How to Build a Successful Innovation Ecosystem: Educate, Network, and Celebrate

10/14/08Follow @BillAulet

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“innovation = invention + commercialization.” A product idea, technology, software algorithm, patent, new business mode idea, or similar invention is not innovation until it is successfully married to a commercialization capability so that it has a positive and material real-world impact. To complete our equation circle, I should explicitly state that “successful research results = invention”—although invention can encompass much more than simply research breakthroughs.

An example today that all of us are familiar with is Apple. The company is recognized as an innovation leader worldwide for products like the Macintosh computer and the iPod. However, when you think more closely about this with the model of the equation, it is clear that some of the underlying inventions, the Graphical User Interface from Xerox PARC and MP3 from Franhouffer Institute, had been around for a while before Apple came along. But they were merely inventions, and not material innovations, until they were effectively commercialized by Steve Jobs & Co.

For governments, universities, and research labs to be successful in supporting research with consequences—or innovation—they will need to find partners who will help on the commercializing capability dimension.

This is a first key point. But it raises the question of how to find these partners, and how to successfully collaborate with them.

At MIT, we have one of the most prolific innovation factories the world has ever seen.
According to a 1997 Bank of Boston study—for which the numbers are now dramatically understated, according to our more current research—MIT alumni had already by that time started over 4,000 companies which directly employed well over 1 million people and generated almost a quarter of a trillion dollars in annual revenues. To put that in perspective, if this output represented a national economy, it would have been the 24th largest economy in the world, just ahead of Thailand and just behind South Africa.

How is it possible that an institution with only 1,500 faculty, and which occupies just a few square miles, can have such output? What gives it such leverage?

You might think that the answer is because there are so many Nobel Prize winners and other smart people inventing exciting things in the labs at MIT. Well, that certainly doesn’t hurt—and neither does having a commercialization office that is best of breed at licensing those inventions. But, as you will see, these do not come close to fully explaining the innovation phenomenon at MIT. As strong as this critical part of the overall gestalt of MIT may be, it accounts for the creation of only a few hundred companies, not the thousands we see. So there must be more—and indeed there is.

There are two fundamental additional reasons for MIT’s innovation prowess. First, the tone for innovation was in the school’s “DNA” from its inception, as seen in the MIT motto: “mens et manus.” This translates to “mind and hands,” implying that the emphasis on putting ideas into practice that would have real-world effect has been there from the beginning. And this tone at the top has never wavered.

The second factor is how these values are “operationalized” in a sustainable and decentralized manner through the powerful ecosystem that has built up around MIT.

These two factors, combined with the great science and engineering talent and licensing office, are what has truly set MIT apart and enabled the school to become a font of innovation.

To better understand this ecosystem at a more macro level, we can look at the U.S. economy as a whole. It is clear that innovation is the engine driving our nation’s growth (or what is left of our growth after the current financial debacle). This engine has the entrepreneur as the piston and the intelligent funding network as the fuel. Entrepreneurs are the people who have inventions themselves, or who are scouring the landscape for good inventions which they can create a company around. They generally possess maniacal focus and drive and a willingness to take risk; they move very quickly (after all, “better to fail quickly then to succeed too slowly”), and they are motivated by limitless personal and financial upsides.

In America, entrepreneurs are complemented by a sophisticated network of funding and mentoring sources—best represented by venture capitalists and angel investors—who can provide important complementary assets to help make the entrepreneur successful.

The impact of new entrepreneurial ventures is profound. These innovation-based companies are able to compete more than just regionally, and can often attain success on a global stage. In doing so, they have a high leverage effect on their regional economy and local and overall job creation. And the average export impact of these companies is three times that of established companies, meaning they have much more growth potential and are less cyclically tied to the regional economy.

At the heart of many of these innovation-based companies is breakthrough research or some derivative thereof. Even if this is not true for the majority, the impact and the visibility of the companies for which it does hold is significant and encourages others. This enhances the prestige and appreciation for research—and this, coupled with increased regional prosperity, generates more funding for the institutions that support it.

While this is the desired outcome, it is important to understand that this is anything but a smooth process that is predestined for success as soon as some new technology works in the lab. The lab success is really only the beginning of a perilous and long journey—specifically Stage 1 in the Life Cycle of a New Venture diagram below. The good news is that this is the highest-risk stage. The bad news is that the later stages will cost a lot more money.

Life Cycle of a New Venture

In Stage 2 and Stage 3, the risk is still very high—and new and different, but complementary, skill sets are often needed. Most of the strong entrepreneurial business leaders and early-stage investors who are needed to make a venture successful have less risky and more attractive options to pursue. In fact, Stage 2 and Stage 3 are often referred to as the “valley of death,” as the inventor often cannot find the appropriate human and financial resources to help him or her progress the invention through the venture creation or commercialization life cycle. Many inventions die here and never have any real-world consequences. It’s therefore critical to have a strong entrepreneur partner who through skill, determination, and contacts will carry the enterprise through this difficult passage.

Now let’s look at how this applies to developing regional ecosystems.

At the MIT Entrepreneurship Center, as previously mentioned, we have studied, assessed, … Next Page »

Bill Aulet is the managing director of the Martin Trust Center for MIT Entrepreneurship and a senior lecturer at the MIT Sloan School of Management. He is also the author of “Disciplined Entrepreneurship: 24 Steps to a Successful Startup”, published by Wiley, which was released in August 2013. Follow @BillAulet

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  • http://www.dakinmanagement.com Angelo

    Bill,
    I enjoyed the article. I would add though that it also takes success, especially economic success to sustain an innovation culture. There are many universities around the world that produce great science; however, the mechanism for bringing innovations to market does not exist. I believe that this is largely because there is no economic advantage or incentive for doing so. At MIT the tech transfer office plays a big role in spinning out and licensing innovations for the profit of both the school and the founders.

    What has drawn innovators and entrepreneurs to the US in the past was the prospect of “living the dream”; aka having a big payday.

    Celebrating the creation and capture of value is critical in developing and sustaining an innovation culture. So as we slide down the slippery slope of Socialism how will we sustain the culture right at home so that others may live the dream?

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