FinTech in Georgia

Posted on November 19, 2012 by dennis

In previous postings I discussed four significant technology trends identified by Erik Peterson: Big Data and Supercomputing, Nanotechnology, Robotics and the Results of the Human Genome Project.  I also analyzed innovations coming from these four trends using a framework provided by Harvard Business School Professor Clayton Christensen.  The framework suggests that different types of innovations in each of these four areas may have a different effect on jobs. “Empowering Innovations” or “Sustaining Innovations” create or sustain growth in jobs.   On the other hand “Efficiency Innovations” lead to the loss of jobs. However, that efficiency often frees up capital for future deployment in job-generating growth.

The Technology Association of Georgia (TAG) has identified clusters of excellence in the State, “Where Georgia Leads.” http://www.wheregeorgialeads.com/About/ These clusters include Financial Technology (FinTech), Information Security, Communication Services, Logistics and Healthcare Information Technology.  FinTech is one of the most successful clusters in Georgia. FinTech has benefited from the growth of Big Data. According to TAG, “Globally, over 135 billion payment card transactions paid for $2.3 trillion of consumer and commercial purchases in 2011.” Massive, sophisticated data capabilities are required to process the number of credit card transactions.

I wish I had attended the seminar on big data earlier this year, sponsored by the FinTech Society of TAG.  At the seminar, “executives from First Data, SunTrust, TSYS and FICO shared their insights on how expanding the scope of their data analysis to include Big Data can help them understand their customers better, prevent fraud and build better product strategies.” http://tagthink.com/latest/first-data-suntrust-tsys-and-fico-discuss-why-big-data-increasingly-important-in-their-corporate-strategies.html

Although I missed that seminar, I did attend last week’s FinTech GA 2012 symposium, also sponsored by TAG’s FinTech Society.  www.tagonline.org/TAG-FinTech-Georgia-2012.php.   Over 300 people attended the event, which highlighted the strength and breadth of Georgia’s FinTech industry.  Event honoree Paul Garcia, the Chairman and CEO of Global Payments, referred to Georgia as “Payment Valley.”  The FinTech Society provided me with the following statistics, which support that nickname and demonstrate how powerful the FinTech technology cluster is in Georgia:

  • More than 85 billion [of the 135 billion] credit card transactions passed through the global networks of Georgia FinTech organizations.
  • Georgia FinTech organizations employ more than 25,000 professionals in Georgia and over 105,000 globally.
  • Revenue generated by the Georgia-based FinTech organizations exceed $22 billion annually.
  •  The nine publically held organizations headquartered in Georgia have a combined market capitalization that exceeds $21 billion.
  • Merchants supported by payment systems organizations number in the millions globally.

Although I haven’t applied a rigorous “Christensen” analysis of the FinTech sector in Georgia, the employment numbers suggest that, at least in Georgia, innovations in this sector are either Empowering Innovations or Sustaining Innovations that create or perpetuate jobs.  From a national or global perspective, even if some of the innovations lead to efficiency gains (but perhaps not job growth), it’s hard to imagine how global commerce could continue without the leadership of Georgia FinTech companies.

Attendees at the symposium came away with a deeper and better understanding of the industry and Georgia’s leadership role.  Chair Amelia Fox, SVP of Strategic Planning at Elavon, said: “The symposium represented deep and rich content covering everything from the point-of-sale, conversations on the increase of deals in the industry and Google’s position on expanding the mobile payments landscape.” Ms. Fox went on to describe the range of companies that participated:  “Delta, Home Depot and Heidelberg U.S.A. discussed how they are addressing the changing payment needs of their customers.  Also, we had 18 companies in the exhibitor showcase — from start-ups to large companies that are doing innovating things in FinTech and payments.” I personally enjoyed the presentations by Frank Young of Google Wallet and Steve Hufford and his Raymond James colleagues, who analyzed the FinTech industry.

Hats off to TAG’s FinTech Society and the symposium chair, Amelia Fox, for showcasing one of Georgia’s world-renowned technology clusters.

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The Creative Destruction of Capitalism: A Different Perspective Part 2

Posted on November 13, 2012 by dennis

My posting last week discussed a recent article by Harvard Business School Professor Clayton Christensen who categorized innovations by their effect on job creation. This week I will apply this new “Christensen framework” to innovations associated with one of the technology trends identified by Erik Peterson: Supercomputers and Big Data. I am interested in whether the innovations associated with this trend are likely to create or sustain growth, thereby generating (or maintaining) jobs, or instead provide efficiency gains that loses jobs.

Christensen suggests that the effect of innovations may differ in terms of creating jobs. Some may be “Empowering Innovations” or “Sustaining Innovations” that create or sustain economic growth.  Others may be “Efficiency Innovations” that lead to the loss of jobs, recognizing that Efficiency Innovations often free up capital for future deployment in job-generating growth.

