Tag: Government

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Government and Policy McNair Center

Reducing Recidivism through Entrepreneurship

Reducing Recidivism through Entrepreneurship

High rates of recidivism in the United States negatively affect prisons, inmates, the government and tax-paying citizens. In 2013, the U.S. imprisoned 2,220,300 people. A Bureau of Justice Statistics study found that within three years of release, 67.8% of released prisoners were rearrested. Utah_State_Prison_Wasatch_FacilityWithin five years, 76.6% of released prisoners were rearrested.

Researchers typically link recidivism to unemployment, low levels of education, mental health problems, inability to re-integrate into society after prison, impulsiveness, association with other criminals, family instability and as well as other factors.

High levels of recidivism costs states millions of dollars; A Pew Charitable Trusts study estimated that if 41 states cut their recidivism rates by 10%, they would save $635 million. On top of the monetary costs for the states, recidivism rates have a negative effect on families and communities including family instability and a higher probability that a family will live in poverty. Solving the recidivism issue would not only save the government and taxpayers money, but it would also improve the lives of former inmates and those around them.

Entrepreneurship Potential of Inmates

A variety of entrepreneurs and public service organizations have developed programs to empower prisoners and combat high recidivism rates. Notable social entrepreneurship programs such as the Last Mile and Cafe Momentum provide leadership skills and help reduce recidivism through a variety of methods. The Last Mile, as the McNair Center’s Julia Wang describes, focuses on teaching inmates business and computer skills in California. Cafe Momentum, a functional restaurant in Dallas, gives released youth offenders transferable life skills related to the restaurant industry.

While social entrepreneurship is a start, what about actually teaching entrepreneurship skills to prisoners?

While some might assume that inmates are incapable of holding down a job, let alone establishing their own businesses, the reality is that many people leaving the prison system are potential entrepreneurs. Inmates that took the Miner Sentence Completion Scale-Form T test, an assessment of entrepreneurial aptitude, scored higher than average entrepreneurs, slow-growth entrepreneurs and manager scientists. Additionally, many inmates are in prison due to their participation in illegal forms of entrepreneurship, including drug trafficking and smuggling. In Freakonomics, Steven Levitt remarks that the gang in Sudhir Venkatesh’s study of the drug trade acted as a franchise for the larger Black Disciples organization. Coupled with the willingness to take risks that characterizes many inmates, prisoners could be prime candidates for entrepreneurship.

Prison Entrepreneurship Program

One of the most notable and successful programs is the Prison Entrepreneurship Program (PEP), an innovative rehabilitation program aimed at transforming inmates in Texas. PEP places carefully selected inmates through a four-month business education program. This program teaches them skills valuable in entrepreneurial settings, including financial literacy, an employment workshop, a business etiquette course and a Toastmasters class. Participants take over forty exams and interact with business executives. The final exam involves a thirty-minute business-plan presentation. PEP also provides a prison-release and post-prison components including follow-up and startup mentoring.

PEP’s results demonstrate a fantastic return on investment, especially given the 1,300+ participants. 100% of PEP graduates find jobs within 90 days of release. Nearly 100% of these graduates stay employed after a year. Since 2004, PEP graduates have launched more than 200 businesses. Six of these generate over $1 million in gross annual revenue. Most importantly, PEP graduates have a recidivism rate of less than 7%.

Defy Ventures

Defy Ventures also provides an entrepreneurial education to inmates. This national organization, which mostly operates in New York and California, describes itself as “an entrepreneurship, employment and character development training program for currently and formerly incarcerated men, women and youth.” It puts former inmates, mostly former leaders of drug rings and gangs, through a two-month training program. Defy Ventures graduates of this program are eligible to apply for a 12-month entrepreneurship program in which they compete for startup grants. This program has a 3% recidivism rate and has produced more than 150 startups. Most of these startups are small businesses, such as eco-friendly cleaning services. Defy has distributed over half a million dollars to these startups and small businesses through business-pitch competition awards and micro-loans. Additionally, participants report a 95% employment rate within 7 months of enrolling in Defy.

Inmates to Entrepreneurs

Inmates to Entrepreneurs provides educational seminars on entrepreneurship, online resources and group-based support to help former inmates start low-capital businesses. This program, based in North Carolina, focuses on giving seminars on starting businesses in local prisons to inmates with six or fewer months to serve. Additionally, the organization brings in ex-offender mentors who run successful businesses. A.J. Ware, a member of the Board of Directors for this nonprofit noted in a TEDxRaleigh talk that participating inmates had less than a 3% recidivism rate. Additionally, former inmates had 75% employment rate within 90 days of release. Ware also stated that in 2012, participants started 14 business. Inmates to Entrepreneurs is unique in its ability to provide large-scale learning. Its online resources and seminars are easier to implement in a variety of locations compared to the other two programs.

For the Future

These three programs illustrate the potential of entrepreneurship programs in reducing U.S. recidivism rates. Expansion of these programs could potentially make the same positive impact on prison populations across the nation. However, it is also possible that the small size of these programs is integral to their success.

All of the programs described here carefully select a small group of participants. It may not be possible to target all parts of the prison population. Many of these programs have a competitive application process and low acceptance rate. Researchers could conduct further studies to see the effects of entrepreneurship programs on a large scale without rigorous selection criteria.

It may be impossible to use these programs to help all prisoners, so how many can these programs help? A 2012 Bureau of Justice Statistics statistic table on federal arrests indicates that approximately 20% of inmates could have entrepreneurial potential based on their crime. White-collar crime and drug trafficking offenses all indicate entrepreneurship potential. Targeting these specific offenders with entrepreneurship programs can help reduce recidivism.

Focusing on a small subset of the population still has long-term beneficial effects for inmates and their communities. PEP has a 340% return on every dollar donated due to reduced recidivism and reliance on government assistance. The potential economic benefit of an expansion of these programs could save the government and taxpayers millions of dollars.

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Government and Policy McNair Center

Patents and the Cancer Moonshot

Patents and the Cancer Moonshot: How Subject Matter Eligibility Affects Research

When standard cancer treatments fail, some doctors are turning to the developing field of immunotherapy. Immunotherapy involves treatments that use the patient’s own immune system to combat cancer. Both pharmaceutical companies and the federal government see the promise in funding research in this innovative field. However, R&D in cancer treatments is a time-intensive process, and it takes months, if not years, before doctors can bring cutting-edge research to their patients.

