The laws of physics eventually wins, even in cyberspace


“If a more advanced life form were given the task of providing to the human species a tool that possessed the potential to save itself from itself, it would have invented the Internet. What remains to be seen is whether the species is sufficiently evolved to properly manage the tool.”

– My thought for the day published in Comlink, 12/31/1996

The net neutrality issue is finally being debated, thanks not to populist politics, but rather the supply and demand dynamics of electromagnetic spectrum. Unfortunately, I believe activists and advocates have been exploited all along on this issue, often apparently without their awareness.

I beg people to not limit their scope or the debate to consumer publishing and communication, which may account for the super majority of time and bandwidth, but a tiny portion of impact. The modern Internet increasingly represents the service economy worldwide—meaning the majority of the U.S. jobs and economy, the marketing and transaction mechanism for global trade, banking, education, and e-government. Even raw commodities are substantially included in this debate as the pricing, marketing, education, trade and logistics are increasingly conducted over the Internet. Internet economics and global economics are now substantially the same issue, so this is much less an access and free speech issue today than one of global economic security—one cannot function without the other.

When was the net neutral?

For a very brief time following the commercialization of the Internet, the medium was a reasonably level playing field. Small businesses around the world were able to sell products through an uncorrupted distribution channel in a manner that was sustainable with modest upfront investment and could scale with organic revenue. From 1995 through 1997, or before the trillion dollar herd stampeded, a very diverse and functional economy was in its infancy. It was then a classic pay as you go system that was mutually beneficial to customer and vendor. The burgeoning sustainable economy was then substantially replaced by the largest price war in human history, and quickly transformed into a battle of manipulation between institutions, regions, and nations as the scope and scale of the opportunity and threat became apparent.

This historic and relatively pure medium, which I referred to as phase 1 of e-commerce (IJHIT- ISBN 0-9624990-8-0), lasted less than three years. As institutional investors began to study growth rates in cases like our incubator, even relatively challenged MBA analysts of the type that tend to filter institutional investments could see the best opportunity since the wheel, but few could see the collective damage of their individual behavior. To do so would have been career suicide anyway—truth wasn’t politically correct in this era.

Companies like Amazon were founded that would require several billion dollars in funding before break even, and many years of profits in the best of the best to earn back their ‘start-up costs’. Amazon was at least charging for products with a real business model; many that followed were pure capital predators, some of which went beyond giving away free services that cost tens of $millions to paying more for eyeballs than the profit margins of advertisers could pay for.

What drove the predatory insanity?

Some pension funds saw the medium as the answer to decades of under-funding amidst cost of living inflation that was increasingly self-created. University endowments began to achieve academic Nirvana where in some cases funds became so large with such high returns that the most expensive institutions could have provided free education, but did not—rather salaries, bonuses and overhead grew. Dorm rats who lusted for rich parties paid for by others were drawn to capital centers where get-rich-and-out investors manipulated relationships from seed to exit in what appeared to me to be systemic fraud. Governments surrounding the capital centers on the coasts became so fat on the feast that their self-destructive engines would soon redefine unsustainable. Fly over states suffered with an increasingly difficult moral dilemma—participate in the frenzy or starve? Does this sound like a level playing field?

It can be a very difficult emotional process for humans to voluntarily wean themselves from harmful or self-destructive practices, particularly after entire ecosystems become dependent and those involved are getting very rich, but at some point it must substantially find some equilibrium.

Bubbles tend to occur in clusters—the culture and skills tend to move from one bursting bubble to the next until people wise up. The financial crisis finally ended the price war, with a few exceptions like social networking that continued to be funded at worse odds for success than the regulated casino industry.

Who doesn’t like free?

The free or nearly free addiction model has been exploited since trade was invented. Unless tightly restricted and regulated—preferably with highly ethical folks involved, free empowers consolidation of power in those who control forms of duopolies and oligopolies, to include (eventually) national governments and financial centers with corporate partners. Sound familiar? Free invites and then demands manipulation, for it lacks the governing forces that enable diversified and dynamic markets to correct. For a good example look at the destructive forces of health insurance when healthcare costs appear free and unregulated; any such system will eventually fail when corrective action is not allowed in some form—whether competition, regulation or more commonly necessary; both.

