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Posted: June 27, 2011

More on building a rapid job-creation engine

We're either the servants of change or its masters

Thomas Frey

(Editor's note: This is the second of two parts. Read Part 1.)

As automation and technology continues to eat away at our current job-base, the discussion will change from "Do we need to make a change?" to "How quickly can we make it happen?"

The risk of doing nothing will soon outweigh even the high risks of investing in startup businesses. So here are the last three parts of the four-part approach I would like to propose:

Part Two - Introducing the Seed Capitalist

People who are skilled in traditional forms of lending have very little understanding of how to size up and analyze the risks of an early stage startup. Bankers, mortgage brokers, commercial lenders, and even venture capitalists are woefully inadequate for the type of scrutiny and understanding needed to match the resourcefulness, drive, and passion of an individual to the obligations that come from an investment.

For this reason, a new profession is needed - the Seed Capitalist.

The Seed Capitalist will be a hands-on evaluator who works outside the traditional filling-out-forms mindset. They will be tasked with making personal visits to the homes and workplaces of the entrepreneurs and founders, ferreting out salient details of character and initiative that separate the "probables" from "likelies."

When it comes to resources, Seed Capitalists will have far more than purse strings at their disposal. If a prospect is not yet ready, they will have the ability to suggest and recommend new options, suppliers, and strategies for shoring up whatever deficiencies may currently exist.

Part Three - Funding Guarantees

On Tuesday I flew to the Washington, DC area to give a talk on the future of libraries, an institution I believe will weather the winds of change better than most if they make the necessary adjustments.

But Washington, DC is the home of the two twins that don't get along - the source of all problems and the source of all solutions. Early stage funding is a sloppy business and even those groomed for picking prime talent will be proven wrong somewhere along the way.

But in the coming world of hyper-change business environments, the need for rapid job-creation will take precedent over virtually all other systems. As a result, a new governmental structure will need to be put into place to guarantee the funds invested by the seed capitalists.

More specifically, this is a system that must remain autonomous and untouched by the SBA and all current bank lending systems. Without this autonomy the whole system will fail.

Part Four - Business Colonies

Startup businesses are becoming very fluid in how they operate, and the driving force behind this liquefaction is a digital network that connects the needs of a company with available talent in a quick and efficient manner. A business colony is a new kind of business structure serving as an organizational magnet for work projects and the free-agent talent needed to complete the work.

The operation will revolve around some combination of resident people based in a physical facility and a non-resident virtual workforce. Some will forgo the cost of the physical facility completely, opting instead to form around an entirely virtual communications structure. Most will be organized around a topical area best suited for the talent base of the core team. As an example, a team of photonics engineers will attract projects best suited for that kind of talent. Likewise, a working group of programmers specializing in computer gaming applications will serve as a magnet for new gaming projects.

In some instances, large corporations will launch their own business colonies as a way to expand capability without adding to their headcount. Staffed with a few project managers, the company will use the colony as a proving ground for experimental assignments best performed outside of the cultural bounds of existing workflow.

Colonies will develop their own standard operating procedures with consistent agreements, payment processes, legal structures, management software, and methods for resolving disputes. Over time they will be rated on their ability to complete tasks with specific ratings on efficiency, quality of work, and how well they treat the talent. More on business colonies here.

Putting it All Together

I find the interplay between this four-part approach intriguing. As a newly minted standard, the "minimal fundable enterprise" will give prospective entrepreneurs a reasonable target to hit. The seed capitalists will use it as part of their primary tool kit. With fund guarantees in place, the government will both set the stage for next generation entrepreneurship and benefit from its thriving new tax base. And the business colonies will serve as a boiling cauldron for ideas as aspiring startup founders build their networks and form alliances with talented people who will help build their future companies.

Currently, our governmental systems are evolving at speeds that are exponentially slower than the businesses that use them. With the rapid-fire demands and micro-second shifts in the way business operates today, that needs to change.

Is it actually possible to build a job-creation engine that can exceed the rate of job decay happening around the world?

All I can say with certainty is that the solutions that served us well in the past will most definitely not be the solutions that serve us well in the future. We can either be the servants of change or the masters of change. There is no middle ground.