Freeing up capital can be a huge positive in and of itself.  For example, a significant portion (some would say a disproportionate portion) of our economy is devoted to healthcare. If an innovation leads to a reduction in healthcare costs, there could be a decrease in the number of jobs in the industry. On the other hand, people would benefit from paying less for healthcare and capital would be freed for other uses.

Moreover, if the innovation provides new treatments or cures for diseases that improve the quality of life or extend life, the impact of the innovation could be beneficial well beyond traditional measures of job creation and economic growth.

Supercomputers.

According to Georgia Tech’s Institute of Data and High Performance Computing,  supercomputers, which can crunch large amounts of data, are expected to have a significant impact in a variety of ways. Supercomputers should reduce healthcare costs, by accelerating the development of drugs and better targeting them to address specific symptoms and result in fewer side effects. Supercomputers should promote national security, by rapidly sorting and analyzing data to recognize or predict suspicious behavior. Other uses include predicting catastrophic weather events, the development of nanotechnology materials, fusion-modeling for energy, and prediction of mechanical failures of aircraft.

It seems that, because of their cost, supercomputers are often applied to solve big issues like national security, climate change and national health. There appears to be a good chance that some of the innovations spawned or facilitated by supercomputers will be Empowering Innovations.

Big Data.

On the other hand, many technology companies are focusing on big data used in a variety of ways.  According to a recent New York Times article big data is helping businesses understand and take advantage of the data explosion on the Internet, with respect to social networks, Internet advertising, online searches and posts.  Big data also helps monitor the supply chain.

In addition, big data is playing an increasingly important role in other fields, such as science, political science, sports (Moneyball!), economic development, public health and economic forecasting.

Something as ubiquitous as big data is likely to generate innovations of all three types.  According to the article, big data is creating jobs:

A report last year by the McKinsey Global Institute, the research arm of the consulting firm, projected that the United States needs 140,000 to 190,000 more workers with “deep analytical” expertise and 1.5 million more data-literate managers, whether retrained or hired.

One could speculate that “Empowering Innovations” from Big Data could generate new jobs requiring workers with “deep analytical” expertise. Conversely, “data-literate managers” could fill existing management positions. Big Data trends could even result in a decrease in management jobs. The net effect on jobs is difficult to predict.

In the next few weeks I will apply the Christensen framework to other technology trends identified by Peterson, to assess the effect of associated innovations on job creation.

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Innovation: A Different Perspective

Posted on November 5, 2012 by dennis

We are in the initial planning stages of the 2013 TAG Top 40 Innovative Company competition, which I founded and continue to chair.  This competition is unique in that it recognizes applicants’ innovations.  By contrast most competitions, like Venture Atlanta, focus on how attractive applicants would be for investment.

Our implicit rationale has been that a truly innovative company ultimately will be attractive for investment.  Our explicit criteria for evaluating the innovations include the likely effect of the innovation on the creation of jobs. So clearly, innovation, economic success and ability to attract capital are inextricably linked. The Top 40 and Top 10 innovative companies will be showcased at the annual TAG Georgia Technology Summit on March 20.

In a recent New York Times article, Clayton Christensen, a Harvard Business professor, considers the failure of capital to flow into innovations that will have the most impact on economic growth.  He argues that capital is more abundant now than in the past, but traditional metrics, such as ROI (return on investment) and IRR (internal rate of return) fail to take this into account.  Because of the short time horizon associated with these metrics, as well as public policy, capital tends to flow into innovations that produce efficiency gains, rather than transformative innovations.

Christensen discusses three types of innovations:

  • Empowering Innovations that “transform complicated and costly products available to a few into simpler, cheaper products available to the many.” His examples are the Ford Model T, Sony transistor radios and the early IBM and Compaq PCs.
  • Sustaining Innovations that “replace old products with new models.” His example is a Toyota Prius that effectively replaces a Toyota Camry that was based on older technology.
  • Efficiency Innovations that “reduce the cost of making and distributing existing products and services.” His examples are minimills in steel and Geico in online insurance underwriting. I keep thinking about enterprise software that eliminated layers of good middle management jobs over the past couple of decades.

Christensen argues that only Empowering Innovations lead to economic growth.  Empowering Innovations generate growth by creating new consumption. Sustaining Innovations “keep our economy vibrant — and, in dollars, they account for the most innovation. But they have a neutral effect on economic activity and on capital.” While Efficiency Innovations often reduce the number of jobs, “they also preserve many of the remaining jobs — because without them entire companies and industries would disappear in competition against companies abroad that have innovated more efficiently.” Also, Efficiency Innovations free up capital on balance sheets that can be redeployed for Empowering Innovations and Sustaining Innovations.

According to Christensen, historically the three types of innovations have worked in tandem to fuel economic growth: “As long as empowering innovations create more jobs than efficiency innovations eliminate, and as long as the capital that efficiency innovations liberate is invested back into empowering innovations, we keep recessions at bay.”

