Life happens...

Sorry for the hiatus... life happens.

With all the noise in the media and blogosphere about this economic crisis, one thing that I have not heard discussed, but which is painfully obvious, is that this is the first "broadband recession" in human history. What does this mean? For the first time, day-to-day changes in consumer behavior at, say, your local Home Depot can get transmitted almost immediately via aggregate data to company executives, who can almost immediately adjust their purchasing and inventory decisions, who can almost immediately transmit such decisions to their suppliers, who can almost immediately decide whether to close this factory or lay off X number of workers, which media and bloggers can almost immediately start reporting, thereby almost immediately feeding the unemployment data that is driving stock markets lower. I'm not sure how to measure the rate at which this feedback loop is happening, but it is surely orders of magnitude faster than previous economic downturns.

Contrast this with the situation that John Kenneth Galbraith describes in the Great Crash of 1929, where the stock ticker was delayed by hours from the actual price of stocks, thereby causing many people to offload stocks purely because they had no idea what their shares were worth at any given time.

So what does that all mean? I'm not completely sure, but it seems at first blush that the shakeout and, conversely, the bounce back, should be faster than anything we've seen before. It also means that there is a greater likelihood of overshoot on downside and upside, as financial data is way ahead of the human ability to process information, both cognitively and emotionally.

I'll think about it some more...

What's in a place?

The selling of specific places as worthy of imitation has become a movement in the world of innovation. It is also overblown. The DNA of each place combines accident, history and sheer chutzpah

Back in the boom days of the 1990’s, Silicon Valley, seat of the greatest explosion of innovation in the world, attracted a host of imitators. Suddenly, there was a plethora of pandering, puerile attempts to use – and abuse – the term “silicon”. First there was Silicon Alley, a play on the geography of New York, a tribute to the edginess of the down market district that was about to become home to a tribe of digerati. Silicon Prairie, Silicon Fen, Silicon Mountain and other such monikers followed. They sought to suggest a “follow the leader” identity, but often became little more than wannabe prescriptions of a “tech cluster” focus that itself became the story.

(Full disclosure: I also got infected by this babble, but realized sufficiently early that the term “silicone” applied to Los Angeles might upend the game somewhat, so I rather boldly suggested “Silicone Beach” to apply to our little corner of paradise. I’m sorry to say the idea didn’t take hold).

One place that has made a virtue of such a stretch is San Diego. At first tentatively, and then relentlessly, “America’s Finest City” has exported a practice built around a “formula” of its success to the world, willing to teach all and sundry how one creates an ecosystem – ordered, well-designed, engineered for certain outcomes - that will assure the congratulation of one’s peers and will surely lead to economic transformation. That formula has now spawned a movement.

Beware of movements, for they too shall pass. This ancient wisdom has many lessons for us all. The first lesson is that by its very nature innovation is a dynamic and sometimes frustratingly unpredictable set of constructs along a long and winding road. Silicon Valley is a phenomenon that was caused by the incidental and accidental rubbing of shoulders of early entrepreneurs, who made fateful decisions to stay in the then-pastoral setting of the Valley instead of moving east. The infrastructure that followed benefited from, and contributed to global trends, and despite meltdowns, the schema of innovation has been furthered through a constant widening of its influence, to China, to India and beyond.

The modern San Diego economy, born from the pangs of defense drawdown, was helped along, similarly, by an accident of place and time. The implosion of a company called Hybritech begat a stream of suddenly well-heeled entrepreneurs, and a biotech identity was born. To be sure, San Diego has exploited well these early developments, and the development of another home-grown company, Qualcomm has cemented its oft-mentioned story of dual magic, around telecom and biotech.

The good news is that San Diego has done well through the hysteria of the ’90s. Its institutions, especially the University of California, San Diego (UCSD) has gained much leverage from the presence of large biotech companies’ research facilities, who have in turn stimulated the development of its faculty, and provides them with alternatives in the form of a vibrant entrepreneurial culture.

