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Five billion dollars. That’s the apparent size of Facebook’s latest fine for violating data privacy.
While many believe the sum is simply a slap on the wrist for a behemoth like Facebook, it’s still the largest amount the Federal Trade Commission has ever levied on a technology company.
While incumbents like Facebook are struggling with their data, startups in highly-regulated, “Third Wave” industries can take advantage by using a data strategy one would least expect: ethics. Beyond complying with regulations, startups that embrace ethics look out for their customers’ best interests, cultivate long-term trust — and avoid billion dollar fines.
To weave ethics into the very fabric of their business strategies and tech systems, startups should adopt “agile” data governance systems. Often combining law and technology, these systems will become a key weapon of data-centric Third Wave startups to beat incumbents in their field.
Established, highly-regulated incumbents often use slow and unsystematic data compliance workflows, operated manually by armies of lawyers and technology personnel. Agile data governance systems, in contrast, simplify both these workflows and the use of cutting-edge privacy tools, allowing resource-poor startups both to protect their customers better and to improve their services.
By using agile data governance, startups can balance protection and improvement. Ultimately, they gain a strategic advantage by obtaining more data, cultivating more loyalty, and being more resilient to inevitable data mishaps.
Agile data governance helps startups obtain more data — and create more value
With agile data governance, startups can address their critical weakness: data scarcity. Customers share more data with startups that make data collection a feature, not a burdensome part of the user experience. Agile data governance systems simplify compliance with this data practice.
One key principle to its ethical data strategy: minimizing data collection and use. Ally’s customers obtain services through a personalized website, rarely filling out long surveys. When data is requested, it’s done in small doses on the site — and always results in immediate value, such as viewing transactions.
A critical tool to minimize data use is to use advanced data privacy tools like differential privacy. A favorite of organizations like Apple, differential privacy limits your data analysts’ access to summaries of data, such as averages. And by injecting noise into those summaries, differential privacy creates provable guarantees of privacy and prevents scenarios where malicious parties can reverse-engineer sensitive data. But because differential privacy uses summaries, instead of completely masking the data, companies can still draw meaning from it and improve their services.
With tools like differential privacy, organizations move beyond governance patterns where data analysts either gain unrestricted access to sensitive data (think: Uber’s controversial “god view”) or face multiple barriers to data access. Instead, startups can use differential privacy to share and pool data safely, helping them overcome data scarcity. The most agile data governance systems allow startups to use differential privacy without code and the large engineering teams that only incumbents can afford.
Ultimately, better data means better predictions — and happier customers.
Agile data governance cultivates customer loyalty
According to Deloitte, 80% of consumers are more loyal to companies they believe protect their data. Yet far fewer leaders at established, incumbent companies — the respondents of the same survey — believed this to be true. Customers care more about their data than the leaders at incumbent companies think.
This knowledge gap is an opportunity for startups.
Furthermore, big enterprise companies — themselves customers of many startups — say data compliance risks prevent them from working with startups. And rightly so. Over 80% of data incidents are actually caused by errors from insiders, like third party vendors who mishandle sensitive data by sharing it with inappropriate parties. Yet over 68% of companies do not have good systems to prevent these types of errors. In fact, Facebook’s Cambridge Analytica firestorm — and resulting $ 5 billion fine — was sparked by third party inappropriately sharing personal data with a political consulting firm without user consent.
As a result, many companies — both startups and incumbents — are holding a ticking time bomb of customer attrition.
Agile data governance defuses these risks by simplifying the ethical data practices of understanding, controlling, and monitoring data at all times. With such practices, startups can prevent and correct the mishandling of sensitive data quickly.
Cognoa is a good example of a Third Wave healthcare startup adopting these three practices at a rapid pace. First, it understands where all of its sensitive health data lies by connecting all of its databases. Second, Cognoa can control all connected data sources at once from one point by using a single access-and-control layer, as opposed to relying on data silos. When this happens, employees and third parties can only access and share the sensitive data sources they’re supposed to. Finally, data queries are always monitored, allowing Cognoa to produce audit reports frequently and catch problems before they escalate out of control.
With tools that simplify these three practices, even low-resourced startups can make sure sensitive data is tightly controlled at all times to prevent data incidents. Because key workflows are simplified, these same startups can maintain the speed of their data analytics by sharing data safely with the right parties. With better and safer data sharing across functions, startups can develop the insight necessary to cultivate a loyal fan base for the long-term.
Agile data governance can help startups survive inevitable data incidents
In 2018, Panera mistakenly shared 37 million customer records on its website and took 8 months to respond. Panera’s data incident is a taste of what’s to come: Gartner predicts that 50% of business ethics violations will stem from data incidents like these. In the era of “Big Data,” billion dollar incumbents without agile data governance will likely continue to violate data ethics.
Given the inevitability of such incidents, startups that adopt agile data governance will likely be the most resilient companies of the future.
Case in point: Harvard Business Review reports that the stock prices of companies without strong data governance practices drop 150% more than companies that do adopt strong practices. Despite this difference, only 10% of Fortune 500 companies actually employ the data transparency principle identified in the report. Practices include clearly disclosing data practices and giving users control over their privacy settings.
Sure, data incidents are becoming more common. But that doesn’t mean startups don’t suffer from them. In fact, up to 60% of startups fold after a cyber attack.
Self-service tools like WebMD’s are part of agile data governance. These tools allow startups to simplify manual processes, like responding to customer requests to control their data. Instead, startups can focus on safely delivering value to their customers.
Get ahead of the curve
For so long, the public seemed to care less about their data.
That’s changing. Senior executives at major companies have been publicly interrogated for not taking data governance seriously. Some, like Facebook and Apple, are even claiming to lead with privacy. Ultimately, data privacy risks significantly rise in Third Wave industries where errors can alter access to key basic needs, such as healthcare, housing, and transportation.