Christensen argues that over the last two decades this cycle of innovation hasn’t worked as well, resulting in longer recessions and more tepid job growth during recoveries. When short-term metrics are used, efficiency gains result in attractive returns on capital.  But economic growth requires innovations that may take many more years to come to fruition.  Christensen believes that public policy should promote the deployment of capital in investments that necessarily require a longer-term horizon. (Arguably, this is consistent with the criticism that short-term financial reporting requirements imposed on public companies have an adverse effect on their long-term performance.)

His prescription for addressing this problem includes (i) changing metrics for measuring return on capital to reflect the relative abundance of capital, (ii) providing for variable, regressive capital gains rates that continue decrease, the longer an asset is held and (iii) promoting what I’d call increased “trickle down economics,” rather than “taxing the 1%.”  (He argues that income redistribution simply replaces consumption by one class with consumption by another, and thus has no impact on growth.)  I probably am not doing justice to Christensen’s thesis and thus suggest you read the article to assess the strength of his arguments.

Does the problem identified by Christensen mitigate in favor of more government investment?  As discussed in my postings concerning the most significant technology trends, government has played a major role in the Human Genome Project and big data and supercomputers, although both have attracted significant private investment.

In future postings I will apply Christensen’s analysis to some of the themes previously introduced in my blog, including Erik Peterson’s four significant technology trends, Schumpeter’s creative destruction of capitalism and innovation in Georgia.

 

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Four Technology Trends: The Impact of the Human Genome Project

Posted on October 29, 2012 by dennis

The last of the four technology trends identified by Erik Peterson of A.T. Kearney is impact of the Human Genome Project (HGP). The HGP was a thirteen-year project, coordinated by the U.S. Department of Energy and the National Institutes of Health and completed in 2003.

The primary goals of the project were to determine the sequences of 3 billion chemical base pairs that make up human DNA and identify and map the approximately 20,000–25,000 genes of the human genome.  The genome of any individual (except for identical twins) is unique; mapping the human genome involves sequencing multiple variations of each gene.  The objective of HGP was to identify disease-causing genes and possibly use the information to develop more specific treatments.

Throughout 1990s the publicly-funded HGP competed with private competitors, most notably Celera Genomics, in an effort to complete the project first. Celera used a different method for sequencing, “whole genome shot-gunning” or “WGS,” which entailed breaking the organism’s genome into millions of pieces of DNA with high-frequency sound waves, sequencing these pieces, and reassembling the sequences using supercomputers.  Initially discredited, WGS proved accurate, and Celera took the lead. (In fairness, Celera did make use of some of HGP’s publicly available map to sequence the data.) In 2000 the Clinton White House announced what was essentially a negotiated draw that allowed the HGP to save face. In any event, the project was completed ahead of schedule.

Bruce Alberts, president of the National Academy of Sciences, called the completed human genome sequence as a “tremendous foundation on which to build the science and medicine of the 21st century.” (NHGRI 2003)

According to the HGP web site:

Technology and resources generated by the Human Genome Project and other genomics research are already having a major impact on research across the life sciences. Some current and potential applications of genome research include:

  • Molecular medicine
  • Energy sources and environmental applications
  • Risk assessment
  • Bioarchaeology, anthropology, evolution, and human migration
  • DNA forensics (identification)
  • Agriculture, livestock breeding, and bioprocessing

The potential for commercial development of genomics research presents U.S. industry with a wealth of opportunities.  According to the National Human Genome Research Institute, the U.S. economy is already seeing the benefits of genomic research:

 A new report by research firm Battelle Technology Partnership Practice estimates that between 1988 and 2010, federal investment in genomic research generated an economic impact of $796 billion, which is impressive considering that Human Genome Project (HGP) spending between 1990-2003 amounted to $3.8 billion. This figure equates to a return on investment (ROI) of 141:1 (that is, every $1 invested by the U.S. government generated $141 in economic activity).

According to the study, Economic Impact of the Human Genome Project, the benefits have been widespread and increasing over time. HGP produced 3.8 million job-years of employment, or one job-year for each $1,000 invested. Personal income generated by HGP (wages and benefits) exceeded $244 billion over the time frame, averaging out to $63,700 income per job-year. Since the HGP’s completion in 2003, federal investment in genomic research has actually increased. In 2010 dollars, HGP spending by the National Institutes of Health (NIH) and the Department of Energy (DOE) amounted to $5.6 billion; for the seven years following, federal genomics spending totaled $7.2 billion dollars.

In 2010 alone, genomics directly supported more than 51,000 jobs, and indirectly supported more than 310,000 jobs, according to the Battelle study. This created $20 billion in personal income and added $67 billion to the U.S. economy.

