Perils of innovation and why it may not be any more of a banker than ….. banking ……

You might be interested in a report - Stimulating Indigenous High Tech Manufacturing Industry - which I wrote back in 1983 for an Education, Innovation and Entrepeneurship Research Programme. It estimated that there were about 20-40 such firms employing 400-800 people. High tech was defined as covering microelectronics, biotech, materials and speciality chemicals, specialised mechanical products and software.

The report concluded that (despite hype at the time) a high tech sector did not exist and would not develop without major changes. It indicated a need to create a national policy on high tech; to streamline state support to high tech firms; to pursue strategies based in identified niches; to establish centres of excellence and better HE/industry interaction; to encourage proven entrepreneurs and senior managers to locate to Ireland uising tax breaks; to introduce tax incentives to encourage investment; and to improve the general infrastructure, environment and competitveness.

It just shows just how much (or how little) has changed over almost three decades. A scanned summary of the report is available at
http://www.planware.org/briansblog/resources/sihtmi%20report%20summary.pdf

Andy Xie effectively says innovate or watch the developed economies decline for many decades, based on a fairly convincing look at Japan. Being a smaller economy, Ireland can perform better than a large one as we all know. Given his point about information flow, it must be based around Ireland’s natural resources and a more thorough survey of these is now vital.

Electro-magnetism offers many more ways of searching the earth than heretofore. Given the rario of people to land, NIMBYism has to be outlawed. It all goes to land use and abuse. There is no way to avoid this crucial and neglected resource.

In citing the quotation from Richard Tol’s submission to the Innovation Taskforce, I want to support those who are saying that the kinds of inputs focused on R&D alone (eg. SFI, Entreprise Ireland, HEA, career breaks fo university staffs) need to be complemented by far greater emphasis on enbabling start-ups to become something else, eg sustainable businesses - some of which may be based on the kind of breakthroughs that some seem to expect from investment in R&D.

Starting up is only one phase of growing a business. Getting it beyond that phase to something else is what US venture capitalists have got considerable experience of success, as Michael H points out.

Fearghal O’Connor in Business&Finance (http://www.businessandfinance.ie/bf/2010/2/feb2010intsandfeats/knowledgeeconomy) points out that “These days the phrase “knowledge economy” is bandied about like a salve for all our ills. But are the challenges we face in building such a thing really understood by those who matter? Out in Dublin’s Park West business park one company defines the knowledge economy and all that it might or might not be for Ireland.”

He then goes on to report on the challenges facing InTune (http://www.intunenetworks.com/).
What support is there for what Intune’s Tom Fritzley terms the “Killing zone - that point where a company is out of the start-up phase but not yet into large revenues.”

The never-ending tendency of Irish policy makers and investors to seek tax breaks for property pre-empts resources (people, money) that might otherwise go to growing internationally-oriented traded businesses.

In so far as the Innovation Taskforce report addresses that issue, quickly (eg. a special Act?) and permanently, it may be useful. But that remains to be seen!

“Among the 10,530 venture-backed firm founders in the VentureOne data, 903 had worked for academic institutions, which account for 8.6% of the total. These 903 individuals founded or co-founded 704 venture-backed firms, and 35 of them founded more than one firm.”

“Ample anecdotal evidence suggests that professors usually retain their academic positions when they start firms; yet non-tenure track employees may have to quit if they choose to be entrepreneurs.”

With much of the funding separate from the general budgeting of the universities, this has the potential to make the FÁS support for the global travel industry and its space cadet program, look like Noddy’s playtime.

…and who would dare question the value of it?

The way I see it, you look at Xerox, you look at Digital Equipment Corporation, you look at any of them. It is one thing to invent the future. It is an entirely different matter to put ones invention into practical application. I think that is why the VC backed firms would incorporate such an input from sales and marketing. (See John Battelle’s book, Search for his discussion about Alta Vista search engine and DEC in its last days) There is one very funny story told about Steve Jobs on his return to Apple in the 90s. If you got into a lift with Steve Jobs, you always said you worked for engineering, not for marketing. Apparently, the story went around the Apple campus, a marketing employee had once gone into a lift with Steve Jobs with a job, and emerged again from the lift without one. BOH.

Amar Bhidé said in his book The Venturesome Economy, that the US venture capital-backed businesses he studied, use different people and procedures than the typical lab doing high-level research: they employ a much smaller proportion of PhDs in their technical staff, and their overall workforces contain a larger proportion of managers and sales and marketing staff - - people who are close to users.

