How does money work in PARPA?

Bell Labs is one of the few examples of an innovation org that was aligned with its money factory

“The System” of AT&T

AI research is an exception to the decline of corporate R+D

National labs and other government research centers are a research alternative to universities

Problems that require system-level solutions often require massive teams

It is easier to have a multipoint mutation in technology than in evolution

The boundaries between industry government and academia are fuzzy

Why try to emulate DARPA and not Bell Labs

An institution riffing on the ARPA Model could enable paradigm shifts that are not happening

An Institute for Creative Technology - Riffing on ARPA

R+D labs require companies that can win based on Technology

# §Corporate R+D Constraints
 Follow innovation through bell labs
	* Run into problem with “the system” - can’t fit enough calls into a single cable. More cables are expensive. Want people to make more, better, calls. Problems constantly coming down from the top and 
	* 
* Follow Innovation through GoFaAmSoft
* Politics 
	- [[Internal incentive structures within a large organization work against high quality R&D labs]]
	* [[R&D orgs are always on the side of an org chart - The lab is always separated from the mothership]]
	* [[Rewards in a big company operate on one timescale and R&D happens on another timescale]]
* The most valuable research for a company tends to be systems-level improvements. But [[Problems that require system-level solutions often require massive teams]] while [[Research tends to work best when it can be done by small teams]].
* Risk aversion
	* [[Asymmetric career risk]] 
	* [[Asymmetric career risk impacts corporate R+D]] 
* Incentives
	* [[The incentives inherent to corporate R&D mean that researchers motivated by money leave and those who are motivated by glory are not the best in the world]]
	* [[At the organizational level corporate R&D labs either cause brain drain or don’t have the best people]] 
* [[Corporate R+D orgs are expensive]]
* [[R+D orgs are answerable to shareholders both in scope and timescale]]
* [[Companies want R+D to be off of their balance sheets]]
* [[The siloization that tends to happen in large corporations hamstrings applicability and serendipity]]
* [[Big companies cannot start small things]] 
* [[Expensive research needs to address an existential threat eventually at an organizational level to maintain support]]
* [[There are several macro-economic analyses of both why and whether there has been a decline in corporate R+D]]
* [[Corporate R+D orgs experience a tension between Research and Development]]
* [[Corporate R+D orgs have a lot of momentum]]
* [[Healthy corporate R+D requires a trifecta of conditions]]
* Trends
[[Corporate Innovation has four main options: partner, R+D, corporate venture capital, and venture building]]
<draw 2x2 box>
	* Externalize R&D through startups and universities 
	* Internal startups via Red Box at Swisscomm or Area120 at Google
	* “Innovation Arms”
	* Grants
## Related
- [[§Startup Constraints]]

                            

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Bell Labs

gertnerIdeaFactoryBell2012

§Bell Labs Model

Labs Document Outline

# Bell Labs and AT&T had timescale alignment
# Bell Labs and AT-T had timescale alignment
Both Bell Labs and AT&T had a [[Buxton Index]] of a few decades - they both thought about problems on the timescale of decades. 

 On AT&T’s side, their government-approved monopoly and the mandate that allowed them to maintain it both gave them the [[Slack - concept]] to plan on the scale of decades *and* the incentive to do so.  

I’ll make a hand wavy argument for Bell Labs’ Buxton index by using the transistor as an exemplar. It officially took eight years - from 1946 to 1954 to create the silicon transistor. However, work on the transistor began in the 30s before WWII (and was paused during the war) and the first electronic switching centers came on line in 1964.  All together, the transistor timescale was maybe 20 years.[^1]  It seems reasonable to use this 20 year mark as a rough approximation for Bell Labs’ Buxton Index. 

It’s hard to imagine the rough equivalence between AT&T’s Buxton Index and Bell Labs’ was a coincidence.

This alignment changed after AT&T’s breakup. Bell Labs’ Buxton index didn’t change, but thanks to competition AT&T no longer had the luxury of a multi-decade Buxton index. 