The government has even been repaid for its HGP spending. Last year, tax revenues returned to federal, state and local governments nearly equaled the entire 13-year investment in the HGP. Genomics-enabled industry generated more than $3.7 billion in federal taxes and $2.3 billion in U.S. state and local taxes in 2010.

From the beginning of the HGP it was widely recognized that genetic testing would precede the ability to treat the corresponding conditions.   Genetic testing falls into the following categories:

  • Diagnosis of individuals with signs or symptoms of a disease.
  • Prediction of inheritance of a familial condition, such as cystic fibrosis, breast cancer and sickle cell anemia. (With some diseases early diagnosis can improve treatment.)
  • Reproductive. Parents discover if unborn children are at risk of inherited diseases.
  • Genetic testing/screening at the population level.

Genetic testing is not always an unqualified benefit. As examples, parents may feel guilt about passing harmful mutations to offspring and individuals may develop depression from the knowledge of their condition (a “ticking time bomb.”)

As the promise of genomic research is more full realized, ethical issues will become more challenging.  Examples from genetic testing include genetic discrimination by insurance companies, genetic privacy and even eugenics.

Readers of this blog will be familiar with some of these issues arising out of genetic modification, which entails removal of a detrimental gene and inserting a beneficial gene in replacement. Bioethicists argue that using intervention to restore normal functioning is acceptable, but using intervention to improve beyond normal functioning is not. It sounds a bit like the standards applied to Oscar Pistorius’ prosthetic limb.

 

 

 

 

 

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Four Technology Trends: Big Data and Hyper-Computing

Posted on October 22, 2012 by dennis

The past two weeks I wrote about robotics and nanotechnology as two significant technology trends identified by Erik Peterson of A.T. Kearney.  This week I focus on a third trend, big data and hyper-computing.

Recently Sequoia, at the Lawrence Livermore National Labs, was recognized as the world’s fastest supercomputer.  Sequoia is able to process 16.32 petaflops (quadrillion floating point operations per second). Although I can’t begin to comprehend the magnitude of a quadrillion, I do know that it’s even bigger than the amount of the national debt.

Wikipedia explains how supercomputers are used. (Don’t you love Wikipedia?)

Supercomputers are used for highly calculation-intensive tasks such as problems including quantum physics, weather forecasting, climate research, oil and gas exploration, molecular modeling (computing the structures and properties of chemical compounds, biological macromolecules, polymers, and crystals), and physical simulations (such as simulation of airplanes in wind tunnels, simulation of the detonation of nuclear weapons, and research into nuclear fusion).

 

Put differently, supercomputers crunch “big data,” which refers to data sets so large that they are difficult to collect, search and analyze. In other words, data with complexity requiring supercomputers.  In this video, Rod Vawdrey explains that data is being created at an incredible rate and its growth will accelerate with the proliferation of mobile devices.  He believes that supercomputers will enable us to address some of society’s biggest problems, such as an aging population and world hunger.

A recent McKinsey report concluded that big data “will become a key basis of competition, underpinning new waves of productivity growth, innovation, and consumer surplus….Leaders in every sector will have to grapple with the implications of big data, not just a few data-oriented managers.”

According to the McKinsey report, an example of the pressing societal problems that big data could address is healthcare:

If US healthcare were to use big data creatively and effectively to drive efficiency and quality, the sector could create more than $300 billion in value every year. Two-thirds of that would be in the form of reducing US healthcare expenditure by about 8 percent.

Moreover, the McKinsey report contends that the benefits of exploiting big data extend well beyond pressing societal issues and will lead to productivity growth.

We estimate that a retailer using big data to the full has the potential to increase its operating margin by more than 60 percent. Big data offers considerable benefits to consumers as well as to companies and organizations. For instance, services enabled by personal-location data can allow consumers to capture $600 billion in economic surplus.

Sectors such as the computer and electronic products and information sectors, as well as finance and insurance, and government, will benefit form the use of big data.

At Venture Atlanta last week, some of the presenting companies specialized in “Big Data,” including AirSage and Emcien, which describe themselves as follows:

AirSage is the only technology and big data analytics company that has deployed a patented population analytics platform which uses wireless signals from over 100 million mobile devices. The data provides unprecedented insight into where US consumers are located and how they move – over 15 billion population location and movement data points are derived and stored every day, 24 hours a day.

Emcien, a leading provider of pattern-based analytics solutions, enables organizations to convert torrents of multidimensional data into actionable intelligence. Across diverse industries, this suite of purpose-built “Big Data” solutions deliver significant value in the form of deep insight into the organization, increased profits and an enhanced competitive advantage. Leveraging advanced algorithms, Emcien’s patented pattern-detection platform is a breakthrough in data analytics.

It’s understandable why Mr. Peterson identified big data and supercomputing as a trend that could have a significant impact on the economy.  This trend could spur job growth, but as with other significant technology trends, increased education and specialized training will be required.  McKinsey predicts that by 2018, “the United States alone could face a shortage of 140,000 to 190,000 people with deep analytical skills as well as 1.5 million managers and analysts with the know-how to use the analysis of big data to make effective decisions.” This is a challenge that the United States must address to capitalize on the big data trend.

