ARPA and DARPA and Not

                                  ARPA and DARPA and Not

The Spectator has an article on Dominic Cummings’s plan to hype the British economy through the creation of another ARPA. 

The first Advanced Research Projects Agency was created in the US in 1958. The previous year the Soviets had launched the world’s first artificial orbital satellite, Sputnik. The thought was that only if the US immediately copied the brilliant engineers who ran the Soviet Union could the West hope to keep up. What emerged was the basis for digital technology.

In his 2002 book Digital Culture, Charlie Gere reveals that crediting those inventions to ARPA isn’t so simple:

‘The first head of XeroxPARC was Bob Taylor [of] ARPA’s computing research arm… The Mansfield amendment and the presence of Taylor at XeroxPARC meant that many talented computer scientists and researchers who had been ARPA-funded were drawn to the Centre [ie, the Xerox Palo Alto Research Center].’

The Mansfield amendment was the amendment by which Senator Mike Mansfield, in 1973, stopped ARPA from doing any further pure research. Thereafter it was to be limited only to applied defense work. Its name subsequently changed to DARPA (the Defense Advanced Research Projects Agency.) 

The article called the amendment "infamous." There is an interesting argument over the success and productivity of focused research programs rather than those more free-range.

The researchers streamed out of ARPA to the private sector and XeroxPARC, the Xerox Palo Alto Research Center, to create all of those technological advances. So it was only because the U.S.’s ARPA was depopulated that the U.S. pioneered today’s tech revolution.

What model is Mr. Cummings advancing?

Lessons From Space

                                                           

                             Lessons From Space

How do you survive in space? It turns out that mental models are really useful. In his book An Astronaut’s Guide to Life on Earth, Chris Hadfield gives an in-depth look into the learning and knowledge required for a successful space mission. Hadfield was, among other roles with NASA, the first Canadian commander of the International Space Station. He doesn’t call out mental models specifically, but the thinking he describes demonstrates a ton of them, from circle of competence to margin of safety. His lessons are both counter-intuitive and useful far beyond space missions. Here are some of them assembled by Farnam St.: 

“An astronaut is someone who’s able to make good decisions quickly, with incomplete information, when the consequences really matter. I didn’t miraculously become one either, after just eight days in space. But I did get in touch with the fact that I didn’t even know what I didn’t know.” (circle of competence) 

“Over time, I learned how to anticipate problems in order to prevent them, and how to respond effectively in critical situations.” (second-order thinking) 

“Success is feeling good about the work you do throughout the long, unheralded journey that may or may not wind up at the launch pad. You can’t view training solely as a stepping stone to something loftier. It’s got to be an end in itself.” (velocity) 

“A lot of our training is like this: we learn how to do things that contribute in a very small way to a much larger mission but do absolutely nothing for our own career prospects.” (cooperation) 

“If you’re not sure what to be alarmed about, everything is alarming.” (probabilistic thinking) 

“Truly being ready means understanding what could go wrong – and having a plan to deal with it.” (margin of safety) 

“A sim [simulation] is an opportunity to practice but frequently it’s also a wake-up call: we really don’t know exactly what we’re doing and we’d better figure it out before we’re facing this situation in space.” (back-up systems) 

“In any field, it’s a plus if you view criticism as potentially helpful advice rather than as a personal attack.” (inversion)

“At NASA, we’re not just expected to respond positively to criticism, but to go one step further and draw attention to our own missteps and miscalculations. It’s not easy for hyper-competitive people to talk openly about screw-ups that make them look foolish or incompetent. Management has to create a climate where owning up to mistakes is permissible and colleagues have to agree, collectively, to cut each other some slack.” (friction and viscosity) 

“If you’re only thinking about yourself, you can’t see the whole picture.” (relativity) 

“Over the years I’ve learned that investing in other people’s success doesn’t just make them more likely to enjoy working with me. It also improves my own chances of survival and success.” (reciprocity) 

“It’s obvious that you have to plan for a major life event like a launch. You can’t just wing it. What’s less obvious, perhaps, is that it makes sense to come up with an equally detailed plan for how to adapt afterward.” (adaptation and the red queen effect) 

“Our expertise is the result of the training provided by thousands of experts around the world, and the support provided by thousands of technicians in five different space agencies.” (scale) 

