Smart People Should Build Things by Andrew Yang by Andrew Yang - Read Online

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Smart People Should Build Things - Andrew Yang

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Dedication

This book is dedicated to everyone who helped bring Venture for America into the world and continues to support our organization’s progress. We’re grateful each day.

Contents

Dedication

Introduction

Part One: Where Our Talent Is Going

1 The Prestige Pathways

2 Too Much of a Good Thing

3 Professional Training Cuts Both Ways

4 Network Effects and Why Human Capital Markets Don’t Self-Correct

Part Two: Building Things

5 Building Things Is Really Hard

6 How You Get Better

7 Running a Company

8 Rent-Seeking versus Value Creation

Part Three: Solving the Problem

9 The Qualities We Need

10 Building a Machine to Fix the Machine

11 The Future Changes for at Least a Few

12 Teams of Builders

13 Training Camp, and Notes from the Field

Part Four: The Future

14 How to Get Smart People to Build Things

Acknowledgments

Appendix A: Venture for America Mission Statement and Credo

Appendix B: The State of Venture for America

Appendix C: Accounts from 2012 and 2013 Venture Fellows

Appendix D: Job Traits

Appendix E: 2012 Venture Fellows and Their Employers

Appendix F: The Postgraduate Paths of National University Graduates

Notes

Index

About the Author

Copyright

About the Publisher

Introduction

We’ve got a problem: our smart people are doing the wrong things. If we can get them to do the right things, it will transform the country.

It was 2000, and Charlie Kroll was a senior about to graduate from Brown University. He had his heart set on returning to New York City and becoming an investment banker; he studied economics and was the treasurer of the Brown Investment Group. To his surprise, he didn’t get the position he wanted with Morgan Stanley, despite being a strong student who had interned at Morgan Stanley and UBS in New York and London the previous two summers. He recovered from his disappointment quickly, and started a website development company, Andera, out of his dorm room. He submitted his business plan to a college competition, and though he didn’t win, his adviser saw a spark in Charlie and offered to invest some seed money. Over the following year, Charlie was able to raise $300,000, and his company grew from one to six employees. Things looked promising.

Then, in 2001, the tech bubble burst. No one wanted to pay top dollar for a website. Andera struggled, even threatening to miss payroll a few times, with Charlie worrying what he’d say to his employees as he let them go. At one point, he even asked his girlfriend Jen to invest, which she did. She must have had real faith in him, because Charlie wasn’t sure where his company was headed at the time.

Charlie fought to keep Andera afloat. During his third year in business, he met with the head of a regional bank and pitched Andera’s website services to her. After he gave his pitch, she said, Thanks for the presentation, but let me tell you what I’m really interested in. We need something that would help our customers open accounts online more easily. Is that something you could help with?

Sure, Charlie said. We can do that. He then went back to his office to figure out just what would be involved in solving the bank executive’s problem. A few months later, his company had a new customer and a new direction. Andera found its niche helping regional banks provide some of the same online convenience as the big national banks. It gained dozens—and then hundreds—of community banks as customers. Jen’s investment paid off in more ways than one; the couple got married a few years later and now they have two beautiful children. Today, Andera is a multimillion-dollar software company employing almost a hundred people in Providence, Rhode Island, a city that has an unemployment rate of over 10 percent.

If Morgan Stanley had offered Charlie that job, Andera probably wouldn’t exist, Providence’s unemployment rate would be a little bit higher, and regional banks would be a little bit less competitive. But what if Charlie were the norm instead of the exception? What if the same level of talent that is currently heading to finance or law school or management consulting instead went to starting or developing growth companies like Andera? What if 25 percent of our top graduates went to startups around the country each year instead of to Wall Street? How long would that take to generate thousands of new jobs, companies, opportunities, and even industries?

This book is going to help answer these questions.

I believe there’s a basic solution to our country’s economic and social problems. We need to get our smart people building things (again). They’re not really doing it right now. They’d like to. But they’re being led down certain paths during and after college and told not to worry, they can figure it out later.

