The Third Wave: An Entrepreneur's Vision of the Future (17 page)

The next day we unveiled our recommendations, as planned. The president was publicly supportive of the report, noting that at a time of high unemployment, both parties needed to work together to put job creation at the forefront of the nation’s agenda—and that included supporting job-creating entrepreneurs.

Shortly thereafter, I met with Cantor again, to discuss the proposals. He was interested in several of them and seemed open to the idea that we might actually be able to build a bipartisan coalition to get it through Congress. It was very encouraging.

A couple of weeks later, Cantor introduced legislation called the Jumpstart Our Business Startups Act (or, as it was cleverly nicknamed, the JOBS Act). Much of the JOBS Act was based on the recommendations we made to the president. In his remarks, Cantor embraced those recommendations and urged both parties to support the legislation. The White House issued a statement of support and helped navigate passage of the legislation. I worked closely with White House advisors Gene Sperling, Jeff Zients, and Valerie Jarrett on the project. I’d worked with Gene years earlier when AOL partnered with the Clinton White House on early Internet regulations. (President Clinton embraced the promise of the Internet, and holds the
distinction of having been the first president to send an email.) Jeff was a fellow DC entrepreneur and friend; we’d co-invested in a company, and our kids went to the same school. Those preexisting relationships brought trust to the table and made it possible for the participants to get comfortable with what I was trying to accomplish. I didn’t know Valerie before President Obama was elected, but we had developed a strong relationship over her years in the White House as we worked together to promote entrepreneurship.

In addition to support inside Washington, we needed support beyond it. People like AngelList’s Naval Ravikant and venture capitalist Kate Mitchell used the Internet to help build outside enthusiasm for the effort. With broad bipartisan support, the JOBS Act passed the House and Senate. When President Obama signed it into law at a ceremony in the Rose Garden, on April 5, 2012, I stood behind him, alongside Cantor and other JOBS Act supporters from both parties.

It was a hopeful experience. In the middle of the least productive legislative period in our history, our team managed to bring the right people together to craft a bill and get it signed into law. And it validated my view that we could build trust among otherwise warring parties. We managed to create a policy space where legislators weren’t resigned to the idea that the other party was just looking to put the screws to them. The bill wasn’t perfect, and no one got everything they wanted, but it provided a path forward for new business and new job creation—something everybody agreed should be a priority.
And it showed that compromise doesn’t have to be anathema to politicians—something we (and they) all too often forget.

When I talk to people about the Third Wave and the increasing need to partner with government, someone almost always brings up Uber. After all, Uber didn’t partner with government or even work with government. They employed a strategy of “ask forgiveness, not permission” (though I’m not sure they actually asked for either). And it worked. Spectacularly. Without partnerships and without consent, Uber created a platform, solicited drivers, ignored the incumbents, and emerged a near-overnight success. If it worked for Uber, why not others?

I’d say there are several reasons. First, Uber was primarily dealing with local governments—dozens, then hundreds of localities, each with different rules and regulations, different power bases, and different degrees of influence. That gave them the opportunity to employ a “divide-and-conquer” strategy, launching city by city to build enough critical mass in the marketplace. This strategy can work if it’s local. But as soon as Uber’s expansion took the strategy beyond the local level, they ran into trouble. There were lawsuits and regulatory challenges in nearly a dozen states. The company faced bans in Germany, the Netherlands, Brussels, and Thailand, along with parts of Australia, India, and South Africa. They had to retreat in
Spain and South Korea, where they suspended operations in response to relentless public pressure.
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And in France, Uber executives were arrested in response to violent protests and jailed for operating an illegal taxi company. Shortly thereafter, Uber eliminated their lower-cost service there.

Still, their situation is unusual. They were facing a series of small battles, some of which they could afford to lose, as long as they could continue operating in a wide range of cities. And by the time the battles got bigger, they had the market behind them. They had the early capital to fight a multifront war—in the marketplace, in the courtrooms, and in the halls of governments throughout the world.

Additionally, Uber had the ability to provide their service, end to end, without government assistance. They didn’t need the government to do anything affirmatively. They just needed it to stay out of the way. And lastly, Uber had the public on its side because of the particular regulations it was fighting. Rather than rules written to protect consumers, the rules Uber was challenging were written primarily to protect incumbent taxi companies. By arguing that they were fighting against rules that were hurting consumers, they had an easy time ginning up opposition.

This will not be the case for most Third Wave startups. A company that wants to change the way urbanites hail a car is one thing. A company that wants to revolutionize the way we lend money or deliver government services, a company that wants to connect wind power to our cities or feed the children in our schools—these
kinds of disruptors will need to work with government, not as an adversary but as a partner.

As we move into the Third Wave, one of the battles I’d like to see end is the animosity that brews between Silicon Valley and Washington, DC. Some of the most famous Silicon Valley elites have adopted a hyperlibertarian view of government, convinced that it is merely an impediment to progress, an enemy of entrepreneurship, and an obstacle to innovation. One of its most famous adherents, venture capitalist Peter Thiel, sums up the world view this way: “I stand against confiscatory taxes, totalitarian collectives, and the ideology of the inevitability of the death of every individual.” Whatever that means.