“The best way to contribute to a brand-new environment is not by trying to prove what a wonderful addition you are. It’s by trying to have a neutral impact, to observe and learn from those who are already there, and to pitch in with grunt work wherever possible.” (ecosystem) 

“When you’re the least experienced person in the room, it’s not the time to show off. You don’t yet know what you don’t know – and regardless of your abilities, your experience and your level of authority, there will definitely be something you don’t know.” (circle of competence) 

“Ultimately, leadership is not about glorious crowning acts. It’s about keeping your team focused on a goal and motivated to do their best to achieve it.” (hierarchical instincts) 

“If you start thinking that only your biggest and shiniest moments count, you’re setting yourself up to feel like a failure most of the time.” (map is not the territory)

Invention vs. Innovation

One often hears about the creative power of the State, an entity whose main attributes seems to be confiscation and blowing things up. This is a discussion by Worstal on the subject:

Ms Mazzucato is the economist who insists that government is responsible for innovation in this world of ours, the same Government that took four months to notice a typo on her visa application, she argues, is the one which made the iPhone possible.

She’s written an entire book on the subject of the entrepreneurial state and is setting up an institute to propagate the idea.

The problem with her assertion is that she, and her acolytes, have forgotten the basic economics of invention and innovation. Something which we really should remember given that William Baumol, the man who explained it all to us, died recently.

The essential point is that we must distinguish between invention, the creation of new things, and innovation, the combining of extant things to enable new things to be done. Baumol was insistent that the state was equally good, or equally bad, if you prefer, at that invention part in comparison with the market unadorned. But the market performed heroically in comparison with the state with regard to innovation.

The word entrepreneur is not meant to mean someone who invents new stuff, it’s meant to mean someone who organises stuff in a new manner. An entrepreneur collates capital, labour, technology, in order either to sate some human need, or to do so in a different manner. The state, as Baumol insists, is bad at being the entrepreneur.

Mazzucato’s basic observation is that the varied underlying technologies which go into an iPhone were all backed by government money. The touch screen for example. It was, in a small way, state funded in America.

GPS for example, was designed to let soldiers know where they were and where the enemy was assumed to be. We can call that invention. But no government ever thought to put that same technology into a smartphone so that we could be sent an ad by the doughnut shop we just walked past. That’s innovation, a new use for an extant piece of technology.

As for our government, we wanted to have a slice of the equity in what was being developed with tax money – the touch screen technology. The American version of the same sort of thing was also developed with tax money through Darpa, the defence research agency. But the one thing that Darpa never does do is take equity stakes in technologies it funds. That’s why any old entrepreneur can pick up a Darpa funded technology, play with it, and see if it can be combined in some useful manner into something people want.

Inventions are public goods, gaining access to public goods is one of the reasons we have government – because ownership of such isn’t really possible. Which is why, if the state does produce them it should give them away. We’ve paid our taxes, we’ve got our public goods, what’s the problem here?

And no, the state did not invent the iPhone. That’s innovation, the one thing government is provably, ridiculously, bad at.

Sell Me This Pen‏

This was on Quora, an answer to the interview question, "How would you sell me this pen?" It is interesting that all these clever responses to formerly clever questions has seemed to create a more free-form interview process.

This is the answer that reportedly the best salesman in the world answered to Johnny Carson.

While the salesman was a guest on the show Johnny said, "I understand you sold more than any other salesman this year at your firm. How about you sell me something."

The salesman said, "what would you want me to sell you?"

"I don't know, how about this ashtray." Johnny answered.

"Why would I sell you that ashtray?" the salesman replied.

"Well, it is a useful thing to have around, a lot of our guests use it, and it also matches the desk." Johnny answered.

The salesman asked, "How much do you think that ashtray is worth?"

"I don't know maybe $199" Johnny replied.

"Tell you what. You can have it for $50."

The Cauldron of Success

Edison famously said that he did not have 1000 failures to construct a usable light bulb, he discovered 1000 ways not to make one. This implies a progress in failure.
One hears this often. So many people with eventual success worked their way through failure, sometimes significant failure. This implies that failure may be part of the process of success, as if failure in business or life was like a science lab where each setback purified the vision, clarified the next step and allowed for eventual success.
Failure as the co-enzyme of success.
But is that true? Is the real success a product of bad experiences or is it a combination of great energy, fortitude and vision overcoming the temporary? Everyone has failures. Is failure really a process or is success a function of the individual's ability to make it a process so that eventual success only heightens the appearance of the earlier drawback?
Are all failures opportunities to learn?

