The Multi-Trillion Dollar Opportunity

Want to be wealthier? Stop being a jerk-face to #women.

America has a multi-trillion dollar problem that just hit home for me. My daughter was sexually harassed by another student at school, and worse, the school didn’t protect her when they knew it was going on.

When examining why some economic agents like companies, churches and schools continue to protect sexual predators, I’ve come to realize that this problem is probably the single largest drag on the global economy (at least the largest I’ve ever seen) and that our legal system provides warped, perverse incentives that perpetuate this perversion.  The cost to our society of this broken system is staggering.  And yet society continues to look the other way to a situation that reminds me of the old story about the gardener and the rabbit. It goes something like this:

Once there was a gardener who woke up every morning to discover that a rabbit ate much of his crop the night before. He tried everything to get rid of it, but the clever rabbit eluded him night after night. Finally, in desperation, the gardener built a strong fence around his garden, even digging a portion underground, to keep the rabbit out. Supremely confident in his fine fence, he slept well that night, only to awake and discover that the rabbit ravaged his beautiful garden once again. He had fenced in the rabbit the day before.

Like the farmer, our tort laws regarding sexual harassment are fencing in the rabbit, and providing incentives to churches, schools and workplaces to protect harassers.

So, let’s look closer at the perverted incentives for schools, churches and companies (which I will call social agents). If a person commits sexual harassment, and if anyone at a social agent had any inkling that that person was a perv, then the social agent bears some liability for the perv’s actions since it was foreseeable that harassment would take place. However, social agents and individuals tend to want to see the best in people, so when perv’s do something pervy, we try to explain it as “we must have just misunderstood what he/she meant”. That is because we are nice.

Predators depend upon our kindness to do their dirty deeds. I’m not suggesting that we stop being nice, but I think how we respond to inappropriate behavior must change.

First, we need to speak up when boundaries are crossed and not care if we offend. If a man or woman in your office puts their hand on your back or shoulder, that is crossing the line. You don’t need to touch people to do most jobs, and should only do so when it is required as a part of your job description and, even then, minimize this as much as possible. There is no such thing as an OK sexual joke at the office (or at home for that matter). Grooming people by talking around the edges on mature subject matter is not subtle, it is blunt and we don’t like it. Stop doing it now. It’s time to grow up and start respecting people appropriately.

Second, in today’s Donald Trump school of management, tort laws provide cover to economic agents who pride themselves by saying that they are protecting innocent men from the wild accusations of an accuser when really, they are just protecting their bottom line. This encourages the victim blaming and cover-ups that we see in the news every freakin’ day. Current tort law “fences in the rabbit”, by providing companies legal incentives to align with predators to fight off harassment claims to avoid paying damages. Instead, we need to look at the REAL damages.

Social agents incorrectly assume that the biggest harassment cost they need to avoid is financial damage from lawsuits. This false belief encourages them to deny harassment claims and fend off harassment accusations with no thought to the emotional and personal cost to the victims. In fact, the far bigger expense is the economic loss of productivity and the broken lives of their employees, investors and customers due to their policies that fence in rabbits.

At the macroeconomic level, ranges of the GDP cost due to gender discrimination and harassment vary between 10% and 25%. Given that global GDP is around 78 trillion dollars, we’re talking about 8 to 20 trillion dollars in lost global income creation each year due to harassment and discrimination. In contrast, we fret about the billions of dollars we spend defending lawsuits from harassment. Our priorities are wrong.

Social agents only hedge these defensive costs with defensive expenditure: insurance coverage, harassment training for employees, lawsuit settlements and, if they’re super progressive, on-site counselors to help those affected by sexual harassment. However, I believe that the best defense is a good offense. Let’s do something to get the 20 trillion dollars, please.

I would like to call upon our elected officials to pass new tort laws to permit and encourage persons sexually harassed to work with social agents to pursue justice against sexual predators together. This can be done by permitting and encouraging churches, schools, and companies to sue their students and employees who harass, and recover damages commensurate with the social cost, the total social cost -not just the defensive expenses. It is time for pervs to pay up or smart up. In this way, social agents have an economic incentive to identify and root out sexual harassment because they will share the benefit of legal actions against those who harass. Harassers have an incentive to change their behavior, and the homes that foster future harassers have economic losses to incentivize them to change their ways.

What I hope you now understand is that sexual harassment is an economically expensive epidemic, and the emotional and psychological cost to our wives, daughters, and girlfriends is incalculably higher. So, let’s shift that expense to those who create it, and make it possible for our churches, schools and companies to recover damages from those who create the problems.

When groping results in the loss of your parents 401(k), maybe parents, clergy and managers will stop saying, “boys will be boys”, excusing Trumpian “locker room banter” and begin teaching proper respect for women. Furthermore, suing predators will become an effective way for social agents to capture the expenses they bear to treat harassment victims who often require special accommodation to cope with school and the PTSD or other problems harassment creates in their lives. Better yet, maybe my daughters will be able to live in a world where their contributions are valued by society and they can live without fear.

