Flattening the Global Innovation Landscape – Part I: The Motivation

Reflecting on the new beginning of my professional journey and the role I hope to play.

As it is often the case, where you are heading is more exciting than what you’re leaving behind… As those of you who know me already, I am an optimist who deeply believes that the best is yet to come!

While I enjoyed very much the creative aspects of developing and managing new global immersion programs at the University and providing new experiential learning opportunities to students, my direct contact with them was certainly the most rewarding. Moving forward, I intend to retain the classroom contact, while also focusing on a problem which remains at large unsolved: flattening the global innovation landscape!

Certainly, the world is flatter today than it was a few decades ago. The flattening process has accelerated over the last decade, as more and more people around the world get connected to the internet (in particular over mobile devices – smart phones and more recently tablets). The pace at which people get connected is increasing globally as the acquisition costs of smart devices get cheaper, they become more powerful[1] and network (cloud)-based applications become more valuable[2]. Furthermore, thanks to the ubiquitous WiFi availability, broadband coverage is improving and enabling connectivity at a lower cost or for free.

This irreversible trend is spurring the development of a new global economy for information services and knowledge transactions heretofore unseen between parties on opposite sides of the planet. These transactions do not know of national borders. No visas or passports are required.

An innovation’s value is determined by its disruptive content and timing. We have before us a web based market of buyers and sellers of “intangible” services, which was hard to imagine only one or two decades ago. The drivers of the viral explosion for this new global knowledge economy are:

  1.  Mobile Apps
  2. Social Media
  3. Big & Open Data
  4. Sensor & Networks
  5. Gamification
  6. Cloud
  7. Hyper-digitalization of society — individuals, enterprises and governments 

And, these transactions are characterized by:

  1. Constantly decreasing the transaction cost
  2. Constantly increasing its value added via innovation
  3. Flying “on the wire” and if at all possible avoiding physical objects
  4. This economy feeds on itself, since new knowledge services are required as new innovative services demand new applications and/or instrumentation.

While this flattening (or democratization) process in the information and knowledge access is taking place and market frictions are reduced; entrepreneurs find multiple ways to capture value from eliminating those frictions and/or create new value. Unfortunately, not everyone shares equally in these benefits. In other words the world is more flat in some places than in others!

Entrepreneurs here in the Valley[3] enjoy the privilege for being part of one of the most developed innovation and entrepreneurial ecosystems on the planet. And yet we do NOT have a monopoly on innovation here. In fact, extraordinary innovations are created all over the world, in particular in emerging regions. Often, in these constrained environments, by necessity, entrepreneurs embrace their lack of resources or the inherent limitations of the local ecosystem incorporating them as part of the design goal of their innovations[4].

After many years of working with entrepreneurs from emerging world regions helping them to scale up their ventures globally, I have learned that every geography from México to the Canary Islands (Spain) to South Africa to Peru, are at a disadvantage when compared with those who are based here in the Bay Area.  Quantifying these differences is the subject of a recent report entitled the Startup Ecosystem Report 2012, published by Telefonica jointly with the Startup Genome Project. This report ranked 20 entrepreneurial ecosystems around the world. In the report, about 75% of these innovation ecosystems were in the developed world while only 25% were in emerging countries: Santiago (Chile), Sao Paolo (Brazil), Bangalore (India), Moscow (Russia) and Singapore. Silicon Valley ranks as undisputed #1; and some of the key reasons are highlighted below: 

Silicon Valley
(SV)
Advantage
Leverage Factor[5]
Comments about SV
from the
Startup Ecosystem Report 2012
Value Creation: Acceleration (time compression) and De-risking Factors
Dynamic ecosystem constantly fed by ambitious and competent entrepreneurs,
innovators, investors, global corporations, foreign government agencies, etc.
X1000
SV has 35% more serial entrepreneurs
Rich networking environment: learn fast who has done/is doing something similar (competitors), who has done something similar and failed (and why?). Identify potential partners, employees, clients, investors, etc.
 
