Friday, October 10, 2008

Save the Entrepreneur - Save the World

As we sit and watch stock market plunge - and financial experts are scrambling to find words to explain why overnight our country has lost 30% of its value - I remain calm.

No, I am not in denial. Actually, for me none of this is new. As a tech entrepreneur I has seen the bubble of the Internet age, and I could see the housing bubble coming from a mile away. However, my point is not that I am a "financial oracle" - but rather - as an entrepreneur this is nothing new. Nothing here is new. The state of panic you see businesses in today - is what an entrepreneur wakes up with every morning whether the market is good or bad. Entrepreneurs live in an environment where this is always a "credit freeze" or "no lenders". Even when the market was at 14,000 -no bank would loan me money for my new startup. No bank would give me credit to make payroll.

In some odd way - I am amused by this chaos. Not just because I have lived in a microcosm of this type of chaos my entire career - but more importantly how people react to the challenges. As an entrepreneur - there is a certain acceptance of risk when starting a new venture. In fact, losing your entire investment in a startup is a standard disclosure to our niche economy.

Of the twenty-something ventures I have been involved in one way or another - I personally have never heard the words "BAIL OUT". In my 15 years of growing businesses, meeting payrolls, using credit cards to buy inventory and spending days and nights servicing customers and building value - I have never blamed a banker, politician or president for my failure.

I believe in a free market system. And I believe businesses should be left alone to succeed or fail. I believe the heart and soul of our economy is the entrepreneurial spirit that drives innovation and invention. I don't blame our current economy on deregulation, greed or politicians - I blame our economy on the mental shift away from what makes America competitive - the entrepreneur.
We have created an economy of perception. We have built value in our economy on transactions and not on assets. We have ignored innovation and expected our policies and products of 30 years ago can carry us into the 21st century. We have lowered the pressure on businesses and markets to innovate and scale - and simply allowed them to rest on their laurels of the past, and take home profit. Like a horse leading a race, suddenly breaking its leg - the jockey continues to whip - but we have fallen fast into last place in Global innovation.

What we are witnessing right now - is not just banks foreclosing on homes - but a foreclosure on entrepreneurship. As a nation, we have not kept our promise and payment on supporting innovation in technology and launching new ventures to diversify our economy.

I don't claim to have all the answers - but I do have the answer on how we save our economy.


Instead of pumping 700 Billion into buying bad assets and over-valued mortgages... why don't we pump 700 Billion (or a fraction) into innovation and development of new companies?

Here is a simple plan that I believe makes as much sense (if not more) than a 700B bailout of wall street:

1. Energy Independence - Not only does energy off the most promise for new jobs in America, it also allows plays a big role in foreign policy. There are multiple paths to developing alternative energy, but we need entrepreneurs and heavy investment in science to make this a reality. Safe nuclear, clean coal, affordable solar, stable wind are all viable paths - but we need to invest in technology and entrepreneurs. Simply by investing 10-20 Billion a year into energy could create hundreds-of-thousands of jobs, create thousands of companies and re-instate our position in the global economy at the #1 supplier of energy.

2. Health Care - Want to find a way to offer more health care to more people, and at the same time not increase taxes and make policies cheaper? There is only one answer - technology. You can cut 20-30% off operations, and another 15% off the cost of processing if you build a digital backbone to the health care industry. Every other market has become digital - yet we still operate health care like we did in the 1980's. The problem is not that there isn't any technology or lack of interest - the problem is that the government has not put the pressure on the industry to raise the standards. In order to force a mass adoption of digital standards and to incur the cost of going digital - there needs to be a forceful entity to pressure hospitals, insurance carriers and even the patients and doctors.

I would estimate a government assistance program for this type of project would cost around $50 Billion to invest in innovation, infrastructure and tax breaks to corporations who meet the standards set forth by the project. I think we could achieve 80% transfer of data off paper in five years - if we were able to provide incentives and advance HIPAA to force all parties to make it happen.

3. Jobs - See #1 and #2. Not only are these major undertakings but they are catalysts for hundreds of thousands of high-paying jobs. All the workers looking for work after the auto-plant shut its doors, can easily be trained and hired to manufacture solar panels. All the workers who can't build buildings due to the real estate market crashing - can begin to build nuclear power plants, clean coal plants and wind/solar plants. All the jobs lost in middle-management and operations can be put to work helping health care companies make the shift from paper to electronic business. There are natural shifts in our workforce that have to happen in order to create new jobs. We can't "save jobs of the past". We need to look toward the future.

Also, I would suggest we invest heavily into startups to tackle major problems, and fund them similar to the SBA was formed to do - but managed by Venture Capitalists with a mission to transfer our economy. This itself would create jobs due to the investments made into these startups.

I would launch a Global Innovation Fund where we segment into 5 key areas 1) Energy 2) Health 3) Poverty 4) Security 5) Communications. This fund would allocate 10 Billion dollars per year (2 Billion in each category) that would invest in existing and new companies and technologies that focus on these areas, and specifically the goals set forth in each category.

For example, under ENERGY would be goals like 1) Reduce carbon emission of coal by 80% (Clean Coal). Much like we fund universities to innovate by providing grants - we would invest into these companies and facilitate solutions. The big difference between giving a professor a million dollars - is that he/she is not driven by a timeline or market demand. They use that million dollars to experiment and to discover - with no clear mission to deliver a product to the market. This major change in purpose would make the investment make more effective and deliver results to the market.

Not only would the Global fund invest in technology here in the U.S. but also in other countries. We could lure the best minds and inventors from other countries like China, Russia, Japan to move their operations and companies to the US, by leveraging this fund as a way to monopolize innovation for the next ten years. The requirement of the fund would be to only invest in U.S. company, but not limited to importing technologies from around the world and force them to move.

If we truly want to be a leader, we need to invest. Not in mortgages, not in banks, and not in securities - but in entrepreneurs.



Dr. Richard M. Swier, LTC, U.S. Army (Ret.) said...

This article is fantastic. I put it on Red County - Sarasota.

Louis Rosas-Guyon III said...

Here, here! You have touched on the heart of the issue: valuation. So long as we value transactions over hard assets, we build an economy on a foundation of sand. By investing in entrepreneurs, America can rebuild a new economy with its roots in the technologies of the 21st Century. We must stop looking backwards and focus on building a stronger America prepared to face the challenges ahead of us. Great article!