Category Archives: Innovation

Born to Grow

I just finished reading an interesting report entitled “Born to Grow – How to Harness Europe’s most innovative entrepreneurs”

Nothing really new but a very good synthesis of recommendations and I emphasize in bold the ones I consider really critical:

Teach the values of innovation and entrepreneurship in our schools

Celebrate successful entrepreneurs – in prizes and the media

Break the barrier between business and technical universities

Organise researchers to work across scientific disciplines

Train young researchers and managers for global growth – and flexibility

Adopt policies to encourage innovation clusters around universities

Create “free innovation zones” to speed growth in selected clusters

Support the role of large companies in cluster-development

Give priority to creating “lead markets” for innovation

Free information flows – with online portals, benchmarking and patents

Target tax incentives and other financing aids to growth companies

Even better are the features of a high-growth entrepreneur (page 11):

Originality. The greatest entrepreneurs have a better idea: a novel product, service or process that fills a need.

Adventurousness. In the generally risk-averse culture of Europe, it’s rare to find an entrepreneur with the will to quit a cushy job and gamble the future on an idea.

Dedication. Rigor and determination are hotwired into the best entrepreneurs – and that comes naturally to many scientists and engineers.

Ambition. International business success comes easier if the entrepreneur’s plan is global from the
start.

Humility. Perhaps the rarest, but most important, trait in a high-growth entrepreneur is the ability to recognise one’s personal limitations – and seek help from others, rather than try to
run the whole show.

In the nurture of a high-growth entrepreneur:

A thriving ecosystem. Businesses don’t grow in vacuums; they need networks of suppliers, researchers and customers.

Financial backing. It takes money for a start-up to grow from minnow to whale; and deeppocketed, deeply engaged investors are critically important.

A big, open market. A company needs plenty of room for manoeuvre – and some of the brightest entrepreneurial stars have profited when old, regulated markets started to open up.

Big brothers. For many start-ups, it helps to grow in the shelter of big corporations that create their
own ecosystems. Examples: Risto Siilasmaa, whose F-Secure antivirus company thrived in the 3,500-company world created around mobilephone giant Nokia; and Peter Bang and Jesper Balser, whose Danish business-process software firm Navision grew up in Microsoft’s programming environment – and was later bought by it.

US and UK Biotech: Growth and Form

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Another interesting illustration about the differences between America and Europe: growth in the US and UK biotech. The full account can be found in Nature Biotechnology and my friend Andre mentioned the blog Corante where he read about it.

The conclusion of this blogger is:

“What I found interesting about the editorial, though, wasn’t these conclusions per se – after all, as the piece goes on to say, they aren’t really a surprise […] No, the surprise was the recommendation at the end: while the government agency that ran this study is suggesting tax changes, entrepreneur training, various investment initiatives, and so on, the Nature Biotechnology writers ask whether it might not be simpler just to send promising UK ideas to America.

Do the science in Great Britain, they say, and spin off your discovery in the US, where they know how to fund these things. You’ll benefit patients faster, for sure. They’re probably right about that, although it’s not something that the UK government is going to endorse. (After all, that means that the resulting jobs will be created in the US, too). But that illustrates something I’ve said here before, about how far ahead the VC and start-up infrastructure is here in America. There’s no other place in the world that does a better job of funding wild ideas and giving them a chance to succeed in the market.”

Is Silicon Valley in trouble?

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A scary video interview about Silicon Valley and I can not fully disagree: the IT industry is maturing so innnovation may be less relevant than it has been.The VC industry is in trouble though it will not admit it. Risk taking is disappearing. “Engineers are gun shy of start-ups”. What a terrible message.

Of course, there is hope: this is not new… Silicon Valley Fever is a 1984 book which already described the troubles start-ups and engineers could experience. People always claimed there were too few deals for too much money.

Whatever, enjoy and comment if you wish…

PS: thanks to Andre M. for drawing this video to my attention!

