This week on the GeekWire podcast, we explore the dynamic, high-stakes and often controversial intersection of technology, public policy and the innovation economy.
Our guest is Michael Schutzler, the CEO of the Washington Technology Industry Association (WTIA), representing the tech industry and companies large and small in the Seattle region and across Washington state. Schutzler, who has led the group since 2013, is a 30-year veteran of the tech industry, working as a founder, entrepreneur, investor and advisor.
It’s a wide-ranging conversation, covering key topics including the state of the Seattle tech economy, hiring, apprenticeships, worker retraining, portable benefits, equitable pay, immigration, non-compete agreements, and more.
Listen below, or download the MP3, and keep reading for an edited transcript.
Todd Bishop: A little later on, we’re going to get into some topics like paid family medical leave, the immigrant workforce, and other public policy issues related to technology, but let’s start with a quick state of the union. We just had the Redfin IPO here in Seattle, Amazon appears to be going gangbusters, Microsoft’s rebounding, and yet the funding situation for start-ups can be perceived to be stuck in neutral. You’ve got rising housing prices, traffic. Give us a state of the union. How would you describe the Washington state technology industry in 2017?
Michael Schutzler: The tech industry is obviously booming. It is the core engine of the state’s GDP. Some new numbers have just come out, released by the Department of Commerce just in the last week. Two-thirds of the state’s GDP growth is as a result of the tech industry. So, yes, we do create a lot of jobs, yes, there is a lot of traffic, yes, there’s a lot of impact in terms of housing, but … the overall economy of the state is being buoyed (by technology). Two-thirds of its growth is coming just off of this industry and 90 percent of that is in Seattle. I mean, yes, it is a Washington Tech Industry Association, and we do have tech companies all over the state, but 90 percent of it is here in Puget Sound.
John Cook: And a lot of it is being driven by the tech titans, so, the Amazons, Expedias, Microsoft …
TB: The Googles and Facebooks, too, recently.
JC: The arrival of the Silicon Valley tech giants. What is the state of the startup community here? You’ve come out of that, you’ve founded a number of companies, and been involved in that world for a while, but it seems like it is kind of stuck in neutral.
Schutzler: Well, there’s one truth that has been stable for the 25 years that I’ve been living here. My first attempt at fundraising was in 1995 and nothing’s changed since then. It is nightmare to raise the first round of capital in this area. There is a very weak ecosystem of seed funding, angel funding. That first round is really tough, which is hard for entrepreneurs. So last year, 400 new tech companies were formed, according to the Secretary of State.
The truth is, very few of them actually raise up to half a million dollars, like a tiny percentage. Less than 10 percent of them will raise money in that first year. It’s tough in this area and has always been tough. So, the bad news for an entrepreneur is it’s tough to get that first round. The great news for the ecosystem is, those that can (raise money) tend to be really good, and so there’s a tough gantlet in this area here for a startup to make it. That’s been true for 20-plus years, and doesn’t look like it’s going to change any time soon.
JC: It does seem like there’s two tech industries in Seattle. There’s Microsoft and the tech giants that are emerging and employ a lot of people and have big brand recognition, and then there’s the start-up community, which we were just talking about, and they’re two very different communities. They don’t always talk to one another. There’s not that much, maybe, cross-pollination between the two of them.
Schutzler: I don’t know if I agree with that.
JC: In your role, though, you have to service the entire tech community, both the big guys and the small guys. I mean, how do you do that because their interests sometimes aren’t aligned.
Schutzler: It’s a very wide church. So one thing they all have in common, no matter what, they all have a great challenge in bringing tech talent into their companies. That’s a universal. So whether it’s Microsoft or Amazon or F5 or Zillow or Tableau or Impinj, you name it, or if you’re a brand new start-up that just started this year, it’s tough to recruit. So every single tech company in this region has a challenge of finding talent to put into the jobs that they’re creating. That is a unifying factor among all of them.
Yeah, there’s disagreements and a lot of other things, so maybe Comcast doesn’t like Title II reclassification and maybe some other, smaller companies love Title II reclassification and there’s all kinds of fighting about things like that, or whether non-competes are good or bad and there’s all kinds of arguments on regulatory stuff, but when it comes to the fundamentals of running and building a business, talent is the biggest challenge.
The access to capital thing that we were talking about earlier, the only actual issue in this area is startup capital, we’re talking the first round. If you can get to a Series A term sheet worthy company, you are gonna get a Series A term sheet, it just probably won’t come from Seattle ’cause there’s only a handful of VCs here that play at that level. But if you got a company that’s worthy of a Series A term sheet, you’re getting money from Boston, you’re getting money from Chicago, you’re getting lots of opportunity from San Francisco. None of those VCs are afraid like they were 20 years ago. Now they’re really happy to invest here.
TB: Would it be better if that was homegrown capital?
