Innovation and entrepreneurship have been a major part of my life. As a student at MIT, and later as a faculty member, I was constantly immersed in both. In 1982, I started a small software-systems development company with a $1,000 investment, entering an innovation and entrepreneurship vortex that carried me through the dot-com explosion. In 1999, Kenan Systems was purchased by Lucent Technologies, and I became an executive there, charged with advancing “Bell Labs innovation.” After leaving Lucent two years later, I formed Tiax, which acquired the assets, contracts, and staff of Arthur D. Little’s Technology and Innovation business, with its own legacy of helping commercialize innovations, from synthetic penicillin to advanced battery technologies.
Being part of such premier idea engines as MIT, Bell Labs, and Tiax has given me a rich perspective on the innovation landscape. What I see concerns me, because we are on the verge of losing a major source of growth. While many feel that innovation has slowed along with our economy, I perceive that the flow of new innovations has remained strong and unabated over the past few years. It’s the mechanisms for implementing them that have eroded. I call the problem the innovation backlog. Unquestionably, the solutions to many current problems, the treatments for many illnesses, and the pathways to new businesses have already been invented, but they are waiting on the sidelines.
The last few decades placed a huge premium on creativity while also providing the vast financial resources needed to fund it. Despite the dot-com bust, that creative momentum continues. Through my interactions with colleagues at research universities, hospitals, and industrial labs, I have concluded that innovations are being generated at unprecedented rates.
However, it’s not only innovation that matters-it’s the rate at which innovations are improved and brought to market. And this has declined precipitously since the bust. The result is a surplus of innovations, with vast numbers of potentially important advances being warehoused or shelved. This situation is alarming enough in itself, but even more worrisome is the fact that innovations don’t have an unlimited shelf life: they are perishable and risk becoming unusable when the people associated with them move on to other endeavors. Another reason for concern is that warehoused innovations remain untested and deprived of the iterative improvements so critical to their journey from inception to implementation.
We might have brought this problem on ourselves. In the 1980s and ’90s, well over a trillion dollars went into the creation of diverse new technologies in the United States. Toward the end of that period, demand for innovations far exceeded supply-a situation that stimulated more idea generation but also escalated expectations and prices to the point that valuations of small technology companies reached untenable levels. Many acquisitions or mergers that would have created promising synergies didn’t take place because of these valuation obstacles-or when they did, the price of acquisition was so high that the returns needed to justify the price were never obtained. We now seem to face just the opposite situation, with the supply of innovations greatly outpacing demand.
This scenario has national-even global-implications. If the innovation-to-implementation flow is out of sync, the consequences for our work force, our wages, and our standard of living are serious. Unless we act decisively, it could be very difficult and costly to restart and resynchronize the flow. Before we act, however, let’s consider the factors that led us to this point.
The Army of Ants
Right after World War II, the government and many leading companies invested heavily in research and development. The results were spectacular. Bell Labs, for example, developed the transistor, Unix, the laser, and information theory. University research, heavily funded by the government, likewise generated breakthroughs, from computers to revolutionary drugs.
But as early as 1970, the innovation flow encountered turbulence. The nation was grappling with stagflation, high unemployment, and stalled productivity, while facing stiff overseas competition, especially from Japan. These bleak circumstances led to the downsizing of most major corporations. But because of credible evidence that an R&D dollar was more productive in a small company than in a large one, interest grew in the entrepreneurial model: startups formed around core innovations and sharply focused on bringing those innovations to market. By the 1990s, after several spectacular successes, this model was attracting increasing supplies of venture capital and other funding.
The rapid spread of entrepreneurial R&D (actually, RD&D, for research, development, and delivery), coupled with downsizing, led to the disappearance of many corporate R&D labs. The ones that remained lost much of their scope. Meanwhile, the startups put their sweat equity and uninhibited creativity into developing and implementing innovation. Entrepreneurs like Bill Gates and Steve Jobs became our heroes and role models.
The analogy that comes to mind is of ants carrying one egg (one innovation) at a time-an insignificant individual feat perhaps, but one that collectively achieves a lot. Regrettably, the entrepreneurial approach to carrying innovations to market is now stalled, with many of the ants (small companies) dead; their partially implemented innovations usually died with them.