Innovation in Europe

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I just read two reports about innovation. The one in French is very deep (see my post on the French part of the blog). The one in English is also full of interesting lessons and learning. “What is the right strategy for more innovation in Europe? Drivers and challenges for innovation performance at the sector level” was published last June by the Austrian Institute of Economic Research. (Direct link to pdf file)

The authors try to differentiate innovation with sectors and geography (economic advancement.) For example “The data show that firms in economically less advanced member states are less likely to be innovators than firms in countries with more developed economies such as Germany or Sweden, and if they are innovators they are more likely to be technology users.” and “It has also proposed a new classification of industries that is based on the characteristics of entrepreneurship and a broad concept of innovation that transcends the conventional R&D-based classifications.”

I like some of the conclusions such as “Knowledge acquisition from external sources is of particular importance in sectors with large shares of technology users, whereas R&D activities are important in sectors where firms that are technology producers prevail. […] For firms based in countries that are at a distance from the world technological frontier, technology transfer and non-R&D related innovation activities are extremely important to promote innovation. […] On the other hand, for firms located in countries on or close to the technological frontier, intensive innovation activity is a driver of competitiveness. In order to maintain a competitive edge firms need to invest in R&D, acquire and adapt new technologies.

Of course all this is not obvious and may be counterintuitive. Look at Cisco in the USA, which does A&D more than R&D (they acquire start-ups and then develop). Is Cisco at the Frontier or not?

In terms of national policies, an interesting lesson: “The results show that the impact and the magnitude of these factors vary greatly across industries and countries. In fact, most variables can have either a positive or a negative influence depending on the sector. For the energy sector, the ICT industries and the aerospace industry public R&D subsidies have a positive effect, whereas R&D spending by the government seems to crowd out R&D investment in the textile, chemical and ICT industries.” I see a slight contradiction here but…

Then the authors address the issue of human capital: “Engineering and science skills contribute directly to international competitiveness” and “the returns to higher education will be higher for countries farther away from the technological frontier due to the greater importance of technology transfer and absorptive capacities […] On the other hand, in countries that are on or close to the technological frontier accumulated knowledge and experience are a precondition for sustained innovation performance and growth.”

On the competition side, they explain: “Competition is based on the interplay between the creation of novelty and imitation, i.e. between exploration and exploitation of opportunity. […] Firms that compete mostly with less advanced firms, have an incentive to reduce their risky R&D investments, as they are easily able to keep a competitive advantage over their rivals without incurring the cost of R&D investments. On the other hand, if they compete with firms with similar technological capabilities, they have an incentive to invest more in R&D, as this is a means to explore new opportunities and market niches and therefore set themselves apart from their competitors.

About the gazelles, the fast growing companies: “… a count reveals a significantly higher number of gazelles in the new member states of the European Union than in other EU countries. […] Statistical analyses show that in the more advanced economies of the European Union (continental and northern countries) fast growing firms are mostly of the creative entrepreneurship type and they also have a significantly larger share of turnover from product innovations. For gazelles in the southern European countries and the new member states innovation is much less important.”

Among the challenges for Europe, here are some scary elements:

– There is the danger that firms will increasingly relocate their research activities to countries where conditions concerning human resources and scientific infrastructure are better.

– For technology intensive sectors the problem is that they are not able to hire enough top level science and engineering graduates or attract the best-qualified engineers, scientists and specialists from abroad to their industry. These problems are particularly severe for new and fast growing firms that cannot rely on a long-standing reputation to attract people with top level qualifications and skills.

– For firms carrying out high-risk research, for young and small start-up firms and for firms facing extraordinary growth opportunities the lack of financial resources constitutes a serious problem. New financial instruments tailored to the needs of emerging firms remain underdeveloped in most EU countries.