The bad news is that all of this is exportable only in spirit. Just as with the misbegotten attempts to adopt the style and tenor of Silicon Valley (imitation is the sincerest form of flattery), such outcomes are impossible to engineer. Most sophisticated planners and regional experts around the world understand that the ingredients – principally, talent and capital – are vital cogs in any development wheel. Many of them also understand the great importance of accident and that native or natural endowment – some piece of local magic, some affinity based on a set of factors that either have gravitated to, or been born in the place – is the single most important piece of attempt to put the pieces together. In seeking to make – and cash in on - a model of its success, San Diego, and similar places that do the same thing, expose their own great weakness as less-than-diversified places that are at the mercy of global trends.

So, the second great lesson is to understand and study the life cycle of your own success. Maturing, or even rapidly evolving tech-centric economies face great pressures as the infrastructure of tech chic favors the well-heeled, yet you need to make provision for, and accommodate, a great diversity of people and prospect in the economy, establish good civic governance, and get out of the way of creativity (which bubbles up almost mysteriously in any diverse community).

It is no accident that San Diego has now turned to cultivating and expanding its own identity southward (the presence of Camp Pendleton and the horror of becoming a southern suburb of Los Angeles are compelling enough to keep it locked in its relatively small footprint). Yet, this effort is a worthy one, because it does suggest that self-consciously local places gain their greatest leverage when they see themselves as tied to a larger geography – and economy. San Diego has obviously learned a thing or two from the experience of Kansas City, once considered a telecom hub. With its prime tenant, Sprint, under considerable pressure of competition (despite the triumphant purchase of Nextel), Kansas City now has little or no sway over a broader region. Flush with cash, brashness and promotional zeal, it created great programs around innovation, but the lack of scale, scope and “native magic” conspired to keep it from its promised greatness.

Consider the experience of Hong Kong. This most global of cities, a financial and services hub focused on global commerce, faced a bleak assessment when China came calling. Many observers thought that it would diminish in importance in the new China, overcome by Guangdong or Shanghai. Yet Hong Kong, long credited for transparency and laissez-faire regulation, is now a dynamic hub connecting the world to the great manufacturing region of the Pearl River Delta. Its strategy was to tie itself to the now open border, and make itself the new entrepot of the region.The lesson here is that in mono-focused regions (or even “twin peak” regions), finding your creative feet is hardly an enterprise that can be forced by the application of formulae; it must arise from what is referred to as the regional “DNA.”

One argument that will be offered to counter such a globe-centric view is that innovation is engendered through the creation of locally-focused efforts, that innovation tends to come from “clusters” that are inherently local, that a unique combination of assets arising mainly from universities in particular locations starts a chain reaction from which develops an innovation system. The counter to this is that innovation springs globally, eternally, and that in this highly-networked world, where the influence of technology – writ large, in every sector - springs from a globally-distributed enterprise, both innovators and their innovations are less tied to place than they are to the determination of value everywhere. Efforts by the U.K. Government, especially in its Global Entrepreneur Program (GEP) are especially noteworthy. GEP has subverted the normal game of inward investment (there is scarcely a place that doesn’t have an Invest In agency, except perhaps Borat’s Kazakhstan, which doesn’t need it), by scouring the world for innovators, and then bringing their talent and opportunism to bear in the U.K.

In this super-networked world, messy places like Los Angeles, restless and chaotic, seemingly disorganized but driven by the constant reinvention of the value chain, will start to define global innovation in a way that is as yet little understood, or appreciated. As my friend Joel Kotkin, author of many great writings on cities and their future, has observed, journalists and promoters are much more comfortable covering small places with orderly systems that are easy to analyze than large urban centers. Yet it is precisely in those large urban centers – London, Shanghai, Hong Kong, Bombay, Seoul, and in center where aggregations of the elements of innovation (Silicon Valley, Bangalore) are evident that the future of innovation – the accident of association and the unpredictable creativity that follows – is being written.