In contrast, pay as you go empowers consumers and small businesses that create jobs in a diversified, sustainable ecosystem that ultimately government and institutions depend upon, without which they too eventually fail. To my knowledge no model has yet been crafted that works better than the simple exchange of currency for products and services.

Whether dealing with unaffordable housing, healthcare, or bandwidth, subsidies deemed necessary due to injustice are most appropriately dealt with by co-ops, non-profits, and governments—preferably in that order, NOT startups or corporations. Private corporations, particularly publicly traded giants, should not be in the subsidy business, as they are in the best position to expand dominant market share from one industry to another, precisely what anti-trust was intended to prevent. The inevitable result of market manipulation is some form of privatization of profits at the public expense with increasing influence over the political process.

Pay as you go is the most just referee I have found, sporting honesty, transparency and adaptability as virtues, which is no doubt why those threatened by same resist the simple model.

Why tail wagging the dog is bad for everyone

Having tested the hypothesis of self-regulation in the modern economy, with our global economy nearly collapsing, one would think the lesson would still be fresh, but we’ve seen the result with reform attempts regardless of party. The biggest risk moving forward however may well be a conclusion by the masses that regulation isn’t necessary, or worse—even possible. Lord help us.

We are still employing primarily industrial policy and tools for a computer driven economy, with only modest exceptions recently in real-time reporting by the SEC. While it’s true that national power in a global economy has been severely eroded, multi-nationals are not a viable alternative to functional government. We cannot expect multi-nationals to manage the global economy—management is legally bound to serve corporate interests within the limits of regulation, period—everything else is noise. I have yet to observe a viable alternative to functional government, rather only conflicted claims and ideological spin to the contrary.

The bandwidth proposal by Google and Verizon is nothing more than another long overdue wakeup call to national governments within a global economy that is increasingly conducted via the Internet and Web. When governments charged with the responsibility fail to regulate in some rational form, those with the greatest interests at stake tend to do so. This phenomenon is as predictable as the water wars in the wild west, the shadow banking system peddling 120% L to V paper, or states defending against open borders. That organizations would move to protect their interests should not come as a surprise—by law, public corporations in the U.S. are compelled to do so, regardless of claims to the contrary—we call it fiduciary responsibility.

Mark Montgomery
Founder & CEO
Kyield
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Web 3.0 Leaders Look to the Year Ahead


Jenny Zaino at SemanticWeb.com asked a group of us to provide predictions for 2010. An interesting mix and worth a close look, particularly for those seeking input from the front lines of Web innovation.

Maya in the global parcel delivery business


A few months ago we decided to produce a series of papers in story telling format to better communicate the value of our Kyield system for decision makers in large organizations, rather than the normal highly technical use cases written and consumed primarily within the scientific community: ‘Semantic Scenarios for the Intelligent Enterprise’.

I just posted a new use case in the series:  Maya in the global parcel delivery business.

While these cases are hypothetical in nature, they are based on countless conversations to include formal audits in my consulting firm that pre-date the commercialization of the Internet, and even productivity software, but involve highly sophisticated state-of-the-art technology– we are finally resolving these complex issues even if the world has yet to deploy them. In this case I have attempted to demonstrate several very important issues impacting all of us, using the stage of a fast growing emerging market and mobile workforce to illustrate the challenges and potential. A few of the issues I attempt to demonstrate include:

  1. The structural problems with intellectual property today, particularly in a wired world lacking security.
  2. Importance of innovation in the workplace, or more often lack thereof, and why.
  3. How to align interests between the individual, organization, and investors; critical as we’ve seen in the past 2 years.
  4. The consequences of not providing meritocracy and transparency in a hyper-competitive global economy.
  5. The benefits of attracting gifted team members in almost any industry, regardless of formal education.
  6. A lesson in how not being too greedy can indeed be the most profitable strategy, even in the mid-term.