![](../BearImages/7922CB30-5949-4360-82B8-20283BFE41AA-88049-000786B4DA543094/IMG_0115.jpg)

### Related
- [[Bell Labs didn’t have a unique model]]
- [[Innovation orgs need to be aligned with their money factory]]
- [[Bell Labs was not a business]]
- [[Rewards in a big company operate on one timescale and R&D happens on another timescale]]
- [[Mismatched Buxton Indexes lead to shear forces]]

[^1]:I have very little evidence, but my hunch is that 20 years is roughly the timescale to go from the hunch that a phenomenon can be exploited to  exploiting it at scale. [[Phenomena-based cycles]]. This timescale is probably compressed for electronics and software because of Moore’s law and development speed (though perhaps not as compressed as many people intuit.) 20 years is *shorter* than the 50 year Buxton index that [[EW Dijkstra]] suggests (is/should be) the norm in Academia. [[The Strengths of the Academic Enterprise]]. 



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PARPA needs a constitution with checks and balances

Research is especially susceptible to Goodhart’s Law

Rewards in a big company operate on one timescale and R&D happens on another timescale

Charlie Songhurst conversation 31 Aug 2021

Bell Labs and AT&T had timescale alignment

dijekstraStrengthsAcademicEnterprise1994

There are many parts of the US government that are heavily influenced by term-level time scales

The timescales of invention and discovery are high variance

Inverting the normal relationship between an R+D organization and is money factory may enable new classes of activities

Glossary

Long-term projects are inherently highly levered up

Peter van Hardenberg Conversation 20 Nov 2020

# Buxton Index
[[Mismatched Buxton Indexes lead to shear forces]]

From [[The Strengths of the Academic Enterprise]]
`The Buxton Index of an entity, i.e. person or organization, is defined as the length of the period, measured in years, over which the entity makes its plans.`

More detail:
` For the little grocery shop around the corner it is about 1/2,for the true Christian it is infinity, and for most other entities it is in between: about 4 for the average politician who aims at his re-election, slightly more for most industries, but much less for the managers who have to write quarterly reports. The Buxton Index is an important concept because close co-operation between entities with very different Buxton Indices invariably fails and leads to moral complaints about the partner. The party with the smaller Buxton Index is accused of being superficial and short-sighted, while the party with the larger Buxton Index is accused of neglect of duty, of backing out of its responsibility, of freewheeling, etc.. In addition, each party accuses the other one of being stupid. The great advantage of the Buxton Index is that, as a simple numerical notion, it is morally neutral and lifts the difference above the plane of moral concerns. The Buxton Index is important to bear in mind when considering academic/industrial co-operation.`

`To begin with, there is the great difference in Buxton Index. For industry, the Buxton Index is less than 10, probably closer to 4 or 5, whereas for the academic scientist the Buxton Index is closer to, say, 50, for what you offer your students should last a lifetime, their lives, to be precise.`

Invented by [[John Buxton]] not [[Bill Buxton]]

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PARPAs ideal legal structure comprises both a nonprofit and a for profit

Week of 29 Nov 2020

ICT Distillation

ICT Outline

# Inverting the normal relationship between an R+D organization and is money factory may enable new classes of activities
Research orgs are typically *subsidiary* to their their money factories. [[Innovation orgs need a money factory]]. Bell Labs was subsidiary to AT&T, PARC to Xerox, DARPA to the DoD and Congress, academic labs to grant givers, etc. This relationship generates so many of the incentives that run counter to producing high-quality and eventually-impactful research. A lot of the specific friction[^1] can be traced back to mismatched [[Buxton Index]]s - research just has a longer timescale than the natural beats of elected officials, quarterly earnings, or fundraising rounds from LPs. 

What if you invert this relationship? ([[TRIZ Methods]] #1) - instead of the revenue generating entity (money factory) being the ‘parent’ org, instead the R+D org becomes the parent. 

What does the distinction between a parent and a child/subsidiary organization mean? Ultimately it’s about power - whose priorities take precedence? In the most extreme sense, if there is a choice between an action that will destroy one organization or another, which gets priority? It’s uncomfortable to talk about inter-organizational power in the same way that it’s uncomfortable to talk about  reaper functions ([[Reaper functions beat culture decks]].)  This power usually takes the form of contracts if the children are external to the parent and budgets if they are internal. To some extent it’s just about which organization came first. If a parent organization could survive before its child came along, it’s a clear proof point that it can survive without the child.[^2]  

It’s tempting to say “ah yes! It will solve the problems!” but that is magical thinking. Inverting the relationship won’t remove the [[Buxton Index]] mismatch, it will just change which direction exerts power. That relationship will create a *different* set of constraints on what happens and what can exist. The inversion is rare enough that there aren’t many case studies but one could imagine projects never shipping because of perfectionist thinking or a hesitance to kill projects that aren’t going anywhere. 

