Gazelles 2.0

And speaking of entrepreneurship, Entrepreneur Magazine is featuring a preview of what it calls Gazelles 2.0 — Ahead of the Pack:

These leaders of the pack were dubbed “gazelles,” after a type of antelope that is not only one of the fastest animals on earth, but is also capable of sustaining high speeds for extended periods of time.
In fact, from 1994 to 1998, one of the prime boom times of the ’90s, America’s 288,636 gazelles (which comprised about 2 percent of all U.S. companies at the time) created more than 8 million new jobs, accounting for 68 percent of all net new jobs at that time. After the dotcom bomb, gazelles were still fueling the U.S. economy (creating more than 200 percent of American jobs from 1998 to 2002), but no one talked about them anymore; they became a fond memory of “the good times.”
It’s now time to let the good times roll again. The gazelles are back, and we’ve got them. Granted, they’re not the same old gazelles, so we’re calling this generation Gazelles 2.0.
. . .
A Gazelle 2.0 company is a rare species. Of the nearly 18 million businesses operating in the U.S. today, only 341,000 are Gazelle 2.0 companies. These are the 2 percent of businesses that generate on average a staggering 80 percent to 90 percent of all employment growth. Gazelles 2.0 are also industry innovators. They are the companies that spot unique market opportunities and move rapidly to exploit them. In the process, they revolutionize industries by creating entirely new ways of producing their products or services.
. . .
Gazelles 2.0 are found in every industry. However, within specific periods, Gazelles 2.0 do tend to be found in the more active industries of that time period. For instance, during the dotcom boom, the highest percentage of gazelles was in high-tech. Today, the highest proportion is found in the petroleum industry.

The petroleum industry? Wow – that is a surprise. I can’t wait to see the data.
Unfortunately, it will be a long wait. Entrepreneur Magazine won’t publish it until its June issue when it revels its Hot 500.
Such a tease!

The other dimension to university’s economic development

Universities have long been seen as key elements in local economic development activities. But most (if not all) of the attention has been focused on the tech-transfer aspect: what new tech ideas are generated and then passed out to the local economy either as patents/license or professor’s business spin offs. But this quote from a story about Missouri Southern State University show another dimension to the interaction – and another area of innovation that is often overlooked by policy makers.

“A business school is an important economic-development tool for any community looking to expand its employment base, and have high quality employees to provide for new businesses opening and the expansion of existing businesses,” [School of Business Dean Brad] Kleindl said. “We’ve been able to more fully embrace the vision of helping students move into the job market and helping the economic development in the region. Over the last three years, the faculty has been able to step up their role, not only with students, but with the business community.”

Too often the educational and training activities of our colleges and universities are overlooked in the economic development process. Policymakers focus on world-class research facilities and not the local training activities.
However, at one level training and business preparation has become a hot area: in the community colleges. According to a 2004 study:

Entrepreneurship education in community colleges is growing throughout the United States. . . . The number of course sections has doubled in then years and more than 60% of American community colleges offer at least one course in Small Business or Entrepreneurship

This increased attention to entrepreneurship is a welcome occurrence. And it extends to major universities as well. I am told that the MIT Entrepreneurship Center is the hottest spot in Cambridge now days. Of course, the MIT emphasis is on technology-based entrepreneurship. Down the road at Babson College, entrepreneurship has a long history. There the curriculum includes technological entrepreneurship but is much broader. Countless other universities have their own form of entrepreneurship studies, including non-technological entrepreneurship and innovation.
However, there is still much more to be done to infuse entrepreneurship studies into the higher education system. In part, we need a better differentiation between “small business” and “entrepreneurship.” The mechanics of running/managing a small business are not the same as founding and growing a business based on a new idea. They are different enough with different skills that they need to be treated separately.
As Eric Pages of Entreworks Consulting points out is an article aimed at community college trustees:

Effective entrepreneurship education is not just about starting a business. It also teaches creative thinking, opportunity recognition, financial literacy, and the ability to understand and manage risk. These are important for all students, not just budding business owners.

Very well said. Maybe the development of these broader skills in the citizenry (and workforce) will turn out to be the most important contribution of our higher education system to local economic development.

