Story: This week’s Innovation Summit at the Shell Technology Center Houston (STCH) highlighted the need for innovation and collaboration to solve society’s most pressing challenges. As the world’s problems become more complex, the best way to tackle them is with a cross-disciplinary approach.

What are some ways that companies can foster this multidisciplinary collaboration to achieve breakthrough innovation? One way is to create an open mechanism inside the company that solicits promising ideas regardless of where they come from — including outside the company — and offering seed funding that’s outside of the company’s traditional R&D programs to give them time to develop.

GameChanger

Shell is doing this with its GameChanger program, headed by Russ Conser.  GameChanger seeks out and invests in early-stage ideas that could potentially revolutionize the energy industry. GameChanger plays the role of an angel investor; a panel screens ideas and selects ones to fund. Idea submissions can come from any Shell employee as well as from outside the company.

Shell actively solicits ideas from academics and entrepreneurs alike through its web site www.shell.com/GameChanger.  Ideas that pass the initial screen receive seed money — $25,000 to develop a robust proposal and on up to $500,000- $1 million a year to actually test and develop ideas that graduate into projects.

Example

For example, Erik Cornelissen, a research scientist, was in a toy store looking for a gift for his nephews when he saw a science toy that many of us have seen before: a dinosaur that grows in size when placed in water. A nifty, fun gift. But Erik made a connection back to a perplexing problem that had plagued Shell and other oil companies for a long time. Specifically, oil wells contain water, not just oil. Over time, more and more water gets pumped up relative to oil.  Not only does that make the well less productive, but it pumps water that increasingly is becoming a scarce resource itself. The question is, how to detect that water and prevent it from mixing with the oil?

Erik realized that the same principle behind the dinosaur toy — a material that expands upon contact with water — could be applied at the oil well. Erik needed to identify a “swellable elastomer” that would seal off the pipe when water started to mix with the oil flowing through it. The idea was not difficult to articulate or explain, but finding this kind of material proved long and difficult. GameChanger provided Erik with the time and funding he needed to go through hundreds of experiments to find the elastomer that fit the demanding conditions at the oil well site.

Results

About 40% of Shell’s core Exploration & Development R&D portfolio has evolved from ideas submitted to GameChanger, and 70% of the GameChanger portfolio includes collaboration with people outside of Shell.

Since its inception in 1996, GameChanger has funded 3000 ideas, investing $350 million and resulting in 250 commercial projects, said Gerald Schotman, EVP, Innovation, R&D and Chief Technology Officer at Shell.

Action

• Publicize clear and explicit selection criteria, so external submitters know what you want and will fund.  For example, GameChanger uses 3 primary criteria:

1. Novelty: is the idea truly and fundamentally new and different? (There’s no point in funding ideas that would qualify as traditional R&D projects.)
2. Value: Could the idea create substantial new value if it works? (Wild ideas are welcome, but ultimately they need to deliver value if they come to fruition.)
3. Credible Plan: is there a plan to manage risks prudently? (New ideas are risky, but many risks can be identified up front and plans can be put in place to stay ahead of them.)

• Have an end game for how you’ll commercialize an idea that demonstrates feasibility. For example, GameChanger uses 3 commercialization strategies:

1. Move the idea into the company’s internal R&D portfolio.
2. License the idea externally.
3. Spin off a new company to bring the idea to market.

Story: Accelerating high-growth entrepreneurship

Background: The Startup America Partnership, an initiative launched by President Obama in 2011, seeks to accelerate high-growth entrepreneurship. One step is to reduce the barriers entrepreneurs face when starting high-growth businesses. To accomplish this step, senior Obama Administration officials convened roundtables in eight US cities to hear from entrepreneurs and local leaders about what the federal government can do to help high-growth entrepreneurs.

Event: Congressman Jared Polis kicked off the event, along with panelists Phil Weiser (White House National Economic Council), Don Graves (Department of Treasury & President’s Council on Jobs and Competitiveness), Michael Fitzpatrick (Office of Information and Regulatory Affairs) and local leaders like venture capitalist Brad Feld (Managing Director & Co-founder of The Foundry Group) and Kathy Rowlen, (CEO and founder, InDevR).

After the short panel presentations, the 150 invited attendees from Boulder’s entrepreneur community divided into four groups to discuss possible short-term improvements of federal government regulations and procedures that affect high-growth entrepreneurial companies. Startup America will prioritize the suggestions, distribute them to respective federal agencies, and implement them as quickly as possible.

Definition: Startup America focuses its efforts on entrepreneurial high-growth companies as distinct from both small business and larger, more established companies. These high-growth companies differ from small local businesses (e.g., local restaurants and service providers) in that high-growth companies push the limits in their efforts to scale new innovative products, services, and business models. High-growth companies hire hundreds of employees as the entrepreneur pursues national or global scale. Unlike small businesses, high-growth companies often aspire to be the next Fortune 500 company that defines new and innovative industries. Discussions in the breakout sessions suggested that creating scale means gaining access to three key resources: capital, people, and markets. Changes at the federal level could markedly improve access to these resources, spur economic growth, and create jobs.