Schutzler: I don’t know that it would it be better. It would change the dynamic, and when you talk the folks at Madrona, they would love nothing more than to have another VC of their caliber to be successful here in this area, focused on this area. Having one really substantial venture capital firm that’s focused on the Pacific Northwest in the tech sector creates a weird dynamic. There’s only one in, and that’s tough for the region.
JC: I think the greatest thing that could happen for the Seattle startup ecosystem is if we had five to eight $ 70 million to $ 120 million venture funds running around here doing —
Schutzler: Yeah, like first round capital types, where they’re focused on early stage companies —
JC: Earlier stage funding, yeah.
Schutzler: Yeah, and we just don’t have that here.
Tech, politics and public policy
TB: So let’s talk a little bit about public policy and politics. That is something that the WTIA focuses on heavily, and I have here in my hands the 2017 Washington State Legislative Summary by the WTIA, which has been my bedtime reading for the last few nights.
JC: Wow. How exciting. What is that, 800 pages, Todd?
TB: What’s your executive summary, Michael, of the legislative session here in Washington state for the tech industry?
Schutzler: I’ll give you a high and a low. A couple highs are we worked for three years with a really strange group of bedfellows. We had retail, we had hospitality, we had the telco sector and the IT sector all collaborating together for three years on a set of biometrics legislation. The state of Illinois had some really off-the-deep-end biometrics legislation that’s kind of freaked a lot of people out in the industry and our legislature has been grappling with what to do on biometrics, and because of that collaboration among all those strange bedfellows, we found bipartisan support. So we have Republicans and Democrats working together in the state Legislature with this strange group to come up with biometrics legislation that became law this year, and we’re quite proud of that.
Similarly, for several years, there’s been a lot of attempts to try to get gender pay equity over the finish line, and, yet again, we failed. We weren’t able to get support from both labor and industry, large and small companies, Democrats and Republicans on that.
But by comparison, we got paid family medical leave over the finish line. And, again, bipartisan support, really strong, strange group of tech and non-tech companies and industry players and labor all getting together to make that possible. It’s been a ton of work but I gotta say, we’re kind of a rare breed in the whole country of being able to find that kind of collaborative support to get good legislation over the finish line.
TB: Paid family medical leave is something that you mentioned, Michael, and I’ve been doing a little bit of research on that. It’s still a couple, three years away, if I understand correctly, in terms of its actual enactment. Explain what this is and how it will impact employees across the state, not just in the tech industry.
Schutzler: This is a really big deal. This country is one of the only industrialized nations that does not have a paid family medical leave mechanism in place. The tech industry has been very supportive of creating state legislation for this because, quite frankly, even a midsize tech company like an Impinge or a Moz or a TUNE or a slightly larger company like a Tableau, and certainly companies like Amazon and Microsoft that are much larger, this mechanism, that paid family medical leave mechanism is essential to creating a diverse workforce and creating a mechanism to retain a workforce, so it stands to reason that would work in other industries, and so getting other industries to come to agreement on how to implement that is really challenging.
Manufacturing operates very different than the tech industry. Hospitality works very different than health care. Health care is very different from life sciences research firms, and so getting all of those different kinds of organizations to come to agreement on what’s the right split between employer and employee on funding paid family medical leave. How long is a reasonable period of time to take off for having a baby or to take care of a sick parent, and what are the mechanisms for judging whether or not that leave is appropriate? Is it just sick time? It is paid family medical leave time because you’re having a baby or you’re taking care of a parent? What are the rules for all of that?
So sort of boiling that all down, it’s a quite complex topic. It’s genuinely necessary to have something like this as a mechanism to allow a workforce of both men and women to collaborate and live their lives and be effective and productive, and there’s tons of evidence that says that this works everywhere in the world. So the state of Washington got Republicans and Democrats and labor and industry into a room and hammered out a deal where there’s a very equitable split between the employer and the employee. The state is compiling all of the money in off of payroll into a pool and then we’ll be in the position to be able to ensure that any employee anywhere in the state, in any industry, will be able to get access to it.
So the big choke point, if you think about it, is how does a small company with two people participate in this? So the cutoff was determined of 50 employees or less. If you have less than 50 employees, you don’t have to participate in this as a company, but your employees still get the benefit because the economics have been set up that the larger companies that are participating on this, are creating a pool that allows the smaller companies to participate as well. It’s really cool.
TB: Companies start paying into this program in January 2019. And the actual program starts in January 2020. As you said, though, a lot of the tech giants, like Facebook or Netflix, they’ve all sort of instituted this already because it’s competitive. They have to do this to keep up with everybody else who’s recruiting.
Schutzler: It’s also deeply linked to an issue that we have as an industry. I mean, let’s be blunt and honest, right?
JC: I was just going to ask about this, yep.
