23 July 2015

Donald Trump is the Republican Party's Better Version of Itself. Seriously

In a Washington Post poll from just four days ago, Donald Trump had nearly double the support of his two leading competitors.

Serious political commentators see the Donald as a side show, a troll, a clown who knows how to distract the audience from what's going on in the main ring of the circus. They argue that Donald knows how to tell voters what they want to hear, isn't seriously dealing with real policy issues, and is thus not a serious candidate. The theory behind this misses something, though. It assumes that the other candidates are more serious.

Scott Walker, the governor of Wisconsin, is second in this poll. Is he a serious candidate? Scott did not complete his bachelors degree and argues that such a degree ought not to be a requirement for teaching in public schools. This would hardly be a serious policy proposal in 1915, much less 2015.

Jeb Bush is next in the polls. Beyond the fact that Jeb doesn't actually seem to have revised his worldview or policy proposals based on his big brother's disastrous results, his "boldest" proposal so far is 4% GDP growth. "There is no excuse" for GDP growth lower than that, he says. This might be an incredibly subtle slam of his father and brother (who each presided over GDP growth of about 2%). What it is not is a serious policy proposal. Not only has GDP growth of over 4% never occurred throughout the whole of anyone's presidential administration (Clinton came closest but even he and Reagan did not have that kind of luck for long), but more importantly, Jeb is not actually making any policy proposals that would drive such growth. This is an important point that gets completely glossed over: a goal without a plan is a kind of fiction. Jeb offers no stunning insight into what flaw was made by each of the previous 43 presidents. He just says that he can do better. Than all of them. Every president in history is less able than Jeb. And we're to take this seriously?

Walker and Bush are considered serious candidates but it is not clear why. They are telling voters what they want to hear and they're not starting with facts (global temps are rising, for instance, as is income and wealth inequality). They are adept at politics even if they're poor at policy. How is this different from Trump?

Donald Trump is not a crasser version of many of the other GOP candidates. He's a better version of them. His outrageous claims are more interesting, said with more conviction and sincerity, and just as free from fact or nuance. He talks about Mexicans as rapists and criminals but is his distortion of facts all that different from the mainstream GOP? An article of faith among Republicans is that illegal immigration is a growing problem. The fact is that the number of illegal immigrants has been dropping since its peak in 2007. It's true that suggesting the Mexicans coming north are rapists is more offensive than suggesting that a growing number of illegal immigrants are coming from Mexico. It's not true that either shows much regard for reality.

Starting with the Bush Cheney administration under Karl Rove's guidance, the Republican Party showed its willingness to subordinate good policy to good politics. The Iraq war was a policy disaster but it helped with W.'s re-election. Great politics don't always translate into great policy. Donald Trump is not an aberration from the Karl Rove model. Instead, he is its natural outcome. If the Republican Party had serious conservative candidates like, say, the UK's Prime Minister David Cameron, they'd be right to take offense at Donald Trump's lead in the polls. Instead they have candidates who can't admit that economic policy might require more subtly than another round of tax cuts or that 98% of scientists might understand climate change better than talk show hosts. Once you choose to go down a path that shows a disregard for expert opinion and instead relies on gut instincts, you're heading down the path towards a Donald Trump. And getting that much closer to becoming to the 21st century what the Whigs were to the 19th century.

10 July 2015

Pope Francis Continues Tradition of Papal Confusion

This week the pope apologized for the Catholic Church's role in the exploitation of the people of the Americas. That was nice. 500 years late but still nice.

Then he spoke out against a new colonialism. What is that? It's capitalism, which he believes is fostering inequality and exploiting the poor. His criticism of markets is something that some future pope will be left to apologize for. Hopefully it won't take centuries.

Popes seemingly make a habit of being wrong.

Markets are hardly perfect but they make life better for most people most of the time. This last decade has been a rough one. It included the worst global recession in nearly a century. But even then, markets made life better.

Between 2001 and 2011, the percentage of the world's population living in poverty - defined as living on $2 a day or less - dropped by half. Markets are not increasing the rate of poverty. They're lowering that rate. And it is this force that the pope speaks out against?

