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Google Zeitgeist October 15, 2012
The World We Design
>>Lorraine Twohill: Last session of today. This is very uplifting session to bring us
home for the day. Before we start, I wanted to quickly mention Jeremy's Icebreaker is
giving everybody a gorgeous Icebreaker T-shirt. You will find a card in your room you need
to bring to the concierge's desk to get your T-shirt. They are very, very cool. Thank you
Jeremy. This final session is called The World We
Design. We have a phenomenal moderator who is going to join us on stage, I want to introduce
Andrew Ross Sorkin, who is a financial columnist with the New York Times. We are thrilled to
have you here, Andrew. Andrew is also the co-anchor Squawk Box on CNBC and has written
a very famous book, Too Big to Fail. So Andrew, please come on stage. Thank you.
[ Applause ] >>Andrew Ross Sorkin: Thank you very much.
We've had a great couple of sessions this morning. And we're going to be talking to
a number of very special and amazing people this afternoon, who are going to be telling
stories and hoping to inspire us about new business models, habits, social and sustainable
mission and new ways to think about stories through photographs and motion pictures. But
before we do that, what I wanted to do, if I could, was to take a moment to speak briefly
about a theme that I imagine we're going to be hearing about a little bit this afternoon
from our presenters, especially those who are starting and creating and running emerging
businesses and emerging enterprises. It has to do a lot with their success and
the success as a result of what I'm going to describe as long-term thinking and patience.
And the reason I wanted to bring up this idea of long-term patience in terms of thinking
is here we are at Google, and at the Google Zeitgeist event, and everybody here has their
-- I was about to say iPhone, I shouldn't. I should say their Nexus device or their Samsung
device or whatever they have, Android device, and we live in this very, very instant world.
We want instant gratification, we want response time, we want to tweet, we want to FaceBook,
we want to do whatever. But when it comes to business, and when you
think about your own enterprises and the decision making that goes into it, one of my greatest
worries these days is that when you think about markets and specifically capital formation,
there's become a remarkable sense of short-termism that has creeped into every facet of business
thinking. I want to give you some stats just to hopefully make everybody think here for
a second. Consider these numbers. The average stock today in the public markets is held
for -- can you guess? 22 seconds. [ Laughter ]
>>Andrew Ross Sorkin: Okay. Now, 70% of the stocks that trade in the market on any given
day, the volume you see on CNBC at the end of the day is being moved by computers, high
frequency trading. The other 30% of stocks, out there in the world, the average hold time
is seven months. That's the number. So take out high frequency trading, seven months is
the long-term holds. Of the world's actively managed mutual funds
in this country, nearly 100% of the portfolios are turned over every single 12 months. Okay?
A survey of more than 400 corporate managers recently found that almost four out of every
five respondents indicated that they would decrease discretionary spending on areas such
as research and development, advertising, maintenance, and hiring in order to meet short-term
earnings targets. And more than half the respondents said they would delay new projects, even if
it meant sacrificing value creation. They say that -- they actually responded and
said that the object for doing so was to smooth out earnings or to actually hit the quarterly
target. Now, I say all of this -- by way of background
in that we live in a time right now where we keep talking about shareholder democracy.
And we claim that we, all of us in this room and the country, wants more shareholder democracy.
We want a bigger seat at the table. We think that if we just had a seat at the table, we
would be the long-term thinkers. But I would argue to you that we are the problem.
That we have become the ultimate ADD nation. And in many ways, when you think about what's
happening in corporate America, we are getting exactly what we are paying for. Now I wrote
this book Too Big to Fail, to quote FDIC chairwoman Sheila Bair, she said the overarching lesson
of the financial crisis was the pervasive short-term thinking that helped bring it about.
And she's absolutely right and we absolutely have a problem.
I was with a CEO last week, you all know this CEO, a Fortune 50 company. She has made some
serious investments over the last couple of years that have not paid off, not yet. They
may or may not pay off in two years. I will bet you within the next two years she will
lose her job or the company will be broken up. That can't be the right answer. Now some
say we need to incentivize managers differently. We need to give them more skin in the game.