The Trouble With…

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I just finished reading The Trouble With Physics by Lee Smolin. It is a GREAT book. Now what has this to do with innovation and start-ups? Well I see a link: In my book I refer to Thomas Kuhn, the author of the “structure of scientific revolutions”. Indeed Innovation and Research have similarities in the way they progress. The specific topic he focuses on is the lack of progress in physics. Don’t we have a similar issue with innovation? I also quoted Pitch Johnson, one of the grandfathers of venture capital who wrote: “Democracy works best when there is this kind of turbulence in the society, when those not well-off have a chance to climb the economic ladder by using brains, energy and skills to create new markets or serve existing markets better then their old competitors.”

Smolin considers Science needs two ingredients: ethics and imagination. If the established science and scientists prevent the emergence of young people and new ideas, there might be a crisis. It is what he analyses brilliantly in his book. (By the way, his book tells much more, it is a really great book). When Silicon Valley people such as Joe Costello and Richard Newton claimed that Silicon Valley needs to take more risks and that greed is more important than ethics, I see similarities…

Inside Steve’s Brain

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The book by Leander Kahney is interesting as it shows how Steve Jobs is unique in the high-tech world. Let me just mention a single example: “But unlike a lot of people in product marketing those days who would go out and do customer testing, asking people what they wanted, Steve didn’t believe in that. He said ‘How can I possibly ask someone what a graphics-based computer ought to be when they have no idea what a graphics-based computer is? No one has ever seen one before’.” …and… “Like Henry Ford once said: ‘If I’d asked my customers what they wanted, they’d have said a faster horse’. ” (pages 63-64).

If you like this, you’ll enjoy the book. Thanks to Jacques for recommending it.

About the origins of innovations

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An interesting article about the origins of innovations was recently published. It looks at the R&D 100 Awards as a way to analyze where innovations come from. There is an interesting analysis about the evolution of economy in general such as:

– Changes in the Place of Scientific Knowledge:

– the old distinction between “basic science” and “applied science” is becoming obsolete,

– a high degree of consensus that successful technological innovation now requires the assembly and management of multidisciplinary teams,

– IBM, Xerox and others may have been the locus of great innovations, but these firms sometimes failed to exploit radical innovations.

– Dramatic shifts in oligopoly capitalism due to new challenges:

– mounting competition from foreign firms,

– shifts in government regulatory policies,

– impact of computerization,

– shifts in consumer taste away from standardized products,

– shifts within the financial markets.

– The 80’s efforts to:

– increase the commercial impact of research such as the Bay Dohle Act,

– finance precompetitive R&D (SBIR),

– provide technical support to business firms,

– support consortia (SEMATECH).

As a result, there has been a shift in the origins of major innovations as illustrated below.

I would have thought that the shift was in favour of universities and start-ups. The study shows that interdisciplinary collaborations as well as the Federal Laboratories have become the major source of innovations. “Research efforts that involve cooperation between two or more different organizations similarly weaken this hierarchical constraint on thinking outside the box.”

The end of the article is a discussion of the reasons why Fortune 500 companies have been less effective at innovating. Factors seem to be:

– big corporations facing relentless pressures from the financial markets have been forced to cut back on expenditures that do not immediately strengthen the bottom line,

– the rise of computers and the Internet, have made it much easier for small firms to enter markets previously dominated by large firms,

– a change in the employment preferences of scientists and engineers… “it seems quite possible that many talented scientists and engineers have voted with their feet and have left work in corporate labs in favor of work at government labs, university labs, or smaller firms,”

And the authors are quite convinced the USA has returned to “Edison’s model, i.e. successful research organizations, public or private, developing a highly productive mix of internal and external projects.”

As a conclusion, “In the United States, there is no central plan for innovation, and different federal agencies engage in support for new technologies often in direct competition with other agencies. The federal government has created a decentralized network of publicly funded laboratories where technologists will have incentives to work with private firms and find ways to turn their discoveries into commercial products.” There is thus a combination of decentralized networks and targeted federal programs, similar to the venture capital model where many ideas will fail but a small number will succeed. “The enormous gains from the small percentage of winners are more than enough to cover the losses from the others.”