I hope you enjoy the format and content. Feel free to email me with your thoughts in private: markm@kyield.com

Happy holidays to you and your family– MM

HBR debate … Think U.S. Tech Isn’t Healthy?


Laura D’Andrea Tyson contributed to the HBR debate with an article titled:  Think U.S. Tech Isn’t Healthy? Look at the Data.

A rich comment section followed. This is my contribution:

A very constructive debate that is no doubt having a broad positive impact, so you should all be proud of your public contributions — it’s badly needed from my perch. Many leaders have been having these discussions privately for years where I fear it did little good.

I believe Gary Pisano has it correct when he focuses on the trade imbalance. If all other theories to include promoting outsourcing were valid for the U.S. as a nation — rather than just global corporations and other nations, then the disequilibrium would surely have eased long ago.

I’m afraid what we have is a classic conflict between the fiduciary responsibility of leaders in publicly traded corporations on U.S. markets, and the reality of global economics with dysfunctional global regulatory bodies that lack the structure and ability to resolve such conflicts.

Some of the questions in these comment sections reveal a deep confusion that is prevalent in our society — many don’t understand how one can embrace global trade, yet complain about the results. The truth as I see it is that although we have a global medium with few restrictions, and we certainly have an interconnected global economy; we all still live in nation states, complete with an extremely complex web of trade law, currency policy, taxation, IP law, and wildly differing enforcement levels. We also have still quite different cultures, radically different cost of living, debt levels, environmental laws, subsidies….

Taken to its logical end state — the trade imbalance reflects structural impediments to market forces; otherwise markets would correct. One can argue that we are experiencing just such a correction now, and would have earlier if not for manipulation by the FRB, but then they have no control over the currencies of others, and we have little control over the silent barriers to market access. I believe that is why we are seeing intentional downward pressure on the dollar, which is at best a temp measure.

Higher educated and better trained workers in healthcare and house building does not balance the trade deficit — alt energy can help, but until we see common policy in currency as well as subsidies, and equal access to markets, it would require a remarkable miracle indeed for technologies deployed globally to correct one nation’s imbalance, particularly when that nation has much higher costs, yet the workers use the same automation, with unequal currency values.

Competitive taxation is a no brainer — an arms race type of investment with borrowed money very risky. A trade war would be foolish and self-destructive, but is a great concern to me given the scenario. We cannot spend our way out of this situation, and I see no technology on the horizon that has the potential to reverse the imbalance, particularly given that it would surely be deployed globally almost immediately today, thereby neutralizing any nationalist affect, even when the U.S. continues to pay most of the bill for global basic research.

This is not a happy situation. I did not complete my own book on global economics and innovation precisely because I could not foresee a transition that works for the U.S. given the challenge, short of magical enlightenment by trading partners, combined with a willingness to significantly downsize U.S. liabilities, and quick transformation of our learning ecosystem and culture. Quite a bit to ask even of an optimist — even if possible.

Mark Montgomery
Founder & CEO – Kyield
Web: http://www.kyield.com
Blog: https://kyield.wordpress.com
email: markm@kyield.com
Twitter: @kyield

Drucker on long term values


“Whether a business should be run for short-term results or with a focus on the long term is likewise a question of values. Financial analysts believe that businesses can be run for both simultaneously.

Successful businesspeople know better. To be sure, every company has to produce short-term results. But in any conflict between short-term results and long-term growth, each company will determine its own priority.

This is not primarily a disagreement about economics. It is fundamentally a value conflict regarding the function of a business and the responsibility of management.” — Peter Drucker, HBR 1/2005

HBR debate… pleasing Wall Street


Ed Catmull posted an article in the Harvard debate: Pleasing Wall Street is a Poor Excuse for Bad Decisions.

My comment on Ed’s article is as follows:

It’s been clear to us for 15 years that misalignment between compensation incentives and the long-term needs of organizations, investors, communities, and individuals were increasingly competing for the prize of chief cause in systemic crises.

Let’s not forget the impact of stock options — both negative and positive, and the interconnected relationship with markets — from regional housing markets to Wall Street brokers to the formation of bubbles.