Schutzler: 85 percent of our workforce are white boys, so if you want to have women coming to work in our workforce, you’re gonna have to be able to create a mechanism that makes it attractive, and so one of the elements to combat that problem is creating a family medical leave system, and that’s why it’s so popular in our industry because it’s essential for both attracting and retaining women in our workforce.
TB: How would you describe the current thinking in the tech industry about diversity? It’s been a huge topic of conversation for the past three years. Are things actually happening or is it all just sort of paying lip service to the concept?
Schutzler: Well, no. The first thing is self-awareness that you have a problem, right? We’re a data-driven industry. I’m not really 100 percent sure whether it’s causal or correlated, but it was very closely timed to when Jesse Jackson was in town and a beating a drum on this topic just a few years ago.
TB: Interesting, because a lot of people looked at that and said, “Oh, it’s just bluster.”
Schutzler: We are a data-driven industry and so we’re being open. So our companies are saying, “Hey, look, 15 percent of the workforce is female. That’s a problem.” That our retention rate for women and people of color is four times worse than it is for men. We’ve got a retention problem and we have an acquisition problem.
Now that we know that and we’re being declarative about it and being honest and transparent about what the situation is, real work is being done to solve the problem. From the standpoint of the supply side, this is about working with government and education to fund public education and create awareness in public education all the way down at the pre-K level to attract girls, and later women, into the field, because if you look at the average engineering class for computer science across the country, it’s 15 percent female. Now the UW’s done a great job and they’ve really worked hard on this. Thirty percent of their class is female, which is a little bit to celebrate, but not a lot, because the average population of females in the University of Washington is over 50 percent. But yet still, even after all that work, it’s only at 30 percent.
We got a long way to go on the pipeline side, so our industry is funding programs, creating awareness, really working hard on the supply side, trying to break down some systemic biases in the recruiting process. We’re kind of still very guy-centric in most of our recruiting processes and a lot of companies, like Microsoft and Amazon, are particularly focused on this, really trying to change the way they recruit so that the bias gets eliminated at the front end.
TB: Are there technology solutions to this? You know, you see things like Textio, the machine learning startup that analyzes job postings to see if there’s implicit bias or whether you’re going to be attracting diverse candidates. Can tech solve tech’s problem?
Schutzler: Tech can help point where to solve the problem. I doubt very much that this is going to be solved by tech. This is about people making hiring decisions. At the end, this is cultural. We have to make sure that every aspect, not just the tools we use to recruit and retain employees, but actually the conversations that we have as managers, both as hiring and in managing those people, to make sure that we hire and retain not based on bias, but based on merit and performance.
JC: Well, it was certainly in the news this week with the Google engineer who lost his job after writing his missive about the diversity efforts at the company. I mean, it brought up an interesting debate in technology that should people that have a difference of opinion on things be able to share that and stay within their workforce or not?
TB: Or are there things that are just fundamentally wrong that you shouldn’t say or that you shouldn’t believe.
TB: I think that was what that really boiled down to.
Schutzler: Well, all right. Google’s got an interesting evaluation mechanism, where this particular violation, the reason for the termination isn’t because you have an objectionable opinion. The reason for the termination is because they have peer review mechanisms, and so this guy declaring how he views women negatively means that he is going to be evaluating women negatively with a bias, and the way they do their evaluations on peers, and it’s anonymous on peers, creates a problem. So that’s actually the root of why he’s getting terminated. If that hadn’t been in place, it probably would have been a really good reason for a debate and a discussion and perhaps an admonition or some sort of performance plan or communication plan or training or intervention or something, but when you have a system that is dependent on an elimination of bias in the review process, you’re gonna have to set up the rules of engagement and he violated those rules of engagement. That’s why he was terminated.
TB: How much do you think he was voicing an unstated opinion of people elsewhere in the company or the tech industry?
Schutzler: I don’t think so at all. In fact, there was a great visceral response by a colleague about how wrong he was and there’s been a lot of public discussion. If you float around on Reddit like I do, you’ve seen a lot of discussion about this.
Look, I’m an engineer, I’ve spent 40 years of my life in this industry. That’s just not the perception of the average person. Sure, there are guys that think like that and there are women that think crazy things, too, but the average person working in this industry is 100 percent focused on outcomes and performance. We’re about as close to a meritocracy as we can get, but that doesn’t mean we don’t have really crazy opinions in there.
TB: Something that we were talking about in advance was portable benefits. I’m not very familiar with this. Tell us what it is and why it matters.
Schutzler: It’s a really hot topic, and as we’ve seen recently with paid family medical leave, we’ve seen focus on things like $ 15.00 minimum wage and all kinds of other labor laws, predictive scheduling. Labor regulations is a hot topic for this region, and because of the impact of the gig economy across the entire country, there’s more and more of an awareness in the general public that there’s a dilemma that those of us in the tech industry have known for a long time. The tech industry is partly built by 1099 contractors. We have 10,000 companies in the state of Washington that are in the tech sector, but the truth is that there’s 15,000 independent 1099 contractors in the tech industry.