Furthermore, when we replace faux corporate hand-wringing and cringing with “ka-ching” whenever a crude joke is told in the office, and the offenders lose real money to their employers, people will stop telling crude jokes, putting inappropriate hands on backs, grooming victims and doing other macro-aggressions. No one is trying to stop appropriately asking out a coworker on a date, it just needs to be done the right way, don’t be a perv.

In short, it is time we make harassment the problem of the perpetrators, and enable our social institutions to go after them to the economic and emotional benefit of all. Enough is enough.

Is Your Start Up Idea Gold or Goop?

Is your business idea an undiscovered gem, or a flaming dumpster fire leading you to your doom. Here’s a quick rule to help.

A lot of entrepreneurs ask me to look at their business ideas since they know what I do for a living. Some are gold, some are meh, most are flaming dumpster fires. It stinks to tell people when their ideas are smoldering rubbish, so most VCs don’t and just politely decline or ignore bad business pitches. Although the full content of our upcoming accelerator/incubator, Sputnik ATX, is still in stealth mode, I’d like to share a quick rule you should apply to any business idea that you want to pursue. It is specific to answering the question:  will anyone buy this? A question that is obviously important to everyone except the tunnel-visioned entrepreneur who doesn’t value his equity.

So, would be entrepreneurs, let’s take off our blinders and have an honest conversation about your product and service, and more specifically, the benefit it provides.

I’m hoping you already read my post about consumer surplus. If not, read this first. I’m going to use a lot of those terms here. Because if you’re going to get someone to buy your stuff, you had better generate a ton of consumer surplus first.  Assuming that your idea and business plan can generate value (consumer surplus), you still may have a lot of trouble finding people who want to buy it because the switching cost still exceeds the marginal benefit.  Say what?

Switching costs are what economists call any expense related to stopping the use of one product and service, and beginning to use another. Switching costs may include disposal fees for the old junk, training for new stuff, hardware upgrades, software patches, the time it takes to buy/train/learn the new item, and pretty much anything else associated with the new thing to consume or use. Sometimes these can be quite high.

For example, why do we all keep using Facebook when there are surely other social platforms out there? Because the switching cost includes getting all our friends to switch to the new platform (good luck with that) and also includes information loss when we miss out on posts from our friends still on Facebook or they miss out on ours since we now use some loser platform they’ve never heard of. That switching cost is sufficiently high enough that we don’t switch to Loserbook.

But what if switching has a lot of advantages?  The advantages of switching are called the marginal benefit. This is the increase in value we get from switching to a different product or service. For example, if you stop eating at Chipotle and start eating at Qdoba, you get the marginal benefit of free guac at Qdoba (yes, you read that correctly). You also get the added option of queso at Qdoba, and hey, who doesn’t like queso!  While this is a good place to add another marginal benefit, not playing the intestinal fortitude lottery at Chipotle, I’m going to restrain myself. Suffice to say that there are some serious marginal benefits of eating at Qdoba versus Chipotle.

Now, if you want to create a new company and provide a new service, you need to provide your consumers a product where the marginal benefits exceed the switching costs in a manner that is obvious and as big as possible.  The larger the cap between benefit and cost here, will greatly influence how quickly people will make decisions to consume your new product/service.

One of the worst products to do this, of all time in my opinion, was the Apple Newton. I can pick on Apple, because they’ve made a lot of smart product launches where marginal benefit kicked the life out of the switching cost, but not on this one (thank you John Scully, I couldn’t have written this without you). Newton was a stinker. For those unfamiliar with it, Newton was a hand-held device that kept digital notes for you. That’s it. You wrote on it, it recognized the handwriting if you used its funky letter system and it converted your writing to digital text. It was also expensive.  It cost $699 when launched back in 1993.  That is roughly several gazillion dollars today (in Zimbabwe).

You don’t have to be a rocket scientist to know that $700 is a lot to pay for a notepad that only recognizes its own weird version of shorthand. The Newton made you pay an awful switching cost for something that you already had in a simpler, easy to use format and could buy for fifty cents at Walmart. So what happened? People kept buying notebooks that worked great, and the Newton died.

Remember how the Segway was going to revolutionize foot traffic?  Yep, switching cost exceeding marginal benefit.  There are more. Microsoft Bob?  You betcha! Google Glass?  Check! The idea graveyard is littered with expensive examples of how brilliant people created incredibly complex and expensive solutions to problems with little benefit beyond what the market currently provided.

Now, Steve Jobs returned to Apple (hurrah) and we got the iPad. It could still be used to jot stuff down, but it also pretty much ran the whole universe. The increased benefit of zillions of apps, made the switching cost paltry compared to the massive benefit provided and, viola! People buy them up the wazoo.

So, if you want to avoid betting your life savings, and that of your investors (me) on something that will never catch on, please do some product soul-searching to see if the benefit your start-up provides is sufficient to cover the cost to customers when they switch. Remember, marginal benefit must massively exceed the switching cost -iPad, not Newton. Of course, you still have to do a lot of other things right to succeed, but this is a biggie so get it right.