Monday, November 5, 2012

Inching Ever Forward

An interesting article in yesterday’s NY Times and the announcement today that HubSpot has raised $350 million in capital seems like a combination of events heading in the right direction. The NY Times article, “A Capitalist’s Dilemma, Whoever Wins on Tuesday,” raises some very interesting points on what may be the reasons for our stalled economy. With companies holding on to capital, it is no wonder we have been slow to grow and slow to add jobs. The author, Harvard Business School Professor Clayton M. Christensen, recommends that companies holding the capital should do things differently, not use the old formulae for channeling their investments.

Christensen makes the distinction between three different types of innovation: empowering, sustaining and efficiency. “Ideally, the three innovations operate in a recurring circle. Empowering innovations are essential for growth because they create new consumption. As long as empowering innovations create more jobs than efficiency innovations eliminate, and as long as the capital that efficiency innovations liberate is invested back into empowering innovations, we keep recessions at bay. The dials on these three innovations are sensitive. But when they are set correctly, the economy is a magnificent machine.”

Unfortunately, we have been experiencing an imbalance of efficiency innovations – innovations that reduce the cost of making and distributing existing products and services - thus the lack of growth. Although this type of innovation is essential, efficiency innovations streamline processes and, therefore, reduce jobs at the same time.

What encourages me is that HubSpot, the Cambridge marketing firm focused on social media, received funding not only from some private equity investors, but also from Boston mutual fund giant, Fidelity. The funding enables HubSpot to add 400 jobs in Cambridge and open an office in Ireland. All good. Living in Boston, Fidelity is a bit of a barometer of how our city is doing. It employs about 38,000, the majority in Boston and New England. If Fidelity is growing, Boston is growing. If Boston is growing, Massachusetts is growing. Last year, Fidelity cut jobs in Massachusetts after having held on to their employees as long as they could during the recession. So I am happy to see them as an investor in a social media company: a statement about social media’s role in our economy and a statement about Fidelity’s willingness to spend capital. Growth is happening. And the election tomorrow is all about growth.

It will be interesting to see how social media is used during tomorrow’s election. I have noticed that social media has not helped us keep issues in the forefront of our minds. Social media helps broaden reach but often doesn’t have the depth to make a lasting impact on the recipient. Even though we may get more information about candidates, it doesn’t mean that we retain it. Getting so much information dilutes the importance of any single piece of information. For some, the issues from the conventions and the debates are hard to recall. It is all about what has been said in the last 5 days. We, as a culture, have a miniscule attention span. The information flying at us doesn’t seem to have time to make its mark. Or maybe just the catchy stuff sticks. 

Tuesday will be quite a day. For anyone who needs a last-minute review of Mitt Romney’s record as governor of Massachusetts, I am happy to assist with this link. Full disclosure on what many MA residents think of their former governor: one analyst on NPR today referred to Romney not as Massachusetts’ “favorite son” but as our “ex-son-in-law.”

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