TB: Yeah, Microsoft, like huge numbers of orange badges.
Schutzler: Oh, you bet. You bet.
TB: And that’s just one representation of it.
Schutzler: And that’s been part of the dream, it’s like you build your chops working for a tech company, get really good at, I don’t know, online marketing or coding or whatever, and then you’re done working for the man and you’re gonna hang out your shingle and say, “Screw it. I’m done. I’m gonna be my own boss,” and you become a 1099. And the day you do that, there goes the pro club, if you’re working at Microsoft, right? There goes your paid vacation. “Oh my God, I’m paying not 7 percent FICA, I’m paying 14 percent because I don’t have an employer doing the match anymore.” So all of a sudden you realize, oh my God, there’s an entire infrastructure on benefits that’s been connected to an employer. Tech 1099s have known that for a long time. The general public is becoming super aware of this because the success of TNCs like Uber and Lyft-
TB: Yeah, transportation network companies.
Schutzler: Yeah, right. So Uber and Lyft is like 10 percent tech employees and 90 percent people driving cars, and those people driving cars are 1099s and they don’t get benefits because they’re 1099s. Our whole system in this country is designed around an employer providing benefits.
I’ll give you two concrete examples of portable and semi-portable benefits that already exist. There’s a thing called an HSA, a health savings account. I can put $ 6,000 into an HSA every year and collect that for 10, 20 years, and if I never draw it out on it, it sits there at the federal level, basically in a reserve, and it’s all pre-tax money. Twenty years from now, when I have an illness, I can draw down on that and use that, regardless of who my employer is.
Your 401K. I’m putting money in, and maybe your employer’s matching that, and then when you go to a new employer, you just roll it over from old employer to new employer, so there’s some portability there. That doesn’t work for dental. That doesn’t work for medical, and that’s the root issue because that’s most of the economics that is now becoming an awareness issue because of the success of Uber and Lyft.
TB: So what would a portable benefits scenario look like? Because that sounds to me like maybe the health care exchanges, right?
Schutzler: It’s much closer to what we were just talking about on paid family medical leave. So if the state were to collect on payroll, or some other mechanism, monies into a pool, right? If you had a single-payer healthcare system, it would be portable, because it’s not tied to the employer, it’s tied to the state. But we don’t have that and it’s highly unlikely that we’re going to have that it anytime soon, right?
TB: Yeah, especially in this environment.
Schutzler: Just not likely and there’s arguments whether it’s a good idea or a bad idea and that’s time for another radio show. You can still create portable benefits if you allow an organization like ours, which already runs healthcare for small companies, but we’re regulatorily constrained, we can’t provide it to 1099s. So we already have, in this state, a mechanism called an association healthcare plan. We could, like we are for 400 companies, offer a similar thing for 15,000 1099s. We just need the regulations to be allowed to do that. That system doesn’t exist, but it’s becoming a really hot topic.
Labor unions would like to do this, associations would like to do this, the folks that are trying to pool together the power of the Uber drivers would like to do this. Uber would probably like to do this, except that they can’t. So creating a mechanism to allow a 1099 to have those benefits move, regardless of who their employer is, is the root issue, and it’s all about medical more than anything else.
Tech’s image problem
JC: Just shifting gears a bit and kind of going big picture, Mike Allen, of Axios, had a great piece this week where he was talking about the populist rage in the country potentially turning against the tech giants and the tech community, and he had a list of nine things that are contributing to this, everything from privacy controversies, job-killing robots and automation, contribution to income equality, tax avoidance by shifting revenue overseas, and the list went on and on. Where do you think things stand in terms of the general populace and their view of the tech community and what can be done to correct the image or change the perception that maybe is turning a bit against the companies like Amazon and Microsoft and even startup companies?
Schutzler: Yeah, that’s a touchy subject. I’m gonna make some people mad now.
JC: Let’s do it.
Schutzler: Yeah, you’d love that right? So this is an indictment on the system that’s in place for, I don’t know, 60, 70 years. We have federally-funded mechanisms for adult worker retraining. NAFTA had in it a line item for retraining. The TPP, when it was finally drafted and ready for ratification, had in it dollars associated with adult worker retraining, all of which is supposed to be running through our community and technical college system, the idea being that our economy is shifting. It’s done this before. It did this in the 1800s when the trains came, it did it in the 1900s when the highways and the cars came, it’s done it many times in many other fashions. The internet has had that kind of an impact. It’s been transformational and we’re all carrying a computer in our pocket now. In fact, two and half billion people are carrying a computer in their pocket now. It used to be called a phone. It’s not really a phone anymore, it’s a computer in your pocket. Everybody’s connecting to the internet. The entire world is being transformed. Cars are driving themselves.
