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

10/14/08Follow @BillAulet

Last week, I was honored to give a keynote speech in Dublin, Ireland, at an international symposium marking the launch of the nation’s ambitious new R&D program in energy by its NSF equivalent, the Science Foundation of Ireland (SFI). The Symposium on Science and Engineering Underpinning Sustainable Energies and Energy-Efficiency was an excellent opportunity to reflect on what I think is one of the key elements to successful regional economic prosperity—the development of a vibrant innovation ecosystem.

With my colleague, Ken Morse (Managing Director of the MIT Entrepreneurship Center and an Xconomist), we have been involved first hand in the successful and unsuccessful development of over a dozen such ecosystems, and we have seen what has worked and what has not worked—with often-surprising results. Ireland provided an exciting clean slate platform to apply the framework for success and get feedback for refining the frameworks (based on the initial feedback, our ideas are clearly resonating). For if we are to succeed in optimal fashion in energy innovation, it is essential that we develop regional innovation clusters. Towards this end, we should make use of historical lessons to accelerate our success—and the good news in this regard is that there are some relatively simple leverage points that can be deployed which will have significant impact.

Like many Americans, especially in Boston, I have roots in Ireland. Distant as they are, Ireland has always held some magic for me. That magic was further catalyzed 19 years ago, when I visited with an American basketball team and we traveled that beautiful country playing games and then drinking Guinness from Cork to Galway to Dublin to Donegal to Belfast and a number of places in between. I don’t remember the scores of any of the games, but no one on our trip can forget the legendary memories we took back, which were later written up in a Sports Illustrated article that I keep framed on my wall at home. [Editor's note: that article was written by his teammate, backup shooting guard Bob "Danger" Buderi, founder of Xconomy.] The parade through Donegal with the mayor and the town’s children was one of the most priceless moments of our lives.

The people and the land exceeded the expectations we had—and yet all of this was in the context of an economic situation that we could not fathom at the time. There was little economic vitality, and we met a number of people who had been without work for over a decade and had little hope left on that front.

Last week, I returned to see the “Irish Economic Miracle” first hand. It is truly amazing and a shining inspiration for others throughout the world. I know, because I have been asked about it in places such as the United Arab Emirates, Denmark, Pakistan, Sweden, and Saudi Arabia. Leaders in those countries thirst to have a similar scenario in their lands and want to know how Ireland was so successful.

Well, now the question I posed at the aforementioned speech in Ireland is, “How do you keep it up and keep the economic renaissance moving forward as the global economy undergoes a metamorphosis of galactic proportions?”

The answer, and it doesn’t just hold true for Ireland, is energy innovation. There is no bigger challenge than to help transform our energy position—no bigger responsibility and no bigger opportunity.

So what I offer now is my perspective, based on our deep experience, on how regions can seize this opportunity, and more specifically how organizations like Science Foundation of Ireland can become leaders and full participants in the transformation of the world’s largest industry.

First, by providing leading-edge science, engineering, and mathematics research, SFI and other similar government agencies will help to produce the innovation needed, thereby putting their nations front and center as a role model for others.

But to understand how to most effectively achieve this, I believe it is essential to take a systems view to provide a broader context for the role of research and invention—hopefully in order to alter the traditional mindset so organizations such as SFI can be more effective going forward.

For example, using SFI as our test case, I would like to start with the first line of the organization’s objectives: “Science Foundation Ireland supports science, engineering and mathematics research with consequences in Ireland.” I will focus on three key words in this statement “research with consequences.” Trying to connect with my distant Irish roots, I could not help but have this translated to Gaelic—”taighde le torthai”—which means “research bearing fruits.”

It is these fruits that I will focus on, because to the degree that SFI can ensure that the research breakthroughs developed in Ireland are put to effective use, the organization will gain relevance.

So it is “torthai,” or consequences, that we seek. That being the case, a closer definition of consequences is merited.

At MIT, we love equations. They are simple and crystal clear. So, in that vein, let me take a minute to drill down on what consequences really are and how they relate to the research done at SFI.

Consequences are what we refer to as innovation. Innovation is something that generates value. For example, innovation helps companies make more money; it can materially reduce greenhouse gases; and it can materially enhance energy security for countries through greater independence.

As Ed Roberts, a professor at MIT’s Sloan School of Management and chair of the MIT Entrepreneurship Center, so aptly described it in a simple equation: “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, and/or worked closely with well over a dozen regions to understand what works and what does not work—and in some cases to help them start to build a strong, sustainable ecosystem to bridge this gap. Each region has its own cultural flavor, so one shoe does not fit all. But there are some underlying truisms—and some surprising findings—that can be very beneficial and actionable.

Specifically, I have come to look at innovation ecosystems as having seven key elements or pods (see the Innovation Ecosystem diagram below right).

Innovation ecosystem

Each pod is necessary, important, and deserving of attention—but to be clear, none are sufficient on their own. In fact, too much focus on or investment in certain elements when the overall system is not ready can do damage to the development of a sustainable ecosystem. Likewise, each element can be a constraint on the overall ecosystem’s development. In short, the success of any action depends on the current status of the environment.