UCC economist Dr Declan Jordan wrote in The Irish Times last year that: “A census of post-doctoral researchers that left Science Foundation Ireland-funded projects in 2007 found that 9 per cent went to work in science and engineering businesses. A further 10 per cent went to work in industry in other sectors. The most common destination, at 38 per cent, for these post-doctoral researchers was another post-doctoral position on a different research project.”

He added: “It is worrying, given the significant taxpayer investment, that there is so little movement of researchers from funded projects into business. The most effective method of knowledge transfer from universities to businesses is on two legs,” he added.

As for the control of public funds, Science Foundation Ireland itself wasted €400K on a dud computer system.

What R&D is can be very broad when there is public money to support it.

With much of the funding separate from the general budgeting of the universities, this has the potential to make the FÁS support for the global travel industry and its space cadet program, look like Noddy’s playtime.

…and who would dare question the value of it?

Certainly not the cheerleading university presidents nor the politicians who would be afraid to challenge them.

For example, guess what Fine Gael Enterprise Spokesman Leo Varadkar TD has had to say on this journey to an Irish Shangri-La?

-Refusual to have a serious debate about education at all levels

-Spending money on creating a population of PHD’s instead of creating a workforce that fixes the water and sewer system, drainage work, etc

-Getting distracted by some PHD nirvana and missing the real problem at the moment which is the lack of jobs for the masses.

-etc

Al

I find the points made by Colm McCarthy and yourself to be convincing.

On the other hand, I also see the huge transaction costs which start-ups, and indeed started-ups, face. I think there is huge room for improvement in these departments.

Having a robust legal system is quoted by all western economies as an advantage. That is is no longer enough. Robust legal forms for new businesses (in terms of product offerings and liability, in terms of intellectual property rights, in terms of employment law, in terms of liability to third parties, in terms of leases and licences of third party property, in terms of liability to consumers and third parties, in terms of funding mechanisms and attractive company ownership structures) also need to be instituted so that businesses and “innovators” will see Ireland as a good place to set up and start up.

I do find myself rolling my eyes at the “innovation” tag and cringe at the imagery of high-fiving, backslapping twits behind the use of “entrepreneurs”. However, there are certainly things that do encourage development and innovation and business people with hands on experience have a role in this debate even if they will inevitably come up with some stupid suggestions in the process.

BTW, what is the point in producing maths graduates if they end up working in banks? It strikes me that the entry level jobs and long-temr rewards for graduates with the skills the country wants are crucial. Educating them is not enough. I have an A in honours maths in my back pocket and a shag lot of good it is doing the economy. Why? As you pointed out MH, the social sciences pay better (financially and socially) so that is where I went.

I am not attempting to pick out poor old Con to vent my anger, and no personal attack intended Con, but about this: The principle of having academics rotate in and out of entrepreneurial activity is well established in institutions like Stanford, which Irish policy is, in significant part, attempting to emulate. No, no, no, no. The best reference article I have read in modern times, from anywhere in the world, was by former Taoiseach John Bruton, in the Irish Times March 3rd 2010, Thinking outside box can do State some service. From Bruton’s article:

Product and service design should be made academically respectable, and it should draw together engineering, sociology, psychology and many other disciplines. A new mindset is needed in our colleges. They have received very large sums of taxpayer funds through the Science Foundation and have used it to generate more PhDs.

Alan Kay has spoken, the Science Foundation grants in the United States weren’t working either. Students are not building anything anymore. They are only accepting the tools as offered to them by industry. That is not what the original Stanford was about. I think former Taoiseach John Bruton is coming at the problem, from a similar way to that of Alan Kay. I have studied innovation culture and systems more widely and deeply than probably anyone else in Ireland. With roughly a decade of education clocked up in a central hub of innovative culture in Ireland, the college of architecture and urban planning at Bolton Street DIT. BOH.

http://www.irishtimes.com/newspaper/opinion/2010/0303/1224265498576.html

Forget the Stanford model. Forget it. It has caved into the vendors, and become a vocational education, according to Alan Kay’s criticism. Kay has been around the block a few times, and worked in practically every centre for excellence for innovation, one can imagine, since the 1970s.

Recommending the Standford model of today, is like recommending Bertie Ahern to come and talk about the weed killing phenomenon that was the Celtic Tiger in Ireland.

Check out the talk, Croquet: A Collaboration Architecture featuring Alan Kay, one of the members of the Xerox Parc team who had almost unlimited resources at one stage in the 70s/80s and roughly 30% of the best brains available to them, to sit around and have a bean bag dicussion. (Fast forward past the ‘demo’ of Croquet, to the 26 minute onwards to listen to the informal discussion about ‘mighty’ Stanford, and how to go forward)

http://video.google.com/videoplay?docid=-3163738949450782327#

For a good history book, I would recommend, Dealers of Lightning: Xerox PARC and the Dawn of the Computer Age, by Michael A. Hiltzik. BOH.

