Open Letter To Uncle Sam –

If the government really wants to create jobs, it should finally act like the seasoned and sophisticated technology customer it has the potential to become, rather than the isolated island of slow-moving process it has always been. It alone offers the single best opportunity for defining the technologies of tomorrow-the technologies which will power the future of our space program, our energy policy, our homeland security infrastructure, even our educational system. In this sense, a “no-startup-left-behind” strategy could finally help ensure that America-not India or China or the new European Union-remains the center for innovation.

Forget about simply doling out money or offering more tax cuts. That’s only half the equation and unfortunately it is neither a systematic nor targeted one. The government needs to move beyond its insular world where monolithic middlemen uniquely navigate Byzantine and elongated purchase cycles. It needs to create true partnerships between private sector scientists and entrepreneurs and the government agencies we hold responsible for ultimately making improvements within society. Great innovation that’s unfocused and without early, active customer (in this case “government”) involvement is not sustainable. It is for this reason that innovation has never truly moved forward through government sectors.

Rather, innovation has turned its sights on those willing to make early purchases, shaping technology solutions to those providing early commercial feedback who also allow valuable access and visibility into large and scalable markets. As a result, most early stage technology companies focus on enterprise markets because that is where a fairly fragmented and rational set of buyers exists that know how to work with them, providing the feedback and input necessary for incremental and evolutionary changes in innovation.

To follow this paradigm, the government-federal, state and local-must pursue several objectives. First, write a basic business plan for each particular initiative, such as education, transportation or security, that states its goals and three to five factors critical for success. With the business plan in place, it should then decide what new technologies and solutions each initiative would be willing to consider “beta testing” within its system. Second, it should create a new user interface with predefined APIs and SOPs such that companies have far easier access in working government decision makers. This includes allowing vendors an understanding of basic business requirements and constraints, technology considerations and direct access to would-be buyers. Third, the government should implement a standard beta program that takes the best early stage technologies that fit into the above priorities and works with technology providers in a way that makes the government group a priority. Near-term dollars and a longer-term path to large profits is obviously the best way to do this.

Microsoft Model

Though this model may seem overly ambitious, perhaps even nave, it is not without precedent within other countries as well as within our own private sector.

This is not centralized planning that I am advocating here. In fact, market competition and decentralized purchasing are strong and important pieces of the ecosystem. The critical issue is that even if there are 100 separate buying groups and each has slightly different technology needs, they each must articulate their own needs well enough such that a vendor can aggregate the market while putting together a roadmap to service each customer. The roadmap should have enough common pieces to lower the total cost of ownership and enable better interoperability while allowing the startup provider to become profitable.

Caring about supplier profitability is critical as we compete globally against whole new sets of competitors. As an example, the government of China recently wrote off debt of $6 billion that the leading Chinese telecom equipment provider, Huawei, had on its books. That will allow Huawei to move forward with an IPO later this year and better compete against the likes of Cisco. In all but the United States, Huawei is already beating Cisco in nearly every other country around the world, and it is only a matter of time before dozens of spin-off Chinese startups emerge from the success of Huawei.

As for a private sector example, one need look no further than Microsoft, a mini-nation of technology. Love it or hate it, the software giant goes out of its way to communicate with Silicon Valley to court venture capitalists and entrepreneurs in helping them understand its current and future initiatives. As many of us know, Microsoft holds a high-level conference in the valley each year with the likes of Steve Ballmer and other top executives attending. The purpose? To further open a dialogue with entrepreneurs and investors who can help Microsoft drive its own plans forward.

Though normally tight lipped, Microsoft comes in and says, “Here’s what we do with startups. Here’s how you can work with us. Here are our rollout plans for .Net or Longhorn, the latest Microsoft operating system to be released.” With as much cash in the bank as any small nation, Microsoft then offers resources to help enhance the technologies, which will helps it further its own aims. Cash, developer resources, beta testing opportunities and market guidance all create significant incentives for startups and entrepreneurs to build their platforms on .Net, use SQL instead of Oracle, Microsoft’s operating systems instead of Linux, you get the idea.