Chinese leadership in IT

I came across the following quote in “Globalist” — <a title="China's Real Three Challenges to the United States by Chas W. Freeman – The Globalist > > Global Economy” href=”″>China’s Real Three Challenges to the United States:

It is now almost certain that the next phase of this information revolution will be led by Chinese, Japanese and Koreans. This means that they, not Americans, will own and control the intellectual property and “killer apps” that power it and its evolving technology. We will be paying royalties as we try to catch up with them.

The author, Chas Freeman, is a well respected diplomat and knowable about China. His observation runs counter to the prevailing notion that the US is the font of all creativity. Or at least that India, not China, is the rising IT power.
I’m not sure that the future is a dire as what Freeman points to in this quote. But I certainly would echo the underlying thought. There is no reason to believe that the US can live off of current and future royalties alone. As Andy Grove has said, only the paranoid survive. Unless we continue to promote creativity and innovation in this country . . . [but you have heard that speech before]
Just add this to one more dimension of the problem: what happens when our current surplus in royalty income flattens out or turns down?

India’s IT awards

On the Indian side of the new IT revolution, come this posting on Business Innovation Insider about the recent awards by the IT industry association Nasscom for The best in Indian innovation 2006:

More proof, perhaps, that India is turning into an innovation powerhouse that is creating and nurturing the types of companies that are capable of taking on the likes of Intel and Hewlett-Packard.

To repeat from my last posting, only the paranoid survive . . .

GAO looks at Pharma innovation

The Government Accountability Office (GAO) yesterday released a new report on New Drug Development. The report was a response to a requested by Senators Kennedy and Durbin and Congressman Waxman, who raised a concern about the process.
The report finds that the effectiveness of pharmaceutical R&D has been declining:

Although the pharmaceutical industry reported substantial increases in annual research and development costs, the number of NDAs [new drug applications] submitted to, and approved by, FDA has not been commensurate with these investments. From 1993 through 2004, industry reported annual inflation-adjusted research and development expenses steadily increased from nearly $16 billion to nearly $40 billion–a 147 percent increase. In contrast, the number of NDAs submitted annually to FDA increased at a slower rate–38 percent over this period. Similarly, the number of NDAs submitted to FDA for NMEs [new molecular entities] increased by only 7 percent over this period.

While it did not undertake its own analysis of the reason for this decline, GAO did systematically solicit the views of experts:

Results from the discussion among panel members, our interviews with drug development experts and analysts, and our review of academic and industry reports identified several factors affecting the types of drugs being developed, and the length, costs, and failure rates of drug development. These factors include limitations on the scientific understanding of how to translate chemical and biological discoveries into safe and effective drugs; business decisions by the pharmaceutical industry that influence the types of drugs developed; uncertainty regarding regulatory standards for determining whether a drug should be approved as safe and effective; and certain intellectual property protections that can discourage innovation. Together, these factors have been cited as affecting the cost and length of the drug development process, as well as the types of drugs being produced. Faced with these issues, some of the panelists, other experts we contacted, and the literature we reviewed, suggested ways to expedite drug development and find more innovative drugs. These include generating greater numbers of scientists who possess the skills needed to translate drug discoveries into effective new medicines; restructuring regulation of the drug review process to allow for conditional approval of drugs for therapeutic areas that currently lack effective treatments based on shorter clinical trials using fewer numbers of patients; and altering the length of patent terms to encourage innovation. Some of the experts have cautioned that adequate measures to ensure safety need to be implemented along with any changes to expedite the regulatory review process.

One of the most intriguing suggestions was to create a variable length patent for new drugs:

The federal government could consider providing financial incentives or disincentives to affect the innovative potential of drugs produced by the industry. The government could achieve this by extending or reducing the period of patent protection associated with a drug based on its therapeutic value. One of the panelists suggested that a patent could be extended to 25 or 30 years for drugs considered innovative, or offering high therapeutic potential; while patents for drugs offering less innovative benefits could be only 10 years.