In January 2016, President Barack Obama called for the Cancer Moonshot to double the rate of progress in cancer research. Vice President Joe Biden traveled across the country and the world (including to Rice University) to collect information on current barriers in cancer research, like inefficiencies in the patent process. However, is the lengthy patent examination process truly what is slowing cancer research?

Accelerating the Process with “Patents 4 Patients”

To help accelerate cancer research, the United States Patent and Trademark Office launched the Cancer Immunotherapy Pilot Program (also known as “Patents 4 Patients”) in July 2016. This program aims to fast track the review of patents that involve treating cancer using immunotherapy.

Usually, the USPTO examines patents in order of their U.S. filing dates. However, under “Patents 4 Patients,” the Patent Office will grant special status to patent applications relating to cancer immunotherapy. The USPTO aims to finish examining petitions submitted before June 29, 2017 within twelve months of granting special status.

Often, USPTO examination takes a long time. Over the last two years, first office action pendency, or how long it takes to mail a First Office Action after a patent application is filed, takes an average of 16.5 months. Additionally, traditional total pendency, or how long it takes to decide whether to issue or abandon a patent, takes an average of 26.4 months. The new Pilot Program certainly has the potential to reduce these wait times. However, long patent examination periods are not the only barriers that researchers face when developing cancer treatments.

Patent Subject Matter Eligibility: A Look at Section 101

Under Section 101 of Title 35 of the United States Code, “any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement” is patent-eligible. Over the past few years, the U.S. Supreme Court has affected what is patentable. Under judicially recognized exceptions, laws of nature, natural phenomena and abstract ideas cannot be patented.

Most controversially, in Mayo v. Prometheus (2012), the Court held that correlations between blood test results and patient health were “laws of nature” and that any claims relating to these correlations were patent ineligible under 35 U.S.C. §101. Similarly, in AMP v. Myriad (2013), the Supreme Court held that claims relating to isolations of naturally occurring DNA cannot be patented.

Because of these decisions, the USPTO has rejected or abandoned many patents relating to cancer immunotherapy treatment on the basis that they claim laws of nature. According to Patently-O, patent rejections based on Section 101 objections increased substantially after the Mayo ruling from 15.9% of office actions to 86.1%.

For example, the USPTO has rejected patents relating to using gene expressions to predict chances of breast cancer (US20100035240A1) and using a specific protein as an early indicator of cancer (US20150072355A1) because they are applications of laws of nature. However, unlike the USPTO, the patent offices in Europe, Japan, and China have accepted these applications and granted their patents. Current U.S. patent law does not conform with internationally recognized forms of patent eligibility. Stifling the progress of research through patent rejections does not bode well for U.S. cancer patients. By refusing to protect emerging discoveries, the USPTO undermines cancer treatment research, especially in innovative fields like immunotherapy.

More Barriers with the FDA Approval Process

Even after a treatment is patented, it can take years to go through the phases of the clinical trial process. Phase I and II determine the safety and promise of a treatment. Phase III tests the effectiveness of the new treatment compared to existing standards. After successfully going through trials, companies file a New Drug Application (NDA) for Food and Drug Administration (FDA) approval.

According to DiMasi, Grabowski and Hansen (2016), clinical trials take an average of 9 years and 8 months. After a company submits an NDA, the FDA takes an average of 16 months to review it. This lengthy approval process further slows down R&D in cancer treatment.

Improving Subject Matter Eligibility Guidelines

Excludability in fast-growing fields like immunotherapy is extremely valuable in the early stages of R&D. Patents provide stability and a relative level of certainty, so a more quickly granted patent can help firms stake their claim in a developing treatment. However, the higher amount of claims rejections decreases the probability that companies will be able to protect their research. Questions about what is patent-eligible material could discourage investment and deprive researchers of necessary funding.

The Cancer Moonshot initiative is eager to make the patent process more efficient to quicken the progress of cancer treatment. While Patents 4 Patients could potentially help expedite research, long pendency periods are not the only barrier to accelerating research. Many discoveries are patentable, nonobvious applications of laws of nature. Yet, after recent court rulings, the USPTO still rejects their patent applications.

In late 2016, the USPTO held two roundtables to improve the its guidance for patent examiners on subject-matter eligibility.  As judges and policymakers continue to define what can be patented, they must recognize the impact of their decisions on cancer treatment innovation.

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Government and Policy McNair Center Women

The Right to Entrepreneurship

Entrepreneurship and human rights are not frequently mentioned in the same conversation in the United States. However, in international policy, human rights and entrepreneurship are linked by many common policy goals, including enforcing the rule of law, improving infrastructure and fighting corruption. Rights necessary to pursue entrepreneurial endeavors–like the right to participate in the economy, the rights to education and information and access to credit–are considered crucial for the world’s poor. By pursuing these goals, human rights activists and entrepreneurship advocates can work together for the good of all.

https://upload.wikimedia.org/wikipedia/commons/d/de/UN_Geneva_Human_Rights_and_Alliance_of_Civilizations_Room.jpg The UN Human Rights Council meets here.
The UN Human Rights Council meets in Alliance of Civilizations room in Geneva.

Human Rights

Human rights are defined by the UN Office of the High Commissioner for Human Rights as “rights inherent to all human beings, whatever our nationality, place of residence, sex, national or ethnic origin, colour, religion, language or any other status.” Since the 1948 UN Universal Declaration of Human Rights, criteria has changed. Nonetheless, human rights continue to be a top priority in international law. According to the Department of State, the U.S. places an emphasis on human rights while pursuing foreign policy goals:  “A central goal of U.S. foreign policy has been the promotion of respect for human rights, as embodied in the Universal Declaration of Human Rights.”

A Mutually Beneficial Relationship

Human rights and entrepreneurship have the ability to reinforce one another. Hrishikesh D. Vinod of Fordham University examined the policy and advocacy goals of entrepreneurship and human rights, looking for areas for collaboration. He identified five key areas where the goals of entrepreneurs and rights advocates align: promotion of fair competition, creating infrastructure, protecting migration rights, exposing government corruption and preservation of the rule of law. Vinod describes entrepreneurship and human rights as natural allies. He notes that “their cooperation is likely to become a potent force for a worldwide progressive change.”