The pope is the world's last absolute monarch. The centuries when this power actually extended over most of Europe (and not just the Vatican, an area of land smaller than the average Ted Turner ranch) was called the Dark Ages. It was a time of misery, ignorance, intermittent starvation, abject poverty and a life expectancy of less than 30 years. Compared to today, it was a living hell. This is the kind of world you get without markets and the pope has the audacity to criticize the economic force that supplanted that system.

We do need someone to speak out for the poor. Markets don't make life better for everyone. Religion, charities, aid programs, and government programs can help the poor who markets ignore. Someone like the pope would seem like a natural spokesperson to speak out on their behalf. But to insist that the fruits of powerful markets be more widely shared is very different from criticizing powerful markets. It is one thing to ask for more porridge and another to spit in the serving bowl.

The pope has the authority to speak out on behalf of the poor. If the pope were an authority on economics, the time when popes ruled the West would be known as a time of Enlightenment and prosperity instead of the Dark Ages.

07 July 2015

The Real Greek Tragedy - Europe's Stagnant Economy

"Most problems cannot be solved. And most problems are made irrelevant by success."
 - Peter Drucker

If the Eurozone had grown by an average of 2.3% since 2006, Eurozone GDP would be 3 trillion euro bigger than it is now. To put that in perspective, 3 trillion euro is about 18X Greece's total GDP.

Now obviously the Great Recession played havoc on economic growth, but even if you go back 20 years, to 1995, Eurozone GDP growth has averaged less than 0.4% (that's not forty percent or even four percent - that's four-tenth of a percent).

The real tragedy is not that Greece is struggling to pay back the loan that either they were foolish enough to borrow or the Germans were foolish enough to loan (if anyone is a fool not to have seen this coming, than surely everyone is a fool; if Germany wasn't foolish to loan the money than surely Greece wasn't foolish to borrow it). The tragedy is that Eurozone GDP has not grown enough that Greek debt would be a rounding error. Indeed, if GDP had grown at a healthy rate, the entire Greek economy would be a rounding error.

Greece's economy is only 1.3% of the Eurozone GDP. Sadly, everyone is fixated on the Greek debt as if solving this little problem of their debt matters even half as much as the really, really big problem of stagnant growth. Healthy growth of 2.6% would mean the Eurozone was growing by TWO Greece GDPs a year. This would be sufficient to solve any debt problem.

Instead, the best minds, politicians, analysts, and reporters are wasting their time, attention, and imagination thinking up ways to "solve" the Greek debt problem rather than solving the European growth problem. That is the real tragedy of this crisis.

03 July 2015

Observations from Recent Trips Around the Country (Many Reasons for Optimism and One for Concern)

The media works hard to find the worst among us. They have thousands of employees whose job it is to find the corrupt bureaucrats, the cheating spouses, the crazed killers, and the simply peculiar. One advantage to wandering the country, able to meet people at random, is the realization that most people are delightful and good.

In the last five weeks I've been on business trips to Portland, San Francisco, Washington DC, Del Mar, California, and Boise, Idaho. We help companies to manage product development projects and when we're busy it is often a leading indicator of good things to come. When companies want to accelerate product development it means that they're optimistic about market potential and are willing to pay extra now for more revenue later. Often, our planning sessions result in their realization that in order to launch their product on-time or early, products often worth millions a day in revenue, they'll have to hire more of a particular skill set. They don't just pay us (we are typically a rounding error in their business in any case); once they see what they need to do to really accelerate, they pay more in hiring, subcontractors, and investment in equipment. All that to say that what our being busy suggests is that businesses are optimistic about future prospects. When they're worried, they focus more on trimming certain costs (that is, they don't hire us) than accelerating uncertain revenues.

We are Still in a Stage of Expansion and Hiring
It seems like we've entered a stage at which companies are less focused on getting more with less (which often means, "You'll do the work of two people for now, Joe, because we can't afford to hire anyone to replace Amelia,") than getting proper staffing. They're hiring.
When I start with a new client, I have to get processed for a badge so I can get in and out of their facility. On one of my trips, I found myself in the midst of a small covey of new employees, all looking baffled that they were just one of many starting that very Monday. "How many new employees do you hire on an average Monday," I asked the folks taking photos and making badges. "It's about 30 to 50 lately," came the response. For the one site.