So as a result, there’s a massive shift in where the jobs are. And if Amazon — Amazon’s a really interesting poster child for this conversation because there’s a fear that Amazon will automate the crap out of all retail and all retail will disappear and all the jobs will go with it. Well, what did they just do last Wednesday? 150,000 people in a day. Why? Because there are new jobs getting created by all this. The problem is not everybody’s qualified for the new jobs, and those that are not are being left behind, not by those of us creating the jobs, but they’re being left behind by the system that was put in place to help them make it from the old job skills to the new job skills.
We have a pathetic system, federally and state-funded system, of adult worker retraining in this country, and part of it is just because it’s old, it’s calcified, it’s been stuck and mired in its ways, and part of it is because our country really has had a condescending attitude towards tech colleges, towards apprenticeships, when in fact the rest of the world, and particularly in Europe, where they’re kicking ass in this kind of a challenge, they view people who go through apprenticeships as being special. They view people who go through technical college as being particularly expert. We have to go through a massive cultural shift and frankly, we have to really shake up the whole adult worker retraining program in our country if we’re gonna solve this problem.
JC: So do you see those programs getting instituted?
Schutzler: To retrain? Yeah, but on a wider scale.
JC: Do you see those dollars being allocated to retrain workers in Peoria or Cleveland, Ohio?
Schutzler: So here’s a great one. So the H-1B visa has a line item, and if I remember off the top of my head, I think it’s $ 4,800 of all of the fees you pay. There’s a line item that says, “training fee,” and that goes boom, into this bucket at the feds and the Department of Labor gets $ 150 million a year through that system, every single year, and they’ve been funneling it through for grants and training programs and only through the Obama administration over the last five years, was there a focus of taking that dollar and saying, “Hmm, we got training dollars.” The reason they put that in there in the first place is because there was a thesis that the H-1B guys coming in are taking away jobs from Americans, so, hey, let’s put some money in there to go retrain Americans to be competitive.
Well, when you take a look at the outcomes, right, the DOL themselves have been saying for years now, “Wow, we’re not really too happy about the outcomes.” So they’re aware of it, they’ve been focusing on it, but now we’ve got an administration change, so now we’ve got a new Secretary of Labor, we’ve got a new task force being formed on apprenticeships. There’s a lot of swirl going on here and meanwhile, for decades, the tech industry’s transforming the whole country and there are not thousands, not tens of thousands, but there are hundreds of thousands, even millions of people who would be perfectly qualified to do jobs that are now open and unfilled, that haven’t gotten the correct training yet. So we are not solving that problem yet.
JC: So you’re saying the money was there, was it just not spent wisely? Was it not put forth to retrain the workers properly?
Schutzler: We, with maybe some hubris, we believe that the apprenticeship program that we’re creating with industry and with government is the first of its kind. It is 100 percent focused on outcomes. It is 100 percent focused on serving the tech industry and we’re modeling it after apprenticeships that do work in the trades and in manufacturing, we just haven’t done this in the tech industry.
JC: Yeah. And do you think that will help change the perception that maybe, at least a portion of the country believes, “hey, these big tech companies or tech companies in general, there’s a different strata of worker there, they’re highly paid, they’re out of touch, they’re cosmopolitan, and they’re not connected to the rest of society” or something?
Schutzler: I genuinely believe that when we start the telling the stories of the people whose lives we’ve now transformed, I mean, the program’s only six months old. We’ve already got roughly 45 people in jobs, by the end of this year, 100, 150 people will have jobs that had no way in. People that were selling shoes at Nordstrom’s or they were doing pick, pack and ship operations in a warehouse that are now coding, that are now running technical projects, that are now doing network security analytics for the best companies in the world. Their average salary are moving from $ 30,000 a year to $ 80,000 a year. Once we start telling that story and showing how we’re funding that, I mean, the tech industry is putting hundreds of millions of dollars into this thing across the country. Yeah, I think that will change the perception, but it’s gonna require that investment by our industry into our own workforce if we’re going to solve the challenge because the feds can’t do it, the states can’t do it, and the community and technical college system can’t do it, because they haven’t. We have no choice. We have to solve this ourselves and then through that action, I think will change the perception.
JC: How worried are you about that populist rage, and it manifests itself a little bit differently in Seattle.
TB: Like most things.
Schutzler: We’re special here.
JC: Yeah, we’re special with our populist rage. But how worried are you about it here in the perception, just in the backyard versus nationally in terms of a changing tide in perception towards the tech industry?
Schutzler: Yeah, all right. So, Kshama, if you’re listening, it’s great and fun to beat a piñata in public and we’re an easy piñata. We really are. I mean, we create a lot of jobs, and I just read yesterday that for every human being coming to Seattle there’s a car coming with it, and so as a result the 50,000 humans that came last year, they brought 50,000 cars and we now have more cars per capita than L.A. or any other city.