That's what we say. We want everybody to have skin in the game. And every time I think about
skin in the game, I therefore think about *** Fuld, the former CEO of Lehman Brothers.
This is a number worth remembering. *** Fuld had a billion dollars of stock in his company.
He had, quote, unquote, more skin in the game than just about anybody in the business. He
rode his billion dollars of stock all the way down to $56,000.
That's the number. When you really think about what we can do
to incentivize people and motivate people to make the right decisions, it is a very,
very tough task and money is not the only answer.
Finally, Google, FaceBook and others, have created governance systems to try to push
back on some of this pressure. But in all honesty, my worry is it's only going to really
help at the margins. Ultimately we are going to need a new level of trust and patience,
and that's something that's only going to come from everybody in this room, hopefully
not just today, but when you go back to wherever you came from, to talk about that patience
that's needed. We're going to be hearing from some tremendous people this afternoon. I want
to get some thought about some of these issues. Let me do this. Let me introduce to you two
women who are very special. They are my new friends this afternoon. And they are doing
very big things in the not-for-profit world of sustainable and social businesses in an
effort to create profitable businesses. If you would join me, please, Leila Janah, the
CEO and founder of Samasource Social Business -- please, please, it's a social business
that connects people -- [ Applause ]
>>Andrew Ross Sorkin: -- living in poverty to microwork. And basically what they do is
they take small computer-based tasks and try to build skills in emerging markets in places
that you would not believe. Samasource I should say has partnered with many tech companies,
including Google, Microsoft and LinkedIn and she's going to talk a little bit more about
that in a moment. Then Linda Rottenberg is the CEO of Endeavor,
a not-for-profit that identifies and supports high impact entrepreneurs in emerging markets
-- [ Applause ]
>>Andrew Ross Sorkin: And this is a great fact, Endeavor has helped its entrepreneurs
generate more than 90,000 high-quality jobs. So I welcome both of them.
>>Linda Rottenberg: 200,000. >>Andrew Ross Sorkin: 200,000? Your bio is
wrong, it says 90,000. I apologize. What I'm hoping that you can do, just to start us off,
is just explain a little bit about what these institutions do. Because I'm not sure the
audience does. But answer this while you are doing it, if you could. In a world when we
think about where there's been a real shift about how we think about capitalism, in the
past four years, and both of your enterprises at some level are about -- either making a
profit or -- or using the profit incentive, to make your businesses grow or to make your
enterprises grow, how do you think about that? How do you go to countries that have looked
at our version of capitalism here in the U.S. and say, you know what, we just watched what
happened here and this may not work the way we thought. I am going to start with you,
Linda. >>Linda Rottenberg: Well, your question, also
about patience, really gets to the heart of Endeavor's model. So in the mid 1990s, I was
living in Latin America, I had fled from Yale law school knowing only that I was never practicing
the law. I was struck by how many young people aspired to government jobs. I didn't understand
this. And how many taxi drivers had Ph.D.'s in engineering. So I kept asking why is no
one starting a business? And it was explained to me that in Latin America and other emerging
markets, if you weren't from one of the top 10 families, there was no way that you could
start a company. No one would give you support, there were
no role models, no venture capitalists, no mentors, and then also they were seen as greedy
and corrupt. Why would you aspire to do that, anyway? I said no, no, no, I'm talking about
entrepreneurs, people who innovate, create jobs.
And I used the story about the computer. And people would say, "Nice story, but guys like
me, we don't even have a garage." So Endeavor was really set up to address this
issue. What we said was just like you said, if we wanted to be impatient, we would start
a venture fund and invest in three of these companies. But we wanted to build an ecosystem.