Places that lack proximity to markets face some challenges in becoming centers of innovation and thus important contributors to national or regional wealth, but these are not insurmountable. New Zealand’s fledgling neutraceutical or plant biology sectors, or Israel’s medical device and biotech business are far removed from the markets they serve most or best, but this matters less when a tribe of well-honed innovators can take advantage of the new global mobility that the Web has brought us. Clearly, also, the considerable overhang of global capital will render the operation of local capital less important overall; capital will flow to wherever value is generated. The Chinese model – use capital resources to both buy into and to contribute to sectors where China can employ its own workforce and own production engine, will work its way to these shores as well. The misunderstanding attached to technology development in India (the “back office” characterization) will reveal itself in the global game that Infosys and Tata Consulting Services (TCS) are playing, in our own backyard. If we continue to focus on the previous game of involving ourselves with constructing local innovation systems, or worse, exporting our success in doing so as a story worth imitating, we do so at our peril. A new, more complex, highly dynamic global game is afoot.

The Case for Innovation

By now, it has gone beyond a buzzword. It has become the defining movement, the catchphrase of our time, the ultimate goal. It points to an evanescent future, it causes the technically-challenged to get misty-eyed and almost evangelical as they mouth the word: innovation.

But since it is now used by gurus and grateful grouches alike to describe a systemic approach to cultivating a mindset and a culture, to characterize a desired state of competitiveness (of the individual enterprise or of nations), and since whole conferences, papers, journals and tomes are devoted to its understanding, it is worthy of serious discussion. On the one hand, one could be excused for believing that anytime something that is supposedly so intuitive (“one knows it when one sees it”) becomes so densely studied, there is something silly going on. On the other hand, there is something to the notion of nurturing a cultural milieu (again, whether inside the individual company or in the nation) which encourages inventive people to take risks, think outside the box, reach out beyond the boundaries of narrow specializations and thus be truly open to the great explosion of science, technology, ideas and enterprise of the 21st century. Peter Drucker referred to innovation as “change that creates a new dimension of performance,” and even though he was preoccupied for much of his long life with the corporation, he used that definition also to extol the flexibility of non-profit organizations, individual leaders and governments.

Research enterprises are prized as founts of innovation, even when, as is the case with so many of them, their dogged self-dealing results in so much wasted promise. All it takes for innovation to take root, some may argue, is one Google to change the landscape, to spawn whole new sets of companies and industries and whole new “paradigms” (an over-used word that nevertheless provides a neat way of looking at the issue). Yet innovation should not be judged solely by the achievements of the few remarkable examples of history. To do so would make us overlook the fact that the U.S. faces truly daunting challenges and would cause us to make too much of our few (or even many) grand examples.

In The Innovator’s Dilemma , Christensen argued that even the best-managed companies face disruptive technologies that point to the future and shift the ground from beneath them. He might as well be talking about countries. Globalization has created great disruptions, and the well-protected turf of well-managed enterprises, and well-managed programs that seek to further innovation in the U.S. are now facing great pressures. Mobility of opportunity, of capital, of research and of enterprise may deprive us of people, as research budgets shrink in both the private and public sectors. Many of the brightest lights from around the world who hitherto have been attracted to our stellar graduate programs are finding greater opportunities in their home countries, which have woken up to the importance of encouraging innovation as they flex new economic power. India and China, in particular, but also South Korea, Taiwan, Australia and Canada see the urgency of adapting their native opportunism toa critical need in the innovation enterprise: strong research programs that will continue to contribute innovations, in process and product. Even though the U.S. leads the world in total R&D spending, its position is much less tenable when one measures R&D as a share of the total economy. The picture gets even worse when one takes into account non-defense research as a share of the economy, as Anna Bernasek, writing in the New York Times has pointed out (The State of Research Isn’t All That Grand, September 3, 2006). Bernasek cited a survey by Booz Allen Hamilton and Insead that states that China and India together will increase their share of the world’s R&D personnel, from 19 percent to 31 percent.

