Social Innovation Perspectives

Guest Post: Innovation - Giving Birth to a Startup

2010-03-01T08:00:00.000-08:00

Monica's note: Today's guest post was written by Mike Harrington, cofounder of Valve and Picnik. Mike is my husband. He and Darrin Massena started Picnik just over four years ago. Enjoy!

People often ask me where the idea for a startup comes from. Well, in the case of Picnik, it starts by having a brilliant friend I love working with, some free time and an active imagination.

Darrin and I started in the summer of 2005 with no specific idea other than to do something interesting with Flash. We believed Flash was going to be an interesting emerging platform and that it would be interesting to write an app that ran on all browsers and platforms without the hassles of browser compatibility. Beyond that, we didn’t really have a specific product idea.

We brainstormed through a lot of different ideas, from better wifi hotspots, a flash based PowerPoint-like product or a Visio, and lots of other ideas. Each idea fell by the wayside because it was a) not fun enough or b) when we googled the idea it was clear that someone had already tried it and failed. In early December of 2005, we hit on the idea of doing a photo editor in Flash. It seemed like a great idea. It was fun, consumer focused (we didn’t think enterprise software would be as fun) and Flash seemed like a great platform for a photo editor.

Recently, we were reminiscing about the early days and Darrin dug up the email that captured our brainstorming and was used as the spec for our new business. The photo is of the whiteboard from that day. While we didn’t follow the letter of our new plan, we did follow it in spirit. It’s fun to look back at that now that Picnik has grown from a crazy little idea and two guys into a really cool photo editor and a super creative and fun team that I enjoy working with every day.

-mike

From: Darrin Massena
Sent: Saturday, December 10, 2005 10:56 PM
To: Harrington, Mike; Massena, Darrin
Subject: Internet Photo Editing

OK, OK, this is it man. Our long term business goal: OWN THE INTERNET PHOTO EDITING MARKET. I think we can do this.

THE MARKET
What is the internet photo editing market? Any site/service that people upload images to. Any site that hosts photos. Photo storage/sharing/management sites (Flickr et al), social networks, blogs, personal web sites, personal gallery sites, forums and groups for starters. More and more people are uploading unedited photos from their camera phones directly to the internet. Wifi-enabled cameras also allow direct-to-service uploads. New sites and services that make use of photos are popping up all over the place. Photos are becoming an internet data type as common as text.

THE PROBLEM
There is no ability to manipulate photos once they are online. People have to download them, bring them into a photo editor (which they must buy/maintain/upgrade), and somehow upload them again. That sucks. Especially for little tweaks like to sharpen an image, or crop it, or to zoom in on part of it. The overhead is so high that most people just don’t bother even though they know the photos they’re printing/sharing could look better and wish they did. To some degree this must be hindering photo sharing sites, amongst others, because their user satisfaction levels aren’t as high as they could be.

OUR SOLUTION
A wholly-online photo editor, provided in (at least) two forms. Standalone, as an online application we provide direct to end-users. And integrated, as a seamless part of any site whose users benefit from being able to manipulate images. Our standalone photo editing service is so complete and powerful that people will pay to use it. They’ll prefer it over the offline tools they have today. The integrated service will work so seamlessly and be integrated so easily that any photo-using site/service will be happy to pay for the value it adds to their site/service; they’ll attract additional users who will spend more time on the site and be happier with their results.

THE COMPETITION
Established companies with photo editing products. Established companies have to overcome two major hurdles to address this market (in addition to realizing it is a market!). First they must write an online photo editing application. There will be no quick ports of existing applications; most code will have to be from scratch. Second, they must implement their code to work as a seamlessly integrated service in a 3rd party site. Not only is this more work, but it is a new mindset for the established players. Their present mindset is more about how they can create a vertically integrated application and service of their own, not how can they add value to a 3rd party.

Upstarts like ourselves, possibly as outgrowths of photo sharing sites. Competition against an independent startup comes down to our ability to execute on our standalone and integrated services as well as our marketing of them. As far as I can see nobody has any kind of lead on us so it is a good bet we will be first and even if we are not first we will be best!

Each photo sharing site that develops an adequate photo editing solution in-house might mean one less customer for our integrated service but a) our standalone service might still make customers out of some of their customers due to its superior interface and capabilities, and b) if even one major photo sharing site adds significant editing capability (presumably proprietary) they’ll fuel their competitor’s desire for our integrated service.

GETTING THERE
There are many avenues we can take. Here’s one possibility that appeals to me.

1. create v1 of the standalone service w/ a minimal devil-horn level of features (i.e. not a serious photo editing tool)
2. launch it using the viral marketing strategy (“Make funny pictures of your friends!”). Build an audience, build credibility.
3. start implementing more serious photo editing features and the ability for the photo editor to be seamlessly integrated into 3rd party sites
4. send our biz-dev folks out to make deals with sites that can be satisfied with basic set of photo editing features
5. launch our v2 standalone service when we have a credible set of photo editing features
6. add features and customers forever and rake in the dough

THOUGHTS
This could be really BIG ($-wise). Our timing is right. We’re at the intersection of demand (mass use of online photos) and capability (Flash 8 supports the first level of functionality we need). Flash 8.5/9 will take us to the next level. If Canvas becomes widespread and is hardware accelerated we can move to that. If WPF becomes widespread we can move to that and boost our functionality/performance even further.

One thing I like about this is the RAD Games Tools-like approach of providing a service for other sites. This is an angle not every Flash bitmap-editing tool author will consider or be able to execute on. In addition to the revenue stream we will be building relationships that will make us harder to displace.
Another service we can provide to 3rd parties: photo processing (both user-directed and automated). Shaula mentioned a service she’s used that provides photos of race participants after a race like the Seattle Marathon. They take pictures of everyone during the race. You pick your photo from their site then they send you prints in the sizes you’ve chosen. They also allow you to choose whether the race’s logo will be printed on the photo. Problem is, they don’t preview what the result will look like with the logo overlaid nor do they let you choose its positioning or which race logo to use. Such a site could insert our service after the photos have been selected and pass us the various logo options. We’d take over and let the user choose/place/size the logo, maybe add a caption, crop the photo, zoom in on a particular group of runners, draw an arrow pointing themselves out in a crowd, etc. We’d pass the composited result back to the host site and they’d take it from there. This is one small usage but I suspect if we look we can find a lot of opportunities like this.

I specifically didn’t mention above the potential inherent in allowing people to ‘upgrade’ their images to include animation, sound, and interactive elements (e.g. hover your mouse over each person in a photo to see their name) because I don’t think it is necessary to add these abilities to make serious headway toward owning this market. They would be really cool though and might break us through into something completely new.

From: Massena, Darrin
Sent: Sat 12/10/2005 8:47 AM
To: Harrington, Mike
Subject: Picnik

What do you think of Picnik as a code name? I really like it. Maybe even as a product name? Picnik.com is for sale. After sleeping on it I think it is really important to get and use the product's domain name. Flickr.com is just so much a better handle than somecompany.com/flickr. Especially for a first product, why confuse things by emphasizing your company over your product?

From: Harrington, Mike
Sent: Saturday, December 10, 2005 9:42 AM
To: Massena, Darrin
Subject: RE: Picnik

awesome. get it!

*Shaula Massena is Darrin's wife. She is a former software developer.

Picnik is now the world's leading online photo editor, attracting almost 50 million visits a month.

Fast Company Post Now Up on Leadership Page

2010-01-25T14:09:00.000-08:00

I'm dumbfounded by the Supreme Court's decision last week to expand corporate free speech "rights." The irony to me of all of this is that it's the people who trumpet the horn of security loudest who don't seem to understand the biggest threats to national security long-term.

For more, here's my post on "The Supreme Court Doesn't Understand Globalization."

And here's post from Tom Stites - whom I met this weekend at the Rockefeller Foundation-sponsored City Camp and who did a post several years ago that everyone who needs a backgrounder on this issue should read.

NetHope on the Front Lines in Haiti

2010-01-21T14:53:00.001-08:00

Last September, I posted blog to Fast Company about NetHope, an org which I've been supporting for more than two years. NetHope, which is made up of the technology leaders from 28 internetional NGOs, is now on the frontlines of getting the communications infrastructure up and running in Haiti so that member agencies (Red Cross, CARE, Save the Children, Oxfam, etc) can better coordinate the logistics of helping so many desperate people. Today CEO Bill Brindley posted an update on the work that they're doing in Haiti.

Hounding Dead People the Brinks Way

2009-12-11T12:01:00.001-08:00

My mother died in her home at the age of 91 last January. According to her death certificate, the primary cause of death was dementia.

I recently found out that she signed a contract with Brinks Home Security many years ago that automatically renews each year. The specific service they were charging for was remote home monitoring - which I find interesting because no alarm system at her home was connected to the phone system - which means for many years there was no way for them to have been monitoring it.

A few months ago, they sent a renewal notice which reached my brother, several months after he'd contacted them to say my mother had died (which to me would suggest that she probably wouldn't pay any new charges into the future). Her credit card was no longer valid so they were looking for a new number. He didn't respond to them - he'd already told them she was gone and there was no need for their services, and that's when they renewed the service automatically and then started sending collection notices.