The Chan Zuckerberg Initiative‏

It is not everyday one gets to sympathize with a billionaire.
Mark Zuckerberg of Facebook announced his plans to give away all his money--about 45 billion dollars. Yet he has been savaged recent editorials. He has revealed a lot of faults in his effort at good will.
First, his aims of his charity have been attacked as vague.
Zuckerman defined them this way:
"Advancing human potential is about pushing the boundaries on how great a human life can be.
Can you learn and experience 100 times more than we do today?
Can our generation cure disease so you live much longer and healthier lives?
Can we connect the world so you have access to every idea, person and opportunity?
Can we harness more clean energy so you can invent things we can’t conceive of today while protecting the environment?
Can we cultivate entrepreneurship so you can build any business and solve any challenge to grow peace and prosperity?"
Well, they are a little vague.
Worse, his charity is suspect because he has structured it as a limited partnership so he can control it rather than giving it to someone else:
"The Chan Zuckerberg Initiative is not even an actual charitable organization, but rather structured as an LLC. Unlike a charitable trust, which is compelled to spend its money on charity, Chan Zuckerberg Initiative, LLC will be able to spend its money on whatever it wants, including private, profit-generating investment," someone howled.
Apparently others are more altruistic with other people's money.
The final criticism is that he is stealing money from taxes; I guess taxation is a really efficient way to do good works.
He is now trying to defend his charity in the press.

This is a new and vengeful age of altruism. 

Startups and Demographics

The U.S. startup rate has been falling for decades. The Kauffman Foundation, citing its own research and drawing on U.S. Census data, concluded that the number of companies less than a year old had declined as a share of all businesses by nearly 44 percent between 1978 and 2012. And those declines swept across industries, including tech. Meanwhile, the Brookings Institution, also using Census data, established that the number of new businesses is down across the country and that more businesses are dying than are being born. John Dearie is executive vice president for policy at the Financial Services Forum. He said, “I would say, as a policy person, this is nothing short of a national emergency.”  In his book Where the Jobs Are: Entrepreneurship and the Soul of the American Economy, Dearie and his co-author interviewed more than 200 founders about the challenges of building businesses. Their subjects cited five: insufficient access to capital; difficulty finding people with the right skills; immigration policies that keep talent out; onerous taxes and regulations; and economic uncertainty.
Starting a business is generally a young person's game but that drive and innovative urge can be challenged by risk. According to the Global Entrepreneurship Monitor (GEM), a consortium of academic teams in more than 70 countries, until last year 25-to-34-year-olds were significantly more worried about failure than 35-to-54-year-olds. But there’s a hopeful sign for startup rates: In the past year, young people have begun to display more confidence. In 2014, just 34 percent of 25-to-34-year-olds said fear of failure would prevent them from starting a business, down from 41 percent a year earlier.
And there is a shrinking, modern market as the population ages. On the demand side, a slowing population means less demand for new products.
Research by Mattermark, which tracks startup data, shows that between 2005 and 2014 the size of seed investments made by VCs stayed flat. The size of C, D, and E rounds, by contrast, roughly doubled. The number of small seed rounds has recently dropped, according to PitchBook, with investments below $500,000 declining 61 percent between the first quarter of 2013 and the fourth quarter of 2014. Below the VC level, angels and seed funds have proliferated as startup costs have decreased. But even angels’ interest in fledglings is down.
But even where capital is becoming more accessible, other forms of support may not be. The number of accelerators and incubators continues to expand. But LaPan says too many of those programs target companies with proven customer demand, validated business models, and savvy management teams. In addition, the large number of industry-specific programs doesn’t necessarily reflect the interests of far-flung entrepreneurs.
In terms of employees, the average startup was a third smaller in 2011 than in 2001, according to research by Gary Kunkle, an economist and founder of research firm Outlier. Many of these businesses lack resources or ambitions to grow. But some stay small by choice, because technology makes it possible and the rewards of being nimble make it desirable.
One possible positive: Ten years from now, we’ll have more people in their 30s than ever before in history.