Here’s what people like Thiel get right: Government is slow. It is frustrating. It is dysfunctional. Our legislative process is broken. Our regulatory system is outdated. And the slow pace of change in government is bad for business. But the Valley is wrong to view government as the enemy. It’s wrong to measure government the same way it measures businesses. They exist in fundamentally different sectors, working with different rules, executing against different missions. The ultimate goals of government, at least in the United States and in most countries around the world, are, for the most part, noble. And when it can help, and where it can help, it can do so on a scale that no private company or nonprofit organization can contemplate.

Silicon Valley elites are also wrong to think of government officials as naïve to the needs of business. Sure, some don’t get it, and some even mistrust businesses—and yes, it would be better if more of our elected officials and bureaucrats had business experience and, in particular, entrepreneurial experience. But to call them naïve is too strong. They have a different constituency—the voters—and different motivations. And they’re tasked with striking the right balance between the needs of business and the needs of citizens.

Governing is a purposefully complex process, designed to be collaborative but also to include considerable restraints. Businesses don’t have divided governance. A CEO can make a decision to do something and in essence compel the management team to fall in line and execute it. A president can make some executive decisions but can’t make laws or authorize new spending. As a result, most of the big strategic decisions must be made collaboratively with Congress. If a board of directors and a CEO clash, the board can appoint a new CEO. Congress can’t appoint a new president, and the president can’t appoint a new Congress. And have you ever heard of a corporate board using a filibuster?

Where there is an intersection between business and government—or at least, where there ought to be—is on mission. It is no longer acceptable for businesses to see the world purely through the lens of profits and customers; there is also a patriotic duty to make our country stronger, our people more empowered, and the world better. That is as much a responsibility of business as it is of government.

O
NE OF
the pioneers of the early motion picture industry was a producer named Irving Thalberg. Thalberg produced films for MGM, hundreds of them, and he had a reputation for being an obsessive workaholic. He’d overbook his schedule, miss meetings, make important people wait for hours for an appointment. He became nearly impossible to get hold of, creating bottlenecks in his productions and frustrations among his colleagues. As legend goes, the Marx brothers once arrived for a meeting, only to hear that Thalberg would be thirty minutes late. Frustrated, they lit two cigars each and began blowing smoke under Thalberg’s door.

“Is there a fire?!” Thalberg exclaimed, bursting from his office.

“No,” said Groucho, “there’s the Marx brothers.”

Too often these days, it seems as though the only way entrepreneurs can get the government to pay attention to them
is to follow Groucho’s strategy: Blow smoke . . . blow a lot of smoke . . . and hope someone thinks it’s fire.

For our purposes here, however, I’m not interested in blowing smoke. I’ve made it clear that I think that government has an essential role to play in Third Wave entrepreneurship, and that I have little patience for people who are dismissive of that role. But I am not naïve. I understand that, as important as it is for entrepreneurs to take government seriously, it’s even more important for government to take entrepreneurs seriously.

Due to the magnitude of the Third Wave, we know that the benefits for American consumers can be profound. But what we don’t yet know is which economy will accrue the benefits that come from Third Wave entrepreneurship. It is true, of course, that the United States has spent the better part of the century in a global leadership position. But increasingly, our incumbency has led to complacency. During the Third Wave, it may well be America that is disrupted.

This may sound overblown. But it wouldn’t be the first time other countries challenged American dominance. There have been numerous occasions in our history when a great industry, born in the United States, ended up relocated elsewhere. In 2015, none of the top five automakers were American companies, and not a single American company manufactured television screens in the United States. These are industries that were born in America. We have a way, it seems, of ceding opportunities rather than seizing them. If the same holds true during the Third Wave, the most significant economic
transformation of the next two decades could be the great achievement of others.

What can the United States do to prevent that future? How can we ensure that Third Wave companies choose to start here, to put down roots here, and find success here? I believe there are six areas where the government should concentrate.

Especially where policy is concerned, there is a meaningful difference between startups and small businesses. Both are critical to the U.S. economy, but founders who hope to build a “startup” are looking to do something fundamentally different than those looking to start a small business. In general, “startup” is a term reserved for companies that can scale quickly and that can disrupt an existing category. Startups are generally backed by venture investors who see the potential for ten or even one hundred times the return on investment. Small businesses, on the other hand, are generally funded with debt financing—a small business loan from a local bank, for example—and their aim is to grow steadily over time. They aspire to have a steady number of employees, customers, and revenues over a long period. The difference between the two is reflected both in the kinds of problems they are trying to solve and in their effect on the broader economy. Indeed, it is not small businesses but new business startups that account for nearly all of the net new job creation in the United States. The top-performing 1 percent of startups—often referred to as gazelles—are responsible for roughly 40 percent of new job creation each year.

The following chart helps illustrate the importance of startups to job creation.

Startups Create Most New Net Jobs in the United States

Source: Business Dynamics Statistics, Tim Kane

The Importance of Startups (Young, High-Growth Companies) in Job Creation

When you hear most politicians talking about job creation, they tend to lump small businesses and startups together and to pursue policies that help the former more than they do the latter. It should be the opposite: If politicians want to spur job creation, their focus should be on making it easier for new
startups
to succeed.