I've just spent the morning trying to reach a real person at Brinks in order to get the situation dealt with amicably. After going through phone tree systems that had no option pertaining to this situation (all the focus is on trying to sell someone a new system), I got hold of Tyra in Customer Loyalty. After I gave her the account number and passed the "security ID" question (not surprisingly, my mother used the family dog's name), she said that indeed my brother had contacted them last April to say my mother was dead. But now the only thing that would cancel the contract was for me to send a copy of my mother's death certificate, my driver's license, and all the documentation regarding her estate into a Customer Care Department. I said that there was no way I was going to send a copy of my license or any other important documents into a corporate bureacracy when all I'm trying to get them to do is quit hounding a dead woman for services that are no longer being provided and haven't been provided for years. I did offer to send Tyra or any specifically named person a scanned copy of the death certificate by email, and then follow up as appropriate. It soon became clear that Tyra couldn't help me and didn't seem to know any actual person who could.

After thanking her and hanging up politely, I decided to check into the Brinks web site a little more. Brinks - which now carries the Broadview Security name - says on their site that they have a strong commitment to "Creating Customers for Life." Through their investor-relations pages, I see that they're especially proud of just how effective their subscription programs are. Apparently, it's good business to sign up customers once and then keep charging them - through dementia, death, and beyond. Perhaps not surprisingly given that policy, their revenues for the quarter ended September 30 were up by more than 6% over the previous year.

If Brinks wants to continue to hound my mother for a service that hasn't been used for years, they're welcome to do that. If she were alive, I suspect she would find it interesting and perhaps a little amusing. Meanwhile, I would suggest that the attorney general for Oregon (where my mother lived), Washington (where I live) and many other states might want to start looking into how such contracts and payment systems affect elderly people who might have once signed up for a security or home monitoring service, but no longer need it and don't know how to make it go away. Let me know if you need any help.

Tensions and Law Enforcement

2009-11-30T21:25:00.000-08:00

My heart goes out to the families of the police officers who were gunned down Sunday morning in Lakewood, Washington, not far from where I live. It was a terrible crime and many lives will never be the same. I feel for the officers' colleagues, especially knowing that they suffer the burden of having to be professional and reassure their own loved ones - all the while mourning for close friends and knowing that for a twist of fate, it could have been any one of them.

Many years ago, my summer job involved working dispatch during the night shift in a national park. I was the last person to talk to a patrol officer before a car stop - which also meant I was the first person to talk to the officer after a stop was made. It was a time when databases were not connected and the law enforcement officers were often seasonal rangers like myself with limited training.

Every stop was potentially life threatening. We never knew whether a car stop would involve a drunk, belligerent driver, an apologetic tourist with family in tow, or someone or something more sinister. I worked alone in a dark administration building, and felt the tension intensely. If an officer took more time than I thought they should, I could feel my heart race and I was always grateful when he or she would get on the radio and calmly communicate that the stop was done and had been routine.

Once, on a shift I happened not to be working, a car exploded just after the patrol officer had radioed in to say she was going to make a stop, and we later found out the driver had accidentally blown himself up while trying to throw a grenade out the car. That driver turned out to be on the FBI Most Wanted List and the officer involved was someone I'd come to know as a friend. I don't know how long it took her to get over it, but it's always stayed with me.

Another time I was alone and in uniform when I ran into a group of armed gun enthusiasts in the back country. Carrying guns like that in a national park was clearly illegal - and I was not an armed officer - so I assessed the situation and for whatever reason let them pass without saying a word.

Now, whenever people casually criticize police officers or belittle the pressure or tension they feel, my own gut starts to get tight. I've become the sort of person who feels it's always my job to put law enforcement at ease which sometimes means doing the dog submission equivalent of rolling over and baring my belly. A few years ago, when I was crossing over from Canada into the US and the Customs officer asked if I had anything to declare, I cried out "We've got bacon" as though it were a capital crime. It wasn't even on the list of restricted products.

Of course some people have their own strong reactions to law enforcement for entirely different reasons. In the late 80s when I worked for Microsoft as a product manager, one of my colleagues was black, and he would tell me stories about how often he was stopped because he was young and black and drove an expensive Porsche and was therefore subject to what he described as the ever present offense of "driving while black."

I also know from experience that just being out of sorts can raise suspicions and make everybody tense. Once, when I was catching a flight unexpectedly from Seattle to Nevada, I was put through intense security. The security officers pulled me aside because I was acting stangely - I was sweaty, pale, and could barely pull together a coherent sentence. I'd just found out my sister was dying and I was still in shock as I traveled down to see her for the last time. None of their questions addressed my situation and I couldn't say anything without bursting into tears, so I watched somewhat dazed as they went through everything in my bag and everything on my person. They were clearly puzzled, but couldn't find anything specific and my paperwork seemed to be in order. After what felt like an endless search, they sent me on my way. As I ran to catch my flight, I muttered a tearful thank you and I knew I'd left them wondering if there was something else they should have probed.

We''ve come a long way since the days when I worked at Crater Lake and my friend from the Word product marketing team was pulled over several times a year for merely driving an expensive car while audaciously young and black. Databases are connected, law officers have better training and people everywhere are more sensitive to issues of prejudice in matters of race and authority. Nevertheless, the system and we are still imperfect, and as I write this, the police nearby are in an intense search for the person they believe murdered four of their own.

A terrible crime has been committed, people are grieving, and a suspect is on the loose. Because we're human and fallible, all of us have a duty and responsibility to do what we can to help ease the tensions that accompany such an extraordinary situation.

Why Not a Windfall Tax on Goldman Sachs?

2009-11-21T12:58:00.000-08:00

Yesterday the WSJ ran an article describing how angry shareholders at Goldman Sachs want the company compensation to be changed so that more profits flow to them.

In the words of Sarah Palin, it sounded a bit "bass ackwards" to me.

I can't for the life of me figure out why shareholders from Goldman Sachs should gain more than they already have from the current fiasco surrounding the TARP bailouts and the investment banking industry.

What the shareholders should be angry about is that the Goldman Sachs employees operated so outrageously and selfishly that they have angered the entire country at a time when we face enormous financial challenges.

For the uninitiated, windfall taxes are taxes levied on certain industries when they experience windfall profits due to unusual economic conditions. Are conditions any more unusual than this? Can anyone make a case that Goldman Sachs hasn't benefitted disproportionately from the fact that it - and other players in the financial services industry - were encouraged to take bailout money from the federal government BECAUSE OF OUTRAGEOUS RISKS THAT THEY TOOK THAT PUT OUR COUNTRY'S ECONOMIC FUTURE IN CRITICAL DANGER.

Opponents of windfall taxes say that they act as a disincentive to seek out profits - and that the profits need to be reinvested to promote innovations that will benefit society as a whole. Well, I think the last thing we need is for the financial community to be developing more "innovative" financial products that are likely to cost society as a whole anywhere near what their more recent innovations did.

Our country faces enormous economic challenges. The only way we're going to solve them is by working toward constructive solutions where we are creating a long-term pipeline of products and services that will truly be valuable to global markets and to global society. In order to do this, we need policy initiatives that encourage behavior that will help us get there. This means upgrading education, investing in basic research, and rewarding innovators who truly add value. It also means figuring out the best ways for productive hard working Americans to participate in an economy that is increasingly global.

I'm having a hard time figuring out what value comes from a financial services industry where the focus is on short term profits and on moving money around in an elaborate shell-game that smart, well-informed people can't understand.

The structural changes we need to make as a nation are going to require new ways of thinking from everyone, including unions, business leaders, policy makers, educators, scientists, students, and entrepreneurs. We can't treat it as an internal zero-sum game or we're all going to lose as other countries pull ahead. Already, we are in dire straits when it comes to public education. The US recently finished 17th and 24th (out of 30 countries) respectively on in an important test measuring math and science understanding among 15-year-olds. The quality of public education is a critical indicator of our future economic health and we all need to work together to make it work better.

In this same vein, a healthy financial services industry that helps to make sure capital flows to responsible industries and businesses that contribute to our economic well-being is absolutely necessary. And if the industry as it currently exists can change its ways to get there, then I think all of us would be happy to see it thrive. But that's not where we are, and I don't see how we get there unless the people and companies that drove us toward the economic cliff through reckless risk-taking and unfettered greed are held to account.

Is it Racist to Cite a Study?

2009-11-01T19:17:00.001-08:00

TechFlash is running my post on the challenges facing America as a leader in high tech. A friend sent me email suggesting that point #6 might be perceived as racist.

I love America (and no, I won't be getting a lapel pin) and I love what immigration has done for America, but I think we've got to be "eyes wide open" when it comes to our current immigration policies in the context of innovation and competitiveness.

When it comes to America's long-term chances for retaining tech leadership, I think we've got a twin challenge: 1) attracting the best people so that they want to innovate here in America; and 2) confronting the fact that high schoolers here AND in Mexico score terribly when it comes to understanding math and science. American high schoolers do badly, and Mexican students do even worse.

When Mexico is the largest source of US immigration, how Mexican students do in school and - because of the importance of tech to the economy - especially in math and science - matters to us all.

Latino students here in America drop out in higher numbers than the population as a whole. I think it's an issue we all need to be paying attention to. What we do about it is open for debate. I agree with the people who say we need a drastic overhaul of K-12 education - and I also believe there are larger cultural issues around the value of education - especially in the Latino community - we need to address.