Sprint, Radio Shack and the New Business

My phone began to require charging every eight hours then, finally, expired. I assumed I needed a new battery so I went back to Radio Shack where I had bought it. They said I needed a new phone and signed me up for an expensive one. Then, to everyone's shock, the transaction could not go through because Sprint, the carrier, insisted it be done at their own store. Since I spent an hour already and the Sprint store was across town, I decided on retrying another day.

The next day I drove across town and spent an hour finding the Sprint store. There a huge muscular guy told me the phone was fine but the battery was not. I needed a new battery--probably 50 bucks or more--but I could not get it there; I had to go across town to the Sprint specialty store.

I left there for the other Sprint store. It was rush hour and a tough drive. More, the Sprint store was cleverly hidden. After searching I found it and, as I walked in, a young woman exited with her young child, cursing viciously about how she had wasted all her time finding the store and nothing was achieved. The child was somehow responsible. Inside I was told by a nice, condescending lady that my battery was fine; my charger was broken. Since three separate chargers had failed to charge the battery, I replied, the charger was an unlikely culprit. She assumed full condescension mode and plugged the phone into her charger. Sure enough, the phone flickered.

"See?" she said in triumph.

Now in my fourth hour of phone diagnosis I felt at least as competent. "You are just waking the electrons up. The battery is dead," I replied.

She shrugged and gave me a new battery for free. Now the phone is fine.

Hours of searching, multiple errors in assessment, inconvenience on inconvenience culminating in a free product given to me to prove I'm wrong. Does this make any sense?

The Power of Garages

The Cadillac CTS has a TV commercial on what great things come out of garages. They focus on start-ups and innovators: The Wright Brothers, Amazon, Hewlett-Packard, Disney, Mattel, the Ramones--all started in a garage. I am not sure the Ramones had access to a garage but the ad then shifts to their new car as it comes out of a garage.
It is a clever little spot--but dangerous. If the Federal Government sees it, they might start subsidizing the building of garages to encourage small businesses.

Cost, Price and Crony Capitalism

 

Section 340B of the Public Health Service Act (created under Section 602 of the Veterans Health Care Act of 1992) was enacted in November 1992. Under 340B, eligible hospitals are allowed to buy drugs from drug companies at forced discounts of 25% to 50%. The hospitals can then bill government and private insurers for the full cost of the drugs, pocketing the spread. 340B-qualified hospitals have a big incentive to search for patients and prescribe lots of drugs. The costlier the drugs, the bigger the spread. Expensive cancer drugs are especially appealing. The original legislation creating 340B envisioned that only about 90 hospitals that care for a "disproportionate share" of indigent patients would qualify. But free money was being made available in a very difficult and uncertain field. By 2011, 1,675 hospitals, or a third of all hospitals in the country, were 340B-qualified.

Take the Duke University Health System. In 2011, Duke bought $54.8 million in drugs from the discount program and sold them to patients for $131.8 million, for a profit of $76.9 million. That profit was a substantial portion of the health system's 2011 operating profit of $190 million. (Only one in 20 patients served by Duke's 340B pharmacy is uninsured.)

In the process, treatment of the doctor's patients is moved from an office setting to a hospital outpatient department. Hospital care is considerably more expensive. As a result, between 2005 and 2011 the amount of chemotherapy infused in doctors' offices fell to 67%, from 87%, according to a new analysis of Medicare billing data done for community oncology groups. The share of Medicare payments for chemotherapy administered in hospitals (as opposed to outpatient oncology practices) increased to 41% in 2011, from 16.2% in 2005. Because the overhead for a hospital is higher than for a doctor's office, a patient treated in a hospital clinic incurs $6,500 more in costs than the same person treated in a private medical office, according to data from the Community Oncology Alliance. Patients who get chemotherapy at a hospital also face an additional $650 in co-pays and other out-of-pocket expenses. The price for infusing the drugs alone rises by 55%, according to an analysis of Medicare data. These inflated prices for cancer treatment inevitably drive up the cost of health insurance.

The new health-care law, The Affordable Care Act, expands 340B to cover cancer centers, new categories of hospitals and rural health centers. Since one of the ways that hospitals qualify for 340B turns on how many Medicaid patients they serve, ObamaCare's Medicaid expansion will also increase the number of 340B-eligible entities. More than 400 oncology practices have been acquired by hospitals since ObamaCare passed. Acquiring a single oncologist and moving the doctor's drug prescriptions under a hospital's 340B program can generate an additional profit of more than $1 million for a hospital.