What we’ve found in our long-term effort, which trust me was far more difficult in my small private lab than the challenges discussed here and by my peers, is that to deal effectively with the highly complex issue of alignment of interests in large organizations, several other issues must be dealt with simultaneously, creating an exceptionally high bar for resolution in the digital work place environment that is infamous for incremental improvement at best. A few of the key issues I found in our research:

1) A holistic systems approach was essential, without which it may require dozens if not hundreds of years in an incremental model– my best guess is never.

2) Privacy / IP protection and transparency must be tailored by mandate in the vast majority of organizations; even those not required by regulation to do so.

3) The system must be interoperable so that it can be integrated with partners, to include in many cases public and private, R&D partners; without which new adoption is probably impossible anyway.

4) The system must be adaptable to quickly changing forces in the global economy, with the ability to tailor down to the individual.

5) A substantial menu of compensation models (psychological and financial) is required for tailoring to specific needs (for example the model described by Charles) — one size or model that normally dominate debates on motivation and compensation is based on either conflicts or ignorance– having nothing to do with the variety of cultures out there. Wall Street is a tiny minority culturally, despite the global impact.

6) Alignment of incentives is but one very important consideration in overcoming a host of interconnected issues facing large organizations today, all of which influence the other, requiring embedded intelligence on the individual worker, original work, communications, project teams, business groups, and organizations, among others.

Unfortunately, despite humbling interest in next generation intelligence systems, particularly in the past year, when we approach industry leaders we have been faced with a similar response to that by Vint Cerf when he and his partner presented their DARPA project to the then CEO of AT&T: “It’s impossible, and even if it were not….”, which is almost like saying survivability is impossible — from what I’ve observed in looking at our ever growing series of man caused crises — it may not be possible not to adopt far more intelligent systems design. Fortunately it is quite doable and far more strategic to the interests of many than they apparently understand.

After many conversations with decision makers in the private and public sector, I can confidently share that each needs to look at a mirror when it comes to adoption policies of long-term R&D in their own organizations, for that is the problem, assuming of course we want others to take the often brutal long-term approach to overcoming the most difficult problems, particularly in a manner free from conflicts that can actually lead to solutions. Thanks again for the contributions.

Mark Montgomery
Founder & CEO
Kyield
markm@kyield.com
Santa Fe, NM

HBR continued.. Capitalism or Wall Street


Andy Rappaport posted an article to the HBR debate on U.S. competitiveness: Outsourcing, the Culprit is Capitalism, not Wall Street

My comment:

Valuable comments. One of my primary criticisms of Wall Street in the past decade, and some of their largest clients, has been an enormous unproductive use of capital.

While Alan Greenspan has earned his criticism, at least his ideology was based on a belief that large investors would choose self-preservation over systemic suicide, rather than the more cynical view that has so often been rewarded in recent years. I long ago tested self-regulation in micro markets, so was not surprised, however sickening. But the FRB did not direct the fire hose of gasoline even if they provided much of the fuel, and refused to manage the blaze, much less prevent it.

At precisely the time when the U.S. badly needed to redirect investment — both public and private — to improve upon future competitive pressures already well under way, instead Wall Street elephants brokered trillions in unproductive, counter productive, and self-destructive assets.

At the early stages in technology venturing, deployment of capital wasn’t much better as a similar misguided philosophy of activism and emotional dysfunction ruled.

I personally find the excess in outsourcing to be sourced in a similar failed ideology — that somehow the end justifies the means — that to kill the golden goose is somehow justified. The convenient emotional delusion aligning with short-term greed and peer pressure within careerism simply doesn’t mesh with the math — my 8th grade math teacher hobbling on two crutches from his WW2 contributions knew better.

Jeffrey Liker raises a very interesting point — we developed a state of the art holistic system with a global leader in mind, and when I presented it to the chairman of the board — he said that their internal scientists had looked at the issue (for the sake of this point let’s call it knowledge systems), and deemed it impossible. Of course the same was said of his founder decades earlier, and neither were accurate fortunately, but I agree Jeffrey — the only reason I have been able to find at all for those in government and global companies in refusing to adopt holistic systems makes me very uncomfortable indeed — which is that they don’t want to prevent crises, improve performance, and increase both meritocracy and accountability.