Similarly, I think we need to understand the implications of the gender gap in tech. Women are making up a higher percentage of college students and the workforce and they're underrepresented in tech. If tech is the future of America, then given demographic trends, it's a problem for America that women and Latinos are underrepresented in tech.

The New Trust Environment

2009-11-01T19:11:00.000-08:00

I've started blogging for Fast Company. Read here for my post on The New Trust Environment. As someone who's worked in very senior communications roles, I think communications professionals should use their influence to help companies BE better, not just LOOK better. It's an important difference that some people in the profession don't seem to get.

Innovation: Competition and Collaboration in the Innovation Race

2009-11-01T19:05:00.000-08:00

TechFlash ran my post on Competition and Collaboration as a guest column back in September. You can read it here.

How We Killed the Killer Whales - A Failure of Capitalism

2009-09-25T15:38:00.000-07:00

I love capitalism. When it works, it's great. But boy, when it fails - wow, it fails spectacularly. Nowhere is this more evident than in the tortured saga of the endangered killer whales of the San Juan Islands.

The Southern Resident killer whales are a unique species officially listed as an endangered species under the ESA act of 1973. There are only 85 of them in the world. Right now, special interest groups are working to gut proposed rules that would give these intelligent social animals - all part of an extended family - a chance to survive. All in the name of unrestrained capitalism.

The orca whales haven't always been seen as a revenue source. A few decades ago, they were viewed mainly in term of competition for salmon and were routinely shot at by fishermen and anyone else on the water who had a gun. Then came the discovery that these whales were not killers, but intelligent marine mammals who were very social and when removed from their pods, would "play" with humans and even perform tricks.

Soon the whales became targets of business interests with a voracious appetite. Almost half the population was captured or killed in order to entertain us from pens in marine parks around the world. Under the committed leadership of Republican Ralph Munro, the direct capture and killing was stopped. The orca became a symbol of pride in Washington State.

Then the slow torture began. The first whale watching boats started to appear, and for several years it was low key. Visitors on the few whale watching boats would search for the whales and often be rewarded with a closeup show. Then "Free Willy" came out and the cash really started to flow. More people wanted in. The number of whale watching boats mushroomed.

Today there are more whale watching boats chasing around after the whales than there are whales to be chased. In the morning, a plane goes up to find the whales, radios to the fleet, and the whale watching boats converge.

The science shows that in the presence of boats, the whales show distinct signs of stress. Respiration gets faster, dive times get longer, and their ability to find food gets dramatically impaired. Since the whales travel in smaller groups or pods, on a busy day, more than a hundred boats have been recorded surrounding a smaller group of whales. All this at a time when the science shows they're starving and when it's explicitly against the law to "pursue" an endangered species.

The industry has fought all regulation, insisting that they can police themselves and observe "voluntary" guidelines. In this they've been aided and abetted by people with good motives who fear that if the whales aren't watched constantly, we'll forget that they're here. Last year, hundeds of thousands of people piled into boats in B.C. and Washington State for the thrill of seeing whales in their natural environment.

Only it's not "natural" anymore. If you imagine a pack of Harleys chasing after a pack of endangered wolves 12 or more hours a day, you've got some sense of what this family of whales is going through. The whale watch operators market and deliver a closeup experience - all while maintaining that they respectfully observe a 100 yard distance requirement. It's a lie. (The pictures above were taken this summer from the sites of whale watch operators in good standing with the Pacific Whale Watch Association - the largest industry group.)

NOAA, which holds responsibility for developing and implementing a recovery plan for the whales, recently proposed new rules that would give the whales respite for a 1/2 mile no-go zone along the Western shore of San Juan Island. Boats would also be required to stay 200 yards away. It's not enough, and the industry folks reacted predictably. If they can't pursue the whales at close distance, business will suffer. Of course, they've had many years to prepare. (One person at a hearing on the proposed rules yesterday scoffed at the mention of distress and said within earshot and to much laughter that the extra work must be good for the whales because his own doctor had told him to exercise more.)

On a longer-term economic basis, dithering about the threat from boats makes no sense. The other identified threats to the whales - depleted salmon and a buildup of toxins - are broader ecosystem issues that affect us all and are going to take many years and hundreds of millions or even billions of dollars to solve. We only complicate things by not doing what we can now.

The whales are at a tipping point, and if we don't move forcefully soon, they'll almost certainly die out. And when that happens, they'll become not a source of pride for the San Juan Islands and Washington State, but a source of embarassment. After all, it's hard to retain a green, clean identity when you don't do what you can to save a species that has become your iconic brand.

(And btw, you actually can help save the whales by commenting on the proposed new rules at the NOAA site - please do it soon as comments will close And for those who want to take the deep dive yourselves, please read the broader recovery plan.)

The Death of the Sound Bite and the Rise of the Credible, Communicative Whistleblower

2009-09-22T13:31:00.000-07:00

The demise of the sound bite has begun.

Anyone who watched Barack Obama's nuanced and deep discussion on Letterman last night got a great introduction to why the sound bite is on its way out. I for one, am happy to see it go. (Note: CBS - you're making a huge mistake by not putting the full interview online.)

Sound bites are an invention of modern media, including both the journalists and the people they cover. Basically, the idea behind the sound bite was to provide a pithy quote that would get featured in the media distillation of whatever event or interview had just taken place. Because first impressions can so often become reality, the sound bite became all important. Whether an interview "worked" or not depended in large measure on whether a key sound bite got picked up. I've advised many people on how to give a good interview that features a great sound bite that encapsulates a point of view or "key message."

The reason sound bites are on their way out is that they imply that someone else has to make the decision about what's important and that viewers or readers or listeners can't make that judgment for themselves. Now that so many people have access to the same material as journalists, they're in a position where they can figure out for themselves what the sound bites should be. Media and the blogosphere can amplify - but curious people will investigate and make their own decisions. And that's good for us all.

Today, there's a lot of focus on the bad news in the world of journalism and media. But I think there's a lot of great news too. Increasingly, people don't need a filter to determine which sources they find credible or which people they trust. And anyone with curiosity and a desire to dig deeper can research a topic in ways that even journalists couldn't previously.

In the case of whistleblowing, the death of the sound bite is a wonderful thing. Nowhere is this more evident than in the case of Wendell Potter, the former communications chief for CIGNA who has become a thoughtful whistleblower against the people he was once paid to represent. Potter has been getting a lot of attention for deciding to speak out against the policies and practices he witnessed and participated in as a key executive in the health insurance industry. He's been doing a lot of TV and on a recent Friday, he was even on Bill Mahar.

As a communications expert, Potter is too smart to revert to sound bites. This doesn't mean that he can't come up with a good anecdote or quote - but the genius of his contribution now is that he knows that everyone has the power to source him directly. Which means the people who might criticize him with a sharp sound bite - in this case the vested interests that want to protect the health insurance industry as it exists today - know that journalists and bloggers and everyday citizens have access to Potters congressional testimony and to a variety of broadcast interviews. He's a rational man making very rational claims.....and he does it in a way that is thoughtful, nuanced, and not easy to reduce to a sound bite - which makes it much harder for his critics to attack.

Because he wants to be trusted, Potter makes sure that everyone knows where he's coming from. We know that Potter made lots of money as a corporate executive and we can follow the money trail for ourselves. Potter is an extremely effective foil against the excesses of the corporate world because he understands it and he knows how the game works. What Potter is doing now is something that is going to be repeated over and over again. Media people, PR people and CEOs better get ready. The tilt toward transparency is getting sharper.

As someone who, like Potter, has a love for journalism, and a lengthy history in corporate communications, I think Potter's example is one to watch. Although journalists can help validate Potter's motives and claims, ultimately it is Potter himself who will make the difference. And now that he can't be discredited with a smarmy sound bite, his example will inspire others.

Tomorrow's whistleblowers - especially those who are smart communicators - are going to become more empowered and effective. And although journalists may play a role in putting them in the spotlight, ultimately each whistleblower is going to succeed or fail based on the case they make directly that they have a perspective and point of view worth listening to.

A Top 10 List for My Unemployed, Underemployed, and Soon-to-be Graduating Nieces and Nephews

2009-09-14T11:00:00.000-07:00

For a long time, I've wanted to share some hopefully sage advice about what I've learned after almost three decades in the work world. And I suppose no time feels more opportune than when so many of you are unemployed or underemployed in an economy that's getting tougher and more competitive all the time.

A lot of you have told me that when it comes to work, I'm the "cool" aunt. I suspect a lot of that actually has to do with your Uncle Mike. After all, it really helps in the "coolness" factor to have an aunt who's married to and worked with the guy who started a game company that delivered a title which rocketed to #1 in the world. I suppose it also also helps that I can answer yes to the question "Did you really get to work with Bill Gates?"

Many of you have asked me directly for work-related counsel; several of you have not. I'm not going to discriminate. This Top 10 list is to all of you.

Here goes:

1) Work to become the story you want to tell. All of us have the chance to shape our lives into a narrative that we can feel proud of. Ideally, you will all lead interesting lives that blend family, friendship, work, and community in ways that make you and others around you proud. If you're not, know that you alone hold the power to change the narrative for your own life.