Meanwhile, U.S. corporations often seek to make investments that provide returns only in the short-term, playing to capital markets and media stories that forestall any meaningful strategic engagement of global pressures. And the most enlightened corporations are moving research offshore, as has been pointed to in numerous studies, most notably in a Kauffman Foundation-sponsored study by the National Academies.

And yet…there is a certain idiosyncrasy that accompanies innovation. Despite the gloomy picture, the U.S. continues to sow and spread those seeds of innovation. Entrepreneurship in the U.S., especially in the sciences, is a compelling passion that is often taken for granted. Entrepreneurs, even when confronted by serious odds, are able to count on a milieu of support, and on some measure of adulation and accolade, unheralded though it may be by government. There is truly something in the water, something that cannot easily be replicated, or if it is, risks becoming purely imitative and not innovative. Japan has understood this lesson well.

So what now? Obviously, the world is suddenly a smaller place. We cannot just be a nation of consumers. This is unsustainable, despite the vaunted position of the U.S. consumer as the principal mover of the world economy. But there are many bright spots in the nation’s arsenal. The U.S. by crook and beyond design, has allowed, even widely accepted, thinking outside the box (and if this finds audacious imitation in Dubai, that is a good thing!).

Exposure to experimentation and acceptance of failure, a culture that prizes diversity of thinking and mobility, a language that is constantly molded by slang and utilitarian fun and that works its way into the practice of entrepreneurship, these are all things that don’t find a place in the considerable body of statistics that chart the nation’s decline in the rankings. But Singapore knows how well this works. A few years ago, the Singapore government embarked on a campaign that emphasized “fun” as a key component of their drive to nurturing entrepreneurs. This was indeed, well-deserved flattery of U.S. practice (and we’ve never even had a campaign!). Meanwhile, Europe’s consistent experiments, bound by the rules of fair-play and by, well, rules, has not been a grand success in unleashing the spirit of innovation widely on the continent.

We cannot stand still. Corporate America must do more to tap into the genius of small companies, being born in this rich soup. Too often, it is hamstrung by capital markets, media frenzy and “short-term-itis.” The U.S. government, constrained though it is by the pressures of funding for Medicare and Social Security, needs to find the will and the funds to expand programs that seek to plug the gap between idea and market, and not indulge the destructive ideology that sees the market as “taking care of it”. History and experience shows clearly that the market does not “take care of it”. We need to take the business of innovation seriously. Clearly, much of the developing world has started to do so, despite the expansion of their capital markets. And we need to get away from the equally destructive ideology that sees investors and partners in the new marketplace as representing “filthy lucre”, filthy enough, that is, to contaminate the purity of our protected research. We need to dive in, fully engaged, and let the full power of government-sponsored R&D be unleashed in the marketplace of the 21st century.

Innovation in your own backyard

I've just gone through the Kauffman Foundation-funded surveyby the husband and wife team, Marie Thursby of Georgia Tech and Jerry Thursby of Emory University on the factors influencing location (and relocation) of corporate R&D, presented to the National Academies on February 17, and being published this month. Despite popular misconceptions (and the fervent economic development belief in their importance), the data show that tax breaks play a very small role in the decision by corporations to locate their R&D away from their home countries, and even with the risk and issues surrounding IP protection, India and China loom large in their planning. Even less of a surprise: proximity of skilled technical talent is the key factor influencing their decisions.

It is only because we've been remarkably smug that we did not anticipate the move "upstream" by both China and India. True, cost has played a big role in the movement of manufacturing offshore; indeed, the widespread availability of excellent talent in software development, enterprise-level programming and engineering in both countries was known as far back as the mid-90's, when Internet and telecommunications companies used this talent to help drive massive lowering of costs, which ultimately led to wide adoption of the Internet in a shorter period of time than anyone thought possible. Meanwhile, we've been much too smug also about our highly-developed innovation systems (the input side of the ledger shows an embarrassment of riches, with an abundance of universities, large national investments in science and technology, our vast funding apparatus and, yes, our vaunted position as the brainbog of the world. But since at least 2000, the bog has been emptying.

