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Innovation Ecosystem: A Global Shift in Capitalism?

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On global and local scales, there is a large shift in how novel ideas and discoveries can quickly establish market relevance and commercial significance. The acquisition of Instagram by Facebook for US$ 1B may seem aberrant, but it clearly marks recent trend boundaries. As a co-founder of a small biotech, informatics based, academic startup company, this has led me to wonder how a young company like Instagram could have achieved such stunning success so quickly.

Klaus Schwab gave the opening speech at the 2012 World Economic Forum in Davos. In a synopsis of this speech, Dr. Schwab posted this observation that caught my attention:

As I outlined in my opening address at Davos, capital is being superseded by creativity and the ability to innovate -- and therefore by human talents -- as the most important factors of production. If talent is becoming the decisive competitive factor, we can be confident in stating that capitalism is being replaced by 'talentism.' Just as capital replaced manual trades during the process of industrialization, capital is now giving way to human talent.

Here, capitalism purely refers to a mechanism by which economic markets (not political systems) grow and prosper. Post-industrialization, capital was king because it controlled the rate at which new infrastructure for manufacturing, transportation and sales could be built in order to support growing markets. In current markets where technology is king, it is the availability of human innovation and discovery that has now become a limiting currency. And here, I would rephrase Schwab's talentism as simply "creative expertise" --- novel discoveries pushing the boundaries of what we can do with our technology.

The essence of Schwab's observation can quickly be illustrated as follows: if you want to start a tech company and need capital, a web search for "venture capital firms" will return over 10 million hits. But if you have capital and just need a great idea, you are not going to find it with Google. Where are the great ideas? Lots of people would like to know. [See related post].

Capital is still important to tech markets, but there are a few significant distinctions now: 1) we have a highly developed, global infrastructure of software, hardware and information connectivity; 2) new ideas can be rapidly scaled across the entire global infrastructure; 3) there are new next-generation markets waiting to be discovered and commercialized using this existing infrastructure. This transition to a new mode of proximal controls in tech markets is driven by a decreased need for immediate infrastructure build-out paralleled by an increased need for novel ideas to leverage the large commercial upside that is inherently embedded in the technology that surrounds us.

Recently, the University of Delaware's President Pat Harker held a forum on Innovation and Entrepreneurship. Listening to his discussion on "entrepreneurial ecosystems" brought Schwab's comments back to mind. Yes, talent and ideas have become a valuable commodity in terms of the high potential for rapid technological commercialization. And yes, much of this commercialization activity can occur in a virtual space with low capital requirements for new infrastructure.

However, launching a successful tech startup still requires resources other than just good ideas. There's still the necessity for team management, business development, intellectual property, financial oversight, corporate governance, marketing assessments, etc. Interestingly, these things can also be described as "talents" or expertise, which is another set of human dimensions that are critical to foster tech innovation and entrepreneurism.

Overall, "creative expertise" is inclusive of a wide range of human ideas and activities when it comes to piecing together successful commercial ventures. For tech startups, access to expert resources is increasingly more available and there is greater potential for interaction and collaboration within a community (both real and virtual, local and global) given our tech connectivity. When considered in total, the co-existence of diverse talents and expertise that are accessible to entrepreneurs forms an innovation ecosystem where new technological discoveries can be rapidly vetted locally for commercial potential and then deployed on larger scales as a viable business.

Bringing such resources together into one community can lead to the emergent organization of a larger and more efficient innovation and entrepreneurial ecosystem from a synergy of individual talents. This kind of ecosystem can greatly facilitate the development of ideas from innovators with little or no prior entrepreneurial experience (i.e., academic faculty) and thus recruit more of the limiting currency needed in today's tech markets: creative expertise.