We said we are going to do something non-traditional. We're going to set up as a non-profit, of
by and for entrepreneurs. Not just any entrepreneurs, the high impact ones. The ones with the greatest
potential to scale, create job, create revenues. We said if we do our job right, these entrepreneurs
will not only change the way business is done in their societies, but they will give back
and make us self sustaining. Everyone said I was crazy. I was literally the chica loca
in Latin America. And here's where we are today. 15 years later, Endeavor operates in
17 countries, in Latin America, the Middle East, Europe, Asia, and Africa. We have screened
30,000 entrepreneurs. Certified 722 -- 450 companies. Once they become Endeavor entrepreneurs,
we help them build business plans, build advice reports, access capital, in some cases fire
their mother-in-law. Last year they generated $5 billion in revenue and 200,000 jobs, but
here's the more important thing. They are now becoming the mentors. They are now becoming
the angel investors. So in fact one of my favorite days at Endeavor was we were down
in Brazil, the editor of the Portuguese dictionary came to us and said because of our work, they
were going to add the term "empreendedor" into the language. So now there's something
that people can aspire to that has a positive connotation.
>>Andrew Ross Sorkin: And your investment -- one of the things that's so interesting
to me is you are now investing in businesses that you hope will turn a profit.
>>Linda Rottenberg: We are, yeah. >>Andrew Ross Sorkin: You are hoping they
will become an NPO and take that profit turn around and invest in other emerging businesses.
>>Linda Rottenberg: Yes, my colleague Bailey Kempner is here. We started something called
Endeavor Catalyst. It's actually acting as an endowment, so it's taking donor capital
and we talk about return on donated capital, RODC. And the idea is we are co-investing
in our entrepreneurs, raising $5 million from venture capitalists and we will use the returns
to make Endeavor sustainable and to go to the next countries where they don't yet have
an entrepreneurial ecosystem. >>Andrew Ross Sorkin: Okay. Leila take us
through what you do, because it's pretty crazy and pretty interesting.
>>Leila Janah: Sure. Just to tell you how I got started. When I was 17, I got a scholarship
from a tobacco company, from the Lorelei Tobacco Company. And I decided to use it and volunteer
in Africa. So I went to Ghana, in West Africa. I was assigned to a small school in a little
village. And I thought that I was going to go there and save the world. And yet my students
were incredibly bright. They spoke beautiful English. They could tell me the name of U.S.
senators, which by the way some of my high school classmates couldn't tell me. And I
thought this was the great untold story of poverty and development. There is a mass of
untapped human potential. I think this organization does a great job of addressing that. So I
studied development. I wasn't really thrilled with what I saw in the traditional aid model,
which is essentially that we view poor people as these passive recipients of handouts and
we don't really give them any credit. So I formed an organization called Samasource.
Sama means equal in Sanskrit. And we connect some of the world's poorest people, people
living on less than three dollars a day, to work via the Internet. This is a really interesting
business model that's only made possible by some of the recent advancements in the last
five years, Internet connectivity and thanks to Moore's law, really cheap computing devices
all over the world. There's one that launched last year, the $25, Raspberry Pie. So we've
taken advantage of this new infrastructure and this new connectivity to take people who
are living at the bottom, 4 billion on less than three dollars a day and connect them
to what we call microwork. We divide up big digital products, which are typically outsourced
like image tagging, like transcription, like captioning, captioning videos, and we send
that work to people living in slums and villages in poor parts of East Africa, South Asia and
Haiti. And today -- we started four years ago, we
paid out 3,000 people, so 3,000 women and youth who had never had formal work experience
before, have actually made this money doing real work for companies like eBay.
We've paid out 3,000 women and youth and we've also paid them over $2.5 million in real revenue
from for-profit companies. And I think what's so interesting about this new world that we
live in is that people are starting to realize that capitalism and charity don't have to
-- be this dichotomy that's existed for so long. People really want to embed the meaning
that they find in their charitable work on weekends and evenings and in the latter half
of their lives into their businesses. >>Andrew Ross Sorkin: So, for example, if
I am living I don't know where, you come to me and you say you're going to train me to
tag photos; is that how this works? >>Leila Janah: It's a little different than
that. If we did that, probably no one would want to work with us.
[ Laughter ] >>Leila Janah: So we work with local recruiting
partners. The work can be a little bit boring. But here's how we do. So we work with local
NGOs that operate in slums and villages that do things like training people in leadership
skills or teaching them how to save money. And those organizations become feeders for
us and they send people to our local partners. We have a network of 16, some for profit,
some non-profit entrepreneurs that operate existing computer businesses, internet cafes,
computer centers, in developing countries. These people then, as an agreement with Samasource,
hire poor people to do the work in exchange for us sending them the contracts that they
wouldn't be able to have access to in developed countries.