A study done by the Pontifical Catholic University of Peru helps to demonstrate Vinod’s argument in action. In this study, implementation of a human rights awareness and training campaign in Central Asia by a nongovernmental group increased new micro-businesses by five percent. The researchers who conducted this study urged that “the time is now ripe for acceptance of human rights approach to development of entrepreneurship as the human rights and entrepreneurship share a preoccupation not only with necessary outcomes for improving the lives of the people but also with better processes.”

The Right to Entrepreneurship

The United Nations Development Programme asserts that the rights that allow someone to start a business or become self-employed are “essential for the livelihoods of the poor.” The UNDP stresses that micro-entrepreneurship and self-employment are often the only option for the poor to generate money. Protection of these rights can impact many lives.

The right to entrepreneurship, along with other economic rights, can lead to the promotion of other social and political rights. A study commissioned by the World Bank explains the nature of the relationship: “The importance of participation in economic decision-making demonstrates how civil and political rights and socio-economic rights are mutually supportive, and why human rights recognize them to be interrelated, indivisible and interdependent.” For example, micro-credit and micro-entrepreneurship can increase economic, social and political empowerment of the poor, especially poor women. The Benazir Income Support Program offers small loans to women in Pakistan to pay for expenses and pursue entrepreneurship opportunities. However, this program did more than just bolster these women’s rights to entrepreneurship; the program also resulted in previously “unregistered” women becoming “registered,” giving them access to other social and political rights.

A 2010 study on women in rural Bangladesh also noticed a connection between entrepreneurship and other rights. Bangladeshi women often don’t have the opportunity to become formally involved in the economy. In this study, small bank loans gave them capital to start micro-businesses and increase their economic empowerment. With the ability to participate in trade, women can use their newfound security to pursue other rights as well.

In 2008, the Harvard Human Rights Journal pushed for the promotion of entrepreneurial rights of the poor. In their recommendation for the U.S. Human Rights agenda going forward, they suggested that the U.S. increase micro-entrepreneurship funding for other countries “because we know it works.” They added that it is “up to us to focus our resources on building a new generation of small entrepreneurs in the developing world.”

How Can This Impact Policy Decisions?

Knowing that entrepreneurship and human rights have the power to reinforce one another, we can create policy that accelerates both. When we protect human rights, individuals can feel empowered and safe to explore entrepreneurial endeavors. The trend works in the opposite direction as well; possessing the right to entrepreneurship can empower individuals to pursue the protection of their other rights. Economic power can allow vulnerable individuals to fight more effectively for the promotion of their rights.

This relationship demonstrates an important point for advocates of any cause: it is important think about collaboration whenever possible. There is always potential to find compromises that benefit all, and we have more in common than we expect.

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Government and Policy McNair Center

True Impact of the Bayh-Dole Act

Addressing the True Impact of the Bayh-Dole Act

Since the passage of the Bayh-Dole Act in 1980, many researchers have debated its contribution to the transfer of technology from universities to industry. Some credit the act as an engine of economic growth responsible for the emergence of the biotechnology industry. Critics say that the law decreased data sharing and basic research and increased health care costs. Others think that the act had little impact and that changes in university patenting were inevitable.

University patenting would have increased regardless of the Bayh-Dole Act. However, the act did help universities license patents, creating positive economic benefits especially in the biotechnology industry.

Background

The Bayh-Dole Act was intended to improve the commercialization of federally funded research.

Former Senator Birch Bayh and Senator Bob Dole, authors of the Bayh-Dole Act, in Washington D.C. on July 22, 1985.
Former Senator Birch Bayh and Senator Bob Dole, authors of the Bayh-Dole Act, in Washington D.C. on July 22, 1985.

Before 1980, only 5% of government-owned patents were ever utilized in industry. Corporations found it difficult, risky or unappealing to receive licenses for government patents. Several government agencies did not want to give up ownership of patents to universities or corporations. Agencies such as the National Science Foundation tended to give nonexclusive licenses to anyone, unappealing for companies. As it was easy for any company to procure licenses, the system did not incentivize companies to purchase licenses; most wanted exclusive rights.

The Bayh-Dole Act enabled institutions to keep control of patents invented using federally funded research. The university or business could then grant licenses on its own terms. The act also required universities or businesses to have clear patent policies and encourage development of inventions.

Did the Bill Work?

Claims that the Bayh-Dole Act alone led to increased patenting and economic activity surrounding university patenting are not true. Economic models show that the acceleration of patenting would still have occurred even without the act. David Mowery finds that universities increased their shares of patenting from 0.3% in 1963 to 4% by 1999. However, he notes that this increase had already begun before 1980, which indicates that the Bayh-Dole Act was not its cause.

Since the passage of the Bayh-Dole Act, more than 5,000 new companies have formed from federally funded university research. In 2008, more than 600 new university products were introduced to the marketplace. According to MIT, about 30 billion dollars of economic activity per year and 250,000 jobs can be attributed to technology born in academic institutions.

The Bayh-Dole Act may not have been the only contributor, but these large numbers show the importance of university innovation to the economy and make it clear that innovation spurring legislature can have enormous positive effects on economic growth.

Creation of the Biotechnology Industry

From the 1968-1970 period to the 1978-1980 period, biomedical university patents increased by 295%. Biomedicine, an important part of biotechnology, was therefore growing rapidly before the introduction of the Bayh-Dole Act. Most likely increased funding in the field, advances in science and emergence industry interest also played major roles in the growth of university patenting in this area.

The Bayh-Dole Act likely contributed to increased licensing of university biotechnology patents. The ability of universities to license patents created strong incentives for many scientist-entrepreneurs to form companies around their inventions. At least 50% of current biotech companies began as a result of a university license. Additionally, 76% of biotechnology companies have at least one license from a university.

These license based biotech companies have made huge impacts on the economy. University licensing of biotechnology patents generated more than $40 billion in economic activity in 1999. According to Boston University, biotechnology companies represented over 1.42 million jobs in 2008, and the bioscience sector as a whole represents an employment impact of 8 million jobs. By 2009, 1,699 biotech firms generated annual sales of $48.2 billion.

Addressing Criticisms

Critics of the Bayh-Dole Act cite the decrease of data sharing, higher health care costs and a shift away from fundamental research as flaws of the law.

Because researchers patent new inventions, they might tie up research data in patent rights. This could prevent other researchers from accessing this data, slowing the research process. An article by Neil Thompson and others suggest that this isn’t true in practice. They find no evidence that licensing of academic patents limits the sharing of research data. However, their work leaves open whether licenses on research tools lead to restrictions on continual research in a subject.