At a conference for project managers in the pharmaceutical industry, about every break someone else was standing up to say that they were hiring. Then they did a little ad for their company, obviously working to make it sound appealing in their efforts to gain interest. It did not sound to me like an employers' market. On the negative, most of the jobs seemed to be in places like San Francisco and Boston, where cost of living is a big obstacle.

What We Americans Look Like to Europeans
Many of the teams I work with have a mix of nationalities. Just in the last month I've worked with folks making computer chips, medical devices, new drugs, and nanotechnology and as a general rule, the more specialized the technology skill sets, the more varied the accents. In particular, the teams I've worked with recently had more than a few Europeans. Out to dinner one night, I was sitting with a few guys from the Netherlands, one from Germany, and two from Czech. We were all eating burgers and about three bites in I felt like a barbarian. I was the only one not eating my burger with a knife and fork.

Chatting with a German from another client who had just moved to the US about four weeks earlier, I asked him what was most remarkable about the US in his brief time. "Just the waste," he said. "You buy four items at the store and they give you three bags. You order a meal and they give you enough for two people. It's amazing."

A British client has been living in the US for decades. He said, somewhat tongue in cheek, somewhat seriously, that every 4th of July he felt offended. Finally, one year he decided to take his sailboat up to Vancouver British Columbia. He was delighted with how British it seemed up there, even down to the red mail boxes. Plus he was avoiding the 4th. He felt almost giddy. Then he was driving somewhere and was shocked at how much traffic was there.
"What is going on," he asked.
"It's Canada Day," they told him.
"What's that?"
"We're celebrating our independence from Britain," they told him.
"Oh crap," he exclaimed.

Abnormal (Weather) is the New Normal
Of course everywhere seems extreme in comparison to San Diego, but even by the standards of locals the weather is extreme.
Boise got to 109 and was over 100 every day of the week I was there. Portland is setting records for hot. The grass along the runway in Seattle was uncharacteristically brown. From Seattle to Vancouver, BC, the summer has been hot and dry.
Meanwhile, the east coast and great lakes region is another kind of extreme. In four days, I had two big rain storms - complete with lightning - in DC, leaving puddles deep enough to submerge socks. Chicago set a new record for rainfall in June, getting nearly 9 inches.  In one month.

Every City is Getting Better
I love San Diego. I'm happy I live here. When I started traveling regularly, about 20 years ago, I rarely found myself anywhere that I felt I'd be happy to live, much less give up for San Diego. In the last five to ten years, though, every city I visit has become more interesting. Some I would even be content to live in.

Local government has created public works that make life better. For instance, Boise has a beautiful green belt area along the river through downtown. You can walk or jog through beautiful copses of trees. Families raft from one place to another. It's delightful.

And businesses have also upped their game. It used to be that you had to choose between local businesses with a lot of personality but bad prices, selection, and decor or mass manufactured chains that were consistent in quality but offered boring fare, products, and decor. Now, more and more local businesses have personality and quality, offer distinct products at good prices, and keep your attention. Cities are simply more interesting and safe and it is largely because of local entrepreneurs and social activists who have upped their game. The standard is high and getting higher.

The list of cities that I would be content to live in has grown in recent years. I still have no plan to move but as often as not, instead of coming home from a trip relieved that I don't live in the city I just visited, I feel like, "I could live there." Even Cleveland, Ohio, where I traveled about a year ago, left me feeling that way. (I know. I know. I wasn't there in winter. But even so, they sell heaters and jackets.)

No one will tell you this because it makes all the angry pessimists even angrier, but the country is getting better. It's a great time to be alive and - at this rate - will be even better for our grandkids. That's reason enough to have a happy 4th of July.

28 June 2015

What the Acceleration of Product Adoption Means for Politicians Who Resist Social Change

"Dude," did you see how the gays just like, organized and got same-sex marriage legal, like, everywhere?"
Dude exhales. Giggles. "Yeah."
"We should, like, totally do that for weed."
Inhales. Long seconds pass. Exhales. Stares into space. "Yeah. That would be so cool."