I don’t know whether such a system would be useful or even workable. However, the idea deserves greater attention. It also highlights a broader issue with the patent system: the one-size-fits-all nature of the current system. If a customized IPR system is needed for pharmaceuticals, then we should look at a number of ways to better mold the system to the needs of the specific technology.
I doubt that the unitary patent system will disappear any time soon. But it is clearly time to start serious discussions on how to better customize the system. After all, customization to customer needs is one of the hallmarks of the I-Cubed Economy

Globalization poll – and insecurity

The Democratic Leadership Council (DLC) last week released a new poll on The Emerging Politics of Globalization. The poll shows decidedly mixed feelings about the future of the economy:

1. Voters do not want to stop globalization entirely, but they are worried about its consequences. They want globalization to be controlled and made to benefit all of society.
2. Globalization is not feared in and of itself but there are rising concerns related to a more global world: child poverty, outsourcing, higher energy prices, greater terrorism, etc.
3. The public currently sees the benefits of globalization primarily in terms of lower prices for consumer goods.
4. Despite cheaper goods, however, voters see very significant costs associated with globalization. These costs include the possible loss of benefits, longer work hours/less time with the family, lower wages, and more job losses.
5. Americans remain optimistic about the future. Nonetheless, a large majority balances that optimism with a belief that a better economic life lies in protectionism and favors job security over income growth.

I noted with interest that the poll gave a generally positive response to the term “information economy”: 17% very positive, with total positive of 56% and total negative of only 15%. The reaction to “entrepreneur” was even stronger: 45% very positive, with total positive of 87% and total negative of 7%. That compares to the response for “corporations”: 14% very positive, with total positive of 55% and total negative of 41% and “outsourcing”: 4% very positive, with total positive of 22% and total negative of 63%. This is not surprising given that one of the greatest concerns raised about globalization was that companies are moving jobs overseas.
The mixed feelings about the direction of economy come out very strongly in the juxtaposition of two responses. First, an overwhelming 89% agreed with the statement “Americans are optimistic and America is most successful when we view change as an opportunity for success, rather than a threat to be resisted.” Yet, a majority (54%) responded that they wanted to limit change when asked the following, “Limit change and competition by ending unfair trade, reducing immigration, and producing more goods at home vs. adapt to changes in global trade, travel, and new technology by retraining workers and specializing in high-tech and information services.”
In part I think this dichotomy can be explained by the questions. While Americans are optimistic, they don’t believe that the current strategy of re-training and high-tech will work. As the poll points out:

There is no single idea or silver bullet for dealing with the expanse of issues created by globalization. An agenda for coping with the New Economy must include a wide range of programs — creating expanded 401(k)s, more flextime, incentives for alternative energy, and a greater sense of equity and fairness so that stock and option programs reach down to all the workers in each company.

The high level of uncertainty shown in the poll is not surprising. The I-Cubed Economy is changing people’s lives, often in dramatic ways. Yet our policy response has been “get used to it.” We throw generalizations at the problem: retrain yourself, educate your kids better. But we have no real strategy for coping or, better yet, guiding the change. High-tech will save us, we are told. But then we see all the electronic consumer goods coming from abroad and IT services jobs in competition from low cost producers around the world. We talk about creating high value added jobs, but the average Joe and Jane asks, “what about me.” We seen employment numbers rise, but in the retail and hospitality industries (where there are generally low wages).
As the report states in two separate places, First:

The challenge before leaders is to create an opportunity society in the face of a more uncertain world.

and then in the conclusions:

In the global era, American voters are waiting for a leader and party that can explain how globalization can be made to work for everyone.

That is a challenge we have only begun to address. And one that we really don’t yet even understand. We can start by throwing out our old mindsets and begin to think anew about this I-Cubed Economy. As was once said, ideas are like a rudder, a small change can bring about a large shift in direction. Time for that change in ideas.

Political economy of patent reform

There is an interesting new working paper out from Professor F. M. Scherer of Harvard – The Political Economy of Patent Policy Reform in the United States, published by the AEI-Brookings Joint Center for Regulatory Studies. Professor Scherer is a long time student of the economics of technological change, including intellectual property rights. The purpose of this most recent paper is to look at interesting questions:

the fact that governmental emphasis on patent systems increased in the wake of impressive new findings from economic studies showing that patents played a surprisingly minor role in well-established corporations’ decisions to invest in research, development, and technological innovation.