The administration has used informal "subregulatory guidance" to expand the 340B program still further. One big change came in March 2010 "guidance" that allows hospitals to contract with an unlimited number of neighborhood pharmacies to dispense drugs through them. There is no requirement that these "satellite" pharmacies have any geographic tie to the hospital. This has created an industry of middlemen who build vast networks of pharmacies, all to expand the number of 340B prescriptions that a hospital can capture. There are now more than 25,000 arrangements between such satellite pharmacies and 340B-qualified treatment sites, according to the Health Resources and Services Administration. More, the definition of a "covered patient" for 340B purposes is so murky that hospitals are able to buy and bill discounted drugs for patients when the hospital merely serves as a conduit and doesn't give direct patient care.

Costs rising, private practices contracting, hospitals making egocentric business --not community health--decisions--these are not healthy signs. Influence peddling and graft are certainly factors here and unintended consequences of a gigantic program like this are to be explained. The problem is they do not seem to be anticipated.

(Much of this is from Dr. Scott Gottlieb's article in the WSJ.)

State Capitalism and the Entrepreneur

One of the problems with managed capitalism as is seen in the Asian countries is the process of "creative destruction". It is not a pleasant process for lunching bureaucrats and moral thought leaders; it is a cauldron of unrest. How many promising computer corporations rose and died before we reached our current status and how would such an evolution be managed by shortsighted, conflicted and dishonest bureaucrats? How many gazelles would have to be shackled in the name of fairness to the possums? How many Solyndra Frankensteins must be floated, how many GMs resuscitated and intubated?

Start-up investors sometimes refer to the formative period in early companies as "The Valley of Death." The company has an early development stage, it stabilizes and then must prove its worth in the competitive landscape where it will succeed or fail. This period of vulnerability is "The Valley of Death", the graveyard of good ideas, where the theoretical meets the practical, the idea, reality. If the service or product cannot show itself of value early in the competitive arena, it will die. The Valley of Death is filled with fear, anguish and screams. It is not the place for malleable bureaucrats, people without conviction or vision. Indeed, one of the strengths of the entrepreneur is his selective vision, his ability to see across the valley to success. Aggression, confidence, self-assurance, long vision, passion--these are the qualities of the builder, the entrepreneur. In fact, many staid and settled companies, hoping to create some entrepreneurial energy within, have purposely separated their entrepreneurs from oversight.

In essence, the entrepreneur is unmanageable.

Steven Blank and Start-ups

I heard an interview recently with Steven Blank, the renowned entrepreneur/teacher at Stanford on start-up companies. He is a Consulting Professor at Stanford in the Graduate School of Engineering STVP Program and has been a founder or participant in eight Silicon Valley startups since 1978. His last company, E.piphany, started in his living room. His other startups include two semiconductor companies (Zilog and MIPS Computers), a workstation company (Convergent Technologies), a supercomputer firm (Ardent), a computer peripheral supplier (SuperMac), a military intelligence systems supplier (ESL) and a video game company (Rocket Science Games). Here is a summary of his opinions. What is most interesting is the distinction he makes between large and small. There is no homogeneity between small and large. Small is not a downsized version of large, or a fraction of large. Small and large companies are different entities, different species. And for large companies to create the small company, they must not just downsize, they must mutate.

Blank:
In the start-up building there are no rules, only opinions.
Start-ups are not small versions of large businesses, therefore, there cannot be a business plan.
Business plans explode with the first customer contact.
Start-ups evolve with rapid and nimble experimentation.
The notion of start-ups is really from engineering, not business schools. Business schools are taught by consultants to large businesses. The start-up entrepreneur must escape them, not adapt them.
Large companies are good at innovation only to sustain themselves; it is an elaboration of or improvement on existing products. It is very difficult for them to innovate disruptively. Large companies that have done so successfully have broken their innovative team into small groups and have not allowed them to report to middle management.
Marketing is extremely difficult for start-ups and small companies. Unlike mature companies where the customer knows what he wants and can guide the company, the new market can not be predicted. (e.g. the small dot com companies trying to market on the Super Bowl.)
His three recommended start-up books: Business model Generation by Alex Osterwalder, Lean Start-Up by Eric Reese, and 4 Steps to Epiphany by Steven Blank (Himself)