Does Microsoft do this out of kindness, openness or sensitivity to the needs and dreams of entrepreneurs? This could set the new gold standard of rhetorical questions. Yet, Microsoft, acting out of its own self-interest, indeed does much to help the startup community and facilitate the technology ecosystem. Taking a page out of Gates’ playbook, federal, state and local governments should act no differently.

By reaching out and getting closer to startups and the VC community, Microsoft shares not only its own technology needs, but the best way for Silicon Valley to navigate within its walls and the fastest way for startups to sell into Microsoft’s own technology agenda. Uncle Sam could equally take this type of proactive, rather than reactive, approach.

As a quick example, Quantum 3D, a San Jose, Calif.-based developer and manufacturer of visual computing and image generating solutions (and a Charter portfolio company) has the best dollar-for-dollar visual display and simulation technology in the industry. The company recently found out about a project proposed by one of the country’s largest public transit systems, which among other things is mission critical for Homeland Security. Despite having the best solution, Quantum 3D lost out on the bid largely because it had learned of the deal late in the game, resulting in sub-optimization in a system. It’s a process that probably occurs all too often.

Step Up or Shut Up

This argument for the government to act like a far better and more effective customer is a rebuke to those very same policymakers and politicians who carp about the loss of jobs but propose little to expand innovation or true job creation. It is a travesty that we have promising companies, such as those specifically in the alternative energy technology field, that must still scrape for pennies to conduct their research and beta testing before the venture community can realistically fund them. The government should be outlining an energy plan and soliciting solutions for new technologies that we can then fund and enhance. Even if seven out of 10 of these companies fail, we will have taken the risks we should be taking, putting people to work and helping solve problems knowing that we at least have one very large deep-pocketed customer willing to give these technology solutions a try.

That’s the bare minimum that the government should do. The icing on the cake would be a government that further funds R&D at the university and startup level, providing low-cost capital and even inexpensive or free real estate-as is the practice in India-in order to further the innovation cycle. In fact, if anyone in federal, state or local government was paying attention they would realize that many of these companies could be less than a year away from building larger development or manufacturing facilities. Yet, they’re now courted by the governments of Canada or the U.K. Midlands, and in the case of one startup in the valley, even by states other than California. (Note to Gov. Schwarzenegger: Give us a call!)

For a customer that is essentially 1,000 times the size of Microsoft, the government is nowhere to be seen. Where are the technology blueprints we should be executing on?

Even though California is essentially bankrupt, with one of the worst education systems in the country, that doesn’t mean this state doesn’t possess the technology capability to leapfrog the educational offerings of all other states. If California gave us a blueprint to wire every school with the latest and greatest technologies, inviting a new generation of technology companies to fulfill that list, there’s no doubt our entrepreneurs could meet the challenge.

I’m asking that the government spend money on R&D in a Darwinian system, offer itself as a beta testing opportunity for new technologies and pry itself away from the monolithic system of large contractors that offer little more than maintaining the status quo. Even if the statistical majority of the companies we could help create fails, it’s our money and skilled employees were at least put to work giving innovation a try.

Politicians say they’re pro-business and pro-competition, which makes for terrific sound bytes, but you have to be far more proactive than just cutting taxes when looking at putting people back to work. At some point you have to expand the business enterprise organically. The government has the opportunity to be a unique customer, one that not only needs the success of new technology products, but would enjoy the success of those same providers. By helping each move forward, the government creates the virtuous loop that only it can devise: funding new technologies, acting as a testing ground for their success and in doing so helping expand GDP, save jobs and increase the nation’s tax base. It’s time to give us that chance.

Ravi Chiruvolu, a general partner of Charter Venture Capital, is a regular technology columnist for VCJ. Send him feedback or ideas to ravi@charterventures.com. Chiruvolu specializes in enterprise software, software infrastructure, e-business and wireless. He sits on the boards of Ellie Mae, ManageStar, Niku (NASDAQ: NIKU), Quantum3D, Talaris, Verano and Winery Exchange.