The paper touches upon some of the other factors. These include first mover advantage, the ability to move quickly down the learning curve and superior sales or service efforts.
In looking at his central question, he also looks at the results of the current system, which he finds mixed:

While stronger patent protection per se should have increased the profitability of innovation and hence stimulated R&D expenditures, all else equal, the increased danger from infringing another firm’s patents exerted an opposite negative influence.
. . .
the changes brought negative consequences along with the positive. In particular, by encouraging the proliferation of patents covering inventions of dubious novelty and increasing the statistical probability that knowing or inadvertent infringement of patents leads to dire consequences, it increased the risks as well as the rewards from inventive activity. It is far from clear that the positive effects outweigh the negatives. Fortunately, as economic studies have shown repeatedly, patents do not play a particularly important role in most fields of industrial innovation, and equally fortunately, those who advise industrial leaders in their journeys through the patent minefield are adept at negotiating solutions that in most instances avoid serious impediments to the pace of technological progress. It is nevertheless useful to assess the negatives and attempt to correct them through legislative or judicial action. In this, we would be emulating the example of one of the world’s most famous inventors, James Watt, who observed “I have been trying experiments on the reciprocating engine, and have made some alterations for the better and some for the worse, which latter must return to their former form.”

On the specifics of a reform agenda, there is nothing new in the paper. The changes in patent law he advocates are those coming from the various studies (FTC, National Academy, etc.) – which he cites. Rather, the power of the paper is in its background on the issue and its general framework. In that regard, I found one major weakness: the lack of discussion about the increased importance of patents to a company’s secondary income flows. While patents many be less important than other factors for setting the direction and level of corporate R&D and for new product development strategies, they are increasingly important as a revenue stream. In this regard, the studies Scherer cites on the effects of patenting may be more relevant to understanding the past rather than guiding the future.
At another level, however, the paper has a strong message for how we approach the future. I think the Watt quote is especially telling. Our innovation infrastructure (of which our patents laws are a part) should be viewed as constantly evolving. Scherer subtly reminds us that social innovations are subject to the same Schumpeterian dynamics of creative destruction as other areas. It is all one big process of experimentation — of learning by doing. He also reminds us of the need for empirical evidence as we review our policies. Let us keep that in mind as we move forward.

TIME person of the year

By now, everyone has probably heard that the TIME “Person of the Year” is “you”: people who are using the Internet and other information technologies. Rather than looking for the one or few individuals who changed the world, TIME choose to tell a different story:

It’s a story about community and collaboration on a scale never seen before. It’s about the cosmic compendium of knowledge Wikipedia and the million-channel people’s network YouTube and the online metropolis MySpace. It’s about the many wresting power from the few and helping one another for nothing and how that will not only change the world, but also change the way the world changes.

The guts of this selection isn’t just the people or the technology. It is about how the rules of the innovation game have changed:

America loves its solitary geniuses—its Einsteins, its Edisons, its Jobses—but those lonely dreamers may have to learn to play with others. Car companies are running open design contests. Reuters is carrying blog postings alongside its regular news feed. Microsoft is working overtime to fend off user-created Linux. We’re looking at an explosion of productivity and innovation, and it’s just getting started, as millions of minds that would otherwise have drowned in obscurity get backhauled into the global intellectual economy.

The old saying is “two heads are better than one.” The new reality multiplies that by a factor of n. This is not to say that all collaborations and group efforts are useful or even wise. Remember “group think”? But the power of groups has always been important. What has been changing is how that power is harnessed: in individuals acting as a collective (tribes, families, governments, corporations, other organizations, etc.); in an agglomeration of individual interactions, aka markets; or in ad hoc, free flowing collaborations.
In every era, new technologies, including social technologies, allow for new sets of individual interactions. These new ways of interacting open up new opportunities and new problems. As TIME has recognized, the 21st Century is beginning to look like the era of collaboration. We are beginning to see both the opportunities (e.g. wikipedia, open source) and the problems (e.g. spam, privacy, piracy, acceleration of rumors and false information). How we deal with both will define the I-Cube Economy well into the future.

The year in design

Was 2006 the year “design” became a hot economic topic? Maybe. The International Herald Tribune summed it up very nicely in Design in 2006: A year of innovation and utility:

It wasn’t a bad way to start the year. In January, design made its debut on the agenda of the World Economic Forum in Davos — and that was only one sign of its growing importance in 2006.
At a time when advances in technology are enabling designers to be more creative than ever, the rest of us are increasingly receptive to innovation. Think of the speed with which MySpace and YouTube have caught on. The developed world is embracing design as a killer weapon in the battle against low cost competition from China, which, like other developing countries, is building new design schools to fight back in the future.

A good start. I hope we can build on this momentum in 2007. There is still a lot of work to be done to help policy makers understand that “design” is the “quality” of the new competitiveness challenge. And there is a lot to be done to help all of us understand what that really means (aside for the rhetoric) and craft workable policy solutions to that challenge.