One final comment that I haven’t seen raised here, and it should be raised. I firmly believe that one of the key drivers of excessive outsourcing has been what is largely invisible protectionism; that is the implication by governments in a few of the highest growth markets that goes something like this: if global companies want access to these markets — representing the vast majority of growth worldwide — and don’t want to face a government backed if-not-owned competitor, then we best see not only factories dotting the skyline, but research centers as well.

While the U.S. is certainly far from pure in trade, I do believe that the comparison to the NZ experiment in free trade is valid. We all know that trade is rarely free, but to ask (demand) that U.S. tax payers subsidize the exportation of future competitors whether through R&D deals with global corps, universities for decades, and/or tax incentives — is well beyond acceptable for this son of a lifer in the military who sacrificed in two wars, bringing his grief home to his family.

The problem isn’t capitalism — the problem was the scum that too often rose to the top of firms feeding off of capitalism, creating a culture that would not allow cream to rise to decision levels across their sphere of influence. I was so ashamed that I almost relocated permanently in protest. It has been a disgrace.

HBR Debate: Revamping DARPA


Professor David Patterson from UC Berkeley enters the HBR debate on U.S. competitiveness: Revamping DARPA is vital to Preserving the U.S. Lead in IT.

My comment on the blog:

David,

I appreciate your frustration, having heard much the same from many.

However, I would suggest that we have larger issues at work here than just failed tweaking of the DARPA model.

Our economy is suffering not from insufficient centralization, but rather lack of diversity. While I am one that agrees that DARPA can and should play an important role, it is a very minor issue in the grand scheme of things.

What we need is an entirely new research model that is less dependent upon DoD funding, and frankly less dependent upon universities and federal labs. Many if not most of the essential innovations that can benefit society I see on the horizon would be best served by smaller independent labs free from institutional conflicts.

The world has changed dramatically since DARPA was envisioned. Given the systemic failure all around us, we should be debating the fundamentals of the systems, and designing all new models tailored to the current environment.

Mark Montgomery
Founder & CEO
Kyield

HBR debate continued


Steve Hardis contributed an interesting article in the Harvard debate (Is the U.S. killing its innovation machine) on U.S. competitiveness titled: Beware of Government Solutions for America’s High Tech Sector.

My comment to the HBR blog is shared here as follows:

While I can appreciate Steve’s commentary on the negative impact of government on innovation, I disagree that reinforcing the past will work moving forward — indeed our approach has been outdated for over a decade.

I don’t see many here involved with tech transfer, or innovation for that matter, but I can say that the reality I see in the trenches doesn’t support either big government or global corporation’s view on innovation. Since our universities serve primarily government and corporations now, particularly in research, then I suppose we shouldn’t be surprised at the content of the sermons, regardless of merit.

The U.S. enjoyed a dominant role in technology innovation that has only occasionally been challenged within certain sectors in the post war period. That dominance was achieved largely through a command and control structure with gatekeepers on information and capital, increasingly through institutions suffering from the extension of the dysfunctional bureaucracy. In the past decade and a half, much of the world has improved significantly while the U.S. has deteriorated.

Business professors need to invest a bit more time reading scientific journals. MIT provides the bulk of its publication online for free as a matter of policy, but is no longer within the top five in computing worldwide. One can argue about ratings models, but the actual work I consume tends to support the ratings — not only is our K-12 system declining rapidly, so too are our universities relative to the world. As is the case with our investment in education and healthcare, we are investing increasingly more in higher education with deteriorating returns. The same is true with the bulk of investment in R&D both in the public and private sectors. (MM: suggesting a cultural problem).

Moreover, our financial markets have lost much of their credibility from seed to maturity, while much of the world has emerged as direct competitors, now leading the U.S. in many areas.

After 15 years in the trenches, it has become obvious to me that we need a more fundamental revolution in our thinking about models of incentivizing innovation. The models of the past will clearly not work moving forward– the ground has shifted, the environment completely changed, and the dominant markets have become hyper-competitive.

