Posted by: dstieglitz | July 30, 2010

INNOVATION + ENTREPRENEURSHIP = JOBS

    Most people think today’s most urgent challenge is to create millions of new jobs. But we face more threatening challenges: global warming, aging populations, pandemic disease, bankrupt governments, terrorism, and nuclear proliferation to name just a few. During this decade, we must face up to a slew of survival questions. For example: How can we

  • Expand without exhausting resources or intensifying global warming?
  • Provide enough food and clean water for 10 billion people?
  • Afford to deliver quality health care to an aging population?
  • Educate our children to thrive in an increasingly competitive world?
  • Build an efficient infrastructure that is safe from cyber attack? 

At first glance, these seem like social questions – and they are.  But look more closely and you’ll also see huge business opportunities that will generate new jobs. 

    Substantial wealth will accrue to those who apply innovation and entrepreneurship to these challenges. Leading an organization in new directions or starting a new venture is difficult in any recession; but this one is especially hard. Employment dropped more than in past recessions; consumer spending is recovering slowly; and the value of stock and real estate portfolios is way down. The key to surviving is to remember that this recession will eventually end. When recovery takes off, will you be more competitive or less? The successful companies will be those that invest in critical competencies, innovate new products, and deliver superior customer value. Redirect your organization’s creative energy toward these global challenges. 

    In past recessions, the U.S. lead the global recovery by developing new products and exporting them to the rest of the world. Our ability to innovate softened the impact of losing manufacturing jobs. But can we do it again? Will Yankee ingenuity be enough to save us? The numbers say the world is catching up in terms of innovation. For example, according to the U.S. Patent & Trademark Office, in 2009 for the first time the number of patent applications submitted by foreigners exceeded those submitted by Americans. Furthermore, the total number of patent applications fell for only the second time. Experts attribute the decline to three factors. First, the recession caused companies to slash R&D budgets to sustain profits. Second, the U.S. which once lead the world with generous R&D tax credits now ranks in the middle of OCED countries relative to favorable R&D tax provisions. And third, India and China are graduating more scientists and engineers than the U.S.; and new immigration policies since 9/11 push foreign students who attend American universities to return home after they graduate. 

    Government R&D also isn’t the prolific source of ideas it once was. The Internet grew from a military research project; the Global Positioning System (GPS) uses satellites put in orbit to guide missiles; and noise-cancellation headphones use technology that quieted submarines in the cold war. In these cases, technologies developed for the military resulted in products that spawned new companies and new jobs. Unfortunately, today’s Defense research focuses on tactical projects to satisfy needs in Iraq and Afghanistan; and NASA’s budget has been cut substantially. Hopefully, as Defense develops micro-gadgets for soldiers and sailors, those gadgets also can be the source of new products, new companies, and most importantly new jobs! That’s not to say that industry is off-the-hook. The consumer-electronics industry is fully capable of outspending the military in R&D and spreading costs over a large market (e.g., two billion mobile phones). Cutbacks in government and industry R&D may make sense in a recession, but in the long term they are economic suicide. 

    The financial crisis that caused the recession and the decline in patent applications (i.e., innovation) may seem like separate issues, but they are two symptoms of the same disease. In the years before the 2001 recession, the U.S. economy grew rapidly based on cheap computing power. But the dot-com bubble burst because too much capital was chasing too few opportunities. Soon the housing bubble replaced the dot-com bubble and fueled growth – but again, too much capital chased too few opportunities and the bubble burst. What might we have today if the trillions of dollars that were channeled into real estate derivatives were instead invested in new technologies, products, and business processes? 

    This recession has left a deep scar on working people. In previous recessions, there weren’t as many layoffs and the rebound came quickly. Largely because of President Obama’s rhetoric, most people blame the recession on big business. Ironically, that blame might be a good thing for the economy – it could encourage a wave of entrepreneurship. If a capital gains tax increase doesn’t smoother small business owners, innovation in new companies could be a major source of new jobs. Big companies also can recover by appealing to entrepreneurial employees. In the “new normal” economy, whatever that looks like, innovation and entrepreneurship will be more important than ever. 

    We need creative legislation to renew American competitiveness, but our political system at best seems only capable of incremental change. We need policies that spur innovation and incentives that entice people to launch new businesses, rather than extended unemployment and temporary highway jobs. More companies create more jobs; and new, fast-growing companies create the most jobs. During the dot-com era, the U.S. economy created nearly 100,000 small businesses each month. A legion of entrepreneurs, particularly in the computer and finance fields, became frustrated with rigid corporations, accepted the risks of entrepreneurship, and launched a wave of innovation. Many of the new companies failed, of course, but some grew rapidly.  

    We also need the optimism, energy, and sense of adventure that entrepreneurship fosters. Silicon Valley’s greatest contribution to the economy was more than just new technologies. It also created a new entrepreneurial spirit: a culture of risk-taking not only by business owners and investors, but by employees who tied their success to their company’s success. That entrepreneurial spirit built companies where everyone felt they could get rich by creating superior products and services. Leaders in those companies fueled the fever pitch by building a culture that rewarded results, injected fun into the workplace, and allowed innovative ideas to flow freely. It’s hard for laid-off union workers in the Rust Belt to see that innovation and entrepreneurship are the cure to expiring unemployment. The U.S. economy wouldn’t be in the toilet bowl it’s in today if it followed Silicon Valley’s leadership rather than Wall Street’s financial vaporware. 

    What kind of leadership will get us out of this mess? Largely, it’s the same traits that have succeeded in the past (e.g., clear vision, positive energy, building a great team, and effective execution), except more courage and risk-taking are needed. Part of the challenge is the business-bashing that’s happening today. Leaders are reluctant to push future possibilities when so many people are unemployed or worried about keeping their jobs. Too many of today’s managers are do-do machines who run around trying to survive by reducing costs, slashing staff, and squeezing productivity. If you are leading a team, a company, or an agency, get past that survival mentality – get your people to help you invent a future where everyone thrives instead of just survives. There’s no doubt this recession will change the future of your organization and your career. Whether you come out of it weaker or stronger than your competitors depends on how you respond. Are you up the innovation and entrepreneurship challenge?

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Responses

  1. Yes! I absolutely agree that we live in a moment of great opportunity.

    As long as our financial system emphasizes short-term profits over long-term sustainability (both corporate and societal), fundamental change and innovation is impossible.

    The only way to create longer-term thinking is to provide information on the important resources of our era: people, knowledge, networks, relationships. All these are considered intangible by accountants and get ignored in financial statements (causing an 80% gap between the “assets” of the average company and its corporate value).

    Until the existence and importance of these intangibles is recognized by managers and investors, we will be trapped and maybe doomed by the enormous challenges and opportunities facing us.

  2. I acknowledge and agree on your points. Back in Feb/2009, I remember sharing in conversation with someone, that out of this period would evolve a new economy, and that there would an insurgence of more leaning towards entrepreneurship.

    Although, these were my thoughts, I was not able to back up my conclusions with as such profundity and facts as you have.


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