Camp Followers of the Political Wars

Small businesses stake out territory all the time. But a new small business has emerged which does more than stake out territory, it creates it out of whole cloth and then exploits it. It is reminiscent of the line about Lacoste shirts, "a club where you can nominate yourself--then vote yourself in." So someone endows a university chair in "environmental international politics" or "transgender studies" and a whole new world of unasked questions emerge which they now dominate by fiat. Charities are terrific for this. One can create your own charity and spend the rest of your life attracting tax-free capital to investigate anything you want, transgender studies included. You can give organizational leadership to your kids. (A Hollywood star asked that his son receive no gifts at his birth but rather requested that donations be made to a newly created charity that he would run when he grew up. His parents could also contribute unlimited money and deduct the capital their son would live on.)

These distortions are probably inevitable in a free and open minded society but the political entrepreneurs are increasingly harder to take. The Left and the Right have become their own propaganda machines that hawk products to reinforce the prejudices of their supporters, aided and abetted by their respective radio and television networks whose programs have become products themselves. FOX is the worst.It has become like a local sports show. Every story is inflammatory, everyone furious to keep the audience's blood (and viewership) up. Every interview has the ulterior motive of some nitch the guest is trying to fill. Every guest has a book and a website. (A radio station owner recently described his audience as "angry white males" with an emphasis on "angry.") There is no objectivity, no compromise, no progress and certainly no solutions to be offered when your audience is specifically characterized as "angry." Everything is designed to feed into this vortex of ever decreasing radius, pointing to the apex of isolation and fury, every step bought and paid for, every step with a book or a button or a shirt available as well.

The difficulty here is that we generally think of politics as debate, give and take, then resolution. But that is not possible when your opinions are a product.

Saras Sarasvathy 2

How is it possible that The United States, home of the most self conscious entrepreneurial culture in the history of the world, could have only forty masters programs and six PhD programs devoted to the study of entrepreneurs? Business schools teach the management of corporate business--going businesses--but how are those businesses started?

Saras Sarasvathy works within the University of Virginia's Darden School of Business where her courses on entrepreneurial business are part of the overall business curriculum. But her descriptions of business starters sound like a species quite separate from corporate business types.

She compares entrepreneurs to "Iron Chefs"; they make success out of what ingredients they are given while the corporate man prefers the planned menu. Entrepreneurs have an aversion to research, "the careful forecast being the enemy of the fortuitous surprise." Small information is limiting to their expansive and optimistic minds. They prefer the doable, the achievable. They plan to build on that success. She calls the corporate mind "hunter gatherer", focused on competition and what ground can be gained from them. The entrepreneur is building a new land, the corporate man is rearranging the boundaries of existing geography.

This doesn't sound as if the entrepreneur is a subset of business education, he sounds like a different breed. He also sounds really important. http://steeleydock.blogspot.com/2010/04/read-your-own-stats.html

It sounds as if he needs his own educational stomping ground.

Saras Saravasvathy

Saras Sarasvathy is a rare sort; she studies entrepreneurs and how they think. One would guess this is a common field in this country but it is surprisingly rare. There are fewer than 50 masters programs (fewer than 40 if you exclude the Phoenix degrees) and 6 PhD programs in the United States. So few centers of study for such an important topic. One would think in America there would be a Cabinet position on entrepreneurs.

Sarasvathy was on a radio program recently (http://taeradio.com/) and she was impressive. She can call on research and large case studies where she has examined the nature of the successful entrepreneur and some of her conclusions are surprising. For example, contrary to common entrepreneurial belief, successful entrepreneurs are not fearless, they risk only what they calculatingly feel they can lose; they never go "all in" because they want to be able to play again should they fail. Enthusiasm for the project among employees regardless of company position is crucial to success; similarly, never hire a job description. Some of the best hires are people who want to do a great job for the project in the position they were hired for, not people who are hired hoping they will advance out of the position. And employee stake in the project is a must.

And her observations are broader than business and insightful. When pressed about the freedom that creation of a business engenders without a direct reference to Rand she observed freedom is not license, it is the unfettered right to choose your own constraints. When the questioner missed her intent, she pressed him.

Maybe she could be the first Secretary of Entrepreneurs.