This debate has been interesting, is long overdue, but is not yet itself approaching competitive solutions, in large part due to lack of incentives for those with the knowledge to engage. As is so often the case today in our society, we hear primarily from those with conflicts; not those with solutions.

Mark Montgomery
Founder & CEO
Kyield

HBR- U.S. innovation continued


This is my post in a continuing debate on U.S. competitiveness and innovation found here at the Harvard blog.

The current trajectory leads eventually to a much larger global crisis than we are still currently experiencing. The total liabilities will catch total net worth (should have been asset value) in the U.S. at some point in the future — a junction that jumped forward a decade or more in the past 18 months– this means the U.S. will be in a crisis until the balance sheet provides at least a small measure of solvency given future liabilities. We’ve been playing a game of chicken for far too long between socio-economic ideologies, neither of which frankly are credible from an economic perspective.

Shall we discuss (advertising) editorial influence on mass media? Economic diversity? The real cost of social elitism? Root causes of bubble economics — pension funds and endowments chasing 30% returns with 20% of the world’s investment capital rather than historic levels in the single digits? How many economists understand what that does to markets? If we want to discuss protectionism elsewhere, can we avoid discussing the cost of ancient guilds? Were you as shocked as I when the ACM announced university ratings and only one U.S. school made it in the top 10– Russia and China with 2 each, no doubt achieved at a fraction of the cost? Anyone game for predicting the future cost of system-wide moral hazard that has been realized? Unbroken monopolies? Predation? Cultural management?

The worst case scenario is that entrepreneurs stop innovating– many of the best have already taken that route, some by choice, most by markets– I deal with them daily. The reaction has been to institutionalize the entrepreneurial function in an attempt to make MBA grads VCs and entrepreneurs out of scientists; and we wonder why our economy is challenged?

In order to do this topic justice and deal with the root causes– everything else is noise, we’ve got to look at what creates the trade imbalance– part of which is certainly outsourcing, but more importantly are the barriers to innovation in the U.S. — as is often the case the most valuable data is not visible. I do agree with those who suggest that outsourcing contains a high probability of losing key IP, but then frankly that threat dominates the lives of innovators everywhere now, or should, certainly to include the U.S. where the cost of defending IP has not been viable for small shops or individuals for many years– unaffordable justice is as comparatively destructive to the economy as unaffordable health care or failed education; perhaps more so. Outsourcing is necessary in a global economy, and does have many benefits, not least of which is a higher probability of peace, but inability to protect original work and take to market is already having catastrophic consequences. Where would the U.S. be today without the tech giants of the previous generations?

The innovation conversation needs to begin with the very frank understanding that the U.S. dominated tech innovation and venturing for decades — from seed to maturity — but in the past decade it has quickly become hyper-competitive globally. We’ll need to disperse with dogma and comfortable assumptions such as ‘data collected has sufficient embedded intelligence to make wise decisions’, particularly within the time frame required to make those decisions, even assuming that those making the decisions are sufficiently unconflicted and able. It is with some irony that we realize while drowning in a sea of data that none of us are necessarily even in the loop on some of the more important trends occurring, which is why first hand experience is so important. All venture capital data for example is voluntary — the sector is hidden by confidentiality for good reason, but the secrecy also does great harm in spreading ignorance –politicians and the social elite combine with the guy on mainstreet who think wrongly that some brilliant scientist at a university will partner with an entrepreneur to correct decades of very bad behavior.

In the late 90s when we were operating a global learning network for thought leaders, the most eager to learn about venturing and economics were not from the U.S. at all — even when we pleaded for regional professors to engage, but rather almost everywhere else– Mongolia to Thailand to South Africa to Brazil. In the U.S. and much of Europe everything we and others did in our incubators was perceived as a threat to entrenched interests. Most of the world lacking those same type of entrenched interests saw only opportunity.