Many also argue that health care costs have increased as a result of the Act. Biomedical university patents often can be utilized in the process of drug creation. As these discoveries are not final products, companies must license each patent that they use to create a drug. The cost of licensing many of these patents allegedly drives up the cost of the final product, hurting the consumer. The NIH and USPTO have created guidelines to prevent the unreasonable licensing of biomedical patents. However, these guidelines are not all concrete.

While this “royalty stacking” may contribute to high prices, it is unfair to blame the costs solely on the Bayh-Dole Act. Drug development includes a multitude of phases with high costs that extend beyond patents at each step. Many drugs could also not have been developed without the help of the patented technologies.

Finally, others point out that applied research generates more money from patenting. They argue that the Bayh-Dole Act therefore incentivizes universities to focus on applied research instead of basic research. This too is not true. According to the National Science Foundation, the percentage of basic science research from 1980 to 2001 increased from 66.6% to 74.1%. Applied researched actually decreased from 33.4% to 25.9%.

Conclusion

The Bayh-Dole Act was not the sole factor in the increase of university patenting. However, it does appear to have played an important role in the licensing of university patents, particularly in the biotechnology industry.

The biotechnology is sector is large and growing. In 1980, it was almost nonexistent. By 2009, the sales of just 1,699 biotech firms were worth more than 2.5% of U.S. GDP. Academic intellectual property provides the crucial foundation for this sector. Further incentivizes for university patenting and its licensing could therefore drive yet more economic growth.

In addition, the government could encourage the use of unlicensed academic patents by offering tax breaks to companies who commercialize them. It could also encourage universities that excel at technology transfer such as Stanford or MIT to share best practices to other universities.

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Government and Policy McNair Center

Bureaucracy and Public Sector Innovation

The public benefits greatly when there are innovations in how our government approaches policymaking and regulation. However, sometimes barriers created by bureaucratic structures can slow implementation. When regulation and rigidity are holding us back, leaders are responsible for ensuring that our government institutions are allowing for change when our old ways of approaching challenges become antiquated.

Innovation in the Public Sector

Our traditional idea of innovation tends to point science and technology developments, like the iPhone or social media. Innovation within the public sector takes many forms. Journalist Alex Howard broadly defined public sector innovation as any government-created “new idea, technology or methodology that challenges and improves upon existing processes and systems, thereby improving the lives of citizens or the function of the society that they live within.” For example, the introduction of speeding cameras in the late 1980s in the U.S. is a public sector innovation that allowed local police to improve public safety by catching speeders more efficiently.

In the U.S., innovation in public policy takes place in many levels of government. For example, the Rebuild by Design program, launched in response to Superstorm Sandy, created a competition for innovators to develop creative solutions to problems posed by natural disasters. In Boston, this program created Climate Ready Boston (CRB). CRB works with the Boston city government to ensure that infrastructure is created to withstand the impacts of climate change, like rising sea levels and extreme temperatures. Another public sector innovation, the Citizen Archivist Initiative, uses online tools and crowdsourcing to make public records more easily accessible to the public.

United States Efforts to Encourage Public Sector Innovation

Within the last 30 years, federal executive and legislative action have also encouraged innovation within the public sector. For example, the Small Business Research and Development Enhancement Act of 1992 gave the Small Business Administration the ability to conduct the Small Business Innovation Research Program to better serve small businesses. Later, President Bill Clinton’s Executive Order 13103 placed an emphasis on increasing government awareness of computer vulnerabilities, demonstrating that the government would be adapting to new technologies.

President Barack Obama emphasized this as well. In 2009, his administration released the Strategy for American Innovation to increase efforts to support American innovators. In 2015, they released an updated strategy that placed importance on public sector innovation. The new strategy includes “new efforts to make the Federal government more innovative to improve performance and create a better environment for innovation by the private sector and civil society.”

Public Sector Innovation Around the World

Public sector innovation is not unique to the United States. The Organization for Economic Cooperation and Development’s Observatory of Public Sector Innovation tracks these innovations for each member country.  In Iceland, the Reykjavik Metropolitan Police Department began using social media to connect with citizens. In the United Kingdom, policy innovation took place through the creation of the What Works Network, an evidence-collection initiative to inform policy decisions.

Although there are success stories, innovation in the public sector can be difficult. Government agencies tend to be deeply entrenched in the rigidity of bureaucracy, a structure that can hinder creativity.

How Can We Boost Innovation within Government Agencies

We should want to encourage policy innovation. However, this is easier said than done. The hierarchical layout of many government agencies can be beneficial for clarity and accountability, but it can also inhibit creativity, thereby stifling innovation. Bureaucratic structures can prevent change and creativity. How can we overcome these obstacles?

University of Connecticut and Georgia Tech researchers found that workplace environment can enhance or curtail creativity. Encouraging creativity is essential for innovation. Employees must have the time, physical resources and supportive peers to implement innovative solutions. Within a government agency, these factors could manifest in many forms: Collaborative and open work spaces, efficient technologies like portable laptops and tablets and smart deadlines that are both challenging and realistic can all be effective.

The Importance of Leadership

The barriers to change in the government bureaucracies can make innovation difficult. Leadership plays a large role in whether bureaucratic organizations successfully overcome the obstacles that accompany bureaucracies. Leaders must actively prioritize innovation. The Harvard Business Review suggests, “Leaders of big bureaucracies need to get — and keep — everyone enthused, create and communicate a future vision, assure support during the transition, insist on excellence, create demands on managers and convince everyone of top management’s conviction and commitment to change.”

Simply articulating creativity as a goal can improve creativity of groups. When leaders direct groups to develop creative solutions, their groups generate more creative results than groups who are not given this instruction. If leaders want to see creativity amongst their employees, they should communicate that creativity is a goal for every project.

Hierarchies can often be complex and make it difficult for senior leadership to stay in touch with employees on the lower end of the hierarchy. To combat this, leaders need to make themselves available to employees. Open communication between leaders and lower-level employees can promote development of new ideas.

Further Applications

Any business that is looking to transform their culture to encourage creativity and innovation can use these lessons. Change requires sustained efforts on the part of leadership. With continuing organizational support, the benefits can be great.