Take me, for instance. I wasn’t nearly as enterprising as Charlie when I graduated from Brown in 1996. I had a general desire to be smart, accomplished, and successful—whatever that meant. So I went to law school and became a corporate attorney in New York.

I figured out I was in the wrong place after a number of months working at the law firm. I left in less than a year and cofounded a dot-com company, Stargiving, which helped raise money for celebrity-affiliated nonprofits. It was extraordinarily difficult. My company failed spectacularly, but I recovered. I went to work for a mobile software company, Crisp Wireless, and then a health care software company, MMF Systems, over the next five years, eventually becoming the CEO of a test-prep company, Manhattan GMAT, in 2006.

I spent five years running Manhattan GMAT, helping young people get into business school. I taught our corporate classes of investment banking analysts and consultants at Goldman Sachs, McKinsey and Company, JPMorgan Chase, Morgan Stanley, and Deloitte, as well as hundreds of individual students over the years. Some were exactly where they wanted to be. But there seemed to be just as many top-notch young people who wondered why they didn’t like their jobs more. They sought a higher sense of engagement with their work and their careers. Sometimes they would put words to what they were looking for; they’d say they wanted something entrepreneurial or to be really excited about something.

By the time my company was acquired by Kaplan and its parent, the Washington Post Company, in 2009, I knew a few things. I knew that there were promising startups and growth companies all over the country that needed talent to expand and thrive. I knew firsthand that there was an army of talented, ambitious, somewhat directionless young people who’d love to work for a startup. And I knew that if we could connect these two groups, we’d help everyone: the individuals, the companies, cities and communities around the country, the economy, and society as a whole.

When I was younger, I subscribed to a general view of our educational system that goes something like this: If you study hard and do well in high school, you’ll get into a good college. Where you go to college is very important. Then, if you do well in college, perhaps you’ll go on to law school or med school, or maybe academia if you’re an intellectual sort. In any case, if you’re smart and work hard, you’ll wind up with a good job.

That good job, in this scenario, is a job that requires a lot of complex analytical thinking and pays well, like investment banking or management consulting. If a student takes a professional route, becoming a lawyer, doctor, accountant, or dentist, he or she will need additional years of special training to develop professional skills and judgment—all very attractive to high achievers.

This is our system of training and employment, and it functions very well. Smart, hardworking kids go to good schools and get trained for good jobs. The job market operates with great efficiency, and that is a big reason why our economy is so successful.

There’s another view of the current system, though—that it’s a mess. Ambitious college students have no real idea what to do upon graduation, but they’re trained to seek the next level. Many apply to law school, grad school, or even medical school because of a vague notion of status and progress rather than a genuine desire or natural fit. Those who try to do something independently often find themselves frustrated by their lack of rapid advancement, and so default to a more structured path of law school, business school, or graduate school. The concentration in professional services leads our national university graduates to congregate in a handful of metropolitan areas—primarily New York City, Silicon Valley, Boston, and Washington, DC. Those who become bankers or consultants are highly paid and heavily socialized, yet many become disaffected due to a lack of purpose or unsustainable lifestyle, and some simply discover they don’t enjoy their roles. We train thousands more lawyers each year than legal jobs exist for, and hundreds more academics than there are academic jobs. Each path throws off waves of refugees who are often at a loss as to what to do with themselves, only at that point they’re in their late twenties, possibly in debt or used to an expensive lifestyle, and trained to do something narrow and specific.

Meanwhile, massive needs in other sectors are not being met. American companies need smart people who can manage, operate, innovate, and improve them. And startups and early-stage growth companies are in desperate need of talent in order to create jobs and drive economic progress. The metropolitan areas of Detroit, New Orleans, Baltimore, Philadelphia, Cleveland, Cincinnati, and Las Vegas account for over $1 trillion of US gross domestic product and represent a vastly diverse range of industries. The trajectory of the young growth companies in these cities and others like them will determine the direction of our economy. Detroit alone is our twelfth largest metro region, with over 3.6 million people. Its post-bankruptcy renewal is one of the great projects of this age. Unfortunately, it doesn’t have a giant recruitment arm to make the case on college campuses.