Europe and Silicon Valley

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Clearly the topic is hot. Two recent articles address the issue of helping Europe in its efforts. One is in English and was published by the Science-Business Innovation Board. The full text follows. Even if I have some doubts, I agree overall. The other one is in French, was published in Le Monde and can be found on the French version of my blog.

What is interesting is these are both letters signed by credible people. Worth reading.

Europe needs to focus.

Too many initiatives in the European Union are blunted by lack of clarity – trying to please too many constituencies at once, and in the end pleasing none. Now the EU is about to embark on another policy initiative where clarity and focus are needed. This letter, based on our collective experience in academia, industry and policy, is a plea for single-minded efficiency.

The issue is “cluster” policy – in short: How do you make a Silicon Valley in Europe? After several months of study, the European Commission is due to issue its first formal answer to that question, with a policy statement recommending action to the EU members.

There’s no dispute that clusters of dynamic companies around top-rated universities are vital to economic success. Cambridge, Oxford, Münich, Grenoble, Leuven and Stockholm are all vibrant zones for scientific discovery, technological innovation, and jobs. But large, they are not. Just one US research institution, the University of California–San Francisco in the Silicon Valley cluster, has spawned publicly traded companies with a combined market value of $90 billion – three times the value of Europe’s entire bio sector. China has concentrated resources and tax breaks on three mega-hubs for technology development. Whether by market rule or government fiat, these are clusters big, bold, and concentrated.

By contrast, Europe’s approach is small, timid and diffuse. The EU counts some 2,000 clusters, 70 different national cluster policies, and hundreds of regional programmes. Now it has the opportunity for change. Between 2007 and 2013 the European Union has budgeted €308 billion for structural funds, a type of regional-development “catch-up” funding that can be applied to knowledge networks as easily as to road networks. The EU’s upcoming cluster policy statement, led by Vice President Günter Verheugen, could direct that spending wisely. We urge that it incorporate the following principles:

A CHARTER FOR CLUSTERS

Build on existing strengths. Clusters cannot be planted on bare soil, wherever a politician feels like it. They can only be nurtured in places that have already demonstrated knowledge, skills and growth.
Focus resources. Don’t scatter the money far and wide. Pick just a few of the most promising regions and sectors for support, and provide an environment – family-friendly, multidisciplinary, well-paid – that will attract the brightest minds.
Be open. Encourage the best people, wherever in the world they may be, to work in Europe’s clusters. Promote open competition, among universities, companies and regions, for funding . Promote border-crossing – among people, ideas, scientific disciplines, and industries.
Benchmark, monitor and be transparent. Base funding and regulatory policy, not on the clash of political interests, but on empirical analysis of what’s working and on open competition.
Encourage risk-taking, cross-disciplinary work, bold innovation and experimentation

These are broad principles. One practical idea for implementation is to create Special Innovation Zones in Europe (SIZE).

We urge the EU to designate a few – and we mean just a few – existing clusters to benefit from a new legal status as special innovation zones. It would give them extra cash from that €308 billion structural-funding budget to invest in schools, infrastructure and cultural amenities that attract the world’s top knowledge workers (reversing the “brain drain”) and to stimulate university research, teaching and spin-out company formation. They would get special, temporary dispensation from rules that hamper free movement of people and ideas, such as immigration and labour policies that make it hard for small companies to hire or fire. They could tap seed funding, supported by the EU and managed by investment professionals. They could earn a new, low-tax status reserved for young, innovative companies, and access low-cost, high-quality office space and support services

How would the EU pick these centres of excellence? Through transparent, international, data-based competition, rather than through closed-door, regional politics. Create a council, dominated by non-EU experts on technology, development and education, that weighs competing applications from the regions based on their performance – in hard numbers, per euro spent, of significant inventions, publications, spin-outs, licenses, stock-market flotations, post-doctoral fellows and jobs, and soft analysis of governance, infrastructure, quality of life, and visionary planning. There are already models for this. The newly created European Research Council last year achieved a first: handing out €300 million in research grants based solely on the judgment of international experts. The “cull rate” was ferocious: 97% of applicants were rejected. But the winning 3% were, beyond any doubt, scientifically worthy of funding. If this no-nonsense, expert approach can work in the university sector – interbred and politicized as it is in many EU nations – it can surely work in regional policy.