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McNair Center Weekly Roundup

Entrepreneurship Weekly Roundup: 12/02/2016

Weekly Roundup is a McNair Center series compiling and summarizing the week’s most important Entrepreneurship and Innovation news.

Here is what you need to know about entrepreneurship this week:

Keep Austin Entrepreneurial

Eliza Martin, Research Assistant, McNair Center for Entrepreneurship and Innovation

In 2016, Austin was ranked as the number one U.S. city for startup activity by the Kauffman Foundation. Austin’s entrepreneurial ecosystem began in the 1970s and 1980s, and was originally focused on computer and semiconductor manufacturing.

Austin’s “Silicon Hills” has diversified into “more than the computer chip and semiconductor industry that first enabled its growth.” The annual South by Southwest Festival draws thousands of tech startups to the city and provides excellent networking opportunities for entrepreneurs. The University of Texas at Austin adds thousands of skilled employees to the city’s labor force each year. Additionally, UT Austin’s boasts the Austin Technology Incubator, a startup-focused incubator run by the university’s IC2 Institute.

Austin provides entrepreneurs with supportive policy infrastructure, skilled and energetic laborers and access to valuable mentorship opportunities. If efforts to grow Austin’s economy continue on their current path, the city will be well poised to solidify its presence as a thriving entrepreneurial ecosystem.

Overtime Rules in Limbo: What Businesses Should Do Now

Jeremy Quittner, Reporter, Fortune

Last week, a federal judge judge in Texas granted a preliminary injunction against the Department of Labor’s new overtime rules that were set to go into effect on December 1st. The new overtime rules would have increased the threshold salary for overtime workers to $47,476 from $23,600. Many small business owners, acting in preparation for the new rule, made the difficult financial decision to switch salaried workers to hourly status.

The preliminary injunction still must go through an additional 60 day period of court hearings before it becomes an official injunction. Additionally, the Obama administration’s Department of Labor could still appeal the judge’s decision to the U.S. Court of Appeals for the 5th circuit. It is not yet clear if the administration will challenge the judge’s decision. Even if the decision is appealed, success on appeal is doubtful; in the court’s recent history, the U.S. Court of Appeals for the 5th Circuit has tended to challenge the Obama administration.

McNair Center’s Catherine Kirby previously examined the effects of new overtime labor laws on small businesses in her blog post Small Business and Overtime Regulation.

One simple way billionaire investor Peter Thiel identifies game-changing startups

Eugene Kim, Reporter, Business Insider

Peter Thiel, serial VC investor and founder of PayPal, is known for his profitable investments in successful billion dollar startups, such as Facebook, Palantir, Stripe and SoFi. Business Insider’s Kim reports possible insights into Thiel’s keen eye for return on investment.

In an interview at VC firm Khosla Ventures’ KV CEO Summit, Thiel recently said, “I think in some ways the really good companies often couldn’t even be articulated…we didn’t quite have the right words. Or maybe they were articulated but were articulated in terms of categories that were actually misleading.” Thiel cautioned investors away from startups that rely on buzzwords, such as big data or cloud computing, in their pitches. Thiel said, “…when you hear those words, you need to think fraud and run away as fast as you can. It’s like a tell that you’re bluffing, that there’s nothing unique about the business.”

White House expands platforms for inclusive entrepreneurship

Kate Conger, Reporter, TechCrunch

The White House recently announced “new and expanded plans to improve diversity and inclusion within the startup economy.” The plans are focused on promoting diversity in higher education, investment and entrepreneurship. The initiatives reflect the Obama Administration’s commitment to improving minority representation in universities, investment firms and tech companies. By focusing the initiatives within the private sector, these efforts will hopefully continue after his departure from office.

More than 200 universities, all members of The American Society for Engineering Education, have signed a pledge to promote diversity in their engineering programs. Additionally, more than 30 VC firms and accelerators signed a pledge to diversify access to seed and early stage capital for underrepresented entrepreneurs and reveal information regarding their portfolios’ diversity. Furthermore, 46 tech companies, including Xerox, have joined the Tech Inclusion Pledge, demonstrating a commitment to publicly publish recruitment goals and diversity metrics.

Tom Kalil, deputy director for technology and innovation at the White House Office of Science and Technology Policy, reportedly told TechCrunch there is existing data that indicates diverse firms are more diverse are more likely to be successful. According to Kalil, “A lot of innovation comes from diversity, people with different backgrounds.”

Data science startup Civis Analytics raises $22 million

Ken Yeung, Contributor, VentureBeat

Civis Analytics recently announced that it bagged $22 million in its latest Series A funding round. Civis Analytics was born out of President Obama’s 2012 reelection campaign. Though originally focused on political campaigns, the data science company’s cloud-based platform provides data analytics tools and methodologies  to organizations focused in areas such as health care, media and education. Since its inception, the startup has relied on revenues, rather than funding, to support its operations. However, the startup announced its recent funding will go toward hiring more engineers and data scientists.

Civis Analytics CEO, Dan Wagner states the importance of data analysis to business success: “Everyone knows that they need to be using data, but most don’t know where to start. Or, if they are using data, they aren’t necessarily asking and answering the right questions.”

Stripe Investment Makes Cofounder The World’s Youngest Self-Made Billionaire

Ryan Mac, Reporter, Forbes

Brothers Patrick and John Collison are cofounders of San Francisco-based startup Stripe. Stripe is a tech company that enables private individuals and companies to engage in transactions via the internet and on mobile apps. MIT and Harvard dropouts, respectively, Patrick and John Collison recently joined the ranks of the world’s youngest self-made billionaires. Stripe recently announced a successful funding round, which doubled the startup’s valuation to $9.2 billion. CapitalG and General Catalyst Partners jointly invested $150 million in Stripe during its latest funding round.

Despite their early success, the Collision brothers are still hungry for more; Patrick Collison told Forbes in January of 2014 that, “Heartening as the success to date has been, we are so early in accomplishing the goals that we set out for ourselves. If anyone here believes that Stripe has already made it, that would be hugely problematic for us.”