Our identification and distribution of talent in the United States has gone from being a historic strength to a critical weakness. We’ve let the market dictate what our smart kids do, and they’re being systematically funneled into obvious, structured paths that don’t serve them or the economy terribly well.

This book makes a basic argument. If year after year we send our top people to financial services, management consulting, and law schools, we’ll wind up with the pattern we’re already seeing: layers of highly paid professionals working astride faltering companies and industries. But if we send them to startups, we’ll get something else. Early-stage companies in energy, retail, biotech, consumer products, health care, transportation, software, media, education, and other industries would have a better chance of innovating and creating value. Even allowing for a certain amount of failure, we’d create hundreds of new companies and tens of thousands of new jobs over time. Our economy and our country would be better off. Our communities’ tax bases would go up, shoring up our ability to pay for schools and long-term development. We’d restore our culture of achievement to include value creation, risk and reward, and the common good. By solving this one problem, we solve many other problems at the same time.

The first part of this book details our current system of allocating talent, where our top graduates go, what they’re doing, and why it’s not leading where we’d like to go. As you’ll see, it’s entirely predictable that if someone attends a national university, the odds of him or her doing certain things skyrocket and the odds of choosing other pursuits correspondingly plummet. We are hyperallocating the bulk of our top graduates to professional services industries—finance, consulting, and law—and concentrating that talent in cities like New York, San Francisco, Boston, Chicago, Los Angeles, and Washington, DC, while leaving promising new companies around the country underresourced. In 1982, companies that had been in business less than five years made up almost half of all American companies. By 2011, that number had declined to slightly more than a third. Over that same period, the percentage of America’s workforce employed by new companies dropped from over 20 percent to less than 11 percent, and in 2008, for the first time, the majority of U.S. workers worked at companies with 500 or more employees.¹

New firms are responsible for most of the job growth and innovation in our economy. A Kauffman Foundation study showed that new firms accounted for all net job growth in the United States from 1977 to 2005.² In the United States, firms with fewer than 500 employees account for thirteen times more patents per employee than larger firms.³ If you want to spur long-term job growth, you want as much talent as possible heading to new firms so that more of those firms can succeed, expand, and hire even more people. Having the right people early on can make the difference between success and failure. Yet these companies are often unable to recruit the people they need from day one. When policy makers talk about startups, they always seem to fixate on access to capital and investor incentives. Meanwhile, if you talk to entrepreneurs, they will tell you that access to human and intellectual capital is the key ingredient that’s often missing. They know that human capital attracts financial capital, as well as the reverse. Money follows talent. Imagine if every promising growth company in the country had a nucleus of top prospects waiting to join it every year; how long would this take to impact job growth and innovation?

This problem can be solved. I run Venture for America, a nonprofit organization that recruits dozens of our country’s top graduates each year and places them in startups and growth companies in Detroit, New Orleans, Las Vegas, Providence, Cincinnati, Baltimore, Cleveland, Philadelphia, and other cities around the country. Our goal is to help create 100,000 new US jobs by 2025. We supply talent to early-stage companies so that they can expand and hire more people. And we train a critical mass of our best and brightest graduates to build enterprises and create new opportunities for themselves and others.

The best way to become an entrepreneur is to learn from a more experienced leader as he or she builds a company. We provide that operating experience, as well as training, networks, and support for enterprising college graduates who are accepted into our two-year program. We also offer seed funding to some of the Venture Fellows who perform well and want to start their own businesses. Our goal is to make it as straightforward to become a startup manager or entrepreneur in Detroit or New Orleans as it currently is to be a professional in New York City or Washington, DC.

But our efforts remain only one piece of the puzzle. It’s my hope that after reading this book, you’ll understand how the pieces fit together, and perhaps we’ll all be able to see what can happen when we affect the most important determinant of our shared future—where our talent is going—and do something about it.