Issue: Improving Startups’ Access to Capital
Solutions Suggested:

• Exemptions that let banks extend loans to entrepreneurs. (Some participants cautioned, however, that even if regulators let traditional banks lend to high-growth entrepreneurs, the banks wouldn’t make the loans due to cultural mismatches — they see startups as too risky.) Venture capitalist Brad Feld recommended focusing efforts on venture banks that do understand entrepreneurial companies, such as Comerica, Silicon Valley Bank, and Square One.
• Tax-code changes that encourage equity investment in start-ups rather than investments in more established firms that can borrow from banks.
• Expanding the government’s SBIR program for funding innovators and startups. One problem with today’s SBIR grant rules is that SBIR funds can only be applied to prototyping ideas, not commercializing them. The rules assume that entrepreneurs can find private capital once their ideas are ready for commercialization. But in these times of limited access to private capital, many innovation-focused companies can’t find the money they need to convert their SBIR-developed innovations into products. Attendees suggested more funding for SBIR grants and liberalization of SBIR-related regulations to increase job creation.

Issue: Improving Access to Talent
The problem is that many regulations assume — or almost mandate — a traditional workaday paycheck relationship between company and labor. In particular, IRS tax code elements (e.g., contractor/employee tax rules and Section 409A deferred compensation) and SEC regulations (e.g., on secondary markets of shares in private companies and stock-option accounting rules) stymie the kind of flexible access to skilled talent and gain-sharing that high-growth companies need.
Solutions Suggested:

• Exemptions to some of these regulations during the early stages of a company’s founding, so startups could have both arms-length and sweat-equity relationships with people.
• Immigration reform to retain foreign-born college graduates and to encourage both entrepreneurs and investors to come to the United States. US colleges and universities profit from full-tuition foreign students, but the country loses that educational investment when current immigration rules force the graduates to leave the US.
• Move forward on “Start-up Visa” programs that enable early-stage, high-growth entrepreneurs to come to the US and start their companies here. Attracting and retaining both talent and capital will help create innovative future companies that create future jobs.

Issue: Improving Access to Markets
Regulations designed to protect consumers can backfire if the approvals process is so cumbersome or takes so long that entrepreneurs run out of resources before they get approval. Waiting months to hear back on SBIR funding or years for regulatory approvals can exhaust startups’ resources. The root cause of the problem is unbalanced incentives on government. Regulators and politicians face high penalties for under-regulation (i.e., they worry about “what if someone gets hurt by permitting X”). But, these same government officials experience little or no counterbalancing penalties for over-regulation of innovation (the millions of people awaiting healthcare or environmental solutions that are delayed or stymied due to over-regulation). The problem is that everyone can see the failure of lax regulation but few can see the lost opportunity when a regulator says “no.”  Problems  like economic underperformance — or disease and death caused by a lack of entrepreneurial solutions — aren’t as noticeable. As one participant said, the regulator’s motto that “failure is not an option” all but implies that innovation is not an option, either.

Solutions Suggested:

• Pinpoint and cut out as much paperwork and unnecessary regulation as possible.
• Remove delays from grant-approval and regulatory approval processes
• Opt for self-policing solutions or data reporting rather than up-front regulation.

As Go Entrepreneurs, So Goes America
To me, the most distressing stories I heard at the event were from entrepreneurs who felt that their only option was to leave America for more growth-friendly countries like the UK and China. Excessive regulatory demands and delays, combined with high legal costs, are driving entrepreneurs to go overseas, and countries are offering incentives and capital to attract them. These entrepreneurs aren’t just thinking about outsourcing a few low-skill jobs, but taking the whole company — along with the innovation, business growth and new jobs — overseas.

Phil Weiser noted that America’s venture capital environment does have a unique quality of allowing entrepreneurs to fail and resurrect themselves to produce later greatness. Yet despite this “permission to fail,” some participants feared that the government-imposed limits in the U.S. on access to capital, people, and markets mean that high-growth companies aren’t permitted to succeed. And if they can’t succeed in the U.S., they can too easily move. In today’s competitive world, more countries have the resources and motivations to host the best and brightest. Today’s mobility of capital, people, goods, and information mean that high-growth companies can readily relocate and take their energy, innovation, and success with them.

At the same time that some entrepreneurs felt that the U.S. government may have failed their high-growth companies, those in government see that these entrepreneurs have failed government, too. Panelists urged the attendees to participate in government. Although entrepreneurs focus on telling and selling their ideas to customers and investors, they have not spent sufficient resources telling and selling to government. If citizens, including high-growth company entrepreneurs, are the customers of government, then government can only succeed with timely and useful feedback from high-growth company entrepreneurs.

Action

• (Note for our international readers: Although this particular post focuses on the U.S., I’m sure your country has analogous means for improving your government’s understanding of the value of innovation and high-growth entrepreneurship.)
• Think about what regulations and government processes create needless obstacles to innovation and growth for your high-growth business.
• Post your ideas or vote on the Startup America’s open innovation forum (http://reducingbarriers.ideascale.com/)
• Track and comment on pending regulations at Office of Regulatory Affairs
• Lobby your senators and congressional representatives for more entrepreneur- and innovation-friendly laws

Story: During a recent HSM webinar, Jeffrey Sachs (leading international economic advisor, Columbia University professor and author of New York Times bestsellers Common Wealth and The End of Poverty), was asked about the near-term prospects for Latin American countries and which countries he thought would do best. Sachs’ answer: Brazil is poised to do best.