QA with Kauffman’s Victor Hwang on entrepreneurship in the heartland

Ryan Pendell, Contributor, Silicon Prairie News

Victor Hwang, Vice President of Kauffman Foundation, and Phil Wickham, Executive Chairman of Kauffman Fellows set out on a road trip through America’s Midwest earlier this month to “take the pulse of entrepreneurship in America’s “middle.” Despite a nationwide political narrative that depicts the Midwest in a state of slumping stagnation, caught between booming coastal economies, Hwang and Wickham report that Midwestern entrepreneurs are actively seeking out business solutions to improve the quality of life within their communities. Since the benefits of the tech boom have been focused on the coasts, Hwang and Wickham cite the biggest challenges to Midwestern entrepreneurs as access to capital.

According to Hwang, the need to build infrastructure and capital should be considered both a challenge and an opportunity for Midwestern entrepreneurs going forward. Hwang expressed optimism for the future of the Midwestern economy, claiming that the region’s culture of “civic mindedness, that willingness to pitch in, that willingness to take risks and help others reach their ambitions” is still alive.

Policy Changes Needed to Unlock Employment and Entrepreneurial Opportunity for 100 Million Americans with Criminal Records, Kauffman Research Shows

Ewing Marion Kauffman Foundation

According to a report recently published by the Kauffman Foundation, rethinking America’s “occupational licensing policy could counter recidivism, encourage entrepreneurship and boost the American economy.” Currently, occupational licensing requirements prevent individuals with a criminal history from securing licenses that could open the door to financial stability and self-sufficiency. Many occupations that require occupational licenses are on low-skilled and high-skilled professions; increased labor participation, productivity and entrepreneurship by released inmates within these fields could therefore produce benefits for the overall economy. According to the Kauffman Foundation’s study, over 60 percent of inmates released each year from state or federal prison are still unemployed after one year of their release.

The Kauffman Foundation’s Emily Fetsch notes that the high levels of recidivism and unemployment among ex-convicts indicate a fundamental issue with the country’s occupational licensing policy: “Hundreds of professions that require occupational licenses could provide paths to economic independence for those formerly incarcerated, except for the fact that their criminal histories alone may ban them from receiving licenses, even if their convictions had no relevancy to the job.”

Fetsch recommends reforms to occupational licensing policy that would exclude only criminal defendants who pose a a public threat or when convictions are recent and relevant to the context of an occupation. Additionally, Fetsch proposes offering the formerly incarcerated opportunities to earn rehabilitation or restoration certificates, thereby preventing inmates from automatic disqualification for consideration of occupational licenses solely on the basis of their arrest. Lastly, Fetsch contemplates disposing of occupational licensing requirements altogether, expressing skepticism for the regulation’s effects in promoting public safety and health.

An Incubator for (Former) Drug Dealers

Maura Ewing, Reporter, Bloomberg

“Amid calls for more job training, less automatic background searching and other changes that would make it easier for ex-felons to become employees” Bloomberg’s Ewing reports on an alternative perspective solution on the fight to curb recidivism and unemployment  among the formerly incarcerated: encouraging them to start their own businesses.

The public and private sphere should continue to push programs that support formerly incarcerated individuals, as well as tackle the structural problems that face these prisoners as they re-enter society. However, Ewing asserts that more emphasis should be placed on the potential returns on fostering entrepreneurship among this commonly dismissed population.

Defy Ventures, a nonprofit incubator based in New York, certainly achieved success in this regard by transforming ex-convicts into entrepreneurs. Over the past six years, Defy Ventures has trained upwards of 500 released felons and successfully incubated over 150 companies. What’s more, the recidivism rate among the incubator’s alumni within five years post release is an astonishing 3 percent, compared to the national average of 76 percent. Defy Venture’s efficacy in curbing recidivism rates suggests that future initiatives to support released prisoners should be focused on entrepreneurship.

Ewing’s article tells the story of another incubator underway in Hartford. The incubator, TRAP House, focuses on supporting former drug dealers as they start new, legal companies. The incubator’s name makes a clever reference to slang for drug-stash locations and is “short for transforming, reinvesting and prospering.”

Happy Holidays from the McNair Center for Entrepreneurship and Innovation. The Entrepreneurship Weekly Roundup will return in January.

Categories
Government and Policy McNair Center

Obama in the White House

Generating an Innovation Nation

The Obama administration’s policies toward small business and entrepreneurship have received mixed reactions. While Obama elevated the administrator of the Small Business Administration to a cabinet position and the SBA increased its lending to small businesses, some small business owners felt that the government bailed out big businesses at their expense after the 2008 financial crisis. Many small business owners are concerned about the effects of the Affordable Care Act.

Over the course of his presidency, Obama has played a part in connecting innovation with government. During his first term, he created the positions of Chief Technology Officer, Chief Data Scientist and Chief Performance Officer. In 2012, he began selecting entrepreneurs to work as Presidential Innovation Fellows within the federal government to make government more efficient, impactful and user-friendly.

Inspired by startups and music

Austin’s South by Southwest music and media festival inspired President Obama’s latest innovation project South by South Lawn (SXSL). Last month, the Obama administration invited community change-makers nominated by the public to attend SXSL. Innovators gathered at the White House to discuss how they use technology to advance areas like technology, food, art and collaboration.

On the technology panel “Fixing Real Problems,” innovators like Chris Redlitz (founding partner of Transmedia Capital and founder of The Last Mile), Jukay Hsu (founder of Coalition for Queens) and Nina Tandon (founder of EpiBone) addressed societal issues, including criminal justice reform, health care costs, access to higher education and job opportunities. Panelists emphasized the importance of understanding the impact of company growth on surrounding communities when planning for future endeavors. They emphasized the importance of creating inclusive access to the new opportunities brought about by societal transformation and technological change.

Focus on social entrepreneurship

With the Access Code program at Coalition for Queens, Jukay Hsu aims to increase economic opportunities in Queens. The program allows populations usually underrepresented in the technology field, like women and minorities, to gain the skills needed to enter the field. There are no upfront costs, but graduates of the program are expected to “pay it forward” by committing a percentage of their first two year’s salary toward funding future Access Code cohorts.

Chris Redlitz created The Last Mile in 2008 in an effort to reduce recidivism rates. For successful criminal justice reform, inmates need the skills to readjust to the outside world. To meet this need, the Last Mile started a six-month program for inmates to develop companies and pitch their ideas to the business community. In 2014, Redlitz created the first computer coding program in a United States prison, teaching HTML, JavaScript, CSS and Python.