Time is running out for Europe. The American capital markets, treacherous as they may be, are pouring vast sums into the nation’s technology centres. In South Korea, government investment of $11 billion in the Incheon Free Economic Zone has drawn $49 billion in foreign investment. At the same time, we are all confronted by the urgent problems of global warming and rising energy costs; solutions must be found through research, innovation and entrepreneurship. Unless Europe improves its capacity to innovate, it will miss these opportunities to lead and prosper.

Europe’s politicians cannot afford any longer the luxury of playing big spender to all regions great and small. They need to be bold, brave and selective. They can start with the Commission’s upcoming cluster policy statement.

Signed:

Esko Aho, President, Finnish innovation fund SITRA, and former Prime Minister, Finland

J. Frank Brown, Dean, INSEAD

Jean-Philippe Courtois, President, Microsoft International

Pat Cox, President, European Movement, and former President, European Parliament

Roch Doliveux, CEO and Chairman, UCB

Denis Payre, CEO, Kiala and Co-Founder, Business Objects

Philippe Pouletty, General Partner, Truffle Capital

Alfons Sauquet, Dean, ESADE Business School

Helmut M. Schühsler, Managing Partner, TVM Capital

Harriet Wallberg-Henriksson, President, Karolinska Institutet

Members of the Science|Business Innovation Board

EDA, an industry from Silicon Valley

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Penny Aycinena asked me to write a short article in EDA confidential, which summarizes my concerns and hopes about innovation and start-ups. It is published today (June 30, 2008).

Let me add more here:

The chapter of “Start-Up” which has been the least noticed is Chapter 6. It is one of my favourites though. It is about EDA, which stands for Electronic Design Automation. Today, no architect would design a complex building without software, nor would an automobile engineer. It is exactly the same with digital circuits.

Twenty five years ago, EDA was nearly non-existent. Forty years ago, chips were designed internally (and manually) at IBM, Motorola… and little by little, some new players emerged, tiny start-ups became big and an industry was born. It was more than $5B in revenues in 2007. The typical ebb and flow of start-up creation and acquisition went on for two decades. But since 2001, not much has happened: no IPO, small M&A deals and a few days ago, Cadence, the biggest EDA vendor, announced a hostile acquisition bid against Mentor, the number 3 player. Both companies were founded in the 80s.

EDA is a good illustration of what Silicon Valley is: a rich network of individuals, academics, entrepreneurs, investors. What is interesting about EDA is that its center is probably Berkeley (rather than Stanford or Sand Hill Road) as the picture below shows. Let me quote again two legends of the EDA field, two recipients of the Kaufman award, the Nobel Prize of EDA:

– “Risk taking in EDA is gone.” Joe Costello

– “If there is a single point I wish to make here today, it is that as a discipline, both in industry and in academia, we are just not taking enough risks today.” Richard Newton

It could be that the maturity of EDA and of Silicon Valley is not such a good sign.

Innovation: the driving force in business?

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The Ditchley Foundation is a strange thing for a non-British I assume. I attended in mid-May a workshop on Innovation where gentlemen (and not many women as it is common in technology) discussed about innovation in a beautiful18th century castle!

The discussions were relaxed, friendly but serious and passionate. The main lesson I learnt is that clearly innovation is still seen as a process for established institutions and not really as what start-ups do best. For those interested in a refreshing view on the topic, the synthesis produced by the chairman of Ditchley is of real interest and available online.