Start-Up: the book

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.

Too much organization harms Innovation

These are the title and subtitle of a brilliant paper (inFrench only) by Julien Tarby in the Nouvel Economiste dated June 5, 2008. His article echoes my worries about innovation in Europe. His analysis is really interesting. Among other examples, he quotes:

- Samuel Kortum et Josh Lerner: 1 euro invested in venture capital has a 10x return over 1 euro spent in the traditional R&D of companies

- Pascal Picq, a paleo-anthropologue, who develops the evolution theory applied to the enterprise: start-ups which adapt to survive are Darwinian. “Unfortunately the French education system remains Lamarckian, and considers that organizations improve in a development scheme (administration, big companies). It is the country of the planned projects (planes, trains) and not of disuptions. This culture of the norm does not tolerate variability, trial and error and it induces the development of the [existing] fields of excellence and not the creation of new fields.”

If you read French, and because it is free, you shoud run and download it!

They are not many, those who can talk about innovation as well as John Hennessy, President of Stanford University, start-up founder such as MIPS and Atheros, board member of Cisco and Google. He is also a world-renowned specialist in computer science.

In a recent column of the Stanford Magazine, “the DNA of Innovation”, he mentions the three ingredients that are central of a spirit of innovation:

- people, a diverse mix of talents and approaches

- an environment that promotes risk-taking and innovative thinking

- a university must be adept at transferring knowledge to organizations that have the ability to convert that knowledge into something with broader impact.

The full article is worth reading. I also scanned it in pdf format.

I am not the only one complaining about the weakness of Europe in terms of start-ups. Juha Ruohonen compared in his report VICTA (www.tekes.fi/julkaisut/victa.pdf) the situation of Finland and Israel and he reaches similar conclusions to mine: not enough growth companies, a lack of ambition, and too many lifestyle companies.

His comparison table is self-sufficient:

And his analysis of the reasons for problems are:

Finally his conclusions: There is a clear need in Finland:

• To create a viable high-growth ecosystem
• To multiply the number of VC capable growth companies
• To eliminate the waste of resources to lifestyle companies
• To provide a viable platform for fast international growth
• To increase the corporate involvement and the number of corporate spin-offs/-outs
• To better facilitate the transformation from research project into a fast growth start-up.

This can be achieved by:

• shifting focus from quantity into quality
• moving from project-based development to efficient long-term structures
• creating structures to enable success of commercial players
• attracting much more international talent into Finnish early-stage community.

My comment: you can replace Finland by Europe and the analysis is the same. Solutions are complex no doubt but I would add that betting on youth, on risk taking is essential (the “Stay Foolish, Stay Hungry” explained by Jobs, see the July 07 post) and that international exchange must also include discovering what exists abroad.

Far from my previous post about Perkins, Peter Drucker’s book Innovation and Entrepreneurship was a paradoxical reading. The first chapters were painful even if brilliant. I understood there that innovation is a process which will be successful if carefully planned and managed. Fortunately, chapter 9 completely changed my perception when the author dealt with knowledge-based innovation, which includes innovations based on science and technology. So let me summarize the main points of this chapter:

1- the characteristics of knowledge-based innovation:

a. the time span between the emergence of the technology and its application is long, 20 to 30 years,

b. it is a convergence of several knowledge and until all the needed ones are available, this innovation can not succeed,

2- the requirements:

a. a careful analysis of the required factors, i.e. the available knowledge and the missing ones,

b. a clear focus on the strategic position, i.e. you have to be right the first time or others will take your place,

c. learn and practice entrepreneurial management, because most tech. innovators lack management skills ,

3- the risks:

a. first, even after a careful analysis, knowledge-based innovation remain unpredictable and turbulent (see also Moore’s books about the chasm and the tornado), and this is linked to its characteristics above; this has two important implication:

i. time plays against innovators,

ii. survival rate is low,

b. there is a limited window where new ventures start, and when it closes, there is a general shakeout, where few survive; who survives is also unpredictable. The only chance of surviving is to have a strong management and resources,… and luck;

c. there is also a receptivity gamble. Even market research does not work with these innovations and the reason why an innovation is accepted or not is also unpredictable.

I have to admit this confirms an intuition I had since my VC years: you have to make a bet and then work hard. But there is no way, you can really plan the success of knowledge-based innovations.

The end of the book is quite good, in particular its conclusion: “The first priority in talking about public policies is to define what will not work: Planning is actually incompatible with an entrepreneurial society and economy. Innovation has to be decentralized, ad hoc, autonomous, specific. It had better start small, tentative, flexible. […] It is popular today [1983!], especially in Europe, to believe that a country can have “high-tech entrepreneurship” by itself. But it is a delusion. In fact a policy which promotes high-tech and high-tech alone will not even produce high tech. All it can come with is another expensive flop, another Concorde. […] The French are right, economic and political strength requires high tech but there must be an economy full of innovators with vision and entrepreneurial values, with access to venture capital, and full of economic vigour.”