The so-called "reverse brain drain" is a very real phenomenon, to which many universities can attest. There has been a marked slowdown in the issuance of student visas since 9/11, and many university engineering programs are suffering from low enrolment (in many programs, foreign students account for a large percentage of the total class). The other ugly truth is that science and engineering do not seem to attract American-born students in the same number as 15 years ago. Meanwhile, as the Thursby survey makes clear, corporations have identified India and China as favorite places for their new investments in R&D. Science and engineering degrees are revered in both countries. India's Indian Institutes of Technology (IIT), for example, have been celebrated icons of engineering achievement, and the pressure to compete in a country that turns out well over 300,000 graduates a year creates a pool of talent that is a veritable feast for companies seeking to take advantage of global "efficiencies".

So, what should we do? Despite the obvious stresses in the landscape of innovation in the U.S., we still have the richest research base (and one that several countries will happily and constantly seek to tap into, through a variety of ways, legal and covert), the most entrepreneurial base of emerging technology companies and now, an increasing focus on commercialization.

The fact is that there are hundreds of emerging technology entrepreneurial companies in the U.S., funded by federal R&D programs that larger companies could – and should – tap into. This remains a key resource – and differentiator – for the U.S. economy. The SBIR program, for example, turns out hundreds of “graduates” every year. Most of them will toil in relative obscurity. The omnipotent “market” (that favorite panacea proclaimed as the savior or slayer of every idea, every technology) does not “take care of it”. These companies are, by all accounts, too early for the tide of money being invested in the market. Yet they are not too early for every large corporation in America, whose R&D budgets are declining both in absolute and relative terms, whose competitiveness will increasingly ride on incorporating technological innovation not being bred internally. They must turn, then, to smaller innovators whose nimbleness, persistence and sheer chutzpah are assets that larger corporations would spend a fortune building themselves (with no guarantee of good results, and with plenty of evidence of failure).

So, while innovation is now a global enterprise, we ought not to ignore whats underfoot, right here in the U.S. At Larta Institute, we have been building an innovation hub that seeks to uncover, nurture and showcase this talent in order to increase economic opportunities for innovation in the marketplace. We have engaged in a body contact sport in training and networking emerging entrepreneurs whose research skills need to be matched with the increasing demand for innovation that is economically desirable. Our commercialization programs are now extensive and tap into nuggets of innovation from the most diverse areas of research - the life sciences, materials, software, manufacturing, cleantech, media technologies. Nor do we ignore nuggets from around the globe, many of whom want to find a home here. We work now with many global regions, from Taiwan, Australia, Korea, Canada, Hong Kong, Sweden, Finland, Japan, India. Forging partnerships for many of these innovators with innovators in the U.S. sharpens the game for everyone.

So the next time we moan about the loss of competitiveness facing us in the U.S., we ought to remember that amid the accumulated weeds in our own backyard, we can find a few flowers that would otherwise be doomed to “waste their sweetness on the desert air.”

11 Trends in Innovation (continued)

I've been talking about some of these ideas in public now.  I must admit that I wasn't prepared for the feedback, which has been quite powerful.  I guess people are scratching their heads a lot these days, trying to figure out where things are going.  So here are the next 6 top trends, as I (and the collective wisdom of my Larta colleagues) see it.  They're actually more like predictions that we live by.  After this entry, I think I'll spend some time expanding each of these points further:

 

6.  Universities in general are bad at technology transfer because they have inefficient feedback loops.  Technology transfer officers are too removed from the appropriate incentives to act in the most economically efficient manner.  Even if individual officers are willing to act optimally, they often face pressures at cross-purposes (such as faculty ego, inconsistently applied conflicts-of-interests rules, government regulation and inconsistent interpretation of such regulation).  

 

7.  Resources to grow innovative businesses in the United States as a whole (versus within individual regions) are not being allocated nearly as efficiently as many believe.  There is plenty of value to be wrung out of systemic market inefficiencies in the United States.  The focus shifts from regional clusters to national and global networks.