It feels slightly nonsensical to not have the main profit-generating entity as the parent organization because otherwise, where does operating capital come from before the money factories are created? Let’s call this the ‘bootstrapping problem.’ The challenge becomes finding a *transient* source of money that simultaneously puts few enough constraints on the organization that it can do the work to create cash-generating children while at the same time not warping its incentives towards generating cash-children as soon as possible at all costs. 

There are examples of organizations that have pulled off the inversion with varying degrees of success. Organizations like [[Flagship Pioneering]], [[Idealab]], [[Ink and Switch]], [[TandemLaunch]] are all both the ‘parent organization’ and the ‘innovation organization’ while the companies that they spin out are ‘the money factories.’ If you squint, [[Howard Hughes Medical Institute (HHMI)]] also fits this pattern - its funding comes from its foundation, which is the subsidiary organization.  HHMI is especially noteworthy because unlike the others, its survival isn’t contingent on spinning out companies, which is a double-edged sword. On the one hand companies are a powerful technology dispersion mechanism [[Dispersion can happen in three ways - selling technology directly, open-sourcing technology, building an organization around it]] but on the other hand, [[There is a significant class of innovations that would create drastically less value for the world if their value had been captured by their creators]].  

How did each of these organizations address the bootstrapping problem? [[Flagship Pioneering]], [[Idealab]],  [[TandemLaunch]] and their ilk - “researchy startup studios” - are explicitly out to create high-growth, venture-backable startups. This goal allows them to bootstrap with for-profit investment capital. It also incentivizes them towards projects that can become high growth startups on a short timescale. [[Ink and Switch]] has bootstrapped with a combination of sources - investment, ‘friendly investment’[^3], and consulting with companies on the implementation of different areas of their research. [[Howard Hughes Medical Institute (HHMI)]] kind of cheated by starting already sitting on top of a massive endowment. The upshot is that there isn’t a well-worn path for an innovation organization to get to a point where its operating capital can consistently come from subsidiary organizations if it wants to work on things that might not want to become high-growth startups. Charting different possible approaches to the bootstrapping problem is the focus of [[How does money work in PARPA?]].

### Related
- [[PARPA will eventually spin out companies]]
- [[Dispersion can happen in three ways - selling technology directly, open-sourcing technology, building an organization around it]]
- Many thanks to [[Peter van Hardenberg conversation 16 Aug 2021]] for planting this idea in my head
- It’s probably worth distinguishing 

[^1]: Things like how [[R&D orgs are always on the side of an org chart - The lab is always separated from the mothership]],  [[Rewards in a big company operate on one timescale and R&D happens on another timescale]],  [[Startups need to conform to investor timescales]], [[Startups need specific growth curves]] etc.
[^2]: Though of course circumstances could have changed to make this no longer true
[^3]: ‘Friendly investment’ is what I would call investment from non-professional investors that is some superposition of philanthropy and investment. That is, unlike professional investors who implicitly or explicitly want to see a certain level of growth on a clear timeline, friendly investment is more like an option - if the asset becomes worth something, awesome but if not disappointing but 🤷‍♂️. Of course, [[Friendly investment always runs the risk of becoming unfriendly at any time]] - the classic example is entrepreneurs who get their first startup money from friends and family who have no experience with startup investing. A lot of angel investing could be considered ‘friendly investing.’ 

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§Corporate R+D Constraints

One way for an R+D org to address existential threats is to tie into a core product

# Rewards in a big company operate on one timescale and R&D happens on another timescale
# Rewards in a big company operate on one timescale and R-D happens on another timescale
 At the end of the day, the incentives in the org act on[[Human timescales]] - promotions, career progression.

Politics happens on a shorter timescale than results, and the real impact of a piece of research may be on an even longer timescale than a single career. 

These wildly mismatched [[Buxton Index]]es throw a wrench into R&D. 

### Related



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Benʼs working notes

Rewards in a big company operate on one timescale and R&D happens on another timescale

Rewards in a big company operate on one timescale and R-D happens on another timescale

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