For the last 15 years, Brazil has been investing heavily in education. In particular, Brazil made high school available to all citizens and invested in higher education, science and technology. The result is not only a more educated workforce but also a narrowing of the gap between rich and poor and between ethnically divided segments of Brazilian society. In contrast, countries with deep ethnic and racial inequities aren’t unified societies, which leads to mediocre economic performance. Brazil plans to invest $22 billion in science and technology innovation in 2010 and seeks corporations to join in additional investments in the country.

Sachs’ optimism about Brazil echos IBM’s sentiments. IBM is one of the companies investing in Brazil. CEO Sam Palmisano recently met with Brazilian President Luiz Inacio Lula Da Silva to discuss the creation of a “collaboratory” in Brazil. IBM’s  collaboratories match IBM researchers with local experts from governments, universities and companies. IBM’s Palmisano praised Brazil’s strategy: “Investments in innovation are critical, especially in a downturn. They can help Brazil and other countries, including the US, realize an economic expansion.”  Among the BRIC countries (Brazil, Russia, India, and China), Brazil is seeing the highest growth in business partners that IBM works with, averaging 150% year over year, according to Claudia Fan Munce, managing director of IBM Venture Capital Group.

Action:
* Consider the benefits of locating R&D labs to another country, such as gaining  opportunities to see the challenges and solutions  not visible from a US-centric perspective.
* When evaluating countries for investment potential, consider their economic policies (business environment, trade policy, investment policy, infrastructure) as well as any cultural barriers (ethnic, religious, gender inequalities) that may be a barrier to integrating the best talent and to fostering economic growth

Sources:

Jeffrey Sachs webinar: Economics for a Crowded Planet
“Big Blue’s Global Lab,” Business Week September 7, 2009
“IBM Bets on Brazilian Innovation” Business Week August 17, 2009
Jeffrey Sachs, Common Wealth: Economics for a Crowded Planet
Jeffrey Sachs, The End of Poverty: Economic Possibilities for Our Time

If you’d like to ask Jeffrey Sachs your own questions, you’ll have the opportunity at the World Business Forum in New York City October 6-7, 2009.

Story: Designing new products seems like a guessing game: which features do users want? In the early days, engineers had to guess. Then came market research: asking people which features they’d like to have or which they prefer from among the choices. Of course, users often have difficulty articulating what they want.

Next, some companies hired ethnographers to observe users in action. Software maker Intuit, for example, sent software engineers to watch how users tried to use accounting software. Intuit’s QuickBooks succeeded because its developers had watched users struggle with traditional accounting software and solved the difficulties they were having.

Other companies built usability labs, which have the advantage of measurement but are in controlled settings. Ethnographic techniques and usability labs improve upon market research, but they are expensive and can only watch a small sample of users for a short time.

Now, technology lets companies go one better. Software companies who host their applications in the cloud can see what customers are doing – in real time, all the time. They can see which features really get used and which don’t. They can notice if users hit the “undo” button frequently, which suggests that the feature isn’t doing what users expect it to do. Sam Shillance, co-creator of Writely, found that what users of his word processing tool wanted most was a way to let several people edit a document together. (The Writely app was bought by Google and is now in Google Docs). Finally, as new types of users adopt the product or as new uses arise, developers can continue to adapt their software from the stream of feedback of usage patterns.

Action

• Think about how you can put more of your product or service? on the web or in cloud media so that you can watch user behavior.
• Look for evidence of frustration (e.g., use of “Undo,” help requests, problem reports)
• Watch which features users use first, and keep those simple. That will make your product easy to adopt and will reduce first-use frustration.
• Improve the functionality of the most-used features.
• De-emphasize (or rework) the least-used features.

For further information: The Netbook Effect by Clive Thompson

Story: As a small young company, ViaWest had only $34 million in funding. But it faced massive competitors with $300 million and $800 million in war chests, respectively. These big competitors used their deeper pockets to “get big fast” — acquiring other companies, buying big office buildings, and investing in lots of shiny new large datacenters. But sales didn’t materialize and the big companies went bankrupt. In many ways, the money distracted these companies — they were looking for ways to spend it rather than focusing on their core innovation and business fundamentals.
In contrast, ViaWest used its money carefully and made positive cashflow a major goal. ViaWest focused on low-cost, efficient web-based tools to help it out-innovate — not out-spend — its bigger rivals. ViaWest also watched its asset investments carefully, only adding new capacity as needed when demand appeared. After the big competitors cratered, ViaWest bought some of the competitors’ lightly-used datacenter assets for pennies on the dollar.

Action: Use Web-based tools that let you innovate much faster at less cost. Create positive cashflow sooner rather than later. Create business forecasts for investment performance and stick to them — don’t invest more if the first investments aren’t meeting targets.