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Four Trends: Nanotechnology and 3D Printing

Posted on October 15, 2012 by dennis

Last week I discussed the Robotics Revolution as one of four technology trends identified by Erik Peterson, of A.T. Kearney. Two trends that I may discuss in the future are:

  • Big data and hyper-computing, focused on Sequia, the world’s fastest supercomputer.
  • Biotech, including the fruits of the Human Genome Project.

This week I will address nanotechnology and 3D printing.

Futurist Christopher Barnatt explains that nanotechnology manipulates matter at the near-atomic scale.  Nanotechnology may involve processes that are either “bottom-up” or “top-down.”

“Bottom-up” nanotechnology refers to construction at the atomic level. It may involve future “nanobots” assembling new products at the atomic scale, “and potentially turning one material into another, self-replicating, or being injected into the human body to repair damage and target disease at the cellular level.”

At present, “Top-down” nanotechnology is more prevalent. It involves atomic-precision manufacturing using more conventional “large scale” production processes such as those used in making microprocessors. According to Erik Peterson, traditional manufacturing has been subtractive.  Raw materials are subjected to processes that use a portion of the materials, leaving behind waste.  Nanotechnology has the potential to make manufacturing additive, at the molecular or even the atomic level.  “The term additive manufacturing refers to the way 3D structures are built layering very thin materials.” 

Christopher Barnatt describes 3D printing:

3D printers create real, solid objects from digital data by building them up in layers. The first 3D printer was created in 1984, and since that time various 3D printing technologies have been used in industry to create rapid prototypes and mould masters. However, today 3D printers are also starting to be used in the direct digital manufacturing (DDM) of end-use components and final products.

Possible uses of 3D printers include nanofactories printing three-dimensional solid objects from plastics and even molecules for a universal chemistry set.

One of the challenges has been how long it takes to print an object, but researchers at the Vienna University of Technology recently announced a major breakthrough in speeding up this printing technique.

Disney recently brought attention to 3D printing, announcing that it would use 3D printing in the lighting of some of its toys.

 

The Verge describes Disney’s innovations as follows:

A group of engineers at Disney Research in Pittsburgh has demonstrated a range of new 3D printing techniques, allowing for the integration of elements such as displays and sensors into cheap, printed objects. The new approach takes advantage of recent developments in the types of materials that can be employed in 3D printing, focusing in particular on “high resolution transparent plastics with similar optical properties to plexiglas.”

According to BBC News:

The engineers used computer software to make objects which included innovative lighting elements. They explained that creating the toys on 3D printers allowed them to create a real-world prototype within minutes, rather than having to wait for a factory to be retooled.

Check out a Disney video that highlights Disney’s pioneering work.  In addition, the images below illustrate Disney’s work in the area.

In the example below, illuminated hollow tubes look like a beating heart.

Light pipes enable the eyes of the toy figure below to express different emotions.

In another example, the engineers built “light pipes” into the interior of chess pieces as a 3D-printed alternative to optical fiber.

So what makes Erik Peterson believe that nanotechnology in general, and in particular 3D printing and other “top down” processes will have a significant economic impact?  For one thing, it’s happening already. The Project on Emerging Nanotechnologies, reports there are already over 1,000 “manufacturer-identified nanotechnology-based consumer products currently on the market.” These include plasma screens with their glass strengthened with carbon nanotubes, tougher car paints, improved golf clubs, more effective sun creams, and OLED displays and longer-lasting batteries for mobile phones. The size of the nanotechnology manufacturing market exceeds $9 billion.

Nanotechnology has also garnered the attention of the federal government.  According to Nanowerk, the Obama administration recently launched a $1 billion investment in advanced manufacturing technologies, including creating the National Additive Manufacturing Innovation Institute, with $30 million in federal funding, to focus on 3D printing.

Stay tuned …

 

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Technology Trends: The Robotics Revolution

Posted on October 8, 2012 by dennis

At a business conference last week in Park City, Utah, I heard a terrific speaker, Erik Peterson, Director, Global Business Policy Council, A.T. Kearney.  Unlike the President during last week’s debate, Mr. Peterson did not seem to be adversely affected by the thin mountain air.

In his presentation, Mr. Peterson identified four significant trends in technology:

  • Big data and hyper-computing, focusing on Sequoia, the world’s fastest supercomputer.
  • Biotech, including as the result of the completion of the Human Genome Project.
  • Nanotechnology, including Disney’s use of 3D printing in the lighting of some of its toys.
  • A revolution in robotics.

This week I will consider what effect the robotics revolution might have, using Mr. Peterson’s observations as a starting point.