Still, those caveats aside, what I have found fascinating is that our research does point to some elements of this system as having more leverage than others. Time after time, in fact, two specific elements have emerged as the points where change can be most effectively implemented. They are also the best indicators of a vibrant and sustainable innovation ecosystem—and their crucial role was not obvious at all when we started.

The first is culture. This was the number one determinant of a successful ecosystem, and the number one leverage point. A successful innovation culture can generally be identified by the answers to the following questions: Is the entrepreneurial spirit celebrated? Are there visible role models who are the proverbial “rock stars?” Are they the extreme exception or not? Are entrepreneurs held in high esteem for taking a chance and making a difference? Is failure understood to be part of the learning process in business, as it is in experimental science? Are there serial entrepreneurs? What is their level of ambition? Do young people aspire to be global entrepreneurs? Or are young people encouraged to get “safe” or “prestigious” jobs in large companies or government?

Needless to say, a culture that celebrates entrepreneurship generates an environment where startup businesses can thrive and the pipeline for future entrepreneurs tends to build.

The next most important (and it’s not unconnected) element after culture relates to the entrepreneurs themselves and, more specifically, their skills and network. The key here is their ability to build new companies, often by expanding their network of contacts and seeking advice from others. Entrepreneurs must seek to utilize their networks not only for business contacts but for knowledge. However, networking is not enough. A willing and connected army of entrepreneurs is a great start, but entrepreneurs must also be armed with the proper weapons to allow them to build their skill sets as much as possible in a practical way. Fortunately, those weapons, which include knowledge and experience of entrepreneurship, can be taught.

You might now ask, “Can you influence and affect culture and build entrepreneurial skills?” And the answer is yes and no. You cannot change the people (most likely older) who are set in their ways—so the best approach is not to try to change everyone, but rather to be more focused in your change-management efforts. If you target appropriately, you can win over a beachhead core group who will ultimate change the culture in pockets of their region. These initial beachheads of success, if handled properly, can quickly have an effect on the broader culture and their influence will accelerate over time. You must start by targeting the most ambitious, the most internationally well read/exposed, the most creative, and usually the youngest candidates—and then, after achieving a level of success with this group, you can expand to a wider audience with credibility and experienced and strong advocates.

To get things going you start with a select group of entrepreneurs and you feed them, you celebrate them, and you give them visibility with focused events, workshops, and competitions. And when done properly, this celebration of entrepreneurship will suddenly become contagious and start to grow on its own. We have developed programs at MIT and elsewhere to do just this, including holding American Idol-like entrepreneurial contests in various regions—but with much kinder, gentler, and more supportive judges—and coupling them to educational programs.

This was the thought process behind the design of the MIT ecosystem which includes the Energy Ventures course at MIT as well as the $200K MIT Clean Energy Competition. The class offers entrepreneurship training specific to energy to a select advanced group of students, and the competition offers a big carrot—the money, bright lights, and a big stage—which allows the students to put their new-found skills to work immediately. Their complementary nature is creating effective synergies. There are other extremely valuable forums for recognition, networking, and celebration as well, and it is important to support them to prime the pump.

At MIT we have a large, established platform and an opportunity for big formal events like the Clean Energy Competition, but in other regions, it is critical to employ a model that is more resource and culture appropriate. This has been done by coupling smaller networking and celebration events with educational programs so that participants receive the proper practical mentorship in entrepreneurial fundamentals. These educational programs include two-day workshops that are held monthly over a six- to nine-month time frame, with plenty of mentoring between workshops. Included in this training is a trip to other centers of innovation, so that participants widen their perspective and make new contacts. As they are trained and succeed, they become the next generation of mentors, and the process becomes customized and self-sustaining.

There are several other leverage points that can and should be addressed, but these two have consistently proven to be the most important—and all other efforts will gain from improving these two elements.

As mentioned before, it is also very important that the ecosystem be connected to other leading and relevant ecosystems worldwide. According to Metcalfe’s law, the value of the network is exponentially related to the number of quality nodes on the network—so all parties will benefit from more and better connections.

As I was reading Thomas Friedman’s outstanding new book (Hot, Flat and Crowded) on the energy challenge we face and how best to address it, one part jumped out at me. That was when Friedman described his own favorite renewable fuel not as solar, geothermal, or wind, but as “an ecosystem for innovation.” He wrote that, “I want 10,000 different people trying 10,000 different things in 10,000 different garages.”

I could not agree with him more. The greatest renewable energy source we have here is innovation. That comes from entrepreneurial people coupled with great inventors—and it can be greatly facilitated by an intelligently designed ecosystem. For energy, the specific challenges are huge and in many ways different than they are for other areas, but the high-level process to accelerate innovation is the same.

So, although the Irish have a love of words, I will use only three words to summarize how to foster the successful innovation ecosystems that we need so much in energy: educate, network, and celebrate. That’s easy enough to remember, isn’t it? No equations, amazing.

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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