 

8.  The trendlines point to a world in which economic well-being is based less and less on geography.  The trickle-down effect of successful businesses will diminish, as successful businesses will cut across geographical boundaries to find and use the most efficient resources wherever they may be.  In such a world, individual skills and education will increasingly determine one’s quality of life, not one’s geographical proximity to successful businesses.

 

9.  One of the biggest economic bottlenecks in the United States is the mismatch between dollars invested in scientific research and dollars invested in developing innovative businesses.  This bottleneck is caused by social network inefficiencies, resulting from geographical mismatch, cultural and language differences between scientists and businesspeople, and human frailty.

 

10.  More centralized foreign governments are proving to be quite fast at adopting the methods for successful technology-based economic development.  Democratic and decentralized governments, like the United States, are moving more slowly in general.

 

11.  The successful venture capital firms (indeed, all innovative enterprises) of the future, all things being equal, will be those that are fastest to access global resources – including scientific research, human talent, and market understanding and access – more efficiently to grow successful enterprises.

 

The Next Shift in Patent Law

I've been sitting in on the Patent Law course at the University of Chicago Law School, and I wish to state a few observations.  One, the classroom is packed.  This was not true when I was in law school (1993 to 1996).  I talked briefly with Professor Doug Lichtman afterwards, and he confirmed that patent law has indeed boomed in popularity over the past decade.

Two, changes in patent law reflect where the battleground in business has shifted, but a few years after the fact.  This is no different than many aspects of the law, as our common law system lets litigants define the battleground and therefore to set the agenda for changes in the law.  In the late 1980's and early 1990's, companies like Dell and Wal-Mart made huge successes by implementing more efficient business processes than their competitors.  The battleground in business then was about process efficiency.  But how does a company turn its efficient process, which in theory could be easy to emulate, into a barrier to entry against hungry competitors?  One method is to get patent protection for one's method of doing business, often as embodied in software.  In July 1998, the Court of Appeals for the Federal Circuit affirmed the patentability of business methods in the State Street case.  The result today, as Mr. Lichtman noted in class, is that banks are the largest growth area in patent law, as they create new, more efficient financial instruments and set up barriers against their fast-racing competitors.

This all begs the question: so where is the business battleground today, and how will patent law be changing a few years from now?  More to come on this idea.

 

Victor's 11 Top Trends in Innovation (Part I)

I wish to extend some of Rohit's ideas, which I think are spot on. The next wave of innovation will be much more widespread than the past waves.

I'll start by pointing out a new Joint Venture Silicon Valley report: http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2006/01/15/BUG70GN4BP1.DTL. The report says that Silicon Valley has re-invented itself as the world headquarters of concepts for gadgets, Web sites and consumer products.

If true, there is a big difference between this "new" Silicon Valley and the "old" one: the barriers to entry are not so high anymore. Aren't a lot of places leading centers for gadgets, Websites, and consumer products? Is the "secret sauce" that made Silicon Valley special in the past going to be so exclusive in the future?

This gives me a perfect segue to [insert drum roll] Victor's 11 Top Trends in Innovation. These are ideas based upon the observations I posted last time. I'll just provide 5 for now, with the next 6 to follow shortly.

1. The playing field for innovation has shifted. Winning the race requires not just innovating better and faster, but “innovating how we innovate” better and faster. As of today, there is no stated plan to win in the U.S.

2. Venture capital will nationalize and ultimately globalize. Other professional services – including legal, accounting, real estate, banking – have done this faster due to shorter customer feedback cycles. There is no inherent reason why venture capital is different in this respect from other professional services in the long run.

3. The next wave of innovation will be much more decentralized. Silicon Valley and Route 128 will have diminishing geographical influence, but they will maintain historical momentum and continue to capture a critical mass of capital and talent.

4. There will be no new successful Silicon Valley copycats in the United States anymore. There are too many regions competing using the same methods and striving for the same results. Regions will get diminishing returns through additional efforts along the same lines.