A fairly recent report of The International Federation of Robotics (IFR) identified three types of jobs performed by robots:

  • Jobs requiring precision, consistency or lower costs
  • Jobs where conditions were unsatisfactory
  • Jobs for manufacturers in developing countries, with high labor costs, that compete with manufacturers in low-cost developing countries

To summarize, robots perform jobs that humans aren’t fully capable of doing, won’t (or shouldn’t do) or aren’t cost-effective in doing.

An example of more precise, and more cost-effective robots is the Philips Electronics plant in the Netherlands that manufactures electric razors.  The plant has one-tenth of the employees of a similar plant in China.  And the robots are more dexterous than their human counterparts.

An example of dangerous work performed by robots is unmanned aerial vehicles (UAVs), such as the recent Mars space probe conducted by the Mars Spacelab Mission. Clearly, the risks and logistics of sending a manned spacecraft on a lengthy mission are more daunting than sending an unmanned space probe to Mars.  Drones are another example. Mr. Peterson reported that now more military pilots are being taught to operate UAVs than fly a manned aircraft.

Mr. Peterson noted that robotics are playing an increasingly important role in manufacturing.   I wonder if robotics will have a positive or a negative effect on job creation? As I have discussed previously, historically the creative destruction of capitalism has dislocated companies or even entire industries.  Certainly as an engine of the creative destructive of capitalism, the robotics revolution has the potential to dramatically change the world’s economy.

But I am skeptical about whether the change will be positive, as there are many examples of robots replacing workers in manufacturing. Apparently some economists are skeptical too, including Martin Ford, a Silicon Valley entrepreneur. A recent book review summarizes Mr. Ford’s views :

The Lights In The Tunnel [is] a book which explores the economic implications of a world which is becoming increasingly automated. Ford proposes that in the upcoming years robots and computer programs will edge human workers out of their jobs and that unless we take drastic actions this will reduce mass market purchasing power, destroy consumer confidence, and shut down the global economy.

Nevertheless, as a fan of capitalism, I am open to the possibility that the robotics trend will result in not only wealth creation, but also good jobs. The IFR concluded that the robotics industry was responsible for 8 to 10 million jobs, including 150,000 jobs that were generated directly and another 150,000 jobs that supported the direct jobs.

But how is that possible? How will robotics create manufacturing jobs? The question may turn on whether the focus is global jobs picture or employment in the United States (and perhaps the rest of the developed world).

Not surprisingly the President of the Robotics Industries Association (RIA), Jeff Burnstein, contends, in an editorial for Bloomberg BusinessWeek, that industrial robots will help US companies compete, ultimately leading to better jobs for American workers.

He argues that robot sales are increasing, US robotics companies are increasing in size and stature, and the US robotics industry is growing rapidly. Singularity Hub summarizes the RIA’s position:

According to the RIA, there are about 1 million industrial robots actively employed in the world, of which about 196,000 are in the US (second only to Japan). If you include non-industrial bots, the number ramps up to close to 8 million. Those robots have a significant impact on the global economy by increasing production levels and decreasing (over the long term) production costs while requiring less human labor. As impressive as these numbers are now, there’s little doubt that they’ll see big growth in the years ahead….Automation is likely to continue to expand into industries and jobs that we don’t normally consider vulnerable. Whether it’s with robots or computer programs, human labor is going to see itself replaced at some level in many different fields.

Burnstein argues that robots enable US (and European) companies to compete against manufacturers in countries with lower labor costs, such as China or Mexico. Although pure manufacturing jobs may be replaced by robots, jobs supporting robotics in maintenance, supervision and sales could stay in the US.  Another source of jobs in the US is the creation of robots.

One interesting question is whether the rise in robotics will result in a battle between automation and out-sourcing, enabling the US and Europe to compete with developing countries. In that event, robotics could lead to a net loss of jobs globally, even as wealth and high-paying jobs are created in the developed world.

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Internships: Lessons from HBO’s Girls

Posted on October 1, 2012 by dennis

A scene of the HBO series, Girls, captures the current state of internships.   Hannah, played by the show’s creator, Lena Dunham, is an unpaid intern for an indie publishing house in New York City.   Cut off financially by her parents after interning for more than a year, Hannah confronts her boss, telling him she can no longer work for free.  His reaction: “I’m really going to miss your energy.”

Like a lot of interns, she had hoped that her unpaid internship would turn into a paying internship. Facing a tough employment market, many recent college grads are forced to choose between an internship and underemployment, either of which is better than unemployment.  According to the Associate Press (based on Census and US Department of Labor data earlier in the year) quoted in a recent article in The Atlantic:

About 1.5 million, or 53.6 percent, of bachelor’s degree-holders under the age of 25 last year were jobless or underemployed, the highest share in at least 11 years. Out of the 1.5 million who languished in the job market, about half were underemployed, an increase from the previous year.