TB: We got plenty of bikes for them, but that’s a whole different story.
Schutzler: Dear God, right? So, okay, sure, and those people coming here, I mean, they’ve got the big $ 100,000 to $ 150,000 jobs and I saw this other stat that blew my mind, the average African-American in Seattle, the average Africa-American male in Seattle is making less than $ 26,000 a year. The average tech worker in Seattle is making 105. That’s a 4x delta.
Schutzler: So it’s an easy piñata to say, “Look, bad guys,” right? But the truth is, that’s just political grandstanding. That’s just being a polemic and eventually that will dissipate because nothing good can come out of that discussion. What is useful is to say to the tech industry, hey, there’s a problem, help us solve the problem. Engage. And so I’m thrilled that Amazon is actively engaged here in Seattle.
JC: Not always been the case.
TB: Are they really, or is that just window dressing?
Schutzler: No, no, no, no. They’re more circumspect than other companies. They’re culturally more CIA-like. They’re just very compartmentalized-
TB: That’s accurate.
Schutzler: They have their own way of doing things, they don’t like to talk in public about it. You know, the leadership at Zillow is also very actively involved and are actively engaged. TUNE, a relatively small company, it’s very actively engaged with the city. We are trying to show, in good faith, that we want to come and help solve problems, right? We need the city leadership to work with us and not just yell at us and say, “Give us all your money.” They need our effort and our energy and our enthusiasm, and, frankly, our skills and contribution to make it right.
TB: Just to let everybody in on this, the apprenticeship program that you’re referring is called Apprenti. You can find out more about it at apprenticareers.org. This is something that’s received upwards of $ 7.5 million in funding from the Department of Labor. Is that accurate or no?
Schutzler: Yeah, so let me just give you the numbers on this thing. We’ve had 2,500 people apply. It’s six months old. We’ve already got, like I said, roughly 45 people in job, we have another 105 already hired that will be in job by the end of the year. We have received $ 11.5 million in funding from the feds. We have received another couple of million dollars in private funding from that. The total amount of private funding for the on-the-job training exceeds $ 30 million.
Yeah, we’ve raised an enormous amount of money to make this thing work, and we still have a ways to go. We just got $ 4 million of matched funding from the state, Governor Inslee was a huge proponent of this. We got great bipartisan support to get funding to pay for the training that’s necessary to get these folks into jobs, so there’s a lot of money behind all this.
TB: And we should point out, like Amazon, for as much guff as they get for changing the world and putting jobs at risk, one thing they do in their warehouses, in their fulfillment centers, is something called a career choice program where people come in for classes. And remember, this is one of the things that at your FullConTech, this is a conference that you put on at the WTIA that looks for specific actions that the region and the state can take. One of the things that came out of that was “hey, let’s look at this career choice program that Amazon’s doing, where they retrain their fulfillment center workers for other jobs and maybe we can model that at other companies.”
Schutzler: Absolutely. And that’s a classic example. They’ve started eating their own dog food. In addition to being a great hiring partner with us on Apprenti and bringing people from the outside in, they’re doing a great job of creating a career development path. Once you get into Amazon at their fulfillment center, you can become a dev, and they’ll pay for your training to become a dev or a technical project manager or any other job in the company.
TB: We’ve got such a long list to talk about here, Michael. We could talk to you for hours, but just a couple more here. Immigration is obviously a huge issue and you alluded to it in some form with H-1B visas, which are a primary way that tech companies bring workers from overseas in highly skilled positions. What is the state of immigration in technology right now? What are your thoughts on that?
Schutzler: You know, there’s a lot of misinformation, a lot of confusion about this. H-1B visas, for the most part, probably 70 percent of those are used by the tech industry. The average salary of an H-1B employee in the tech industry is $ 130,000 a year. These are master’s degrees, Ph.Ds, sometimes they’re bachelor’s degrees. These are highly skilled employees. There are a group of staffing companies that have been abusing this system and have in fact a much lower average salary, more along the lines of $ 65,000 a year. So they’re currently bringing them in and using them to essentially reduce costs, which is not the intent of the H-1B visa.
The tech industry has been in favor of reforming the H-1B mechanism, because if we got rid of the abuse that’s going on, we would actually have more visas. Now, we do not hire H-1Bs to replace Americans. In this state, less than 4 percent of our workforce are on H-1B, so 96 percent of the employees are non-H-1B people.
TB: Well, you talk about pissing people off. People are gonna react to that and say you’re wrong.
Schutzler: I know they’re saying I’m wrong, but I’m sorry, just go to the Bureau of Labor statistics. Go look at the stats by the feds themselves, you’ll see the numbers. It’s in the public, it’s open and transparent. I understand there’s a perception that gosh, there sure seem to be a lot of Chinese and Indian immigrants working in Bellevue these days. Probably true. It is true.