5. Regional clustering will diminish in importance and efficacy. In the previous generation, regional clustering was the primary solution to bottlenecks in accessing resources to grow innovative businesses. Going forward, the costs of accessing these resources regardless of geography are falling dramatically.

Rohit Shukla 

Random Jottings.. or As the World Turns

I admire Victor's economy of words. Those that know me, however, also know that I am characterized by my verbosity. I have little to add to the first post ("In the beginning") except to say that what distinguishes us in the work we do is the recognition that there isn't a "secret sauce", a one-size-fits-all methodology and strategy in the development of an innovation system.

While much attention tends to be focused on the innovators themselves (and there is a huge amount of attention paid to the special qualities of an "innovator"), we also consider the role of governments in seeding research and providing incentives for the creation and deployment of innovative products and services, the role of larger companies (which have increasingly outsourced innovation to more nimble and even mono-focused individual companies) and strategic partners, who provide much-needed visibility and penetration of other markets so that innovations see the light of day. There is no certain way one uses these players in building an innovation system. Increasingly, the most innovative regions plug the gaps they have by "leapfrogging": mining the global landscape for missing ingredients.

Critical mass is not a sufficient indicator of success anymore, which is why established regions like Silicon Valley cannot rest on their laurels, but must consistently keep track of innovations occurring far afield. We were able to count on the special magic of certain places in the landscape of innovation that possessed a killer combination of talent, capital and the swirl of ideas bolstered by a robust research regime. That magic does not have to be replicated in its entirety to ensure a place in the firmament. One or two little things can become widely disruptive to the existing order, enabled by relentlessly eroding telecommunications costs, the speed of communications, the relative ease of adoption and adaptation of ideas and accidents of geography and history.

A case study in the creation of an innovation system in the making is tiny Estonia, which has catapulted its way to stardom in software services through a savvy combination of geographic location (access to markets which provide talent and business), tax policy (the development of a much-simplified, flat tax structure, the brainchild of a historian turned finance minister) and a strong tradition of scientific and technical learning.

Victor’s 8 Observations on Innovation

The holidays have given me time to do what I have been wanting to do for a long time: put down my core observations and philosophies about innovation today. This is not just armchair philosophizing; this is based on what I see in the work we're doing. It is the "body contact" element of what we do, as Rohit calls it.

Today, I give you Victor's 8 top Observations on Innovation. I'll follow-up soon with the ideas that follow from these Axioms.

1. All bottlenecks in innovation are ultimately people-to-people.

2. High-quality scientific research with commercial potential is not limited to Silicon Valley and Boston, nor is it limited to the United States.

3. Businesses succeed when better resources can be found and used in cheaper ways than before. Those resources include scientific research and human talent.

4. With the marginal cost of telecommunications essentially zero and the cost of travel continuing to fall, previous bottlenecks in people-to-people connections are fading.

5. Basic research and technology commercialization face the same conundrum (although the former worse than the latter): the risks are usually too great to justify the rewards for individual actors, but not for society as a whole. Society mostly recognizes this problem in basic research, but not as much so in technology commercialization.

6. When the benefits of economic activity are dispersed across too many people, individuals are not sufficiently incentivized to act. Collective action through government investment, although not perfect, is often the most efficient solution.

7. The methods of regional technology-based economic development, as learned from the lessons of Silicon Valley et al, have already become widespread (and moderately successful) throughout the United States.

8. The world has learned the methods of technology-based economic development from the United States and is closing the gap faster than the United States can advance.

In the beginning

Thus begins the blog of the Larta Institute...

A little background. Over the past five years, we have led Larta in a successful spinout from the State of California, transforming it from a regional tech organization into one of the nation's leading innovation hubs. We now directly assist 200+ startups a year spinning out from the federal government (NIH, DOD, ATP) and 28 universities across the nation and the world.

Given our unique national perspective (combined with our background in regional technology), we think we have some interesting ideas to share. Here we present musings at the intersection of technology, venture capital, and public policy -- or, as Greg calls, where capitalism and socialism collide. Stay tuned.