Nod to for-profit entrepreneurship

At EpiBone, Nina Tandon provides patient-specific, customized bone grafts created from the patient’s own stem cells. Through this personalization of treatment, she aims to simplify procedures, provide more exact care and reduce the costs of post-surgery treatments. Each year, over 100,000 patients have bone-related surgeries in the United States alone. EpiBone could potentially increase access to these necessary operations through reducing costs and rehabilitation times.

Bringing innovation within government

Obama invited technology executives to join him in Washington to spearhead innovation in government. Former Google executive Megan Smith now serves as the United States Chief Technology Officer. Microsoft executive Kurt DelBene took a leave of absence in 2013 to help fix the problems with HealthCare.gov.

At SXSL, Presidential Innovation Fellows shared their projects to improve government efficiency at the “Startup in the White House” exhibit. Jacqueline Kazil’s GeoQ crowdsources geo-tagged photos to quicken disaster response. With the Green Button Initiative, John Teeter aims to help Americans understand and improve their energy use. The innovation company 18F has been developing NotAlone.Gov to provide students and schools with access to resources against sexual assault. Visitors saw how design and technology could potentially modernize the immigration system, improve veterans’ access to benefits and increase cancer patients’ access to clinical trials.

The first SXSL – and the last?

Although technology will not cure all of society’s ills, it has the potential to improve lives more quickly than any government institution could. Continuing initiatives that focus on creative solutions leads to a more widespread awareness of this potential. The federal government should focus on technology and innovation as integral contributors of growth.

Obama used SXSL to show innovation’s potential in policy solutions. Unfortunately, he made no mention of policy toward small businesses, particularly for-profit enterprises. Events like SXSL must also focus on policy that accelerates for-profit entrepreneurship that aid U.S. economy growth. There was no mention of how the federal government would incentivize entrepreneurship to strengthen the U.S. economy and maintain competitiveness in the global marketplace.

Whether through another South by South Lawn or the inclusion of innovators in policy solutions, the Trump administration should seek to make government more inclusive, transparent and effective. However, simply embracing startup culture and bringing entrepreneurs into government is far from enough. For entrepreneurship to play its full role, the U.S. needs policies that will actually help small businesses, not hinder. Only then will small enterprises and startups be able to take their place as drivers of economic growth.

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McNair Center Weekly Roundup

Entrepreneurship Weekly Roundup: 11/04/2016

Weekly Roundup is a McNair Center series compiling and summarizing the week’s most important Innovation and Entrepreneurship news.

Here is what you need to know about entrepreneurship this week:

Clocking In: Small Business and Overtime Regulation

Catherine Kirby, Research Assistant, McNair Center for Entrepreneurship and Innovation

In December, new US Department of Labor regulations on overtime pay eligibility will come into effect. These regulations will drastically increase the minimum salary for exemptions to overtime from $23,660 to $47,476. McNair Center’s Kirby discusses the pros and cons of the new overtime labor law. Her analysis offers insight on how to mitigate the increased costs to employers while promoting the benefits to low-income salaried workers.

  • The pros: Estimates forecast that the new regulations will create jobs in addition to providing compensation for employees working over 40 hours a week.
  • The cons: New regulations come with new costs for employers. Requiring employers to keep track of attendance and hours of more employees could be costly, especially for small businesses.
  • Policy recommendations: The Department of Labor could implement the regulations in phased increments rather than in one single shock. The government could lower small business taxes to reduce the regulatory burden.

Immigrants and Entrepreneurship

Dylan Dickens, Research Assistant, McNair Center for Entrepreneurship and Innovation

Many U.S. immigrants start businesses. Immigrant entrepreneurs are a diverse and growing group; immigrant entrepreneurs also have greatly varying levels of education. While immigrant entrepreneurs tend to live in larger states such as Texas and California, they compete for business in every U.S. state. The type of work immigrant entrepreneurs engage in is extremely varied. Partly as consequence of this, on average immigrant entrepreneurs outperform their native counterparts and are more skilled at finding market gaps by fulfilling unmet demand. Overall, McNair Center’s Dickens proposes that recent research supports the claim that immigration bolsters entrepreneurship in the US.

10 Marketplace KPIs That Matter

Andrei Brasoveanu, Author, Mattermark

Brasoveanu’s article summarizes the top ten Key Performance Indicators (KPIs) that every entrepreneur should closely monitor when building a market for their product.  Markets ultimately determine how every good and service in the economy is “discovered, priced and delivered.” KPIs, such as return on investment, growth and and burn rate, offer powerful and important insights for entrepreneurs. According to Brasoveanu, KPIs are effective and efficient marketplace metrics for getting startups on track to visualizing and contextualizing their success.

kpis

Scientists Working Outside Their Fields Are More Likely to Become Entrepreneurs

Brianna Stenard, Assistant Professor of Management and Entrepreneurship at the Stetson School of Business and Economics at Mercer University, Harvard Business Review

Highly skilled scientists and engineers are increasingly taking jobs that are outside of, or only slightly related, to their STEM degrees. Weak labor conditions in some STEM fields are partly to blame, but largely, the educational mismatch among scientists is voluntary. Stenard’s research indicates that many employees trained in the STEM fields take jobs outside of their field to acquire technical and managerial skills. Voluntarily mismatched scientists are nearly 50 percent more likely to become entrepreneurs.

Rather than bemoan an apparent oversupply of highly skilled scientists and engineers, Stenard recommends that policy makers implement initiatives that encourage technology entrepreneurship among these mismatched experts. Following a similar vein, Stenard proposes that universities should also consider adopting measures that equip STEM students with the “nontechnical skills…particularly valuable in entrepreneurship.”

And in startup news…

Airbnb’s Terms of Service just blocked a racial discrimination case

Russell Brandom, Reporter, The Verge

On Tuesday, Airbnb successfully blocked a class-action lawsuit that challenges the company’s platform on the basis of systematic racial discrimination. However, thanks to an arbitration clause in the company’s terms of service, the case will go through individual arbitration, and Airbnb will avoid a pricey and public lawsuit. The company recently added a nondiscrimination policy to its terms of service and has apparently taken measures to elimination discrimination from its network of hosts. When approached by the Verge on this issue, an Airbnb representative insisted that “Discrimination has no place in the Airbnb community.”

