The Third Wave: An Entrepreneur's Vision of the Future (16 page)

Government was a critical part of AOL’s life cycle, too, given the role it played in the creation of the Internet. As early as 1962, ARPA scientists and engineers were talking about the possibility of establishing a network among computers in different locations. Within four years, they began building it. Three years later, they established the first host-to-host connection between computers. And in 1972—a decade after they first conceptualized this network—they sent the first email, and this internetworking system was given its shorthand name: the “Internet.”

AOL’s success would not have been possible if the government hadn’t built the Internet in the first place. Nor would it have been possible if the government hadn’t come around to understanding the potential of the Internet placed in private hands and taken the necessary steps to open it up to the public—from the antitrust efforts that led to the Bell System’s breakup and increased competition in the telecom market, to the FCC’s decision to open telecom networks and enable dial-up access, to Congress’s passage of the Telecommunications Act (1996), which helped usher in commercial use of the Internet.

The Internet could have remained a tool for the military and research institutions alone. But government leaders made a crucial decision—to broaden the Internet’s scope and allow for its commercialization. This choice seems obvious in retrospect, but it was a visionary act—and an important one. By 2014, the Internet represented $8 trillion in economic activity, a gross domestic product (GDP) larger than Spain’s and Canada’s, and a
faster rate of growth than that of Brazil.

• • •

Government’s role isn’t to commercialize new innovations; it’s to push technological advancement forward in areas that the markets won’t address on their own—to get ideas and innovations to a point where entrepreneurs with vision can turn them into viable products and businesses. Even seemingly obscure parts of the government can play outsized roles in innovation. The Small Business Administration, for example, makes few headlines, but it’s been known to shape headlines. Companies such as Qualcomm, Apple, and Intel all benefited from loan guarantees from the SBA to get off the ground.

Or consider the government-led effort to preserve data and information online. Between 1994 and 1999, under the Digital Libraries Initiative (DLI), the federal government rewarded $68 million in research grants to help solve the challenge.
⁶
Among the winners were Stanford graduate students who wanted to create a better method for indexing pages on the web. Their names were Larry Page and Sergey Brin. The work they did with support from their DLI grant ended up serving as the basis for Google’s search algorithm.
⁷

We would not have had the Internet itself if not for government, nor would we have had some of the most important First and Second Wave companies that shaped its commercial use. Without government officials and bureaucrats—the folks
so often derided in Silicon Valley—there would never have been a Silicon Valley in the first place.

Government’s role in the Third Wave will be critical in two key ways: as a regulator and as a customer. The regulatory aspect will be especially complicated as government officials weigh all kinds of new and novel challenges. Internet of Things sensor and tracking technology will give companies unprecedented access to an extraordinary level of detail about our everyday lives: not just what food you purchase but your eating habits; not just how much energy you use but how cold you like it when you sleep at night.

When a company uses education data collected daily from a student improving her reading skills, we will cheer the benefits. But what happens to that data when she graduates from high school? Does she own it? Or control it? Will a dating app one day ask her to upload it for compatibility analysis? Will they sell it? These advances are not just small steps; they are giant leaps. And they bring with them countless questions for government regulators. How should companies be allowed to use this data? What should customers know about how that data is used? And does government have a role in answering that question?

The security implications are complicated, too. There is a risk, of course, that hackers could use and exploit such data
to bring a new kind of precision to fraud, identity theft, and worse. But the more frightening scenario is hackers taking control of the Internet of Things devices themselves. What happens if hackers choose to break into every pacemaker in the country instead of a government database? “If you think you’ve got a cybersecurity problem now, wait for a cold winter day when a hacker halfway around the world turns down the thermostat in 100,000 homes in Washington, DC,” said Marc Rotenberg, the head of the Electronic Privacy Information Center.

Where does any of this fall on the regulatory spectrum? And how can government approach it in a way that balances security and privacy needs against the enormous economic potential that the Third Wave represents? Striking this balance is both critical and complicated, and anyone who professes otherwise is either naïve or being dishonest about the complexity of the task.

Yet for many Third Wave companies, government won’t be thought of solely as a regulatory wild card. It will also be viewed as a major potential customer. Indeed, I would expect that in the coming decades, we will see dozens of companies reach unicorn status by making products principally to sell to governments around the world.

The Environmental Protection Agency could use Internet-enabled
sensors to monitor air and ocean quality with extraordinary precision. The Department of Transportation could order sensors to be embedded in every new infrastructure project, providing real-time information on everything from traffic to potholes. The Department of Defense is already deploying wearable devices for soldiers, creating an Internet-enabled front line. Cities and states, too, will surely get involved, using Third Wave integration for everything from better managing of traffic signals and energy usage to better monitoring of sewage systems and crime statistics.

The federal government is already taking steps to try to remake government services for the digital age. The White House created the US Digital Service in 2014, recruiting some of the best and brightest from the tech world and putting them to work on various challenges facing federal agencies in what
Fast Company
referred to as “Obama’s stealth startup.” The USDS recruits top engineers for short one- to four-year stints, putting them to work on key government projects—everything from enabling people to renew their green cards online to improving digital services for veterans. Above all, the goal is to bring the efficiency and effectiveness of the most successful Silicon Valley companies to Washington. These endeavors could be the beginning of a much-needed revamp of the federal bureaucracy and the procurement procedures it uses. The USDS could become a regular stop for rising stars in tech—much as the Peace Corps and the White House Fellows programs have been training grounds for emerging leaders.