>>Andrew Ross Sorkin: So here's the question. Google is a client, if you will, or a partner,
right? Microsoft is a partner. Do they work with you so they can check off a box that
says social responsibility or social mission or something? Or do they work with you because
ultimately they're getting a good value for what you are actually doing?
>>Leila Janah: So this is a great question. At the beginning, my hypothesis was that businesses
would behave like consumers do. Consumers in many cases are willing to pay a premium
for socially labeled goods. Businesses, as I learned after starting my business, are
not. Businesses pay us to deliver good quality services, with competitive costs and competitive
turnaround times and we're competing with for-profit outsourcing firms. So what we have
found is that the social mission is really the icing on the cake. The good quality services
have to be there first and then all other things being equal, of course people would
love to work with us, they know that we're a non-profit.
>>Andrew Ross Sorkin: If you succeed, what happens when an entire village is tagging
photos and doing all sorts of things, realizes I can be an entrepreneur, and they get involved
with you. The price by the way all of a sudden goes up for you, so Google says, "I don't
know can I use you" or do I -- or do you consider that success?
>>Linda Rottenberg: But success is a good thing. Look in our case. We are seeing these
tech and other entrepreneurial ecosystems spawn up in Buenos Aires, in Amman, places
you would never -- Egypt after the revolution. In Greece now. These are places that you wouldn't
expect business to be happening and -- >>Andrew Ross Sorkin: You just started in
Greece. >>Linda Rottenberg: We just started in Greece.
>>Andrew Ross Sorkin: Very strange place to start.
>>Linda Rottenberg: I know. You call me crazy again. And I said when the economy looks down,
entrepreneurs look up. It's the best time to be in an entrepreneur in Greece. Chaos
is a catalyst. Chaos is your friend. But what's interesting is we looked -- we went to Argentina,
Jordan, Turkey, Brazil, we said all right. We want to investigate all of these start-ups
that are happening, why? We looked to the 200 start-up companies, too early for Endeavor.
We take companies, you know, one to $20 million in revenue.
We said we -- we asked them four questions. Number one, who inspired you? Number two,
who mentored you? Number three, who if anybody actually invested in you? Number four, did
you ever work for an entrepreneurial firm before?
5 years ago, there was no word, there was no company, there were no role models.
What happened is they started referring back to the companies. We started seeing patterns.
Three or four companies, some of our ex-entrepreneurs, have become the angel investors, the mentors,
the venture capitalists. When you take them away, the ecosystem disappears. So what happens
is it's like the PayPal Mafia effect or the Googlers, you can have a few entrepreneurs
paying it forward, it creates the next generation of a multiplier effect that happens very rapidly.
What you are doing at Samasource, we hope they will be the one that entrepreneurs would
help. Ours become the VCs. That's success --
>>Leila Janah: I have a great story. I just wanted to show you an actual worker if we
can bring up the slide. Just to show you how this ecosystem works. So this is a woman named
Jacquelyn (saying name). She's 25 years old, she's from rural Kenya. She's from a country
where the vast majority of people make less than two dollars a day. That's, by the way,
adjusted for purchasing power. That's what two dollars would buy you in the U.S. in 2005.
That's where they she lives. And yet 95% of people under 30 in Kenya can read and write
in English. She's one of them. So Jacquelyn came to us, then this next slide, shows you
what she's doing now. She came to us, she had never had formal work experience before.
She had to drop out of school because she didn't have enough money to afford the school
fees. And she got this job at one of our computer centers in Nairobi about a year and a half
ago. She made enough money to pay her rent, her single mom's rent herself and put herself
and her sister through school. That's how much more money you can make doing computer-based
work than doing basic formal employment. And then she left and actually the ideal scenario
is -- for us is for our workers to leave after six months or a year and earn higher paying
work in the for-profit private sector, because then we're not using non-profit funds to subsidize
people forever. And so I hope that some day she becomes an entrepreneur and works with
Endeavor. >>Linda Rottenberg: Actually one of my favorite
stories also grew up in the favela, slums of Rio, and her mom was a maid and her father
was a janitor and she got a job at McDonald's. She said, "You know what? Why can't I do this
franchising thing, but for poor people? Why can't poor people feel beautiful."