Marijuana legalization has lagged same-sex marriage legalization for some reason, but both are trending upwards. Social norms are changing. And the rate at which they are changing is accelerating.

Friday, the Supreme Court made same-sex marriage legal throughout the United States. While Massachusetts was the first state to make it legal, it is worth remembering that San Francisco was the first government within the US to legalize same-sex marriage. San Francisco has also led the nation in entrepreneurship. Social innovation shows up as both entrepreneurship and as new norms and laws.

One of the most central drivers behind progress is social invention. We all know that the steam engine was central to the emergence of an industrial economy. People are less likely to realize that the emergence of the stock market and modern bank were just as important. The steam engine is an example of a technological invention. The stock market is an example of a social invention. The first lets parts do what they could not do before, resulting in new or different products. The second lets people do what they could not do before, resulting in new or different institutions.

During the last century, people have become more open to change. We expect technological invention and the parade of new products it brings. This chart from Pew shows how the time it takes for us to adopt new products has accelerated. It took 35 years for the telephone to be adopted by one-quarter of us, but only 13 years for the mobile phone. And the rate at which adoption is accelerating is accelerating. The PC took 16 years to be adopted by one-quarter of us, and once we had it took just 7 years for one-quarter of us to get online. We adopted the internet twice as fast as we adopted computers and four times as fast as we adopted radio.

This matter of accelerating adoption rates matters to anyone predicting social change. We don't just adopt new technologies. We adopt new norms. And, just like with technology, the rate at which we're adopting new norms is accelerating.

In no small part because what starts out as technological innovation becomes social innovation. The automobile drove the creation of the suburbs. Radio and TV drove mass consumption. The computer drove online trading. New products lead to new behaviors. As we become more accepting of new products, we become more open to new norms.

The rapidity of change in product adoption is echoed in a change in social norms. The rise in acceptance of same-sex marriage in the last 20 years has been remarkable. It has more than doubled since 1996, in less than 20 years.

A shift in product adoption can make or break companies. A shift in the adoption of norms can make or break political parties.

The Whig Party died in the US when Republican Abraham Lincoln passed the Emancipation Proclamation. The shift in norms from slavery being legal to being illegal was a greater shift than this week's legalization of same-sex marriage, and it took out a party when it hit. The Republicans continued to lead into the next century. Along with progressives like former-Republican Teddy Roosevelt, Republicans helped to legalize women's vote. 

But of course now, Republicans aren't thought of as disruptive social innovators. Instead, they are associated with resisting new social norms. They are the political equivalent of the ones who don't have a phone in the 1960s or don't have a computer in 2000. They don't lead the adoption of new social norms. They resist it.

Anyone who points to the fact that Republicans still have good numbers in most states needs to remember how quickly markets for products and political ideas can reach a tipping point and shift. Until the Republicans re-brand themselves as social innovators, they risk becoming the Whig Party of the 21st century.


25 June 2015

The Stock Market as a Place Where Learning is Punished

One popular theory about the stock market is that its movement is random. This theory states that today’s prices reflect everything we now know. Only new information changes today’s prices. We don’t know if the new information will be good news or bad so we don’t know if prices are about to go up or down.

Maybe, though, there is a different explanation for stock movement.

Consider the possibility that the stock market is a place where - paradoxically – lessons are only beneficial up until the time they are learned. Once lessons are learned, they no longer apply.

That’s probably confusing but bear with me.

What happens during a bull market? First, a few investors who have purchased stocks after the bust experience great gains. Other people soon learn that you can miss out on big returns by not buying stocks, so they start to buy. Eventually, many people have bought stock.

Lesson that drives people’s behavior during a bull market?
If you buy stocks, you will make a lot of money.

What happens during a bear market? First, many investors who bought stocks at the peak lose a lot of money. Other people learn that stocks are a dangerous investment and best avoided.

Lesson that drives people’s behavior during a bear market?
If you buy stocks, you can lose a lot of money.

It is only once the lesson is learned that it no longer applies. Once people learn to be cautious, there is no reason to be cautious.  Once people see the benefit of risk, it is best to avoid risk. (Think about the 2008 financial crisis.)