And it might inspire some Third Wave entrepreneurs, too. The techies that the USDS is seeking to recruit know how to spot an opportunity—some of the initial hires were among the earliest employees at Facebook, Google, Amazon, and Twitter. The USDS’s co-founder Todd Park was a successful serial entrepreneur before moving into government. Now they’re intrigued by the idea of solving one of the biggest problems facing our nation: how to get the government functioning in a twenty-first-century context. I wouldn’t be surprised if some US Digital Service veterans return to entrepreneurship after completing their stints in Washington. Having seen some of the problems with which government agencies grapple, they will be well positioned to build startups that address those challenges.

Future Third Wave entrepreneurs need to be prepared to engage with government. No one else is going to ensure that legislators understand how your company and your industry operate, where you fit into the debate, and what effects proposed policies would have. If you ignore government, a lot of governing will get done without you.

Successful engagement with government will be difficult, and it will take a willingness to listen, a foundation of respect, and a lot of patience. But it can work. It has worked. I know from experience.

The searing failure of the merger of AOL and Time Warner came down to people, relationships, and culture. We had a pretty good sense of what we should do, but we didn’t have the right people, or the right culture, to capitalize on the opportunities in front of us. The lack of trust crippled the company’s ability to be successful.

When I started working with and around government, I took the lessons of that experience to heart and reversed course. I focused my attention not just on coming up with ideas but on building relationships with the people who could help make them happen. I intentionally stayed out of politics. I never hosted fund-raisers or endorsed any candidate, deciding instead to remain independent and focus on building bipartisan coalitions. In 2009, this approach was put to the test.

I was asked to co-chair the newly formed National Advisory Council on Innovation & Entrepreneurship (NACIE), which consisted of more than a dozen people from various regions and sectors. NACIE ended up making a number of policy recommendations, many of which the White House embraced and put into action. Later, when President Obama launched Startup America, he asked me to chair it. We recruited a board of entrepreneurial luminaries, including Netflix’s Reed Hastings, Under Armour’s Kevin Plank, FedEx’s Fred Smith, Dell’s Michael Dell, Tory Burch, and Magic Johnson.

Soon thereafter, when he created the President’s Council
on Jobs and Competitiveness, or the Jobs Council, I was asked to join that as well. I chaired the subcommittee focused on entrepreneurship, working with Sheryl Sandberg of Facebook, and John Doerr of Kleiner Perkins Caufield & Byers.

These roles gave me the chance to work with government officials in the White House and Congress. We started by engaging leaders of the business community and connecting with members of Congress from both parties to solicit their ideas. We asked McKinsey, an independent consulting firm respected by both sides, to compile a report on the various pro-innovation policies that had been proposed over the years and then rank them in terms of the positive impact they would be likely to have on spurring entrepreneurship and creating jobs.

This outreach and research enabled us to identify some policies that needed to be updated. Some of our recommendations related to updating our immigration laws so we would be better positioned to win what has become a global battle for talent. Others were focused on reducing regulations so it would be easier to start companies. We also focused on building entrepreneurship programs and infrastructure in regions outside of tech centers. But it soon became apparent that the area we should focus most on was making it easier for entrepreneurs to raise the capital they needed to start or grow businesses.

We were surprised to learn that some of the securities laws regarding raising private capital had not been updated since 1933—so they didn’t take into account the reality of how
venture capital worked or, for that matter, the emergence of the Internet. These longstanding regulations made it hard for entrepreneurs to raise equity capital—at a time when new banking regulations such as the Dodd-Frank Wall Street Reform and Consumer Protection Act (2010) made it harder to borrow from banks, and Sarbanes-Oxley legislation (2002) had made it harder (and more expensive) for young companies to go public. Our team worked on a handful of recommendations that could get capital flowing to more entrepreneurs, in more places, more quickly.

The resulting recommendations ranged from creating a more entrepreneur-friendly IPO on-ramp for emerging growth companies, to making it easier for entrepreneurs to seek new investors. One of the most important elements was making it possible to raise money via the Internet through crowdfunding. Companies like Kickstarter and Indiegogo had emerged to enable people to raise money for projects, and our task force wanted to make it possible for entrepreneurs to use crowdfunding to raise equity or debt capital to start or grow their companies.

All through the process, people were telling us that we were wasting our time, that our efforts would be ignored, that even if a few people paid attention, we wouldn’t be able to get any legislation passed in a hyperpartisan Congress—especially in an election year. But I was convinced, as were others in the group, that we could build consensus as long as we could first build trust. So we began engaging with the key influencers at
the White House and in Congress. We wanted to build support for the recommendations so that they wouldn’t be ignored—and might actually get adopted.

This quiet diplomacy accelerated in the weeks leading up to the release of our report. The plan was to present the recommendations to President Obama at the January 17, 2012, meeting of his Jobs Council, but we knew that the real make-or-break work was in the lead-up to that meeting. The political climate was nastier than usual at the time, and with elections looming, we knew that if the recommendations looked as if they were coming from one side or the other, they would fail to get traction.

That the Jobs Council reported to the president—and was led by General Electric CEO Jeff Immelt—gave it some stature, but we wanted to avoid any political considerations and keep the focus on the merits of the specific policy recommendations. We arranged dozens of smaller meetings ahead of the big one, in dozens of offices, to build bipartisan support behind making the passage of pro-entrepreneurship legislation a priority—not just for the White House but for Republicans and Democrats in Congress, too.

I called Republican majority leader Eric Cantor the week before our sit-down with the president. I asked if he would meet with me the day before the Jobs Council was set to gather. He agreed. My message to him in that meeting was simple: We would issue a report the next day, outlining a series of recommendations to promote entrepreneurship and job creation.
Our effort, I explained, was resolutely bipartisan—indeed, our goal was to be nonpartisan. And I ended with a simple request: I asked him to read the recommendations before commenting on them.