There are of course some good points in the report but the main recommendation is that more than 200,000 net jobs could be created if the State becomes the main funder of annual spending of about €4bn.
There is no credible data to support this result and after 50 years, IDA Ireland will be supporting companies employing about 118,000 in Dec 2010.

When experience elsewhere suggests that pioneering firms gain traction from about seven years and 1 in 4 only survive by then, in 2020, we will have tens of thousands of new firms - - where the markets will be is anybody’s guess - - and maybe 25,000 researchers on the public payroll.

The average payroll of surviving companies in Silicon Valley is 60; in Europe less than 20.

The argument about the mass of existing Irish-based multinationals and the potential for linkages with start-ups is also wishful thinking as many of them have not control of their destinies. There is some potential but why exaggerate it?

The potential for waste of public money is massive.

Of course there are insiders in the universities who know the game but keep silent.

What happens also, is that every morsel of goods news is spun and few people question it. The tech journalists are among the cheerleaders.

BTW what has been the record of the indigenous tech sector over the past two decades and why has it been so bad despite the presence of so many multinationals?

Cognotec is the latest big hope of the 1990s to collapse or be sold off.

The principle of having academics rotate in and out of entrepreneurial activity is well established in institutions like Stanford, which Irish policy is, in significant part, attempting to emulate. It’s seen as making an important contribution to economic activity. I don’t know whether on not Richard’s proposal is a practical way to achieve this in Ireland, but at worst it’s a reasonable stab at a workable policy.

Why not make the same offer to others? One reason is that only a small minority of people in the wider labour force have the capabilities required to create the types of business that such a policy is designed to spawn. You put in place policies like this to generate businesses that fit the high-potential start-up mould, not to promote the creation of new retail businesses, construction companies or cookie-cutter professional services firms. Another is that it’s unlikely to be practical to insist on private sector employers taking an employee back after an extended break and perhaps an acrimonious parting.

It’s not as if there’s a lack of support for people from the private sector starting export-oriented businesses, anyway. A credible start-up fitting the high potential start-up mould will get quite a lot of assistance from the State whatever its origins.

The Big Idea: Funding Eureka! by Nathan Myhrvold

http://hbr.org/2010/03/the-big-idea-funding-eureka/ar/1

Have not read this one. But Ireland (pre [& hopefully post] the dangerous ideological fools), S. Korea, Singapore, The Marshall Plan, Finland, … & CHINA spring to mind. The ideological fools continuously denigrate the role of the state (and oft times states deserve it) but small open economies need pragmatic forms of state intervention - but in the broader interest - as distinct from elite sectional interests which we have around here right now.

http://www.amazon.com/Kicking-Away-Ladder-Development-Perspective/dp/1843310279

Not every call to action is a call to setting up a committee or a quango. Furthermore, the application of existing technological innovation within businesses could greatly enhance cost competitiveness, particularly for service industries which form a large part of our exports. By all means, Colm McCarthy should criticise those elements of the report with which he disagrees. However, I think it is a bit mean to dismiss the whole thing out of hand or to focus on malappropisms.

Q: If such a scheme would have positive impact and could be managed in a sensible manner, why not do it everywhere?

If you limit the downside risk like this for university staff why
1) not do it for all those paid - mainly - from public funds?
2) discrimate in favour of public sector paid staff only?
3) you do not suggest similar insurance to evceryone who sets up a new business regardless of sector?
4) this idea will promote the drive to succeed that is needed in any new venture?

How is this insurance different from the “moral hazard” often cited as the source of much short-term thinking/action in financial sectors, where Government bail-outs/guarantees are clearly seen as providing support for the reckless?

Try thinking like this,
http://www.tara.tcd.ie/bitstream/2262/29186/1/regulation%20article.pdf

Sounds godawful! There are obvious drawbacks but if energy costs increase, maybe valid for some cities? I recall we made some dough out of grass in Saudi?

Having read your submission, I have to ask how you would see your submission incorporated into the final document?

Al

So what is new?
Most government consultations are just that - consultation!
No guarantee that anybody will pay a blind bit of attention to what you submit - whether it be “observations” on a planning application or comments on draft policies or submissions that are not quite what those originating the consultation had in mind!

The key is to keep going. That is the only way to counteract the tendency for organisations (large and small, public and private) to say NO in the hope that you will go away!

You do need some measure of conviction for this kind of thing.

Any entrepreneur with a new product or process or service will recognise the truth of what is ascribed to Voltaire “God is on the side of the best shots, not the big battalions.”