TB: That’s definitely true.
Schutzler: It is true, right? But when you take a look at the total employee base and take a look at the total number of H-1Bs issued to Microsoft, Amazon, and a handful of other companies, it’s 4 percent of our workforce. Enough. It’s not taking jobs away. In fact, almost all of those jobs are really high performance jobs that are creating jobs for others.
TB: So you mentioned the new administration earlier, are you seeing a change, given the crackdown on immigration overall for the tech companies that are trying to bring these workers in? Not just H-1Bs, but overall.
Schutzler: Yeah, so this latest piece of legislation is classic political grandstanding. It’s bullshit. It’s dead on arrival and it’s a dumb idea. The truth is, his executive orders, the President’s executive orders, have put a crimp on H-1B, they put a crimp on a number of different aspects of immigration. There’s a group of us that have worked really hard under the Obama administration to create an executive order that would allow what’s called an immigration entrepreneur visa. It’s basically an end run on an existing infrastructure for visas to allow someone who came here typically as a student, started their company, raised money, hired people, but now needs time to apply to get residency status. This EO, under the Obama administration, would have allowed that, and it would have gone effective in July. But because it had Obama’s name on it, the Trump administration has decided to punt for a whole year.
We’re so stupid as a country because all we’re doing is saying, “Hey, entrepreneurs. Thanks. We retrained you. Go to Canada because they’re hiring and they’re letting you in the door and they’d love for you to build your company up there because the venture capital’s now flying over Seattle from the Valley and is landing in Vancouver B.C.,” not by like one or two companies, there are like 150 companies that started there last year. The VCs are there more than they are here. They love it because there’s an open view on immigration. There’s an open view on investing public and private infrastructure into creating a tech ecosystem. My biggest worry is that our administration is making it difficult for Seattle to compete, not with the Valley, but with Vancouver, British Columbia.
TB: Yeah. Justin Trudeau is eating our lunch.
Schutzler: Absolutely. As is the prime minister of British Columbia.
TB: OK, rapid fire here. The new Seattle income tax on high income earners. Good or bad?
Schutzler: Impossible to really put into place. Sorry.
TB: Because of state law?
Schutzler: Well, no, because there’s no way to administer the tax as a city. I mean, my God, you can’t even fix potholes, you think you’re gonna put millions of dollars into a system to administer a new tax from scratch? It’s just dumb.
TB: You don’t think it’s ever gonna happen?
Schutzler: It could happen, but it’s just dumb.
JC: What would the impact be on the tech industry here, in Seattle, if a city income tax were put in place?
Schutzler: It starts at $ 250,000 per person, right, so $ 500,000 per couple, and so only the very highest paid employees in the tech industry would be affected by it. Obviously, it’s not just the tech industry, it’d be anybody, so doctors and lawyers and dentists and anybody else that makes lots of money would be affected by it. If that’s where it stopped, it wouldn’t be a big impact because it’s a very limited number of people that it’s impacting. My bigger issue is what are you doing with the money, because you’re not effective with the billion dollars more than you got on the budget in the last couple of years, and frankly you don’t have the infrastructure to collect the money, let alone distribute it. It’s just a dumb idea.
TB: Next rapid fire question: Non-compete agreements. WTIA, and you in particular, have taken heat over your position on this issue. What’s your position on non-competes and where does the issue stand?
Schutzler: It’s very simple. Every tech company, small or large, that has created disruptive, high-value intellectual property cannot protect that property with patents or copyrights. It doesn’t work. So the reason why all those companies like a modest one-year non-compete, that’s limited in scope to only direct competitors, which is how the state’s laws are created, the reason they like it is because it’s a speed bump, and that’s how it’s generally applied.
TB: Somebody leaving a company like Amazon cannot go to work for a direct competitor…
Schutzler: To build another Echo. But they can go to work for another retailer. They can go to work for Walmart. They can go to work for Nordstrom’s. They just can’t go build the next disruptive intellectual property. That’s what the laws are here.
TB: There’s a perception, at least, based on some of the litigation that Amazon has a liberal interpretation of those laws.
Schutzler: Right, sure. That’s legalistic, right? So what’s our position? Our position has been with Derek, in particular, Representative Stanford, “look, we get what you’re up to. There’s no such thing as highly disruptive intellectual property associated with making sandwiches, and unfortunately sandwich makers don’t have the money to hire a lawyer. So if the sandwich company tries to prevent you from working at another sandwich company, which does happen, hair cutters, you name it, that’s just bullshit.” And we agree that’s bullshit, so let’s write laws that preserve a modest little bit of non-compete for IP and everybody else. It’s just once and for all codified, there are no non-competes.