2) Become a Net Contributor. On any job, always bring an attitute of "what can I do to add value to the business?" Then do it - without worrying about whether you're going to get direct praise and/or rewards immediately. The people who think of themselves as net contributors often seem showered in lucky breaks in the work world. There's a correlation.

3) Remember that your reputation follows you everywhere. The people you meet now might end up playing an important role for you many years or even decades ahead. If you don't think you're the type of person that other people will speak highly of and want to work with again, than figure out what changes you need to make now to become that person.

4) Be curious and keep learning. In the age of globalization and the Internet, you have access to the best minds and the best thinking on any range of topics. Find something that stimulates you and follow the path to keep learning and find out more until you become an expert - at which point, hopefully, you'll have gained an understanding of how fun it is to have some in-depth knowledge and an even greater appreciation for how much more there is to learn. All of which can easily become an attitude and a mindset that will make you much more valuable no matter what you do.

5) Have empathy for anyone who might consider hiring you. This means you need to understand things from their perspective. When you're applying or interviewing for a new job, keep in mind that the people who make hiring decisions have two big things on their mind: 1) Is this person going to add more value than anyone else I might hire; and 2) How do I know that hiring this person isn't going to be a mistake and a problem down the road.

When I first started in the work world, I didn't know what it was like to sit on the other side of the hiring desk interviewing streams of candidates. The secret is they want you to be a great candidate because they've got a job to fill and typically a lot of other things to do with their time. The sooner they find the right person, the better off they are.

I've made many hiring decisions where I knew the decision would have a profound impact on someone else's life. The candidates who stood out for me (many of whom got job offers) had two things in common: a) a track record that showed they loved working hard and delivering results; and 2) the ability to make me feel comfortable that any hiring risk (and there always is) was absolutely worth it.

Make sure that before you go to an interview you know how you're going to handle those two issues.

6) Understand that the best contacts are the ones you make for yourself. The whole notion that you have to have the right contacts starting out is simply false. Everyone who comes to know you as a good, hard worker is a potential contact. Over time, the number of the people who can vouch for you should grow....as long as you're thinking, "How can I be a contributor who always does more than I'm expected to do?"

7) Don't ask for an informational interview without understanding that it is an interview. You might not be interviewing for a specific job, but you are interviewing for the chance to demonstrate that you're the type of person who should be given access to whatever networks that person has. I learned this early in my career when I was woefully unprepared for an informational interview. I was left almost in tears when the person turned it into a rigorous interview and I came up short. The interviewer closed the session by giving me valuable advice that has always stayed with me: In the work world, you are constantly being evaluated. If you go to an informational interview with the idea that you want the person on the other end to help you, you have to demonstrate from the outset why and how you are worthy of that help.

8) Figure out how you can get the experience you need to compete for the job you want - even if you have to work at no or reduced pay for a time to do it. (This is a good reason to not take on heavy personal or financial obligations too early.) When I was working summers during college as a waitress at Crater Lake Lodge, I decided I'd rather be a ranger, so I volunteered in my limited off-time for whatever job the Park Service wanted done. The Chief Ranger noticed my initiative, and ended up being a friend and mentor who helped me get into the Park Service as a seasonal ranger (complete with Smokey the Bear hat). It's still the coolest summer job anyone I've ever known had.

Years later, after I was at Microsoft, I wanted to switch from being an editor to being a product manager -- which involves managing all aspects of marketing for a product. It was a very sought after job. Since no one had made that transition before, I found a way to do product management work in my "spare" time for eight months in order to become a better candidate. And I took classes at night to fill in some gaps in my knowledge. No one suggested I work two jobs or even go back to school - I just knew that's what it would take to get the job against all the Harvard and Stanford 4.0 MBAs I was competing against.

9) Be flexible in finding ways to make money from something you love. When I graduated with a journalism degree, the country was in a deep recession and it seemed no one was hiring new journalism graduates. I knew I loved writing so I figured out who was paying for writers and editors and found a way in - even though I had to work on subjects that I sometimes had no interest in. (I still remember the agony of editing a several-hundred page manual on "Women's Tailored Clothing.") I still write everyday as part of my work and love it - even though colleagues don't think of me as a "writer" - which is great, because that's not what I'm paid to do.

10) Do something good for the world beyond your job. Volunteer. Get involved in your community. Become an activist for causes you care about. Your good works might not lead you to a new, more interesting job in the near term, but they will help you become the type of person that others want to work with and be around over the longer term. And that's a key part of what it takes to have a successful career.

Innovation - The Lessons of Bob

2009-08-18T13:30:00.000-07:00

I worked on Microsoft Bob.

Confession moment...I usually think twice before telling people that. Is there any other tech product that has generated more *unintended* laughter? In the right context, just saying the word "Bob" is a punchline. If you doubt this, take another look at the video Microsoft released on "Bill's Last Day."

I managed communications for Microsoft's consumer division during the era that produced Bob. I lived Bob in a way few people do. A few of my best friends worked on Bob. My husband was a key developer on Bob and the lead developer for the never-released Bob 2.0. Bob was part of our lives.

Some people may remember that Bob was featured on the front page of USA Today and on launch day was the opening segment for the CBS Evening News - back in an era when network news programs attracted a huge audience. I was introduced to Steven Spielberg as the person behind Bob's PR.

I was also the one who sent Bill Gates email at the height of the positive Bob-mania that said we were likely to face a horrible backlash. Tech influentials had started telling me that they were going to bury Bob. They not only didn't like it, they were somehow angry that it had even been developed. It was personal.

And that's exactly what happened. Bob got killed. But first, it was ridiculed and stomped.

For Microsoft, it was a costly mistake. For the people who worked on it, Bob taught many lessons. Lessons that came into play for subsequent products that made a big impact, both at Microsoft and beyond.

How many people know that the lead developer for Bob 2.0 was also the co-founder of Valve and the development lead for Half-Life, which became an industry phenomenon, winning more than 50 Game of the Year awards and selling more than 10 million copies? Or that Darrin Massena - development lead for Bob 1.0, most recently named Technical Innovator of the Year here in Washington State - and Valve co-founder Mike Harrington are the co-founders and partners behind Picnik - which is now the world's leading online photo editor, attracting almost 40 million visits a month and a million unique users a day.

In an innovation context, Bob had many lessons.

Here are a few:

1) Never underdeliver against expectations. Because of the initial hype around Bob, expectations were huge. The first version of Bob was a friendly product that in user tests got good reviews from the intended audience - novice users - but in order to meet expectations, Bob was going to have to be a life-changing experience - and it wasn't.

2) Consumers don't care about strategy. Corporate customers do because if they're investing big dollars over many years in a product, they want to know that it will continue to evolve in ways that are beneficial to the organization. In the corporate market, selling a vision is huge. By contrast, selling a vision to consumers is pointless. The key question they want answered is, "Does it make my life better today?" (BTW, I suspect Bob 3.0 had potential to be great.)

3) A small marketing budget can work wonders. One of the reasons people jumped on Bob was the perceived huge marketing budget. The reality is that the budget for promoting Bob was actually tiny compared to other products I worked on at Microsoft. Because it was so tiny, we felt we had to do out-of-the-box things - like supply napkins on all the flights heading into Vegas during the CES announcement of Bob. The napkins didn't cost much, but boy, people thought if we were buying napkins, it must mean we'd already spent a huge amount of money elsewhere. (We hadn't.)

4) If you start to get feedback from customers that your product is anything but great, don't forget that you only get one chance to make a first impression. The first version of Half-Life never saw the light of day because user testing showed it wasn't fun enough. And this was after that first version had already won the "Action Game of the Year" honors at E3. Making the decision to start over was hugely expensive, and something Valve's publisher completely disagreed with - which meant that all of the funding had to be done privately - which meant the Valve co-founders, including my husband but especially Gabe Newell, got to write huge personal checks.

5) Don't be afraid to take risks. Bob was a risk. People often criticize Bill Gates as someone who didn't take risks. But these people are wrong. Bill was always a risk taker. He supported Bob in part I think because he wanted to support people who were willing to take risks. The Bob team was full of innovators and risk takers, and to Bill's credit, he was very supportive of them as individuals even after Bob hit the wall. (Most famously, Bill married Melinda, who at one time managed the Bob team. At the time, Bill joked that he did so because he liked Bob so well.)

6) Place bets on smart people who push the envelope. Bob was in many ways a bet placed on people. When I worked there - 87-98, Microsoft took many risks on people in ways that were pretty wonderful. One of my favorites along this line is the developer who took charge of the Microsoft Word business without any previous business experience - because Bill Gates thought he was a smart guy who could do it. Chris Peters later led the Office business to huge success and to my mind, was Microsoft's most talented business leader of the era. If you're not willing to risk a Bob, you're probably not willing to hire a Chris Peters either.

(The same people within the consumer division who bought off on Bob - including Melinda - also bought off on Expedia, despite the fact that practically no one on that team had any travel experience. That ended up being a good decision worth more than a billion dollars.)

7) Never forget the crucial role influentials play. In the case of Bob, many of the "end users" for Bob loved it. (I saw the feedback.) But the influentials of that era - in that case, the core tech people - hated it. For whatever product you're releasing, consider the crucial role of influentials even if they're not your target audience.

