Tuesday, September 8, 2009

What would you want to tell Washington DC about startups?

I'm writing this post from an airplane headed to Washington DC, where I'll be presenting at the Government 2.0 Summit. It's an honor to be invited, and I'm looking forward to meeting a lot of people with a background very different from my usual crowd. I'm especially curious to gauge the reaction of the civilian and military representatives of our government. Beyond just those who will be hearing about the lean startup for the first time, I'm expecting to shake a lot of hands and have a lot of interesting side conversations.

As a result, sitting here on this plane, I've been pondering what message I want to deliver on behalf of startups and entrepreneurs. Thanks to on-board wifi, you can join me in that thought process, if you'd like. So here's my simple question:

What do folks in Washington need to know about the global community of entrepreneurs?

I've been in a few government-themed meetings recently, so I know some of the standard answers. One school of thought is something like: leave startups alone! They are so fragile, the heavy hand of government policy could easily snuff them out while trying to help them. And there's some truth to that, although I think the metaphor is a little misleading. Much of what makes the USA, and Silicon Valley in particular, such a great place to start a company is the result of good government policy. I think a more nuanced view is that we should be encouraging the government to think about the impact on entrepreneurs, and try to foster policies that reduce burdens on companies in their earliest stages. Some of those policies actually require more, not less, government action, because startups risk being crushed by entrenched corporate interests as well.

A second standard theme focuses on each of our financial interest. If the government raises taxes or adds regulation to my sector of the economy, watch out: innovation is doomed. I understand that there is a reason to employ lobbyists to protect established interests, but I'm not really interested in that job. I'd like to see if we can come up with policy suggestions, concerns, or questions that might promote entrepreneurship generally - and globally. It's my fervent belief that will lead to overall economic growth.

So what are good entrepreneur-friendly policies? What is good in the current system that should be preserved? And what hurdles could be eliminated? My short list, off the top of my head (hey, I am in an airplane, after all):
  • Patent reform (so startups don't have to waste time amassing a deterrent warchest of dubious patents)
  • Health insurance reform (so more people can take the risk of becoming an entrepreneur)
  • Stage-appropriate regulation (many regulations kick in only after companies achieve a certain size, which promotes more risk-taking)
  • Open data and platforms (the major theme of the Gov 2.0 movement - give startups open access to the raw materials so they can create economic growth)
  • Open spectrum and wireless competition (with obvious benefits, I hope)
What would you add? And beyond just policy suggestions, what facts on the ground do policy-makers need to know about startups? Please leave a comment and let's discuss!

(It's impossible to resist the urge to plug Virgin America as much as possible. Here I am, tens of thousands of feet above the ground, and I have power and broadband. Of course, the real thanks should go to a startup - Gogo Inflight Internet - that I was lucky enough to meet at a recent workshop. Thanks guys!)


  1. Amen to this topic! I think the first three items on your list are top on my agenda. The other areas, which are not necessarily things that matter as much to me but I do believe help the ecosystem:

    * reform in contract awarding -- right now the government doesn't meet its quota (22% or something like that) for small business work...and almost everything goes to the same group of prime contractors. this is a big can of worms, but something that needs to addressed on many levels (the govt has no idea what open source and COTS solutions are available)
    * better recognition of LLC's -- it's what many of us use for business forming (at least prior to seeking funding) but it's at the state level not federal, so it's confusing as to what exactly is protected

    Overall I think the US does a good job, but you might find this and the detailed study alongside it to be interesting: http://doingbusiness.org/EconomyRankings/

  2. Agree with all your points. I recently heard rumors of more regulation on private investments. NO WAY. Current rules are good enough now. Private investors are big boys and girls and their losses won't bring down the world economy. Instead how about some incentives for Angel and VC investors. Don't have any specifics but anything to make these investors more likely to invest in startups would really help.

  3. Biggest thing for me not on your list is more tax advantages to starting up a company self-funded. That is just currently a full personal money sucking process, as you're taxed on income and have no business breaks yet, besides supplies, the majority of costs to start up a business have no tax advantages to creating a start up.

  4. Policy makers need to know: regulations designed to manage big-companies actually protect those companies by stifling innovation (and competition) from startups. Big companies can afford entire departments dedicated to compliance. Startups don't know a W-4 from WD-40 and don't (or shouldn't) care. This side-tracks them from innovations that produce economic value (compliance produces zero value.)

    I started my last company with 100% off-shore resources because I could never have completed Customer Development at a reasonable cost of money or regulatory burden had I employed US Citizens. I hate to say it, I'm sorry to say it, but it is the 100% truth.

  5. I agree with what others have said: health care is a barrier to startups, regulation and tax incentives nearly always favor large established players with teams of lawyers, and the patent system is in some areas doing more to hurt innovation than to encourage it.

    I'll add two ideas:

    The modern structure of university patent licensing and technology transfer works really well in the life sciences and other fields with expensive product development processes. In Computer Science research, it is often better to open source an innovation than to go through the process of protecting it and then licensing it to a new startup. This is what the BSD license was invented for, for example. Federal policy that encouraged open sourcing innovation, possibly by rewarding universities that open source technology which goes on to have commercial success, might get us more innovation in this area.