A decade later the FRB was quite comfortable with its assumptions regarding systemic risk in financial institutions, yet even after it had become obvious that their strategy (and many others) was clearly wrongheaded (after Ben B became Chair), a public liaison informed me that he “wasn’t allowed to elevate information on systems designed to prevent systemic crises”. In other words, it was the policy of the FRB apparently to remain ignorant of knowledge systems outside of their (academic) silo. Similar situations are found in most crises I have studied, to include in venturing where we’ve been holding up a red flag for a dozen years. The audit rule that led to Enron.. the Asian contagion.. the dotcom bubble.. institutionalization of venture capital.. the housing bubble.. I missed the SEC rule allowing IBs to leverage up to 50 to 1 on mortgage securities– I was too busy designing systems to prevent crises…

One credible sign of a failing system is one that defends against improvement — in the U.S. there is no effective manner to sell new innovation to the governments, including systems that would make the government smarter and more functional– I’ve been trying for a dozen years, during which time I turned down offers from other governments foolishly.

I spent much of the past decade founding and operating an early stage tech VC while working on designing more functional knowledge systems. Among those I found before my peers, but unfortunately didn’t profit from (we’ll save alignment of interests and incentives for another day, despite the importance), were Google and Skype. Unlike most firms sprouting up in the past decade (VC radically changed when institutionalized in the 90s), we were not geographically strategic. What we discovered was that the Internet had changed the game in ways far beyond what most were considering in the U.S. Not only were collaborators disbursed worldwide with around the clock functionality, but the technologies and even business plans were very quickly becoming of higher quality in other countries. The smart kids and adults were learning at a much faster pace. I myself am a product of sorts of self-learning using the Internet, quickly catching up and passing the majority of post docs in my fields of interests.

During the past decade many other countries have proven more likely to support locally produced innovation than the U.S., particularly at the critical early stages with real dollars from real customers, during a time when the U.S. flooded VCs with capital and freeism as the primary adoption model (“sling spaghetti against the wall to see what sticks”) — extremely destructive to functional markets. Market after market in the U.S. embraced what I will call blind globalization, losing local support and bias as our culture became mobile, cities began to all look similar, and the soul of many communities were gutted. Franchises and global giants dominated, which requires much different skills of managers than independent businesses– not creativity or innovation — a very poor environment for creating business leaders or entrepreneurs.

What’s worse, I noticed a sharp decline in the level of competency in the venture firms, entrepreneurs, and senior managers in global companies– in VC we experienced a generation who had never built a real business, yet those were precisely the individuals institutions felt the most comfortable placing money with — for those willing to shell out $3k you too could learn that PE was no longer about competency, but rather relationships. We have thousands of people in venturing who are incompetent now. As IPO markets sprouted up around the world and capital poured into regional venture firms, real entrepreneurs became some of the world’s best VCs in other countries.

Innovation is a very complex topic that is less influenced by R&D dollars than lobbyists would have us believe. We’ve identified well over a dozen essential elements for markets to be successful in venturing, involving macro global issues (including markets), micro local issues, internally in the venture, and of course the interconnected relationships. Even though I refer to the elements as essential, exceptions occur missing one or two, and they are not the same in each case, particularly recently in emerging markets. No market in the U.S. still has all of the essential ingredients due to both local and global macro issues. The probability of the next Intel emerging from the U.S. is substantially less in my view than in several other countries, and the list is growing rapidly.

Imagine if you will a tech titan that experienced change within a decade from market dominance, manageable debt, and large reserves, to a market with dozens of competitors, many of which now have healthier balance sheets, equally competent workers, newer infrastructure, and much healthier markets. That scenario more closely resembles in my view what the U.S. is faced with today, and no where is it more challenging than for emerging innovation that is still the underlying engine of our economy; particularly of the type the economy desperately needs. We need revolutionary improvement in our systems, complete with much smarter learning systems, far more effective incentives, realignment of interests, and cultural management that places a priority on self-preservation rather than self-destruction.

Radical perhaps to some, but may well be too timid given the challenge.

Mark Montgomery
Founder & CEO – Kyield
Web: http://www.kyield.com
Blog: https://kyield.wordpress.com
email: markm@kyield.com
Twitter: @kyield