In the case of Picnik, two important sets of influentials were professional designers and photographers - including the people who are willing to shell out huge amounts of money for Adobe Photoshop. Picnik reached out directly to those people - not to convince them that Picnik was for them, but to encourage them to consider that it might be the best type of product for people who didn't want to take on the learning curve or high cost of Photoshop. Picnik ended up winning many design awards - including ID Magazine's highest honor for an interactive product.

8) If it doesn't work the first time, be open to the idea that it might work down the line. I think Microsoft made the right decision in giving up on Bob during development of the second version. But I also love the fact that Billg was willing to keep trying. Microsoft could easily have funded Bob 2.0, and even a Bob 3.0. It even started down this path, but made a course correction when it became clear the obstacles to Bob's ever being a market success were too big. (Note that Microsoft had backed previous products that were not market successes at the outset- Word 5.0 on the PC was pretty ridiculous from a user interface standpoint and a market penetration standpoint- but all of the learnings that went into that product helped Word become a much bigger success years later.}

9) Don't be afraid to poke fun at yourself. I love that Bill Gates pokes fun at Bob - and that my husband Mike still enjoys wearing his Bob t-shirt. Life is too short to not have fun.

Why My Dying Sister Needed Less Health Care

2009-06-15T13:23:00.001-07:00

My older sister had gold plated health care in the last year of her life. She died in March 2006 at age 56, having been diagnosed with Stage IV melanoma the previous May. Because my sister had retired from Reno's city government with full health benefits, any expense was subject to approval by the same people who likely were covered under the same system. No way would they would turn down any potentally beneficial treatment they might someday themselves want.

While the clamor now is to get more health care for more people, my sister's case illustrates what can go wrong when there are no brakes on health care expenses.

From the start, my sister's case was dire. During a self-exam, she noticed a suspicious lesion on the top of her head, which she reported to her skin doctor. A biopsy was done almost immediately, just before my sister came to a celebration of my mother's 89th birthday.

She got the phone call from her dermatologist while still in my mother's Portland house: "Come home - come by my office, don't stop to unpack."

The initial prognosis was grim - metastasized melanoma. My sister Fran was divorced with young adult children so she asked that our other sister Barbara and I oversee her health care. Fran's Reno-based doctor immediately said she was out of her depth and that we should consult specialists.

We went to San Francisco and met with a group of experts there who poked and prodded, then met for a few hours, and gave us the word that same day. Stage IV melanoma, no primary site found. By this time, small cancerous dots had started to appear all over Fran's body. To the doctors, it was fascinating. They were intrigued and recommended treatment in the Bay area.

We found out more about the treatment, which basically involved bringing my sister to the brink of death under controlled conditions in an ICU ward, with the hope that her immune system would kick in to fight back the cancer. Since my other sister and I are Seattle based, we asked if the treatment could be done in our city, where we could better look after Fran.

The chances of success were estimated at 7-15%. I couldn't find any instance of where someone whose cancer had spread as far and fast as my sister's had had a favorable result. There were world-class melanoma experts in the Seattle area, and they agreed to take on my sister's case.

From the start, I told Fran that I would advocate on her behalf and ultimately do what she wanted me to do. Because our father also had severe melanoma in his 50s (and then lived into his 90s), the type of cancer wasn't a surprise. Among all of my dad's kids (8 total), Fran was the one determined to get as much sun as she liked. She also smoked, hated to exercise, and loved fatty foods. And she wanted a doctor to cure her. She also specifically didn't want to do any research on her condition herself.

At all times, we asked the doctors involved to make decisions and recommendations based on what was appropriate for my sister, not for the purposes of research to better understand melanoma. Fran was hospitalized twice for a week to undergo the procedures that would bring her to the brink of death, each stay in a special intensive care ward. The treatment was grueling, but my sister hung on. Ultimately, the treatment was stopped because my sister's naturally low blood pressure sank too far. For a very brief period of time, the lesions' growth appeared to stall.
Almost immediately, though, the lesions contined to spread, and I got an email while traveling on business that they had spread into her brain.

When we met with the doctor a couple of days later, I asked him in Fran's presence to tell us how long she likely had to live. He turned to her, and asked "Do you want to hear this?" to which she said an emphatic "Yes." He then said that based on what he'd seen in other patients, my sister had no more than four months to live. Then he recommended that Fran see another set of doctors specifically about the lesions in her head. She would wear a metal head brace, with screws into her scalp, in order to stay immobilized while they lasered the lesions down to size.

I questioned the doctor about whether the new recommendation made sense given that the cancer was aggressively spreading everywhere else. From a commonsense perspective, I was trying to figure out if death by brain lesion was worse than death through some other type of lesion. The doctor recommended it, and Fran wanted to do anything the doctor said might help, so we went ahead. All the time, I was wondering why we should pursue this treatment, when nothing suggested it would actually prolong her life in a meaningful way.

When we went in for the laser brain surgery, Fran had an entire team of health care specialists assigned very specifically to her with no other laser patients in sight. Meanwhile, the waiting room at Harborview Hospital was filled to overflowing with patients seeking care for more mundane concerns. I asked what the cost was for the treatment Fran was getting on that particular day, and was told that it was in five figures. They treated her beautifully...imagine the nicest, least crowded dentist's office you've ever seen. The staff invited her back - and said they could continue treating her brain lesions for as long as she wanted. Apparently, as a result of their effort four of the seven lesions were now smaller. This seemed like a huge victory for them - and apparently, was in line with their expectations. My sister's forehead was still bleeding from where they'd anchored the gear onto her head and I was left wondering why anyone thought this was a good idea.

I suggested that my sister go home, enjoy the holidays with her three young adult children - one of whom is severely disabled, and we could reassess. By early January, the cancer was continuing to spread aggressively. We made plans to have everyone in the family visit Fran in late January down in Reno. We had a lovely time toasting Fran at an Irish pub in the midst of her friends and family. (True Irish will drink for any occasion). Her hair was thinner, but otherwise she looked like our Fran. At the party, her dermatologist pulled Barbara and me aside, and said that Fran should immediately be under hospice care.

Barbara visited Fran a couple of weeks later, and told me to get there as soon as I could. I was working full-time in a demanding job, but immediately asked for a week off. Fran went downhill fast - I talked to her briefly, just after she collapsed on the day before I was to fly down. We each said I love you, and I said I'd be down later that day. Her last words to me were "it's happening so fast." By the time I got there later that night, Fran was uncommunicative. For the next six days, I stayed with her 23-7 (my husband flew down with me, stayed in a hotel room, and would take me out to breakfast each day). The hospice people were wonderful and on the seventh day, Frannie died.

What went right and wrong in Fran's care that carries a broader implications for health care reform now being discussed?

1) From the outset, Fran's case was likely too far advanced for anyone to cure. In years since, I've done a lot of research. No one with a case as broadly metastacized as Fran has ever been cured. That seems like an important piece of data, one that none of us in the family could have known, but that the experts should have.

2) The brain lesion surgery was a farce. The doctors there were only concerned about her head. The fact that she might die on the table from where the melanoma was attacking other organs held no interest for them. It was just bizarre to be around doctors who could so clearly treat a "head" with no concern, or even interest in the body that supported it. At tens of thousands a pop.

3) No one in the entire process was looking out for "the system." And by that, I mean, looking out for whether the dollars being spent for my sister's care should be traded off against other health care needs. I get the sense that if we'd asked for it, Fran could have shown up daily to get her brain lesions lasered. I actually got marketing materials in the mail from the hospital asking us to recommend the brain lesion treatment to other "friends."

4) Doctors are ill equipped to tell patients when they should stop seeking treatment. The reason I asked the doctor point-blank how long my sister had to live is because she needed to get her affairs in order for the benefit of her disabled son. Without the grim news, I know she wouldn't have done it. I could feel the doctors' discomfort with such a direct question. Knowing that time was so short also enabled the rest of our family to rally and gather together to say goodbye while Fran could still enjoy it. (And she did!)

5) The hospice people are wonderful. They did a beautiful, even loving job of taking care of Fran, and answering questions about the dying process.

I loved my sister. But she also got too much of the wrong type of care in her final year of life. Ultimately, it would have made more sense for her to have less intensive physical care, and more help dealing with the anxieties that surround the dying process. A huge aspect of this is cultural - few people are given the message that it's OK not to fight. More recently, when following the journals of friends facing terminal illness, I start to get angry with the people who insist that it's every patient's responsibility to "fight back." Sometimes, the kindler, gentler, more humane option is to acknowledge that death is coming and surround one's self with family and friends to enjoy the time that's left.

The doctors who treated my sister were all nice individuals. But they and doctors like them are going to bankrupt our system by enabling and encouraging people with no reasonable hope for a cure or even for reasonable extension of life under quality circumstances to pursue hugely expensive treaments. When someone is facing a terminal illness, someone has to ask: "Does this treatment make sense given the success rates we've seen in other patients?" We've forced the insurance companies into that role because no one else in the medical community will do it.

When someone doesn't ask the tough questions, the patient doesn't necessarily get better care. Sometimes they just get hugely expensive care with the same dismal end result. (By the way, I have yet to refer any friends for brain lesion surgery.)