It’s not that today’s information is reflected in today’s stock prices. If that were true, new information would change prices only incrementally and stock markets would not be so volatile. Instead, today’s prices reflect yesterday’s lessons learned. For a while. Once this lesson has spread to a critical mass of investors, though, it becomes obsolete. We reach a tipping point and at that point the lesson no longer applies.

This paradox of learning is not just a collective issue. It applies to individuals.

About 15 years ago, I bought a stock that I knew was high-risk and high-return. I thought that it had enormous potential but also knew it was really vulnerable. I told the kids that we would take a vacation on its value in a year. If it fell in value, we'd go camping for a weekend, If it took off like I thought it could, we would spend weeks in Europe. Well, it doubled. Then tripled. And then collapsed. The company went bankrupt and the value of my stock was not halved or reduced by 90%. It was zero.

Later, when I bought another stock that I thought had tremendous - but uncertain - potential, I used the lesson I'd learned.  The stock doubled. Then tripled. At that point, I cashed out my initial investment AND the amount by which it had doubled, leaving me with just a third of the shares I had initially purchased. Pretty smart, right? As of today, though, that stock is  up 15,585% from when I bought it and its management has announced that it will soon do a 7 for 1 split for this stock. (Yes. This is Netflix.) The lesson I learned from the earlier stock didn't apply to the next stock. Or more accurately, once the lesson was learned and changed my behavior, it was no longer a good lesson.

I’ve learned other lessons. I waited for Google’s seemingly inflated stock price to fall after the hype around its IPO in 2004. It rose steadily after its IPO and has never returned to that initial price since. I missed out on that ride by refusing to pay what I thought was a temporary blip in price.

So I learned the lesson that when a stock goes public with great potential it will open high and the keep rising just in time to apply it to a stock that opened high and then fell. Because of the lesson learned from Google, I plugged my nose and bought Lending Club at what seemed like a high price. Lending Club fell about a third from that initial, inflated price. Presumably other people had learned the lesson from IPOs like Google, a lesson that didn’t apply once people used it as a basis for paying what seemed like too much.

The next time I then decided to wait for the hype to fade, the high initial price of the IPO just kept climbing, rising 25% before I finally bought it. 

You might argue that stock movements are random and you might be right. But it might also be that the stock market is one place that punishes learning by changing in response to what we've learned the instant we've learned it.


You might even say that the real lesson learned is to do exactly the opposite of what worked last time but beyond the obvious problems (how do you actually define the last time? What is the opposite?), to the extent that this is actually learned, it will already be reflected in today's price and no longer be an applicable lesson. 

It is only the lessons not yet learned that work, which may be one reason that hedge fund managers like Jim Simons at Renaissance Technologies Hedge Fund have done so well by creating algorithms that detect patterns too subtle for us to learn. Even Simons couldn't explain why his algorithms found the relationships it did: he only knew these relationships (e.g., the link between yesterday's hog bellies price and tomorrow's value of the yuan) existed. Simons personally made $6 billion in income in just a few years using algorithms that broke the code on these obscure relationships that - apparently - he could never articulate in simple English. Why? Because in the stock market, it is only what hasn't yet been learned that is worth knowing.

20 June 2015

Herbal Economics: Economic Policy in Modern Democracies

About half of Americans believe at least one medical conspiracy theory. The most popular belief is that the FDA is "deliberately preventing the public from getting natural cures for cancer and other diseases because of pressure from drug companies."

What we know about medicine now is incomplete but it is based on studies. I have worked with drug companies and while they are interested in profits, the people in these companies really do want to create products that improve lives. And they can't just make up data. After a variety of animal and human studies, they have to prove the efficacy of their drug over a three year window. It is not enough to have a story or two to illustrate this. They need data. From a lot of people.

The standard of proof for FDA studies is high. The guy selling bee pollen for your cold is telling you a story. It may well be that bee pollen shortens colds by 3 days for 80% of the people who take it. There are no studies to prove that. Instead, the guy selling this product tells you a story. It's not scientific but it is appealing. No dangerous side effects. All natural. And it'll cure you.

It's a beautiful thing that people can buy bee pollen even though it hasn't met with FDA approval as a remedy for colds. But of course bee pollen isn't covered by medicare. Unless you are talking about boycotting vaccines and thus putting the population around you at risk, your medical choices are individual choices. Popular opinion is not binding on medical experts.