A couple of notes on terminology—particularly this book’s title, Smart People Should Build Things. We’re using educational attainment as an imperfect proxy for smart and talking about people who get tracked, sorted, and aggregated throughout their adolescence into various universities and courses of study. For example, Shilpi Kumar is a recent graduate of Duke University with a degree in neuroscience. This book will oversimplify matters by focusing on people like Shilpi who get identified as smart or talented via our national educational system. It’s clear that there are different forms of intelligence (analytical, creative, linguistic, artistic, interpersonal, athletic/kinesthetic, and so on), and that not all brilliant and talented people go to college or even graduate from high school. But for structural and practical reasons, this book will focus on those who do.

By building things, we mean forming and helping companies and organizations that are innovating and creating value. People and companies around the country are solving real problems right now. For example, in New Orleans, Venture for America works with a company called Kickboard that provides a software application to help teachers track student performance. Kickboard was founded by Jen Medbery, who studied computer science at Columbia University and taught middle-schoolers through Teach for America. Jen created the product that she wished she’d had as a teacher. Now she’s building a company; Kickboard has dozens of school districts as clients and has grown to more than twelve employees.

ShapeUp is a health care tech company in Providence that helps individuals promote health and wellness through social networking and goal measurement. It was founded by two Brown University MDs, Dr. Rajiv Kumar and Dr. Brad Weinberg, who noticed that patients who successfully changed their lifestyles and lost weight benefited immensely when they received encouragement from friends, family, and colleagues. Companies pay ShapeUp because fitter employees save employers money through reduced health care costs, increased productivity, and decreased absenteeism. Rajiv and Brad saw a way to both improve human health and build a growth business. Venture for America sent ShapeUp its newest web designer, Johnny Hung.

Accio Energy is a clean tech company in Ann Arbor, Michigan, that is designing a next-generation wind-electric power generator with no moving blades. Accio’s design utilizes the interaction of air and water, simulating phenomena that occur naturally during thunderstorms. Its office includes a warehouse with a wind tunnel to test upgrades. Accio’s CEO, Jennifer Baird, previously cofounded and sold another startup for $205 million, and Accio’s president and chief technology officer, Dawn White, has a PhD in mechanical engineering and twenty patents to her name. The company’s Venture for America Fellow is Tim Dingman, an electrical engineer who helps Accio with their design simulations.

Just minutes away from Accio in Detroit you’ll find Are You a Human, a software company that is replacing those annoying website Captchas (you know, the ones where you’re forced to retype illegible and often nonsensical words) with miniature branded games, like launching a hockey puck through the goal. It was founded by two University of Michigan entrepreneurs, Reid Tatoris and Tyler Paxton, and funded by Detroit Venture Partners. Max Nussenbaum, an English major from Wesleyan University, is the Venture Fellow helping get the word out about their product.*

Charlie, Jen, Rajiv, Brad, Jennifer, Dawn, Reid, and Tyler are examples of smart people building things. Chances are, this is the first you’re hearing about them or their companies. Talented people like them are doing great work and solving problems around the country, but not as many as we need. This book is meant to change that.

PART ONE

Where Our Talent Is Going

1

The Prestige Pathways

If you graduate from a national university, there’s a very good chance that you’re going to become a banker, lawyer, consultant, or doctor, and the odds are high that you’re going to pursue one of these professions in New York, Boston, San Francisco, Los Angeles, Chicago, or Washington, DC, regardless of where you originally grew up.

Why is that?

It’s because achievers want to achieve, and that’s what achievement now looks like.

I’m an example. I was not a particularly motivated or passionate young person, unless you consider playing lots of Dungeons and Dragons in the suburbs of New York City to be a cue for future entrepreneurship. As a kid, my parents told me that my job was to get into a good college, which involved getting good grades, playing piano at a competitive level, and playing tennis well enough to make my mediocre high school team.

When I was twelve, they started sending me to an academic summer camp run by Johns Hopkins University. Nerd camp, we called it, though its official name was the Center for (Academically) Talented Youth (CTY). I took the SAT as a