Why Confiscating the Bonuses is Fair

2009-03-20T17:34:00.000-07:00

The 90% tax on bonuses paid out by companies that are on life support due to government intervention is imminently fair.

But once again, special interest groups are trying to convince legislators that the tax is unfair, and sets a bad precedent, and everyone would understand why this is bad policy if only Congress really understood "the way business works."

Well, the way business should work is that businesspeople should figure out how to build sustainable businesses and should get rid of any incentive schemes that encourage people to work against the long-term best interests of the company.

Early in my career, I benefitted from stock options that were paid out over a multi-year period. The value of the stock was directly tied to how well the company was doing overall. It really dawned on me how effective this compensation system was when an employee sent email to his work friends boasting about how much he'd spent on a business dinner the previous evening. People were aghast, and the mail got forwarded around. A common theme was "How dare you boast about spending OUR money?" Everyone in the company who had stock options felt like they were owners of the company. That affected everything, including hiring decisions. After all, it's a lot different if you're hiring people with someone else's money; when it's your money, and you're going to be sharing it (the net effect of hiring people who also get stock options), you tend to be more thoughtful.

Since I frequently managed multi-million dollar budgets and hired agencies at that company, I was often "courted" with gifts - things like courtside seats to pro sports games. Only once did I take tickets - for a set of great seats to a Rolling Stones concert. That experience made me uncomfortable because, although I convinced myself I would never make a business decision based on such gifts, I could see how easy it would be to become seduced by such experiences. (The irony was that everyone around me with great seats to that concert looked like a corporate type - and though the Rolling Stones did a great job, the crowd experience felt completely sanitized and somehow unfulfilling.)

After that, I accepted only the occasional Christmas basket, which I always shared with everyone on the floor. Later, the company adopted an official policy, essentially banning gifts of any value.

The ban on gifts was put into place to keep employees from making decisions that worked against the best interests of the company. If you're hiring an ad agency or PR firm, you should be hiring them because they can do the best job for the company, not because you control the type of purse strings that tend to attact lavish gifts.

Later, when I joined my husband to build a startup, we decided upfront that we needed for everyone to feel like owners. So while the founding partners put up the upfront cash and took the earliest risks, employees who joined later earned a piece of the company. And when my husband and I later sold our interest, we sold a good chunk of it back to the company over a multi-year period, knowing that we were only going to get paid if the company continued to do well.

So when I hear about employees at AIG and Merrill Lynch getting huge bonuses just before or even after their companies are getting huge bailouts from the government, my blood boils. As a taxpayer, that's MY money. And I don't care what type of business you're in or whether your part of the business made money and did all the right things but your colleagues down the hall or in a completely separate part of the world made all the bad decisions, YOU WORKED FOR THE SAME COMPANY AND THE COMPANY FAILED. And the fact that you and your bosses can't seem to fathom that because the company failed, you shouldn't be paid ANY bonus is just beyond comprehension. When a company fails, no bonuses should be paid. And since you people can't seem to figure that out, Congress must step in.

I know how business works. I'm comfortable that I'm not missing key facts on how compensation should be structured. Members of Congress shouldn't be distracted or deluded by so-called experts who say that taxing these bonuses is somehow bad policy. It's atrocious policy, but because the underlying acts are even more atrocious, it needs to be done.

Pensions - Past Their Prime

2009-03-09T14:56:00.000-07:00

One thing that should be a clear to everyone tracking the current financial crisis is the new pension reality: Pensions as currently structured are completely unworkable in a global economy that is powered by the private sector.

This applies both to government pensions and benefits and to private sector pensions.

The current debate about what to do with the UAW contracts with Ford and GM is one part of a much bigger problem that has to do with human nature and the way our economic system works.

Whenever possible, people will tend to make decisions that are beneficial over the short-term rather than face up to unpleasant long-term realities. Auto executives, their management teams, and investors (which fittingly enough includes lots of pension funds) basically gave an IOU on pensions and retiree health care benefits in order to get labor to sign contracts in the near-term that would be beneficial to the bottom line. No one was really thinking about the consequences years out. The UAW and the companies were equally complicit and the federal government turned a blind eye when it should have stepped in more aggressively with appropriate rules and regulations.

The truth is that there isn't a person smart enough on this planet to accurately forecast retirement obligations given the uncertainty that exists around future health care costs, future competition, long-term investment returns, and future regulatory requirements. People who pretend that they can are simply passing the IOU to future generations to figure out.

No one in a global economic system can be guaranteed a specific return. What companies, governments, employees and labor unions can do is work toward agreement on retirement benefits that will be funded while the obligation is being created and then work together cooperatively to see that those funds are managed well. For most workers, barring on-the-job death or disability, the obligation should be funded completely while the employee is actively employed and then managed conservatively with the goal of matching inflation. This applies both to all funds that will be disbursed during retirement - including social security, Medicare, and any other retirement funds.

In the case of the UAW and the car companies, contracts they signed years ago should have required full funding of all future obligations. If the funding was to be invested in the stock market, it should have been explicitly stated that it was subject to the vagaries of the stock market. If it were to be invested solely in "safe" securities, like US Treasuries, it should have been explicitly stated that it was subject to the vagaries of inflation. Instead, it was invested in the future success of the companies themselves - and the companies have failed. Now that they have, the UAW and the companies are looking to the government to bail them out, which goes beyond what we have expected of government to this point and which simply shifts the burden from one group (the autoworkers and retirees) to all of us (taxpayers).

To do other than fund obligations fully at the time they're incurred is to tax future generations in a way that is immoral and should be illegal. When someone is dead, we don't allow that person's creditors to go after the deceased's children. Yet we seem perfectly willing to let mass obligations pass on to future generations of workers, investors, and taxpayers.

We need a new system for funding and managing retirement obligations - one that recognizes that we all have a responsibility to plan for and fund retirement during our working years and that we should all be working together toward a financial system where investors who want low risk/low valatility returns over the long term have options that make sense.

What this means is that whether you work for a private company or for a government agency, your pay stub should reflect the full cost of whatever obligations are being incurred on your behalf. Understanding those full costs is the only hope companies, investors and governments - and the people who rely on them - have for making smart decisions that will bring long term benefit.

Avoiding an Even Broader (Madoff) Ponzi Scheme

2008-12-22T19:21:00.000-08:00

America's current domestic public policy shares a lot in common with Bernie Madoff's business plan: Keep growing the pyramid at the bottom to pay for the people at the top. What Madoff did was illegal. What's happening with the government's Ponzi scheme is something we've all agreed to.

In the US Government case, the top of the pyramid are older people and retirees; the bottom of the pyramid are young workers.

Any type of plan that depends on an ever growing base is completely unsustainable over the longer term. At some point, especially because of diminishing natural resources and other population-related issues, you can't grow the bottom of the pyramid enough to pay for the people at the top. With the current financial crisis, the US is building on to a huge pile of debt that will need to be paid by future generations. From an operating perspective, we've also got a hugely disproportionate share of the budget going to the elderly as compared to children and young people.

The reason everybody seems comfortable with this situation (at least, comfortable enough not to do anything about it) is that we haven't faced up to the idea that the underlying premise of continued population growth is fundamentally flawed.

What should be happening is that every generation pay for itself, through taxes that are designed to accommodate the choices a generation makes. If people want a system where you get to retire at 55, then the taxes that are collected during the 30 years between 25 and 55 should be onerous enough to care for the publicly financed programs for the 30+ years that are likely to come after. Same with health care - if people from my generation believe we should be getting knee and hip replacements into our 80s through Medicare, then our taxes now (I'm 48) better be high enough to pay for them later.

No one wants to face up to this reality so what happens is that Medicare expenses are climbing at more than 6% of a year, and are gradually squeezing out a lot of other very worthy programs that benefit people of all ages.

We also need to take a look at the estate tax in this context. Why not tax the estates of elderly people to pay for elderly-related expenses, including Medicare? This would tie the estate tax in a meaningful way to an expense that was incurred by the generation that should have built up an endowment to pay for it. Instead what happens now is that even wealthy people get their medical expenses paid at public expense (which increases the deficit - to be paid by younger generations of taxpayers), with their estates then passing down to their own very fortunate adult children and grandchildren.

In the last several decades, because our population was growing quickly, we were able to mask the problems associated with exploding elder-related expenses. Now, however, it's becoming impossible to dodge the fact that the boomer generation, as we become elderly, are going to be orders of magnitude more expensive than the generations that came before us. And we've done nothing to really prepare for that except hope that the generations coming after us will agree to pay the bills.

This blind faith in future generations might have made sense back in the days when people were routinely having five, six, or more children. (I come from a family of eight.) Now, however, for a variety of reasons the birth rate has slowed, with more and more two-children or fewer families. At the same time, the number of older people with long-lasting chronic health conditions continues to rise. This means that fewer people in their earning years are going to be supporting a much bigger number of elderly people, many of them with hugely expensive medical conditions.

The solution can't lie in encouraging people to have more children, because that just keeps the Ponzi scheme going a bit longer, and creates an even bigger problem for future generations to solve.

Creating a tax system that requires each generation to forecast its public expenses and to fund them fully while still in their earning years would change a lot of things in our society. Younger people would have more of a stake in the decisions that affect their lives, middle aged people would have to confront tough questions about whether they're saving enough, and elderly people would know that the quality of support they're getting from government is directly tied to decisions they made earlier in their lives.