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Thomas Frey is the executive director and senior futurist at the DaVinci Institute and currently Google’s top-rated futurist speaker.  At the Institute, he has developed original research studies, enabling him to speak on unusual topics, translating trends into unique opportunities. Tom continually pushes the envelope of understanding, creating fascinating images of the world to come.  His talks on futurist topics have captivated people ranging from high level of government officials to executives in Fortune 500 companies including NASA, IBM, AT&T, Hewlett-Packard, Unilever, GE, Blackmont Capital, Lucent Technologies, First Data, Boeing, Ford Motor Company, Qwest, Allied Signal, Hunter Douglas, Direct TV, Capital One, National Association of Federal Credit Unions, STAMATS, Bell Canada, American Chemical Society, Times of India, Leaders in Dubai, and many more. Before launching the DaVinci Institute, Tom spent 15 years at IBM as an engineer and designer where he received over 270 awards, more than any other IBM engineer.

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Readers Respond

The comments on this article, and a lot of political rhetoric in general, remind me of my philosophy class back in high school. We studied Plato, Socrates, Kant, etc.. It was a wonderful class of only 6 or 7 students and we had a wonderful, engaging teacher that taught us a lot. What does that have to do with this conversation? Well, in that course, we discussed in great length the Platonic method of thesis, antithesis, and synthesis. The comments presented here seem to be a good example of that... you have one side, who is seemingly quite anti-government (thesis) and the other that is apparently more pro-government (antithesis). This leads me to think that the reasonable solution to it all is a compromise in between (synthesis). I agreed with John Wray and Thomas in that government is not always the answer and that government regulations frequently cause unnecessary burden. However, I also agree with John Heckers that government has its place and that capitalism shouldn't be left to rule the roost... there are externalities that capitalism doesn't rightly address, as well as other flaws that result in problems for society as a whole. Identifying the proper balance between free-wheeling, unadulterated capitalism and socialistic, big-brother governmentism (I know that's not a word, but I couldn't think of anything better) is tricky and a matter of opinion. But I believe it is ABSOLUTELY necessary that we have both sides represented in order to achieve as good of a compromise as possible. As an aside, a note to Kevin about the Roaring Twenties... many of the same circumstances that contributed to the Roaring Twenties and the resulting Great Depression can be found in the late nineties and subsequent Great Recession. By Nathan Jansch on 2011 06 30
btw, your comments about the SBA couldn't be farther from the truth. You act as if banks and borrowers WANT to use the SBA. NOT. The regulations for lending bar most loans that would have been made two years ago. My wife was one of only FOUR national female national bank presidents, so I speak from a huge background of expertise. Carter doomed our house lending forcing the banks to make what THEY called NINJA loans. (no job, no income, no assets) so the Dem's blame the REpublicans again when it was their fault. Now it doesn't really matter because MOST banks are flush with money that they want to lend but CAN'T . facts are facts, which is tough for some liberals to take. By John on 2011 06 29
tony, the government is ALMOST ALWAYS the problem. You can cite all of the "statistics" in a vain attempt to justify the current administrations debacle, but if you REALLY want to know why the business sector is NOT investing, I can tell you: WE DO NOT TRUST this administration. They want to tax us and tax us and they forget that we have choices. The more you tax, the more business you drive off shore. I have several projects that I would initiate, but will not because I have no faith. EVERY small business person that I know feels the same. We CANNOT continue to support the socialistic approach like Greece. The current administration has "regulated" the banks out of lending. They have plenty of money but can't lend it anymore. I could go on and on, but I'm sure that Tony will not see any of this. The big corps are the same; they have TRILLIONS of dollars that they keep off shore. Get it???? Keep up the taxing and we'll all leave. Look at CAlifornia and New York. the rich are leaving in droves. WE HAVE CHOICES and until the liberals understand, we'll make ones that are not in the best interests of this country. You've forced us to do it. By John on 2011 06 29
By being married to the slogan "government is always the problem, never the solution,” the teachable moment the financial crisis represented is missed. For any Rip Van Winkles: there was a worldwide housing bubble, inflated by irresponsible lending, made possible by prior bank deregulation and a failure to extend regulations to "shadow banks." The bubble burst. Wall Street had created a web of interconnections no one understood, which threatened to collapse the global financial system. Facts. It’s true many small businesses have been unable to secure financing...but it’s not for lack of trying. A recent Pepperdine University study found banks have denied about 60% of loan applications this year. The biggest decline was seen in loans by the biggest banks...many of the same banks that were “bailed out” and have been provided incentive after incentive (such as loan guarantees of up to 100%) by the federal government to increase lending. Facts. Arguments put forth by big banks as to why small business lending is down is two-fold. First, they claim there is too little demand for such loans (which is just absurd). Second, they claim that in this economy (which big banks helped create), small businesses aren’t worthy of investment. Bank of America small business executive Robb Hilson was quoted recently as saying, “We’re not excited about doing it.” Banks will not invest at the level or pace needed to dig our nation out of the ditch. But the government can. A revitalization of the SBA (an organization the GOP has been trying to eradicate since Reagan) would help. The current administration has increased the SBA budget substantially. Restoring the SBA to cabinet-level status and allowing direct lending beyond natural disasters (why should an economic disaster be any different?) would help improve the picture. By Tony Peccolo on 2011 06 29
John, you're right about all those letters. Tom, from my perspective, I consider when any government program does not add enough value to our economy it is a drain and should be cut. We've spent billions on the Dept of Education and we've not added much to our standards. By Kevin Cullis on 2011 06 29
btw, note how John H cannot post without adding all those letters after his name. I have many many more but would never try to gain credibility by such an arrogant approach. Be sure to tell Mike, John By John on 2011 06 28
I'm tired of arrogant people who add nothing to the discussion except to insult the other posters like John H CONTINUALLY does. He IS consistent in his defense of our administration and the big govt idea aka socialism. He is ALSO consistent in his attitude that he is the ONLY one with the "answers," when in fact he knows little about business and/or economics His "qualifications" are very suspect By John on 2011 06 28
Hey John Heckers, You comment "There is not a simple solution. It is very complex,..." is true, and our government(s) is/are NOT the solution. Why? Because it does not do a very good or even great job of handling our resources compared with private enterprise or associations. They do a far better job of getting the most out of what resources we have than any government does. I agree with Toms' statement, "More specifically, this is a system that must remain autonomous and untouched by the SBA and all current bank lending systems. Without this autonomy the whole system will fail." For example, if we cut the SBA and allow the funds to go back into the pockets of individuals who's taxes were used, then THEY can decide how best to use their funds to better their situation. I just finished reading "Titan: The life of John D. Rockefeller" and how he handled his wealth, both rightly and wrongly. The issue of wealth has plagued Man even since John Adams asked Thomas Jefferson in 1819, "Will you tell me how to prevent riches from producing luxury? Will you tell me how to prevent luxury from producing effeminacy, intoxication, extravagance, Vice and folly?" Rockefeller found that providing enough to give an individual some financial "breathing room" was just enough, but giving "too much" and the individual or organization became lazy and no longer worked hard to overcome their situation. I believe in each community providing solutions for their problems, not our government or government programs, government programs too often has unintended consequences to the intent. By Kevin Cullis on 2011 06 28
Sorry but....I'm ALSO really tired of the whole attitude that if one does not accept 1000% every single line of the Right Wing Creed that one is somehow evil, stupid, a Commie, a Socialist or dead wrong. People, no one person has the answers, and no one party or group of people has the answers. We need to stop demonizing people and work together for a solution....TOGETHER...NOT at one another's throats. Everyone has a piece of the solution. No one group has it all. By John Heckers, MA, CPC, BCPC on 2011 06 28
As long as we have people who are living in the 19th or early 20th Century with the myth of the great individualist, we will continue to have the problems that we're having. No, government isn't ALWAYS the solution. And, yes, government regulations often get in the way of creativity. But private enterprise is NOT always the solution, either. There is a very dangerous conservative mindset out there that government (things we do as a community)is ALWAYS bad and private enterprise is ALWAYS good. That is bull effluvium! SOMETIMES government can assist in the solution. SOMETIMES, as in the crash of 2008 (which was largely caused by irresponsible,regulation free and very risky banking moves) private enterprise is the problem. The black and white linear thinking that is going on in the right wing of our country is going to lead to the downfall of our country. There is not a simple solution. It is very complex, and won't be solved by people in tri-corn hats carrying nasty signs. The government does not need to just "get out of the way." "Government" means, or should mean, us all together. Sorry folks, but the top 400 people who control more wealth than the bottom 19.5 million America are NOT divinely entitled to keep doing so. If we keep going as we are, America will become the Plutocratic States of America...if it isn't already. It is time for us to return to being a DEMOCRATIC (instead of Plutocratic) Republic. (I AM NOT referring to the "Democratic Party." I am referring to a system of government. It is called "Democracy.") By John Heckers, MA, CPC, BCPC on 2011 06 28
