Monday, March 16, 2009

Destructive Creation

I was at the Bizcamp Dublin event just over a week ago. Inspiring stuff: scores of entrepreneurs, start ups and new companies saying 'feck the recession' and getting on with business. There's another one next week in Limerick: if you're in the area and your in business it should be worth your while attending.

I especially enjoyed talking to a lot of entrepreneurs because a lot of the day job in Amárach Research is spent researching clients' innovations, inventions and ideas. Including not a few entrepreneurs. We get to do a reality check on their ambitions by road-testing their concepts with consumers. Reporting on the ones that are successful is fun. Reporting on the ones that are unsuccessful is a tad more difficult. But the story is usually always the same: no matter how 'brilliant' the innovation if consumers aren't interested then it's dead in the water. They just don't get past the Inception stage in the graphic. One of the speakers at Bizcamp - Caelen King - made a similar point: don't over-invest in the concept or application until you've established there's a real market for it.

Some of the lessons from our experience and others involved in researching innovation are captured well by Chris Lawer who reminds innovators to ask the following questions:
  1. Do you know exactly who will be the likely target customer or target segment of your concept / product?

  2. Do you know the market size of the target buyer / segment?

  3. How will this market size change at the time of launch?

  4. Will the concept / project address known, quantified important unmet customer needs?

  5. Do you know what these unmet needs are without ambiguity?

  6. What improvement in satisfaction in needs will the project / concept achieve?

  7. Do you have the optimum number of features and functions on the platform matched to unmet needs?

  8. Have you defined a clear value proposition for the concept based on unmet needs?


And he didn't even mention patents ... But there is a bigger point here than just the obvious need to understand your potential customers better. It is that the current emphasis on innovation in Ireland - especially via the medium of an expensive expansion of 4th level education - may be seriously flawed. Take the recent announcement that UCD and TCD are creating a new joint enterprise development unit to capture knowledge and seek opportunities for ideas and inventions. To be achieved by "establishing a fourth level innovation academy to plan and ensure the quality of research across the two campuses, with a view to doubling the number of PhD students in science, engineering and technology to 1,000 per year". This in turn will apparently created 30,000 sustainable jobs over the next 10 years. A case of 'think of a number and raise it to the power of n' for the press release methinks. Still - I wish them well: I hope it is a precursor to a far more radical rationalisation of Ireland's wasteful and ineffective third level sector.

But I think it is worth exploring the assumptions behind this initiative in relation to innovation and its exploitation via commercialisation. There appear to be two key assumptions, namely:

1. The primary channel for government policy to stimulate innovations that can support economic development in Ireland is via the third/fourth level.

2. People with PhDs and post-doctoral experience in third/fourth level institutions are optimally equipped to support the commercialisation of their inventions/innovations.

I beg to differ on both counts. Firstly, we are seriously mistaken if we assume that invention and research (especially at the pure science end of the spectrum) is the best way to deliver innovation-led economic growth. It isn't. As I noted before, Ireland is more likely to gain from other people's inventions in other countries than from any inventions of our own. Amar Bhidé has done an excellent job of deconstructing this absurd 'only-invented-here' attitudes toward innovation that seems to grip governments in most developed countries. As he observes:

Techno-nationalists and techno-fetishists oversimplify innovation by equating it with discoveries announced in scientific journals and with patents for cutting-edge technologies developed in university or commercial research labs. Since they rarely distinguish between the different levels and kinds of know-how, they ignore the contributions of the other players—contributions that don’t generate publications or patents.

They oversimplify globalization as well—for example, by assuming that high-level ideas and know-how rarely if ever cross national borders and that only the final products made with it are traded. Actually, ideas and technologies move from country to country quite easily, but much final output, especially in the service sector, does not. The findings of science are available—for the price of learned books and journals—to any country that can use them. Advanced technology, by contrast, does have commercial value because it can be patented, but patent owners generally don’t charge higher fees to foreigners. In the early 1950s, what was then a tiny Japanese company called Sony was among the first licensors of Bell Labs’ transistor patent, for $50,000.

In a world where breakthroughs travel easily, their national origins are fundamentally unimportant.
Well worth reading the entire piece - including the accompanying discussions over at McKinsey's What Matters section on Innovation. It seems to me a lot of the current obsession with innovation via universities is to do more with the old idea of government picking winners. I'm inclined to agree with Will Wilkinson that government involvement in pure science research is inevitable and mostly desirable, but the further you get away from pure research then the less obvious is the case for involvement.

But even if somehow our expanded fourth level does deliver the goods in terms of inventions and scientific discoveries with commercial/patentable potential can they then exploit them? Hence my second concern about the current strategy: acquiring a PhD doesn't necessarily qualify you for entrepreneurship or equip you with the necessary commercial skills. Not at all in fact. As the Economist notes this week in an excellent supplement on Entrepreneurship, there are five myths about entrepreneurs that need exploding:
  1. Entrepreneurs are lone heroes: actually no - they all need an established network of advisors, mentors, friends and colleagues to succeed.
  2. Entrepreneurs are relatively young: again no - in the US there are twice as many businesses founded by over 50s as by under 25s (though there is some evidence of creativity following a 'hump-shape' distribution by age pdf).
  3. Entrepreneurs depend on venture capital: another myth - mostly it's a mix of loans from banks, relatives, and the occasional investment by a business angel.
  4. Entrepreneurs have to be inventors: a few are, but many more innovate around processes rather than products.
  5. Entrepreneurs must be in start up businesses: many do, of course, but many large businesses encourage their own subsidiaries and divisions to be entrepreneurial, with considerable success in some instances.
No mention there of the 'smart economy'. Though entrepreneurs do need smarts - as well as guts and, most especially in my experience, luck. The bottom line is that I expect most of the PhDs emerging from the 'innovation academy' will want to be, well, academics. There's nothing wrong with that per se - I'd personally like to see Irish academics rating higher globally in disciplines such as economics and others that I am interested in. I suspect several will in due course.

But I'm just not sold on the idea of their being the front line of developing a 'smart economy' - whatever that is. Especially when I have learned at first hand of two innovative Irish companies that have either had second round financing by Enterprise Ireland cancelled (the company was planning to hire software engineers), or first round financing put on hold both 'because the Department of Finance are pulling in budgets'.

Maybe a new fourth level centre on 'joined-up-thinking' might deliver real value come to think of it.

2 comments:

  1. I couldn't agree more. The fact is that about 1 to 2 % of innovations from research cross over into a product. The crossover more often takes place in another country. And the lead time to a product is 3 to 5 years, let alone the lead time to a cash flow positive company. Compare to this the stats for new product launch, 3 out of 11 lead to a successful launch, granted this does not mean the product is successful, but it is an immediate improvement on return as compared to research. Also it takes 18 months or so (average, our company is developing an IC so that takes a bit longer) to product launch. Personally I think that the SFI have more sway and more funding than is deserved, unless the real objective is the paradigm of attracting FDI with our slew of wonderfully educated PhDs who (as you rightly point out) are not typically entrepeneurs. In that case it is a foolish strategy as any other country could be only 10 years behind us on that front. No, take the money away from SFI, not EI who do a good job under difficult circumstances.

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  2. Interesting post.

    I was particularly struck by Chris Lawer's list of questions.

    While this is aimed at entrepreneurs, of course it doesn't end there. Over the years I've worked with numerous very well established technology companies who would have saved themselves a lot of time, effort and money if they just paused to really answer these questions.

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