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Turnaround U.S.A.

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The best way to resolve the financial malaise in our country is to pretend our country is a company – with the President as its CEO – competing and partnering with other companies (i.e. countries) in the world to make it standout and prosper, and then feed that prosperity back into its shareholders (us).

A perfect cycle of life.

The virgin Mary

Now, Mary Meeker at Venture Capital firm KPCB published a narrated presentation on their website, named USA Inc. which purportedly viewed by more than 70,000 people demonstrates flagrant inexperience in turnarounds. Not surprising from employees at Venture Capital firms, as they don’t do many.

Yet the more striking flaw in her assessment of how to solve the problems of the U.S. is that she asks everyone to think about what they can do to turn the U.S. around. Good karma perhaps, yet a useless company building exercise. Using the analogy described above that sounds like the CEO of a company in trouble asking every employee to tighten their belt and work harder. Yet reducing expenses hardly ever yields a turnaround (and at best delays the time of death), improving the focus on production and therefore input does.

And while I think Mary’s presentation does a good job of data-warehousing some of the financial deficits and responsibilities we share, she draws many blanks on how to improve the economic outlook of our country. You may have noticed too how our country’s top economists have been extremely quiet in providing a succinct solution to our President. To no surprise as I stated earlier, as unique and groundbreaking foresight is by definition not derived from hindsight steeped in imperfection.

Foresight

Turnaround CEOs are unique in that they are able to set a single strategic direction for the company to which all the underlying ecosystem metrics comply. That cost reductions are appropriate only when they bring focus to the newly defined and singular overarching agenda of the company, and that deliberate increased expenditures accelerate the trajectory towards the execution of that new agenda.

Simply reducing cost across the board as Mary suggests, without a single overarching economic strategy is evidence of glaring turnaround inexperience. Her advice is like improving the operational excellence of a company in trouble without impacting its strategic focus and direction. Not unlike Steve Jobs recounting Gil Amelio’s ill-fated actions to turn Apple around: “Apple is like a ship, that ship is loaded with treasure, but there’s a hole in the ship. And my job is to get everyone to row in the same direction.” Sinking nonetheless Steve jokingly concluded.

Our country needs our President to institute a turnaround, to take the bold steps to develop and formulate a new strategic direction for our country. A direction to which the decision where to cut or spend comes natural.

The kettle black

I suggest our government and KPCB to stick to their own knitting.

The Venture sector to which KPCB is perhaps the spiritual leader is in shambles (producing negative 10-year average IRRs to Limited Partners, with despite its “best practices” promoted by the NVCA yields about a handful VCs making any money monolithically to Venture), with its financial model systemically incompatible with the needs of innovation.

Perhaps Mary Meeker could be deployed to help the Venture asset class recover from its self-induced malaise and establish the merit that will make us want to listen to her views about the economy at large. Conversely government should get out of the startup business considering the massive problems on its own turf, steeped in not dissimilar economic incompatibility.

Better help is on the way

I am sure it gets very lonely at the top for the President these days, with many well-meaning attempts (like Mary’s) to offer him a soothing aspirin as the cure for the undiagnosed economic equivalent of cancer. Because that is the only way I can describe an economy in which the carcinoma of finance eleven times the size of production wreaks havoc on the agility of our economic body.

We have forgotten that our ability to finance – ultimately – is derived from our ability to produce innovation (of many kinds). The dominance and eroding merit of economically incompatible financial arbitrage is the reason why we fail to detect our vast and changing composition of the ability to produce. And with less savvy detection of outlier innovation, the sources of money and income will continue to dry up. That perpetual downward spiral needs to be broken, rather than controlled, if we want to come out of this as a winner.

So, rather than feverishly changing the economic dials at the bottom of the economic food chain, a turnaround CEO for the U.S. would instead address the following top-level question I closed with in my previous blog:

Given the still unrelenting entrepreneurial resources in our country today, what financial system would you design to take optimal advantage of such existing capacity?

The answer that will have a ripple effect in stopping our economic malaise almost instantly adheres to the fundamental definition of innovation itself. Great innovation solves complex problems with an easy to comprehend solution starting anew from the top.

Better yet, the model to fixing our economy has been proven for hundreds of years in the marketplace of production, yet has never been applied to world of finance. That exact incompatibility is the reason for the extreme imbalance between finance and production, and the source of our deflating role as a superpower in this world.

The board

So, with the answer in hand the next question is what type of CEO can convince the board to take action.

A lame-duck board consisting of senators and congressmen who are more worried about their waning political clout (no more than 30% of our population votes, and thus 70% has voted implicitly against them) than their fiduciary responsibility of getting this company, and thus our country back in shape. Which may suggest that, just like in Apple’s case, it may take to some 90 days before bankruptcy to make up its mind.

Today our country looks like a board-run company, where the board feels it needs to step in at every turn. And frankly, void of a comprehensive vision for the company, perhaps deservedly so.

Outside in

But I believe that the speed of board resolve is directly correlated to the simplicity of the (non-partisan) solution offered. In the same way Apple’s board decided to hire ousted Steve Jobs based on the simple solution he offered to a seemingly untenable downslide for the company.

The solution to our economic downslide is not a veto for socialism or capitalism, but a deliberate choice for a new well guarded meritocracy that serves us all. And it could only come from a place where innovation and the ability to think of this world anew is a constant. All a savvy turnaround CEO (our President) needs to do is to take charge and confront the board with the decisive action and pragmatic implementation of that single overarching vision.

Let’s not fool ourselves and think that the economic malaise we face is an unfortunate chain of events and we just may be able to wing it for another 10 years. There comes a time at which a company’s future cannot be reversed and I suggest we don’t wait until that happens to our country.

 

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About Georges van Hoegaerden

Georges is a serial entrepreneur, venture catalyst, 4x CEO, board director turned innovation economist (by fate). His ideas have raised $14M in venture capital and produced over $100M in returns. More.