So she and her cousin Ziga started something called the Beleza Natural Hair Salon. We found
her when she had two salons. You think oh, that's a nice story. They had actually concocted
this product in their kitchen. Tested it on their husbands. The husbands' hair fell out.
We found them and there were like four hour and six hour waits at the salon, so we helped
them understand franchise and get mentors. And today Beleza Natural, it's a $75 million
business. They employ 1500 mainly women who grew up in the poor areas of Brazil, and she
wants to take on Loreal and starting a new hair clinic in Harlem. These are the stories
that if you tell them it's amazing, young kids sitting in these places today think,
I can do it, too. >>Andrew Ross Sorkin: When you think about
investing in these businesses now, you talked about not return on equity, you said return
on donated capital. >>Linda Rottenberg: Yeah.
>>Andrew Ross Sorkin: What's the threshold? Especially when you are doing it, I assume,
side-by-side with -- I don't want to say real venture capitalists, but venture capitalists
who want to make a profit. >>Linda Rottenberg: Yeah. Although we hopefully
get the terms better. Entrepreneurs are still getting unfair terms. We are being of, for
and by entrepreneurs. We are neutral. We don't set the valuation. We actually did a notional
fund. We said okay, what would have happened if looking back over 15 years we had done
this type of endowment that would invest in our entrepreneurs. The ROIC would have been
3x, 48% IRR. These are for an emerging market venture fund, that's great. The difference
is that when we hopefully become profitable, we can move on to the harder places. We can
actually create these ecosystems where we eventually we hope the venture capitalists
come. We hope one day we are not needed in Brazil, but we need an organization that kind
of creates the ecosystem in neutral way. >>Andrew Ross Sorkin: Hardest country so far?
What's the country you would like to conquer? >>Linda Rottenberg: We have Google. Let's
do Egypt, let's say Egypt. >>Andrew Ross Sorkin: I'm curious on your
end, in terms of most of the things that we talked about are low-skilled work. Is the
goal ultimately to raise the skill level? Meaning is that something that you want to
do or is that a different business? >>Leila Janah: I think that would be a different
and write in English, who can do our work but just don't have access to it. And so many
companies have this work that's just sitting there that we could do.
So our first goal is to expand the number of people doing this low-skilled type of work.
And to Linda's earlier point, we look at a similar measure. We look at how many people
we are able to move over the poverty line and for much donor capital. What's so exciting
about businesses like ours, now you can track that. In the digital age, I can tell you for
a very limited amount of your funds, we can actually move somebody over the poverty line
and all of the evidence suggests that they don't go back to it once they've had formal
work and training. So our goal is to dramatically expand Samasource, and then I have a broader
vision for my organization, which is to become like the *** of social enterprise. I think
that Sama could eventually become an incubator for various other social businesses that all
>>Linda Rottenberg: One interesting point that gets to your point about how we do business
and capitalism. I think you are hearing today these two non-profits who are using the tools
of the private sector, right? And we're aiming for profit, both with our businesses and ultimately
we want to be self-sustaining. And we're generating profits, just turning it back into ourselves.
But here's what businesses can learn from the non-profit world. It's something that
I call psychic equity. I think that so many times when you think that you have all of
these financial equity to give, you don't take -- you don't take the care to think about
the -- the ownership structure. When people are waking up every day, are they feeling
like they're making a contribution? I think these young people, these millennials, are
actually telling people they will take a tradeoff in salary, in the -- in the power they have,
to actually make a difference. And I think that comes --
>>Andrew Ross Sorkin: You think that's true? You think that's not just a good sound bite?