Palantir Prevails in Lawsuit Over U.S. Army Contracting Practices

Rolfe Winkler, Reporter, The Wall Street Journal

Another California-based startup recently won big in the courtroom, as data-mining software firm, Palantir, prevailed in its lawsuit against the US Army in the Court of Federal Claims. Palantir Technologies, Inc. ranks among Silicon’s Valley’s “most highly valued private companies” and was valued at $20 billion in a late funding round in 2015. The company specializes in big data analysis and offers its services to large commercial customers and government agencies within the intelligence community,. The court’s decision means that Palantir is now eligible for a federal contract that would award up to $200 million for work relating to the Army’s Distributed Common Ground System.
At the 2016 Wall Street Journal  Global Technology Conference, Palantir Chief Executive Alex Karp revealed that his company was positioned to go public.

GIF Site Giphy Is Valued at $600 Million

Rolfe Winkler, Reporter, The Wall Street Journal

Founded in 2013, Giphy, Inc. serves as a search engine and database for Graphical Interchange Format files(GIFs). GIFs are the “short, looping video files” that have most likely taken over your, or your teenager’s, Facebook News Feed. Thanks to Giphy, GIFs have surged in popularity and are now ubiquitous on social media sites and group-messaging platforms, such as Facebook messenger, Twitter, and Groupme. Giphy’s Chief Operating Officer Adam Leibsohn summarizes the company’s platform as a ”search engine…for the messenger generation.“
Giphy recently released an update stating that the company currently serves more than one billion GIFs per day, that are in turn watched by over 100 million users daily. This New York startup’s obvious popularity has not gone unnoticed by investors; Giphy raised $72 million in equity funding from venture capitalists during its most recent funding round, which brings the company’s  cash total to $150 million.

Categories
McNair Center Small Business

Small Business and Overtime Regulation

Clocking in: Small Business and Overtime Regulation

What is the New Overtime Regulation?

frustrated workerOn December 1, 2016, the Labor Department will officially institute new regulations on overtime eligibility for workers. Announced on May 17, the new rules require business owners to pay salary workers earning up to $47,476 a year time-and-a-half overtime pay when they work more than 40 hours during the week. This new regulation will be updated every three years to adjust for average pay in the United States.

Federal employment law stipulates two different ways for employees to receive overtime pay. First, if the employee is not an executive or a professional with decision-making authority they are eligible. Second, if the salary of an employee is below a certain amount, that employee can receive overtime pay.

Who is Affected?

While the Labor Department calculated that the new law will affect 4.2 million workers, the Economic Policy Institute estimates that this new regulation will affect 12.5 million employees. That is 23% of salaried workers. The institute expects these new rules to affect over one million Texans.

The new overtime rule will apply to any business that is subject to the Fair Labor Standards Act. This includes any business with sales of at least $500,000, or employers involved in interstate commerce. The National Federation of Independent Businesses says that the requirements will affect around 44% of US business with fewer than 500 employees.

History of Overtime Pay Regulations

The 1938 law that began federal minimum wage also started the overtime rule. While the government has raised the overtime pay salary cut-off several times over the years, the current cut-off is at $23,660. Vice President Biden noted that that more than 60 percent of salaried workers qualified for overtime in 1975 based on their salaries, but only 7 percent do today.

Complying with Regulations

To comply with these new regulations, employers will have to track employees work hours, even those of salaried employees. This change can involve costly adjustments as employers may have to buy new systems and spend time on regulatory compliance. Additionally, employers may have to change the way they manage their labor budget. Failure to comply can result in lawsuits or penalties.

Employers will most likely respond in a couple of ways. Some employers will choose to limit their employees’ work hours to avoid paying overtime. Others may hire additional workers and divide up existing jobs. Additionally, employers could raise the pay of employees whose salaries are close to the cutoff to avoid paying overtime work. Or employers could cut salaries of workers with the hope that overtime will make up the difference in income.

Oxford Economics predicted that a “disproportionate number[s] of workers” [that] became eligible for overtime and worked more than 40 hours would see their hourly rates decreased by an equal amount, leaving their total annual earnings unchanged.” On the other hand, the Institute for the Study of Labor, said that base wages would fall somewhat over time, but that the higher overtime payments would more than offset any loss in regular salary levels.

Positive Aspects of the New Regulations

The new regulations could potentially have positive effects on the labor force. Goldman Sachs and the Economic Policy Institute estimate that the new regulations will create about 120,000 jobs.

The main argument, however, it is only right for employees to earn overtime for working over 40 hours. Vice President Biden and other supporters of the change present the idea of fairness as the main positive aspect of the new regulation. The Obama Administration hopes that the rule change will give middle-class families additional income.

Negative Aspects of the New Regulations

Despite the potential for positive effects, the new regulations could bring numerous negative consequences for employers.

The new regulations will immediately require employers to keep track of employee attendance and hours. This tracking will impose implementation and operation expenses, which may be prohibitively high for smaller and less profitable firms. Payroll reclassification for small businesses can also be time consuming and expensive. Business owners must also figure out whether their workers are exempt from the new requirements. Misclassification can result in lawsuits and penalties. And, of course, small businesses may face increased payroll expense.

All of these changes can be costly for small businesses to implement. A study by the National Retail Federation estimated employers could end up having to pay as much as $874 million to update payroll systems, convert salaried employees to hourly wages and track their hours. The potential costs have not gone unnoticed; the National Federation of Independent Businesses filed a petition to delay the implementation of these new rules. Otherwise, the new regulation may drive some small firms out of business.

Hurting Workers

This new measure could even hurt employees by giving workers less flexibility, hour cuts and decreased morale. Salaried employees often enjoy flexibility in working hours that can allow them a certain amount of freedom. This flexibility is about to become more expensive as employees are required to record every hour of their work. Being a salaried employee, rather than per-hour labor, also has positive psychological benefits. Employee morale may therefore drop. Finally, employees will soon run the risk that their employers will cut their hours to avoid paying overtime.

Jobs may be created by this regulation. However, most of those new jobs could come from cutting a full-time job in half to avoid paying overtime. Coordinating two people to do one person’s job will make America’s workforce less productive.

Room for Improvement

These new regulations disproportionately hurt small businesses. It may be important to respect the rights of workers to earn more money for overtime. However, the government must find a solution to help low-income workers without imposing a burden on small business owners.

A step in the right direction would be to institute this new regulation in phases. The overtime income cutoff change from $23,660 to $47,476 is a huge difference. But unless government offsets these costs, perhaps by lowering taxes on small businesses, this new policy will discriminate against the 28 million small businesses that provide more than 8 million American jobs.