Who Sets the Post-Meltdown Rules?

2008-12-19T15:33:00.001-08:00

Hopefully, the current financial crisis will silence forever the people who say that over the long run and without intervention, the markets work and business will always do the right thing for the most people. It's flat out not true.

Business needs "rules of the road." The trust-based systems that the foes of deregulation like to cling to evolved in much smaller communities, where owners, management, workers, and customers were all vested in making sure the system worked over time. If you own and run a grocery store in a small town, your workforce and customers are going to be your neighbors and their kids are going to be attending school with and playing with your kids. Unless you want to live in isolation, you're going to work to earn their respect.

Now, the workforce is global, customers are global, and natural resources are global (though they can be exploited in ways that offer no benefit to local people who will end up paying the consequences), and ownership is so murky that -- as the Madoff case and the broader Wall St. meltdown shows -- even investors have no idea what they own or think they own.

The current financial system operates much like the childhood game of "hot potato," where investment managers are incented to move money around in ways that generate huge financial returns for themselves -- with no one ever asking hard questions unless someone gets hurt because they're holding the potato when the music stops.

Moving forward, it's critical that we figure out how to balance between rules that encourage people to act in ways that ultimately deliver the most good for society and rules that might stifle and ultimately crush innovation.

The "most good for society" is likely to come from:

- rewarding innovators for their contributions - which encourages them to keep applying their creativity to solve interesting problems
- ensuring that workers are fairly treated - which becomes ever more difficult as the standard of "what's fair" needs to encompass the fact that when jobs can be moved offshore at lower cost, they will be
- ensuring that the environment is protected
- ensuring that consumers' health, safety, and rights are protected
- ensuring that competition will be fair
- ensuring that investors have access to the information they need to make good decisions and that they suffer the consequences when they ignore or encourage behavior that violates "the rules," much as a small business owner in a small community pays the price when he or she violates the community's trust.

A difficult problem now is determining who should establish and enforce the rules of the road. With free trade, the system has gone global and there's no going back. When one country crashes, the fallout is often felt around the world. Clearly, Barack Obama is going to play an activist role. However, even his very powerful voice is just one part of a much broader system that even the "experts" don't fully understand.

We need to develop new systems and new "rules of the road" that reflect the reality of our interconnected, interdependent world, where financial resources, natural resources, and human resources are all intertwined. Greater transparency is an absolute necessity.

Governments will need to figure out new ways to step up - and work together in ways that perhaps could not have been imagined before the greed on Wall Street triggered a financial collapse in Iceland, and before melting icecaps in the Arctic became a key indicator for drought and flooding across the Southern Hemisphere.

Nongovernmental organizations and watchdog groups that can operate across borders also need to play a bigger role. Increasingly, warning bells are going to be sounded by organizations and people that operate from a global perspective, who can see local symptoms, but who understand that those symptoms and their potential solutions must work in a global context.

When Government Needs to Cut

2008-12-18T10:02:00.000-08:00

As governors look to trim state spending, there are always going to be critics who say there's no fat that can be found ANYWHERE. Yesterday I listened to a radio program where one of the guests said there was no reason to eliminate schools anywhere, despite shifting demographics that left some existing schools underattended and some areas without the facilities to accommodate growing school-age populations. In times of tight budgets, I don't know how you can expect to open new schools in areas where they're needed without also looking to close schools in areas where they're not.

It reminded my of my first full-time job after graduation. There was a deep recession going on, and I was fortunate to be one of the few members of my graduating class to get a job in my field - journalism. I had a great title - Publications Editor within the Agricultural Communications Department at a publicly funded university. What I realized shortly after joining the department is that my job didn't really need to be done - not by me, not by anyone. At the time, we were producing short stand-alone publications (the equivalent of a magazine article) on home economics topics. All of the writing was done by University professors.

It was decidedly low-tech and the typesetting and production was done manually in a huge building on campus. This was in the early 1980s - just after the introduction of the IBM PC.

What made my job essentially pointless was that there really wasn't an audience for most of the publications I worked on. I saw first-hand how the publications remained stacked up, unread, in that huge printing building. At the time, I was a magazine junkie, and the women's magazines at the time were full of lively articles that did a better job of communicating about most of the topics our department was supposed to be focused on.

I could believe that years, perhaps decades earlier, a department focused on home economics for farm families absolutely made sense. Extension services and communications around topics such as canning, sewing, and cooking would have been hugely valuable to farm wives, many of whom lived in isolated situations without easy access to important information. Especially in food safety areas like canning and cooking, having authoritative guides on how to do things right would have been enormously helpful and healthful.

But that was then. By the time I came along, there was not enough work to sustain my job and the work I was doing was not very useful. On too many days when I would come in, eager to work, there was literally nothing in my in-basket. Since I was part of a workflow (the publications had to be written before I could edit them), if there was nothing there, I really had no work. Furthermore, my boss was extremely uncomfortable whenever I tried to take on additional assignments because she'd had my job before getting promoted and so the fact that I didn't have enough to do likely meant she hadn't had enough to do either.

What kept it going was tradition, the desire to not give up anything in the budget process, and the need of the university professors to have an outlet for publishing. (At one point that year, I was assigned to edit a new publication on earth-sheltered housing, something that struck me as a bit odd. When I dove in a bit deeper, I found that the publication I was working had already been published by a different author in another state. It was a clear case of plagiarism which I reported at the time. There was fallout and some very quiet disciplinary action, but what really dawned on me was that the professor who did the plagiarizing didn't expect anyone to read the publication either and that's why she thought she could safely turn the piece in as her work.) When things get dysfunctional, they often get wildly dysfunctional.

I left that post after about eight months and moved on to a writing job in the high tech sector.

Wow. The worlds could not have been more different. Where my previous job was all about reaching markets that no longer existed, the new job was all about reaching markets that were growing and changing everyday. I stayed at that next job for three years, enthusiastically working long days, and learning as much I could before taking the next step to work at a growing software company in Redmond, Washington.

There are things that government absolutely can and should do. Government plays a critical role in many ways - ensuring access to quality education, setting and enforcing safety standards, protecting natural resources, protecting our national interests, and providing a safety net, to mention a few. Government can and does attract some great people - but it is also vulnerable to a bureaucratic mindset that can strangle innovation and demoralize people who want to find a better, more efficient way of doing things.

Now, with the huge budget cuts being implemented across the country, there are new opportunities for government to reexamine the ways things have been done and try to find new ways of achieving the same or even broader impact by doing them smarter or better. It's not going to be easy. But one of the things that would help is for people who believe that their pet programs should never, ever be cut is to recognize that times and situations change, and that for a lot of reasons, government needs to be more transparent, responsive and proactive about making sure each and every department and job makes sense in the broader context.

Hunkered Down or Seeking Opportunity

2008-12-15T22:44:00.001-08:00

From an innovation perspective, it feels like there are two opposing worldviews, hunkered down, looking for protection, and expansive, looking for opportunity. This summer, I was in Palo Alto, California, for a business meeting with some folks at Facebook. Before the meeting, I went to lunch at one of the local hot spots.

The energy was palpable. I was essentially a fly on the wall to three separate business conversations (note to self - be careful what you discuss in front of the lonely lunch eater - you really have no idea who or what she works for).

One of the conversations was focused on finding the best funding source to ramp up manufacturing of a new product. Another was focused on press reaction to a product launch that had already happened.

Around the room, there was a steady excited buzz - the buzz of innovation. The buzzers were different ages - from 20 somethings to almost 60 somethings, and for many, English was clearly not a first language.

If I were a traveler to the U.S. trying to uncover the secret behind U.S. economic power, this cafe would have yielded a lot of answers. People from all over the world were trading ideas, doing deals, and talking fast, with that sense of urgency you have when you think a competitor might be having a similar conversation at an eatery down the block.

Startups have a pace and energy that can be all consuming. In the early days, every decision feels like life or death. When I joined Valve, now a hugely successful game company, but at the time a tiny prelaunch startup, I knew more than enough to be scared. From studying the market, I knew that of the more than 5,000 games being introduced each year, only about 20 had a prayer of being profitable. The odds against success were astronomical. And yet the compulsion to prove we could succeed was overwhelming.

To friends who had long ago made the decision for a steady paycheck, the idea of starting a company seems somehow crazy. And in many ways it is. But that's exactly why startups attract out-of-the-box thinkers. If you're going to do something just like it's always been done, there's almost no chance you're going to succeed. But if you can come up with an innovative idea and then execute on it really, really well, the sky's the limit.

What's happened now is that there's a huge time compression between executing on the last great idea and the need for innovation to carry you into the future. It used to be that if you had a good idea, and started a company, you might be able to coast along for decades on the strength of that idea and that first implementation. Now, markets and market conditions change so fast, you've got to be a The Constant Innovator. In the technology sector, this is taken for granted, because innovation and disruption are the constants of the business environment.

Today more businesses are living in a world where the failure to innovate predicts the failure of the business. In media, in entertainment, in retailing, in the automotive industry, in the grocery business, in almost any other business you can name, lack of innovation is emerging as the biggest threat to long term viability.