>>Linda Rottenberg: Yeah, I think they care about making an impact. I think companies
that tap into that, and actually make their profits but give people the sense of ownership
and psychic equity and un-silo things, I absolutely think if you want to retain young people today,
you have to. I do. >>Andrew Ross Sorkin: We're going to be talking
to some people after this, who have done something like that and have some interesting stories
in a space that some people call it crowdsourcing that's now filling up with new companies that
tasks. Amazon runs one called Mechanical Turk, we used to share office space with a firm
called CrowdFlower, which also does what we do. So we're in a competitive industry. Actually
image or a video. We do -- we do a lot of really short form content, so answering questions
that, you know, communities online don't want to answer. Maybe fact checking for news stories.
So all sorts of content writing and basic tasks that are in this category of basic human
intelligence work. So requiring literacy and a little human ingenuity.
>>Andrew Ross Sorkin: Do you buy this assertion, Linda's assertion on sort of social mission
in this generation? I think we're all part of the same generation, and I have to admit
I'm a little skeptical. >>Linda Rottenberg: It's not social mission.
We actually did a study and in fact, companies that are aiming for profits scale faster.
their social. In fact, people who see trade-offs who say
they're going for social profits oftentimes have a hard time scaling. That's all I'm saying.
Psychic equity, I think it's about making people feel that everything they do has an
impact and that your business is making a difference in the world.
>>Leila Janah: I buy it and here's why. The Internet has dramatically broadened our circle
of empathy. No longer is a woman in a slum in Kenya someone who doesn't deserve the basic
human dignity that we can afford to provide her.
And I think that as the world shrinks more and more people who graduate from college
are looking for meaning in their jobs and they don't want to relegate meaning to weekends
and after hours nonprofit work. They want meaning to be central to what they spend the
majority of their time doing. That's certainly why I started my organization. It's why we
run what I call an investment banker reform program. We get a lot of consultants -- not
McKenzie and Goldman and they said, you know, I've spent my time the last three years making
lots of money for the man and now I want to do something for mankind. And I see that as
>>Linda Rottenberg: Can I say one more thing about your original question and about the
patience? When we started out no one believed there
including my parents, didn't know what I had done, I had gone to law school and gone into
retirement, they thought. I said, you know, what we're doing is bottling
up the magic of silicon valley and putting it in places where there's ideas, but there's
campuses to do the inverse. I say now that people in Jakarta and Rio and Istanbul may
believe in the American dream more than our own kids do. And people are saying, Look,
there's no stability. I can't become an entrepreneur. IT's too scary out there. What will happen?
And I think if we bottle up this energy that half the Fortune 500 companies today were
you have to think in the longer term, you have to be more patient, and it's the best
time to start something up. Because the idea that we're creating this
risk averse generation I think can be overturned with examples of people in the for-profit
>>Andrew Ross Sorkin: On that very promising note we're going to leave it there.
Are you ready? It is now my honor -- I apologize. It is now
my honor to introduce not only a great writer, but a friend. Charles Duhigg -- and a colleague
by the way. Charles Duhigg is an author and colleague of mine at the New York Times Company.
He is the best-selling author of the Power of Habit. I promise you he will blow you away.
Why -- the subtitle -- I'm trying to sell your book. They get it for free. Why we do
I should also note if you don't read what he's doing in the "New York Times," you should.
He runs this really a series that we've been doing called the iEconomy which has been a
series examining Apple's manufacturing in China, many of you have seen it, the challenges
awesome. I wish you luck, Charles. >>Charles Duhigg: Thanks so much. Thank you
all for inviting me to join you this afternoon. I'm a reporter at the New York Times and the
author of this book the Power of Habit, which will hopefully come up in back of me at some
be because you read a piece in the "New York Times" magazine about how Target was studying
shoppers' habits in order to determine if some of their female customers were pregnant
or you might have seen a piece in Sunday in the paper about how the Obama and the Romney
campaigns were studying voting habits in order to try and entice low propensity voters into
is I want to talk to you about a product that you might not have heard about, or maybe some
of you have, named Febreze. And I'm going to admit at the outset that
I'm going to try and trick you. Because what I'm going to try and do is I'm going to try
and convince you that we are living through this golden age of understanding the science
that made Febreze into a hit that you can use within your own companies or within your
own lives to make the world a better place. So you can tell me at the end if I'm actually
successful at this. And in order to do this I first have to start
special. Thank you very much.