John, I was indicating an "in addition" to your comments. You are 100% correct. By Kevin Cullis on 2011 06 28
Of course it helps or you simply don't get it. We MUST get rid of the current government and hold replacements to a strict test. The banking regulations simply need to be rescinded. I can't believe that there are still people who don't get it. FACT: Government regulations are PREVENTING lending. By John on 2011 06 28
John, I'd agree. Scrap the Dept of Education and a few other departments that do not add to the value of the market, roll back Medicare to 1970 levels, cut defense and the number of our worldwide bases. Only a growing economy raises all boats and too large a government slows all economies and creates less work for everyone. As an aside, technology has allowed me to independently publish my first book "How to Start a Business: Mac Version" that I would NOT have been able to do a number of years ago. I have created my own job/business because of technology, so anyone can do it today. By Kevin Cullis on 2011 06 28
Tom, "We The People" need to tell our governments (local and Feds) to shrink and let the free market take over to solve some of these problems. This also means that we shrink and change our educational system, too. I have too often seen MBA students NOT get the content they need as entrepreneurs, the content they get an "A" grade in is for working for someone else, "corporations," not starting a business. I also volunteer with Junior Achievement and the Middle and High School curriculum is NOT geared toward life, i.e. working for a living, it's geared for getting a job. In all of my JA classes most of the kids LOVE what they're learning because it is immediate, relevant, and mirrors life in the real world. The content needs to reflect what level of government is appropriate to having a robust economy. The government creates, through the "rule of law," the level playing field, by ensuring that all of the laws apply equally and equitably whether someone is rich, poor, woman, Jewish, Native American, child, teenager, business or consumer, so that no one gets an upper hand. Laws that protect certain demographics create an imbalance in the free market. By Kevin Cullis on 2011 06 28
Sorry, but just saying the government is the problem doesn't help. By Thomas Frey on 2011 06 28
I don't think we need a solution when we don't have a problem EXCEPT our government. As I said, it's a fact that our banks have plenty of money to lend but our good Democratic big government has put too many regulations in the way. The banks simply CANNOT lend under these new regs and that's that. My wife is one of only four national female bank presidents and that's what she tells me as well as our local bank president. It's amazing that no one seems to be able to realise that.. OUR GOVERNMENT has destroyed our lending system. You know; the law of unintended consequences applies as usual to ANYTHING from our government By John on 2011 06 28
Yes, I would love to see government get out of the way. In fact I very rarely suggest government-based solutions because they tend to morph into something incomprehensible from the onset. But they've created some huge obstacles, and only they can remove the impediments. Government creates the playing field on which the game of business is played. Changing the playing field changes the game. Right now some other countries are creating a better playing field. Lack of funding for startup businesses is a systems problem. First year college students can get money far easier than a startup business simply because they're operating with a different system. We need a new system, and we need it now. I'm certainly not saying this is the only approach. Rather, I was hoping to inspire a conversation. The lean business environment today is using automation to eliminate jobs faster than ever. With the number of retirees growing far faster than people entering the job market, if we do not come up with a system for rapid job creation, we will continue to regress. The blatantly obvious trend lines here have "impending disaster" written all over them. By Thomas Frey on 2011 06 28
Tom, While I agree that governments need to change and adapt, most of us know that if a government is too slow, the government is primarily the problem and that the things the government is doing needs to get out of the way of the businesses that are doing it. I 100% agree with John, governments have caused businesses not to trust their actions based on what they are proposing. One answer Tom: Simplify, simplify, simplify our government and downsize and let the free enterprise system do what it does best: Innovate. Andrew Mellon wrote a great book "Taxation: The People's Business" and following his advice helped create the "Roaring Twenties." We can do it again, just get the government out of our way. By Kevin Cullis on 2011 06 28
I don't agree that we have to change. What made us great is the individual who is willing to take a chance with their time and money. The ONLY thing lacking now is lack of confidence. It manifests itself from our biggest corps to the smallest. I DO NOT trust our government and will NOT take my usual risk in business because I don't know what our govt is going to do next to hurt us. That's tough for a true entrepeneur because it's in our nature to take risks. "making money more available" will not change anything. Banks have plenty of money to lend and now our govt has put such onerous regs on them, that they can't lend. Ask any banker. Fancy "new" ideas are not necessary imho By John on 2011 06 27

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