For some people, companies, and industries, the reaction is to hunker down and think of ways that someone (government?) can provide protection. But while it is government's job to protect us from businesses that behave badly or that damage or destroy public resources, it is not government's job to protect anyone from a competitor's better ideas and better execution.

For people who don't come from an environment where the pressure to innovate is a constant, it can be tempting to want to protect the status quo. Especially if you're an elected official and your constituents are running scared. But the longer term answer has to be protecting and nurturing an environment that rewards innovators and risk takers, because those are the people who are going to build the future businesses that power this country.

Too Big to Fail?

2008-12-11T14:02:00.001-08:00

Today, Republicans in the Senate seem poised to kill the auto industry bailout bill. Without more changes, I'm in agreement with them that the bill shouldn't pass.

What does it mean when a business is "too big to fail"? It seems to me that once you've decided a company is too big to fail, you've lost any chance that that company will ever innovate and be successful again.

Creating and running a successful business is tough and it's getting tougher. The fear of failure - that adrenaline-induced sense that you've got to do everything in your power to help your company succeed - is one of the things that leads to success.

For years, I've watched as the US auto companies have done everything in their power to fight against rules for higher fuel efficiency. What strikes me is that that any one of them could have seen the new standards as an opportunity for innovation yet none of them stepped up.

If the rules had been applied equally across all cars and vehicles sold in the U.S., it would have been the equivalent of a platform shift. In technology, platform shifts always create opportunities for new winners and losers. That's what had the big automakers scared. Why should they subject themselves to competition when by hiring more lobbyists they could protect the status quo?

We're also past the point where a combative relationship between workers (the unions) and management makes any sense. Successful companies today need to find ways to get everyone committed to the same goal of building an innovative, profitable business that can compete in the global economy. I don't understand how you do that when workers are guaranteed a wage and benefits that would put the company at a competitive disadvantage.

There are ways to incent workers so that they share in the success of a company. Stock options or profit sharing are two ways that companies have enlisted employees in feeling an ownership stake. As a investor, I want the people who are making the day-to-day decisions on behalf of a business to share in the company's success. Likewise, if the company is facing tough times, I want the employees to feel that pain too so that they'll work harder to curb expenses and to contribute ideas that can turn a flailing company around.

In the case of the UAW, for way too long, members have worked against the interests of the company by fighting for rules that make no economic sense. It's crazy to think that people should get paid when they're not contributing to the economic well-being of the company. The autoworkers have been so focused on "winning" whatever concessions/benefits they can from the company, and in so doing lost sight of the fact that their companies were losing the war.

The new winners in the automotive industry are going to be the innovators who work to create change. The losers are going to be the ones who are constantly looking backwards, fighting to keep things as they are.

Ultimately, I'm highly doubtful that there's anything anyone in Washington can do to change the underlying culture of businesses that believe they are too big to fail.

Orca Whales and Old Growth - Case Studies in Market Failures

2008-12-10T11:34:00.000-08:00

In the Pacific Northwest, where I live, we have a long history of consuming natural resources in the name of economic development in ways that negatively impact the public good.

One of the casualties of the consumptive nature of our society is the war that was waged over old growth trees. In simple terms, the Old Growth lost.

When I was growing up in the 60s, a trip from Portland to the Coast took you through huge tracts of forestland, with towering trees. The drive always felt a little wild and dangerous, especially because of the huge number of logging trucks, carrying mammoth trees from forest to mill.

Today, that same drive takes you through suburban sprawl and tree farms, full of short slender trees, all of the same pedigree.

For a time, there were huge battles over Old Growth Trees, the centuries-old tree stands that provide enormous biodiversity. The argument for cutting the last of Old Growth went something like this: Jobs will be lost if we don't cut them down. Let's cut them down.

As a child, I couldn't understand how, if we were down to the last 5% of Old Growth Trees, there could be any sane argument for continuing the carnage. Surely, it wouldn't make a long-term difference to stop at 95% destruction instead of 100%.

To the mill owners and loggers, any suggestion that we stop short of cutting down all the Old Growth trees was an attack on their livelihood. Never mind the longer-term consequences of eliminating a natural resource that offered much greater benefits to society at large if protected.

What no one seemed to understand is that the loggers and mill owners were of course only going to look after their short-term economic interests. They weren't going to focus on what was going to happen after the Old Growth Trees were all gone because that would be a different battle - and the only battle they could focus on was the one they were engaged in every day to just keep cutting and keep the mills open.

That's the nature of capitalism here in the U.S. We have no concept of the long view and few effective ways to manage resources that will be consumed if business interests are left unchecked.

In the San Juan Islands, where I live part-time, the Southern Resident Orca Whales who frequent the islands each Spring and Summer, are in a fight for their very survival. They're starving. And yet, in some sense, the whales are subject to the same consumptive behavior that destroyed the Old Growth.

For 12 or more hours a day, the whales are chased by whale watching boats. Until recently, there were no laws preventing whale watching boats from chasing them at very close distance. You'd think that the whale watch operators would look at the whales as a resource that needs to be protected over the long term. But what actually happens is that the whale watch operators act like mill owners - it's in their economic self-interest to chase the whales, and the fact that the whales are dying doesn't change the whale watching boat owners' behavior. For a while, they claimed they could be self-regulating, but they were lying to themselves and to everyone else. As a group, the whale watch operators protected their own - not once did they ever turn in one of their own for violating the whale watching guielines. In fact, their own marketing brochures would show them with boats perched right on top of the whales even while they claimed to regulators that they voluntarily complied with guidelines that said boats shouldn't approach closer than 100 yards.

Very recently, because the Southern Resident Orcas were officially listed as an Endangered Species, new laws went into effect requiring all boats to stay more than a hundred yards away. But the laws have few teeth, and enforcement is practically nonexistent. Moreover, the damage that's already been done is likely irreversible. This year alone, almost 10% of the remaining whales died and they are slipping below the tipping point where they can replenish their population.

The whale watch operators will argue that they're not the only cause behind the demise of the Southern Residents. And they're right - toxins and and food shortages are also playing a role. But what's interesting is that in the face of almost certain extinction of the species that is critical to their livelihood, no one from the whale watching industry stepped forward to say, "The fact that we're hounding the whales may not be the ONLY threat to the whales, but because they're facing a critical tipping point, we need to be conservative and assume that the noise from our boats (which sounds like a pack of Harleys underwater) is causing the whales harm. We will voluntarily back off for a period of time to give the whales time to recover."

The only thing that could have stopped the whale watch operators' destructive behavior earlier was public pressure and regulation. But the whale watch operators were effective lobbyists and worked hard to keep any restrictions on their behavior from becoming law. Not until the regulations were in the pipeline and almost certain to be adopted did they claim to have been in support of them the whole time.

This is a clear case where capitalism failed and government couldn't keep up. The loss of the whales will cause the whale watch operators' business to disappear. The whale watch operators will sell their boats and move on to some other business. And future generations will never get a chance to see and hear the magic of the whales feeding off the shores of San Juan Island.

Capitalism Do Over - What's Needed Now

2008-12-09T13:17:00.000-08:00

Capitalism needs a reboot. Too many people - many of them economists who live in an abstract, theoretical world-- think in terms of absolutes that don't reflect the realities of our increasingly interdependent world. We need a new perspective on capitalism - one that recognizes the crucial role business plays not just as an economic engine, but in all aspects of our lives. What business does, how it behaves, what rules it follows, what social norms it pays attention to has an enormous impact on our quality of life.

Capitalism needs to work better for people, for society, and for the environment. The old system - where the only role of business is to make money - is unsustainable. Why? Because business is amoral and amoral entities do not operate for the public good.

This doesn't mean people who operate businesses are amoral. Some are, some aren't. The key is understanding that there's nothing inherently good or bad about business. People who argue that business will do the right thing naturally don't understand how business works - or they do understand and they want to mislead people.

Business doesn't exist to solve social problems. It exists to make money. And if, along the way, it damages our society in ways that are catastrophic, well, it's just business. Unless reined in, business is going to kill whales, it's going to destroy fisheries, it's going to consume every last bit of old growth trees, it's going to pour toxic waste into our seas and our air, and it's going to throw people out of work.

Business needs checks and balances. It needs scrutiny. It needs watchdogs. It needs regulation. Most importantly, it needs to get better.

We're facing a crisis even bigger than is being described on the news everyday because no one has gotten their arms around the fact that government can't keep up to curb the excesses of business. The pace of change in business and society is just too fast. And yet, if we don't get better at this, if we don't find a new path, we're going to lurch from one crisis to another. Economic crises, environmental crises, social crises.

We're at a critical juncture. We have the opportunity to make things better. It's possible for business to create economic growth and create a positive return for society. It's possible for us all to incent good business behavior and punish behavior that has a negative cost to society. But in order for that to happen, we need to be clear-eyed about what is and isn't working with the current system.

Why am I writing about this?

Because I'm a businesswoman who's concerned about the lack of understanding of business among policymakers, among economists, among media, and among the general public. And also, because I believe that we can expect more from business and from the people who make business decisions everyday.

Business is a powerful driver of change in our society. It's up to us to make sure that business operates in ways that will enhance our quality of life. We need to get off the sidelines by working to create the incentives and disincentives to make business work better for all of us.