THE BLOG
10/29/2013 09:08 am ET Updated Dec 29, 2013

The New Innovator's Dilemma

In recent years, we have seen more and more politicians and policymakers around the country coming to Silicon Valley. Meanwhile, tech entrepreneurs are taking an increased interest in the national political debate. Politicians and wonks are inspired by the pace at which innovation is transforming our lives -- and often find kindred spirits among bright minds working tirelessly to tackle big, complex social problems. But as entrepreneurs and innovators enter the political realm, they are all too often frustrated by familiar patterns and barriers to innovation and reform.

In his seminal work, Clayton Christensen coined the phrase "innovator's dilemma" to describe the risk of putting too much emphasis on today's needs, while failing to embrace the new models and technology that will define the future. His book has become a must read for a generation of entrepreneurs looking to effect disruption -- and a generation of executives looking to avoid being sent to the corporate graveyard by an upstart competitor.

Increasingly, we're worried that a generation of entrepreneurs is facing a "new innovators dilemma" -- where innovation is stymied by regulatory and political environments focused on outdated needs and the wrong set of "customers." The truth is, Silicon Valley investors and techies will get by just fine without addressing our big, societal problems. But if we encourage our nation's top entrepreneurs to join search engines and social networks, we will miss the opportunity to apply their genius to solving society's most pressing problems.

This isn't about the classic political divide of right versus left. This is about policies and regulations written in a different era that are not easily translated to modern technology. It's no secret that the challenge stems, in part, from the motivations of regulators and the politics of protecting the status quo. As wonks and investors, we have seen firsthand how the potential to drive reforms in areas like education are bridled by deep-rooted political and structural challenges.

Consider the relatively straightforward political and regulatory challenges facing companies like Uber and Airbnb. Uber connects individuals with cars and taxis in cities around the world through smartphones. Tools like Uber make customers' lives easier, but also have the potential to improve efficiency, safety, and reduce the costs of hired transportation. It is understandable that cab companies are fearful of ridesharing models like Uber, and push-back rather than adapt or fail. But it's intolerable when industry-captured regulators preserve the status quo to protect established players and business models.

Airbnb provides people with online access to rooms and houses to rent in cities around the world. It allows travelers to find customized and unique accommodations that fit their travel goals and budgets, while allowing homeowners access to a new source of income. While Airbnb presents novel regulatory and policy questions that should be addressed to ensure adequate consumer protections are in place -- it is unequivocally redefining the hospitality industry. And therein lies the problem. As we saw it play out in New York earlier this year, those who own and run hotels aren't keen on this emerging and competitive sector and have tried their best to keep Airbnb out of the travel market. To protect their established interests, they have appealed to their local governments to maintain the status quo.

The new innovator's dilemma is especially evident -- and troubling -- in higher education, where a revolution is underway. There is need for dramatic change. Tuition and related costs continue to outpace inflation. Student debt now exceeds consumer credit card debt. Bachelor degree completion rates hover around 50 percent in six years (that's right: six years) -- far worse for minority students. Yet most institutions of higher education continue to offer education in the traditional way and traditional setting. And the quasi-governmental accreditation agencies that monitor those institutions seem determined to help them continue to do that.

The politics of the local taxi commissions and hotel industry advocates are relatively easy to understand. But in higher education, a similar pattern unfolds. Accreditors (which started at the turn of the century as a way for universities to share best practices) now set standards that have a dramatic impact on higher education cost and quality. Lesser known than Uber and Airbnb, Altius Education developed Ivy Bridge College -- an innovative online community college that was beating the odds -- in partnership with Tiffin University in Ohio. Ivy Bridge students are primarily low-income, adult learners; 50 percent are women who care for dependents and 82 percent are first-generation college students. The program was on a promising trajectory, producing completion rates double that of community college averages. Over 150 well-respected colleges and universities around the country agreed to accept their graduates into 4 year programs. They received a grant from the Bill & Melinda Gates Foundation to pioneer a sub $5,000 associate degree.

This summer, despite its promising start, higher education regulators shut down Ivy Bridge College, out of concerns that the new model was not adequately controlled by any incumbent institution. The Ivy Bridge College fiasco sends a powerful message to Silicon Valley innovators that want to tackle big problems in higher education: if you have great ideas that college and students want and benefit from -- beware!

Change is difficult. And no one is arguing that the transportation, hospitality, and higher education industries don't need to be regulated. New approaches, in particular, warrant close scrutiny. But if we are ever going to experience the sort of revolutionary change that technology might afford to virtually every sector of the American economy, we need to be willing to rethink the traditional ways of regulation to make innovation easier and more responsive to the consumers and students these regulations were originally enacted to protect.

Michael Moe is a venture capitalist with GSV Capital, and author of "Finding the Next Starbucks." Ben Wallerstein is the co-founder of Washington-basedWhiteboard Advisors and has served as an advisor to Altius Education.