The article goes on to say: “Their analysis implies that about a quarter of the post-collegiate population is outright unemployed.”

According to US News:

The Pew Research Center reports that employment rates among young people between the ages of 18 and 24 are at an all-time low, at 54 percent, and those who are employed full-time have experienced a bigger drop in weekly earnings (6 percent) than any other age group. And according to the consulting firm Twentysomething Inc., 85 percent of new grads move back home with mom and dad.

Internships can be a win-win situation. From a company’s point of view, they can try out an intern for a period of time, and perhaps hire them for permanent positions once their work has been evaluated.  Interns present an inexpensive (or free!) alternative to new hires. Employers have been able to fill labor needs by engaging experienced consultants for much less than full-time employees.  (In our tech businesses, we have engaged independent contractors for software and web design and development, project management, graphic art, marketing, financial analysis, accounting and much more.) From the intern’s perspective, they can get to know the specific company, job or industry, before making a commitment.

But at some point for unpaid interns, “enough is enough.” Like Hannah, many interns (and the families that support them) can no longer afford this.

There will always be unscrupulous companies that lead interns on with the promise of some full-time future job or the possibility of payment. However, not all internships turn into “slave labor.” By definition, the intern is supposed to receive something of value, either compensation or education or both.  It is important at the outset for the company and the intern to agree to the terms of the internship. If the intern is essentially providing value to the company, the intern is entitled to at least minimum wage under federal law.  This is a “deal” for the employer.  On an annualized basis, $10 per hour for 40 hours over 52 weeks translates into  $20,800, which is a bargain for hiring a recent college grad.  The company also has the advantage of greater flexibility to terminate the internship or manage the hours.  For the intern, it beats waiting tables, fills a gap in her resume and may provide valuable experience that will increase the likelihood of more permanent employment.  If the intern is to receive college or grad school credit, the employer may be able to avoid paying anything.

In our business we have had two interns. The first interned for our previous venture, One Stop Dorm Shop. She received college credit, and we designed the internship to help her meet the college’s criteria.  The second intern, a junior in the undergraduate business school of Emory University, worked for our current venture, Group Office Buys. We paid her $12 per hour.  We are now looking for a new, paid marketing intern.

Fortunately, things may be getting better for recent college grads. One article from late summer stated: “According to the National Association of Colleges and Employers, companies say they will hire 10.2 percent more grads from this year’s class of graduates compared to the previous year, and they’ll also pay them more. The median starting salary for 2012 graduates will be $42,569, up 4.5 percent from 2011.”

While this would be a positive development, internships are not going away anytime soon. To avoid a situation like the one Hannah found herself in, interns need to perform due diligence and try to ascertain that the company’s and intern’s expectations are aligned. Interns should be forceful in determining the purpose and time frame of the internship and what the benefits may be, whether it’s hourly wages, school credit or a resume builder.  And companies should bend over backwards not to lead interns on regarding pay or prospects, and to provide an experience of value for their interns. Then, internships can become what they should be: A win-win situation.

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Tech Investing: Not for the Weak of Heart

Posted on September 24, 2012 by dennis

A couple of recent articles reinforce the conclusion that investing in tech companies, whether by angels or venture capitalists is a risky endeavor, often leading to failure.  But you knew that.  Didn’t you?

First, consider angel investing. In a recent article, Randall Crowder, a Texas venture capitalist, concluded that, in order to have a reasonable shot at the big payoff, angels should join a network and adopt more professional investment strategies, including investing in multiple companies.

First, Crowder notes, “Only 10,000 to 15,000 of the 225,000 people who made an angel investment in the last two years are in an organized angel network.”

He then quotes David Rose, a successful entrepreneur: “The unfortunate truth about angel investing is that ‘a majority of all new, angel-backed companies fail completely, so if you invest in only one company, the odds are that you will lose all your money…. It takes investing the same amount of money consistently into at least 20 to 25 companies before your returns begin to approach the typical return of over 20 percent for professional, active angel investing.’”

Moreover, angels often invest with the hope that the company will receive venture capital funding, because, with access to more capital, VC-backed companies have a higher likelihood of success. But most angel-backed companies will not receive venture capital: “Since 2007, angels have funded roughly 60,000 new companies every year, while the National Venture Capital Association estimates that each year only 1,000 companies receive venture capital for the first time. In other words, less than 2 percent of angel-backed companies are likely to receive venture capital funding.”

So let’s say your company receives venture capital, whether or not you are one of the 2% that started with angel money.  Clearly, the odds of your company’s success increase significantly. But new research suggests that those odds might not be quite as high as you’d think.  According to a recent Wall Street Journal article,  venture capitalists often say that, of 10 start-ups, three or four will fail completely, three or four return the original investment, and one or two produce substantial returns. Somewhat consistent with that rule of thumb, the “National Venture Capital Association estimates that 25% to 30% of venture-backed businesses fail.” Also somewhat consistently: “About three-quarters of venture-backed firms in the U.S. don’t return investors’ capital, according to recent research by Shikhar Ghosh, a senior lecturer at Harvard Business School.”

