond to threats an increasingly complex and befuddling global financial system in a timely manner.
Parag says that Government’s refusal to work with for-profits is “yet another example of ideological thinking that undermines Government becoming an institution of higher quality. Any solid analysis or observation of how the world really works would reveal that Government has become a mixed entity. I find it almost sad to hear such dinosaur like rhetoric.”
BEYOND CASH INJECTIONS
The Government is doing lots of great things in Australia to support entrepreneurship, such as the recently announced LaunchVic and Advance Queensland initiatives, which I myself have been a grateful benefactor of, but it could still be doing a lot more.
If Government is to truly support entrepreneurship it needs to look beyond cash grabs and create the ideal conditions required for entrepreneurship to flourish organically. Too much funding can actually be a bad thing. In Singapore, the Government has been guilty of sometimes being too financially supporting of its startup ecosystem. It often props up faltering startups to the point where the startups interpret the funding as validation of their ideas and continue throwing good money after bad strategies. Meanwhile, startups with limited funding might think twice before they spend a single dollar, and work diligently to find product market fit (or at least they should!) before throwing cash on team, product and marketing.
To build economies that are even a shadow of what Silicon Valley is today, then Government needs to:
- Become a customer
- Make the procurement process easier (no more 75 page tenders that startups don’t have the time or the resources to commit to with their limited runways)
- Promote for-profit social enterprise, not just not-for-profits
- See its role as supporting outcomes, not executing a process
- Create the environment to support entrepreneurship, instead of trying to regulate and control it