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G100 Network Notebook | March 2017

How to Learn from Startup Success
With “strategic philanthropy,” says a report about Google’s new spin on the startup accelerator. Under the program, Google finds mature startup talent in emerging markets and helps them solve business challenges with six months of free funding and mentorships. This offers Google crucial product feedback from different markets while positioning company experts at the epicenter of new startup ecosystems.

“Transporting the magic of Silicon Valley to other cities is a trope so old, and so beloved by government bureaucrats, that these days it hardly quickens the pulse. … Google’s approach is fundamentally different. “No one else is looking at emerging markets as a whole,” says Roy Glasberg, global manager of Launchpad Accelerator.”

Tapping the Next Big Market

The global middle class is growing larger and faster than predicted, per updated figures from the Brookings Institute. They predict India may overtake the US as the world’s second biggest middle-class market in five years:

“By 2030, global middle-class consumption could be $29 trillion more than in 2015 (Table 3). Only $1 trillion of that will come from more spending in advanced economies. Today’s lower middle-income countries, including India, Indonesia, and Vietnam, will have middle-class markets that are $15 trillion bigger than today.”

The research offers useful context for understanding why Mukesh Ambani, chairman of Reliance Industries, placed “one of the biggest business bets in the world” when he launched the mobile network Jio. From The Economist:

“In the past six months, [Jio] has won 100m customers. Only one other firm on the planet has such an acquisition rate—Facebook. From Kolkata’s slums to the banks of the Ganges, millions of Indians are using social media and streaming videos for the very first time.”

A Reality Check on Renewables
Clean energy progress continues to captivate headlines but most coverage overlooks market and industry realities distorted by prolonged subsidies, says a critical look by The Economist. Their report reveals how energy incumbents remain formidable despite an outdated business model and the rise of renewables. Central to this is a “clean energy paradox” that deters investment:

“At the turn of the century, according to the IEA, one third of investment in electricity markets flowed into “competitive” sectors that were exposed to wholesale prices; the rest went into regulated utilities, transmission grids and the sort of fixed-price contracts where the renewables got their start. By 2014 the share of investment in the competitive sectors was just 10% of the total. It is a fair bet that, the more renewables are exposed to competition by contracts pegged to wholesale prices, the more people will shy away from them as well.”

This echoes Chevron CEO John Watson’s take. In a recent interview at CERAWeek, Watson warned against regulation that “forced innovation,” observing how renewable energy mandates stifle market competition, increase energy costs, and hamper job growth:

“California’s electricity costs are 50% higher than the [national average], and the state is last in the country for manufacturing starts. … Artificially pushing discontinuous power into the system raises costs.”

Can Data Analytics Improve Courtroom Decision Making?
Stanford, Harvard, and University of Chicago researchers think so. They created a machine learning algorithm to predict the flight risk of criminal defendants with greater accuracy than judges. Expected benefits include the reduction of pre-trial crimes and lower prison populations, particularly for minorities, according to an MIT Technology Review interview with the researchers:

“This shows how machine learning can help even in contexts where there’s considerable human expertise being brought to bear.”

A Grim Growth Story

Sobering statistics from economist Tyler Cowen’s new book portend a future of secular stagnation, where mounting inflexibility makes business and government ill equipped to handle crises. In this short video, Cowen builds a compelling case why productivity matters more than income equality:

-If we go back to when US productivity began to decline, 1973, and we imagine an America that continued at previous rates of productivity, the typical US household would be $30K richer.

-The startup creation rate has trended lower each decade since the 1980s; this includes the technology sector and is true even if we only look at California.

-Fiscal discretion fell from 66% of the federal budget in 1962 to 20% in 2014; it is projected to drop to 10% in 2022.

Blockchain Beyond Bitcoin

Civic uses of blockchain technology receive less fanfare than bitcoin’s pricing rollercoaster, yet “the public sector could be one of blockchain’s biggest beneficiaries,” Infosys principal technology architect Peter Loop writes in an op-ed. He proposes several interesting applications, from taxes to elections to digital IDs, all leveraging the security and efficiency of blockchain technology:

“The best solution is to marry a person’s digital ID with biometric data. By linking this ID with a unique trait, such as an iris scan, one can confirm if a digital ID corresponds to a person’s hashed biometric information. There can be no two nodes with the same biometric information. This could simplify a number of dealings between the citizen and institutions.”

Ukraine has caught on. A Forbes piece explains how the country auctions state property using blockchain to bolster financial and government transparency:

“The efficiency of the system—which represents one component of a “Cashless Economy Project” undertaken by the National Bank of Ukraine slated to run through 2020—promises a number of additional benefits, including significant cost savings and a dramatic decrease in the bureaucracy needed to run the system.”

What a Revolution Teaches About Culture
At first glance, a prisoner-turned-author and a Navy admiral have little in common, perhaps even less so with Toussaint L’Ouverture, the leader of the only successful slave revolution. Yet all three won culture wars to remarkable ends, as Ben Horowitz masterfully demonstrates in a recent keynote. For example, he explains how a famous rule represents one of four critical components to culture change:

“Innovation is more important than breaking things, getting into trouble, quality at times. … ‘Move fast and break things’ creates the shock value that makes up an innovative culture. And if you look at them today, one thing Facebook does is move fast. The innovation and new products coming out of Facebook is astounding.”

Bellwethers of Geopolitical Risk

Keep an eye on Jordan, Yemen, and Saudi Arabia, says General Stanley McChrystal. A wide-ranging interview with the Center for Complex Organizations translates his battlefield experience with asymmetrical threats into clear lessons on alignment and leadership. McChrystal, for example, pushes back against growing isolationism with a thought made more frightening by disengagement:

“Russia and China are major factors, and they are enough that we might not be in a post-modern period of history. A European war is not unthinkable. People who want to believe a war in Europe is not possible might be in for a surprise.”

Making Strides on Gender Diversity
Can unconscious bias training be counterproductive? Sometimes these programs make people more likely to exhibit bias, per The Atlantic’s extensive look at gender disparity in technology. One bright spot is Intel, whose gender diversity efforts stand out in Silicon Valley, says the report, citing specific progress with aggressive hiring goals linked to bonuses:

“In 2015, 43% of new hires were women and underrepresented minorities, three percentage points above its target. Last year, it upped its goal to 45% of new hires, and met it. These changes weren’t just happening at the entry level: 40% of new vice presidents were women and underrepresented minorities. Intel’s U.S. workforce in 2014 was just 23.5% female. By the middle of last year, the percentage had risen two points, to 25.4%.”

What is Top of Mind for Board Directors?

Regulation, disruptive innovation, and cybersecurity, states a survey from Corporate Board Member magazine and Spencer Stuart. It acknowledges the progress boards have made on cybersecurity but sees room for improvement:

““It’s encouraging to see boards increasingly coming to the realization that cybersecurity is an organization risk issue, not just something that falls under IT’s domain,” says Julie Daum, leader of Spencer Stuart’s North American Board practice. “Boards need to be able to ask the right questions to understand their companies’ cyber risk, management’s approach to risk, and the organization’s plans for responding to breaches.” She notes that in a recent survey of S&P 500 governance practices, nearly 20% of respondents said their boards were prioritizing cybersecurity expertise when looking for new directors.”