That said, often start-ups hang around for a while (and longer if they are venture-backed), even if they don’t return capital to their investors, much less engage in a successful IPO or other liquidity event, or even.  According to the Wall Street Journal:

Of all companies, about 60% of start-ups survive to age three and roughly 35% survive to age 10…. And companies that didn’t survive might have closed their doors for reasons other than failure.

Of the 6,613 U.S.-based companies initially funded by venture capital between 2006 and 2011, 84% now are closely held and operating independently, 11% were acquired or made initial public offerings of stock and 4% went out of business, according to Dow Jones VentureSource. Less than 1% are currently in IPO registration.

So with all of his negativity, why do entrepreneurs start companies, and why do angels and VCs continue to invest?

According to David Cowan of Bessemer Venture Partners: “People are embarrassed to talk about their failures, but the truth is that if you don’t have a lot of failures, then you’re just not doing it right, because that means that you’re not investing in risky ventures,” Mr. Cowan says. “I believe failure is an option for entrepreneurs and if you don’t believe that, then you can bang your head against the wall trying to make it work.”

For entrepreneurs, failure may be a badge of honor, or at least not a black mark. Investors understand the difficulty of achieving success with any given venture, and feel that entrepreneurs learn from their mistakes. For investors, failure in some investments is the inevitable result of investing in multiple risky ventures, with the hope that some percentage of them will hit it big.

 

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This and That…and The Other

Posted on September 18, 2012 by dennis

Oscar Pistorius and Melky Cabrera. In my August 13 posting, I talked about the controversy surrounding Pistorius’ prosthetic “blades” and whether they gave him a competitive advantage.  After his gritty Olympic performance, we looked forward to watching Pistorius in the Paralympics. We heard his inspiring words, asking us not to focus on disability, but to focus on ability.

Then the unthinkable happened. Pistorius, who had never lost a 200-meter race before, lost to Brazil’s Alan Fonteles Cardoso Oliveira by 0.07 seconds in the T44 200m. Even more surprising, Pistorius lashed out at the victor, claiming “we aren’t racing in a fair race.”  Pistorius argued that the blades used by his opponent were too long, and that the length of the blades enabled him to increase his speed for a come-from-behind victory.

In fact, as Pistorius later admitted, Oliveira had played by the rules. Oliveira had used blades that were approved for the Paralympics. These blades are longer than the blades approved by the IAAF and Pistorius would not have been able to use them in non-disabled competitions.  Moreover, he would undermine his contention that the body above the knee, rather than the blades, determine success.

Pistorius came in fourth in the T44 100m, losing to Britain’s Jonnie Peacock, but roared back to win the T44 400m by almost 3.5 seconds.

Speaking of an unfair advantage that posting also discussed “Atlanta’s hero” Melky Cabrera, as evidence of Major League Baseball’s growing intolerance of performance enhancing drugs, such as steroids.  A couple of weeks later, two-time All Star Bartolo Colon of the Oakland A’s was suspended for 50 games, also for testosterone.

When asked for his reaction to news that two former players, Cabrera and Colon, had elevated testosterone levels, Yankees General Manager said he was “Unfortunately, not surprised.” After only pitching in 257 innings the previous five years — and not pitching at all in 2010 – Colon, 39, came to camp with his old 90-plus mph fastball in 2011. “You see some spike in performance,” Cashman said. “You hope it’s not the case, but you scratch your head and you wonder at the same time.” 

Patent Law Changes.  In one of my first posts, on February 13, 2012, I discussed the Leahy-Smith America Invents Act, and September 16 marked the first anniversary of the Act.  Most of the significant aspects of the legislation are scheduled to take effect in the future, including most notably a change from the current “first to invent” system to the “first to file” system.  But some near-term changes include changes in patent fees, including a 76% reduction for “micro entities” and an option for prioritized examination for a $4,800 fee (reduced by half for small entities). The only reason I know about the effectiveness of these changes is because my patent lawyers were really busy at the end of the week and over the weekend dealing with the changes. For a discussion of these and other immediate changes, click here.

PARKAtlanta. In my June 12, 2012 posting, I told the outrageous story of my son’s parking ticket, which continues to be pending until late October.  Since then a local television station, 11Alive, promoted adoption of the Parking Bill of Rights.

The Bill of Rights provides as follows:

I agree that parking in Atlanta should have:

1) Working, easy to use meters

2) Clearly marked signs and spaces

3) Fair and just ticketing practices

My son’s case involved the second and third prongs. The Bill of Rights unanimously passed the full Atlanta City Council today, without discussion. It now awaits the signature of Mayor Kasim Reed, after which it will become policy in the City of Atlanta.

 

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