While many incumbents have well-resourced legal and compliance departments, agile data governance goes beyond the “risk mitigation” missions of those functions. Agile governance means that time-consuming and error-prone workflows are streamlined so that companies serve their customers more quickly and safely.
Case in point: even after being advised by an army of lawyers, Zuckerberg’s 30,000-word Senate testimony about Cambridge Analytica included “ethics” only once, and it excluded “data governance” completely.
And even if companies do have legal departments, most don’t make their commitment to governance clear. Less than 15% of consumers say they know which companies protect their data the best. Startups can take advantage of this knowledge gap by adopting agile data governance and educate their customers about how to protect themselves in the risky world of the Third Wave.
Some incumbents may always be safe. But those in highly-regulated Third Wave industries, such as automotive, healthcare, and telecom should be worried; customers trust these incumbents the least. Startups that adopt agile data governance, however, will be trusted the most, and the time to act is now.
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Meal kit companies face an ultimatum: Adapt or die.
The business is still in its infancy, with the biggest players — Blue Apron and HelloFresh — less than a decade old. But they’re facing serious challenges from restaurant and grocery delivery services, smaller niche players and even home chefs.
If you’ve been out and about in Silicon Valley in the last month or so, chances are you’ve heard of “Alpha Girls,” a new book written by longtime journalist Julian Guthrie about four investors who’ve made a big impact on the world of startup investing. The book recognizes them — Theresia Gouw, MJ Elmore, Sonja Hoel Perkins, and Magdalena Yesil — because they are interesting individuals, each with very different upbringings and skill sets and areas of expertise.
But they also succeeded in the venture industry during a time when they were almost always the only woman in the room, or at the conference, or in the middle of a team-building event. Elmore signed on with IVP in 1982, becoming a general partner by age 28. Yesil cofounded the dot com high-flier CyberCash before joining USVP as a partner in 1988. Perkins’s star also rose quickly. By age 29, she was a general partner at Menlo Ventures, staying nearly 22 years before launching her own venture fund. Down the street, Gouw was building a track record at Accel, where she spent 15 years before cofounding her own firm in 2014, Aspect Ventures.
We talked with Guthrie earlier today about how these so-called alpha women differ from the many other subjects Guthrie has spent time with across her 20-year reporting career with the San Francisco Chronicle, during which time she also authored books about Larry Ellison and Peter Diamandis. We wondered how much time she spent with each. (“I think they were ready to block my calls and texts,” she laughed.) We wondered how long she worked on the book (roughly two years, including interviews with the women and their colleagues and partners, among others).
But what we even more wanted to know was whether after working on the book, Guthrie views the venture industry as any more or less welcoming to women than at the outset of her research. “It is not as bad as it’s portrayed, in my opinion,” Guthrie told us. “There are success stories.” Still, Guthrie noted that each of these investors had to grapple with much that a man might not.
Some of these were mundane but constant considerations, including, “Should you take notes or not? When do you speak up? How do you network? Do you go to these boondoggles when it’s all guys?”
Said Guthrie, “Some of these things were shocking to me, coming from my own very gender-neutral experience as a reporter.”
Yet there were other ways they had to alter themselves. She says Elmore quickly learned that if she wore a dress to a board meeting, for example, it would elicit compliments that weren’t necessarily expected, so she soon cut her hair and began wearing suits. Meanwhile, Perkins and Gouw participated in male-dominated events on the theory that you can’t win if you don’t play the game. For Perkins, this meant skiing alongside former Navy Seals when she was still a relative novice on the slopes. For Gouw, it was getting elbowed in the stomach during a competitive game of flag football. It was “not so much about emulating men but steering the spotlight away from their femininity, so it didn’t become a distraction,” Guthrie told us.
Interestingly, one of the more fundamental ways the women seemed to differ from their male colleagues was in their dealings with Guthrie herself, she said. She noted that many of the men she has interviewed — including Ellison, Diamandis, Richard Branson and Elon Musk — have been “happy to talk about their vulnerabilities, because it kind of rounds them out. It softens them in a nice way.” She observed that women who’ve enjoyed success meanwhile have a “much harder time sharing their mistakes, their regrets, their vulnerabilities.” Because women are often provided less room for missteps — or they perceive that they have less room, “I had to tell [the investors] again and again that it was important that we tell the good, bad, and ugly — not because I was seeking scandal but because I wanted these stories to be honest.”
Before we parted ways, we asked Guthrie about women and money, after she volunteered that it’s a “tricky issue for women. If you go after too much, you’re greedy; if you marry someone with money, you’re a gold digger.”
She pointed to a Forbes piece from last summer that called Gouw “America’s richest female venture capitalist.” Gouw apparently felt uneasy about the story and participated in it mostly to draw attention to her work with the advocacy organization she helped cofound, called AllRaise. But as Gouw told Guthrie, it’s had a somewhat surprising impact. “She was a serious player before, but it kind of gave her street cred” with those who pay attention to Forbes’s Midas List and other forms of score-keeping.
It’s a good thing, suggests Guthrie, who has been promoting her book to women in numerous industries, including in homebuilding and law and in medicine. “You see the same barriers across them all,” Guthrie said. “But you’re also seeing these women’s groups and networks becoming more powerful across all these industries, where women are speaking out and creating these sisterhoods.”
They’re agreeing to more hard-earned self-promotion, too. They see it as an increasingly competitive tool, and, as Guthrie puts it, “It’s not boasting when it’s based on fact.”
Pictured above, left to right: Theresia Gouw, Sonja Perkins, MJ Elmore, Magdalena Yesil, and Julian Guthrie.
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