    I'll add one more point: The SBIR program is based on a dated notion of small business research, and the multi-year process doesn't line up with the speed of many modern startups. Similarly, government purchasing is a frustrating series of hoops, even compared to enterprise sales. In many cases I look at an SBIR and say "how about I just build that and sell it to you when it's done," but that is unrealistic today. Augmenting the SBIR program with a program that made it easier for government agencies to buy from startups (possibly with both size and age constratains) could be an interesting way to promote entrepreneurship.

    Of course, as with any policy, care would need to be taken to be sure these had the intended effect.

  6. Eric,

    I wrote up the outline for a government program to promote entrepreneurship I call the "Civilian Innovation Corps". This would be a program supported jointly by government and private investors and would immediately jumpstart the innovation engine in this country.

    You can see the design of the program here.


  7. I think I fall more into that first camp of people who feel the government has little or nothing to contribute to this area, and they will help startups to the degree they stay out of the way (and lower taxes).

    This line in your article stood out to me: "Much of what makes the USA, and Silicon Valley in particular, such a great place to start a company is the result of good government policy."

    I realized I couldn't think of a single example of that...unless by good policy you mean less government or exempting startups from some bad government policy. What were you referring to? (Not being sarcastic here, I'm actually curious.)

  8. From someone who has spent 35 years in the federal government, one of the major reasons for a lack of innovative applications in government is the sunk cost in existing IT infrastructure. The IT and networking "big boys" rule and any start up apps are summarily squashed on the premise that they may upset the status quo re: IT infrastructure. The US is headed to be a second rate or third rate power if policy isn't changed to permit new and ground breaking applications to operate in large networks.

  9. Talent. Visas. Ease the process for startups to get access to global talent.

    Bringing a talented person into the US means that their income tax and spending benefits the US.


    Many previous comments here fall under this general heading -- the ancient mainframes, the closed standards, the confusing forms to file. My personal favorite: Medicare takes 3 months to approve a new health care provider. But there is an overriding theme here: poor efficiency arising from poor attention to detail.

    The most direct solution is not some grand initiative, but simply to improve at what we're already doing.

    The objective function of successful bureaucracy is to do what the law requires as quickly and cheaply as possible. We are barely even trying to measure this.

    The US was once known as a free market democracy that could make the trains run on time. Then we eroded toward the opposite: a cozy government-industrial complex that can't tie its own shoes (Katrina response, Iraq administration, SEC/Madoff, general regulatory bloat).

    The solution might move in steps: transparency (publish everything online), then measurement, then initiatives. Each requires the step before it.

  11. Eric,

    I wrote an open letter on my blog to the gov2.0 conference attendees. You can view it at http://industrialinterface.com/blog/2009/09/10/an-open-letter-to-the-government-2-0-summit/

  12. Government IT solutions can be iterative, they don't have to be designed down to the last detail by architecture astronauts before implementation.

    For example, the New Zealand government has been calling for RFIs (Request For Information) for health care IT solutions that engage the citizen. But the RFIs state that solutions must cover and port into all stakeholders and all their various IT setups - oh, and by the way, it needs to be Six Sigma accurate! Completely unrealistic - and very risky of becoming a huge white elephant.

    Far better to carve off small bites to start-ups at minimum outlay and risk and say "go to it, and if you make progress we will send more resources and assistance your way".

    And the best thing for bureaucrats worried about "career risk", is that start-up failures do not lead to public embarrassments because they were so small and cheap to begin with.

    Iteration, iteration, iteration. It doesn't just have to be a private enterprise thing.

  13. Hope your presentation here in Washington, DC reaches a few new minds today. Interesting that your post comes across in a way that makes it seem like there are no startups in DC who mix it up with Federal types. There are and we do. The new administration has helped some of their ranks to cross over into the Federal community too. Truth be told, we've got defense contractors here just like California does too.

    Recommended reading:

  14. I'm a bit late, and this one might be controversial to some, but long-duration non-competes hurt the development of startups by adding friction to the entrepreneurial economy. It would be good to spread understanding on this issue.

  15. Since 2000 we have passed a number of laws and regulations that are killing innovation in the US. The incredible innovation of the 90s was based on technology start-up companies built on intellectual capital, financial capital, and human capital. All three of the pillars have been under attack since 2000. Our patent laws have been weakened reducing the value of intellectual capital. Sarbanes Oxley has made it impossible to go public reducing financial capital for start-ups and the FASB rules on stock options have made it harder to attract human capital to start-ups. For more information see http://hallingblog.com/2009/05/26/innovation-regulatory-road-kill/

  16. I'm a bit late to this party but I would tell the government:

    Health care Reform (not just health insurance reform) is critical to start-ups. No one should risk loosing health care if they quit a job to start a company - and more importantly - companies need healthy customer who have money to spend on other things in order to thrive.

    Also any and all research or data that the government pays for or requires to be done for approval reason (I'm talking to you drug companies)must be immediately in the public domain. With the exception of some classified military stuff.

    Thirdly, revamp how intellectual property rights are applied to software and code. Trademark protection expires if companies don't use or protect them. So should copyrights and patents on software code.