Which brings me to economic policy.

In a modern democracy, economic policy is ultimately the product of popular opinion. Sort of. Voters respond to candidates' stories and either vote for them or not. The candidates who get in are the ones who help to shape economic policy. And while doctors don't shape their advice to align with popular misconceptions; politicians who hope to get elected must.

And this is the problem. "Bee pollen," is easier to understand than, "based on the protocol defined by our doctors in conjunction with our institutional advisory boards, we saw an improvement of 53% of the people in our clinical study, as opposed to an improvement in 28% who took the placebo ..."

When it comes to economic policy, "we should run the government like a household," is easier to understand than, "the multiplier for government spending during a recession is somewhere between 0.9 and 1.7."

It's a wonderful thing that we have a democracy. It does mean, though, that we're subject to herbal economics, home remedies that make for appealing stories even in the absence of actual studies.

15 June 2015

Jeb or Jed? A Voters Guide

Jeb Bush officially announced today that he's running for president. It's a crowded field in the Republican primary so to save you from embarrassment, here is a simple guide to telling Jeb Bush and Jed Clampett apart.






10 June 2015

The Entire History of the Nation in Just a Word or Two From 24 Different Presidents

R. Luke Dubois has created a fascinating way to see which words the presidents used most frequently in their state of the union addresses here. It's like candy for a political nerd like me.

Ronald Reagan's Most Frequently Used Words in SOTU
Here is a list of (some of) the presidents most commonly used word (or in some cases, top two or three). It is like a single word tweet for the defining issue of their time, a fascinatingly succinct way to review the history of centuries and the focus of their administration.

George Washington: Gentlemen (a lovely bit of civility to a group of rebels who'd just defeated the world's greatest empire)
Madison: Enemy (the battle of 1812 took place during his presidency, the only time the White House was occupied by enemy soldiers)
James Monroe: Parties (the emergence of political parties had become a new reality for the young country)
Andrew Jackson: Bank (Jackson dissolved the Central Bank and it would be decades before the Federal Reserve would replace it)
Tyler: Texas (added to the nation during his term)
Polk: Oregon, California (soon after his term these became new states)
Taylor: Empire (apparently this process of adding territories like Oregon and California got a little intoxicating) 
Buchanan: Slavery (an issue that would drive the country to civil war soon after he left office)
Lincoln: Emancipation (an issue resolved - sort of)
US Grant: Products, education (emergence of mass manufacturing and need for better education for new economy)
Rutherford Hayes: Coinage, dollar (debates about how to increase supply of money to match the increased supply of products)
Arthur: Merchandise (trying to sell the products to people with coins and dollars)
Harrison: Wages (emergence of jobs and the popularization of working for other people rather than working as independent farmers and artisans)
Teddy Roosevelt: Corporations (the newly dominant and powerful institution at the dawn of the 20th century), Railroads, Wage
Hoover: Unemployment (the Great Recession hits)
FDR: Democratic, Unity, Allies (We are all in this together, from WWII to economic recovery)
Truman: Soviet (now that the Nazis are gone,this is our new threat)
Eisenhower: Nuclear (and in case you were unclear about it, this is specifically how they threaten us in this new Cold War)
LBJ: Vietnam (where the US lost its first war and where Johnson lost his presidency)
Nixon: Truly (truly ironic given his own tapes revealed the depth of his deceit), Environment (this is the man who signed the EPA into law)
Ford: Barrels, crude, gas (from the year before he took to the year he left office, oil prices more than doubled - which raised inflation and unemployment)
Reagan: Deficits (which the man created when he simultaneously cut taxes and raised defense spending), Let's, Bless (optimistically rallying the country)
Clinton: 21st, Got, Lot (looking forward to a time of prosperity)
W. Bush: Terror, Iraq, Iraqi, Terrorist (looking back in fear)

Confusing Innovation and Entrepreneurship

Innovation and entrepreneurship are closely related but you can make a big mistake by thinking that they are the same thing. They are not.