JC: Well, why not just enforce like a trade secret theft, if somebody were truly doing that? There are laws about that versus a non-compete agreement.
Schutzler: Right, because they’re much more difficult to enforce and frankly a great example of that is the smarty pants dude that left Waymo to go to work for Uber. Do you have any idea how much money is involved in that? Do you know how many millions of dollars in discovery work alone? They’ve got software developers hiding inside of closets at Uber taking apart hard drives figuring out where is the IP and is there actually IP or not, and oh my God, it’s so hard and so complicated. It would be so much easier if it was a 6-month or a 12-month thing that said, you can’t go to work for Uber for 12 months, so go park for 12 months and then go to work for Uber.
TB: But the argument among people in the Seattle tech industry, particularly employees who want to move, is that it’s far easier in California. California does not enforce any kind of non-compete restriction, so isn’t that making our companies less competitive?
Schutzler: No, not at all. In California, there are lots of collusion going on and there’s been really big lawsuits for hundreds of millions of dollars because there is collusion, so because there is no regulation on this really clever IP stuff, companies collude. Also in California, a classic trick is you don’t pre-negotiate your non-compete going in, because there is none, where at least here, you know you’re being asked to sign one, so you ask for more money up front and you get it. There, there is no money up front but when it comes time to leave, if you’re one of those salespeople that has got all of the relationships or if you’re one of those coders that has got all the IP, you get put under a contract.
TB: When you leave?
Schutzler: When you leave and contracts can have non-competes and they do.
Schutzler: So California sort of end runs its way out of having the view of having non-competes, when in fact — again, the only position we’re taking is, if you’re creating disruptive IP and it’s proprietary, a reasonable speed bump is a one-year stoppage of going to a direct competitor.
TB: So do you want to see any changes in the current state law?
Schutzler: Yeah, we think Derek Stanford and his team are in the right direction, we just want to make sure that that’s the only proviso. Now, of course, we’re talking about the wide church earlier, man, there are companies in our organization that, some are like, “What are you doing? That’s stupid,” and there’s other companies that are saying, “Please, please, please don’t let this go away.” Large and small, both sides.
JC: Frankly, it’s a lot of the startup innovators who want to allow more free-flowing talent to go from big companies to smaller companies so that they can have a competitive advantage.
Schutzler: No, see, they’re not having any difficulty. They’re complaining that they’re not able to hire Amazonians. That’s actually bullshit.
JC: Well, Smartsheet ran into a problem.
Schutzler: Yes, they did.
JC: They did. They ran into a big problem.
TB: A new hire by Smartsheet was sued by Amazon for moving and going to Smartsheet. Smartsheet was actually not part of the litigation.
Schutzler: Even though there wasn’t really a competitive product, at least not on the market, at least that we don’t know about.
TB: Well, it was heavily redacted.
Schutzler: And how was it resolved at the end?
TB: It was settled.
Schutzler: It was settled, wasn’t it?
TB: So that’s like the way it should work, in your view?
Schutzler: It is how it should work, because you don’t know.
TB: Settled, presumably with restrictions on his role.
Schutzler: Right, and does Amazon do that for every employee? Oh my God, no.
TB: But it seems arbitrary.
Schutzler: On the outside, it seemed awfully arbitrary, but you make a couple phone calls and they’re like, “I really can’t talk about it,” so you know there’s something going on.
JC: Well, couldn’t it also be perceived that it’s stymying a large company and stymying its employee base from wanting to go explore other opportunities that might be of interest?
Schutzler: It can be seen that way, but I would argue then, if you have legislation that declaratively says under these circumstances, non-competes are fair. Everywhere else they don’t exist. If you had that, and we don’t, right? We’re using redlining and case law and you need a lawyer to actually figure out what the hell’s going on in this state. If you codify the rules as a legislature, which we are supportive of, then everyone will know what the rules of enforcement are and then this would become less arbitrary.
TB: So you expect this to come back next session?
Schutzler: Oh, this is coming back. Absolutely. It’s been coming back for years and it’s getting to a place now where it’s almost got enough support. Kind of like paid family medical leave, it took a couple years of biometrics, it took three and a half years. This one took a good three years. I think it’ll get support this time around.
TB: Is there anything that we didn’t talk about that you want to just quickly touch on and let people know about, Michael?
Schutzler: The only thing I’d really like to say is, it’s an honor to serve the industry and I think the thing that I feel the most proud about being part of this organization is that we’re trying to change forever how this industry recruits people and move away from this myopic view that only people from MIT and Harvard and Stanford and UW are the only ones that are capable of doing jobs in our industry. Creating a really viable national apprenticeship means that not just more white men, but people of color and women, all across the country, are gonna have a career path into this industry and a future that really is transformative, not just for our industry, but for the whole country. It’s just a really super exciting place to be.