Innovation results in a new technology or product. It is technological invention, which lets parts do what they could not previously do. You have an engine and wheels and axles and you put them together to invent a car. Progress depends on innovation and great innovators can get rich.

Entrepreneurship, by contrast, results in a new company or organization. It is social invention, which lets people do what they could not previously do. You have people with more money than they need now and people who need money and put them together to make and get loans and you have a bank. 

Progress depends on entrepreneurship and great entrepreneurs get even richer than great innovators.
Henry Ford

Ray Kroc didn’t invent the hamburger but when he died he was worth half a billion dollars. He was an entrepreneur. Sam Walton didn’t invent the retail store but his heirs are worth more than $100 billion. He was an entrepreneur. Henry Ford didn’t invent the car but he when he died in 1947, he was worth nearly $200 billion (inflation adjusted). He, too, was an entrepreneur.

Sam Walton
Given the way we use the term, all of these entrepreneurs were innovative. And indeed, it is hard to imagine an entrepreneur who wasn’t innovative having much success. You have to distinguish your product or service from competitors and that usually calls for innovation.

But thinking that your job as an entrepreneur is the same as the job of an innovator can create unnecessary confusion and failure.

Imagine two people with equal skills for creating companies and software. One – Seo-joon - thinks of himself as an innovator and focuses on creating a great app. The other – Emma - thinks of herself as an entrepreneur and focuses on creating a great company.

Seo-joon uses his scarce attention to analyze the market, software tools, and to code. He does a great job and creates a valuable app.

Emma uses her scarce attention to analyze markets, business plans and processes, and to create a company where people who want to focus on creating and selling great products will want to work. She does a great job and creates a valuable company.

When Seo-joon completes his great app, his work has just begun. He will need a way to distribute the app, to market and sell it. He will need to find a way to support it as customers begin to use it and either encounter bugs or simply have questions. He will need to do research on how the product is being used to decide how to improve the product and to find new markets for it. He will need to set up payroll, finance, HR, and a host of other business processes to support his app.

What is likely to happen? Probably, after realizing how much more work he has to do – work he has not even focused on understanding or learning – he will sell his product to Emma who will either buy it outright or offer him royalty payments. Emma has engaged in entrepreneurship and has built a company. Seo-joon’s app is just one of her products. She has a portfolio of products. Emma is actually in a position to create more value with this portfolio of products – even though she may not have designed or created a single one – than Seo-joon is with his great app.

The world needs both innovators and entrepreneurs. R&D labs, though, are full of innovators who work for entrepreneurs or someone who manages a company founded by an entrepreneur.

Decide if you are building a company or a product. Decide, that is, whether you are an innovator or entrepreneur. If you try innovation without a way to sell and support your product, you’ll likely flounder. If you try entrepreneurship without some innovative approach or with partnerships with innovators, you’ll likely flounder. Be clear about what you are doing and then try to excel at that. Great innovators and entrepreneurs tend prosper; people who divide their attention between both of these important tasks tend to be either unlucky or superhuman.


07 June 2015

Will Hillary's Campaign Strategy Make the Country More Polarized?

Today's NY Times has an article about Hillary Clinton's probable strategy, written by Jonathon Martin and Maggie Haberman. Bill Clinton went after (and won) states like Kentucky whereas Barack Obama focused on fewer states with an agenda that had less broad-based appeal. It seems that Hillary will be more like Obama in this regards, focusing on rallying more liberal voters rather than appealing to more moderate swing voters. The fear is that Democrats in the neglected states will be less likely to win local elections and even the ones who do win a place in Congress are going to be less able to relate to the folks across the aisle. Which is to say, it could cause more gridlock, not less.

The quote that summarizes the thinking behind Hillary Clinton's strategy is here:

“The highest-premium voter in ’92 was a voter who would vote for one party some and for another party some,” said James Carville, Mr. Clinton’s chief strategist in 1992. “Now the highest-premium voter is somebody with a high probability to vote for you and low probability to turn out. That’s the golden list. And that’s a humongous change in basic strategic doctrine.”

The real question is whether this is a capitulation to the reality of a more polarized electorate or if it is just going to exacerbate this polarization. In either case, it seems like a reminder that Hillary is more pragmatic than idealistic, less about changing voters's minds than winning office.