A sort of a Florence of the Renaissance, recreating the “Medici Effect”
Funding availability
(Angels & VC’s)
X500
 
Capital raised in SV is 32% higher across all stages of a start-up’s development
Smart money availability leads to better valuations, avoid repeating same mistakes and rapid access to high value contacts.
Rule of law & Established practices
X100
No comment
Many know how to get things done, established practices, stable legal frameworks, standard processes are built-in
Risk
taking
culture
X100
In SV entrepreneurs are 54% less likely to engage in on-the-side consulting activities (to make the living on the side) and willing to leave secure employment and join full time the start-up.
Culture and legal framework celebrate winners and tolerates failures.
 
Wide availability of Mentors/ Advisors
X1000
SV has 20% more mentors
Quick access to potential customers, investors, partners, etc. Open culture seeking win/win opportunities
Wide availability of Role models
X500
Role models abound: many Steve Jobs (Apple), Reid Hoffman (LinkedIn),  Mark Zuckerberg (Facebook), etc.
It can be done
“If others have done it, I can do it too” attitude.
Global magnet for talented people: SV brand/ mystique/
Trendsetter w/
good universities and very high quality of life
X1000
 
More ambitious, work longer hours and more likely to motivate themselves by the vision of changing the world, rather than just building a good product or making money
Students and entrepreneurs from all over the world flock here.
 
Diversity of problem solving approaches
 
Student/Entrepreneurs become the best technology transfer agent!
SV entrepreneurs are more ambitious and not afraid to think big
X100
They tackle 28% bigger market sizes with their startups.
SV Entrepreneurs would rather cause disruption and create impact – 19% higher would rather create impact rather than create a great product
 
They are 30% less likely to tackle ‘niche’ market.
 
The planet earth is their market, they are not afraid to think big and at the same time are aware that ideas “are cheap” — and big ideas about the same price — unless coupled with the ability to execute!
Liquidity Event: most exits happen in SV/USA
X1000
Most likely successful ventures will be acquired M&A>90%;
While a relatively small minority will seek to go to public markets
IPO<10%
Cash-out opportunities  for the founding team and investors, provides a tangible and measureable demonstration of success

While much more could be added to this table and any entry is probably worth a separate blogpost, constructing the same table for any other ecosystem, anywhere in the emerging world, would be a challenge. Regardless of how promising the locale might be, almost every entry would describe enormous challenges that are being worked-out and summarized as “work in progress”. No doubt that over the next decade or two other innovation ecosystems will develop to the point of challenging today’s SV supremacy, and make the global innovation landscape flatter.

In the meantime, it seems unavoidable that many entrepreneurs will bring their ventures here in their quest to globalize. Every day, foreign entrepreneurs bring their early ventures to Silicon Valley in their quest to scale them up globally. Their goal is to leverage the SV ecosystem advantages to catapult their ventures to stratospheric success. However, much work remains to be done to construct these landing platforms. Over the last decade organizations like Endeavor or government sponsored programs such as TechBA (México) performed valuable experiments at both ends of the spectrum. Endeavor, as a non-profit, went for quality, seeking elite entrepreneurs with an initial focus across Latin America[6], while TechBA did focus in quantity to appeal to the wide political support across the Mexican territory.

Foreign entrepreneurs parachuting in Silicon Valley.

Foreign entrepreneurs parachuting in Silicon Valley.

Landing here can be a hazardous activity. Proper training and accurate aim are must-have skills! Cognizant of these prevailing trends, I am led to the following conclusion:

Hundreds of ecosystems are sprouting up throughout world, and each one is seeking to create its own color and texture, learning from one other and improving and adapting the Silicon Valley model to local characteristics, norms, codes. Most have wisely given up any effort to replicate Silicon Valley after recognizing that the Valley could not replicate itself even if it wanted, since it is a freak of nature! Without a doubt, though, gears are in motion to create such a “Global Valley” and flatten the global innovation landscape. However, this will take time (probably decades –note that SV construction did not happen overnight).

What is the problem: Start-ups created in emerging countries tend to lack access to proven processes to enable them to increase the probability of scaling-up successfully. During any given time period very few companies are able to succeed in the same fashion as Mercado Libre (Endeavor-backed), which went from Argentina, to a NASDQ IPO in 2008.

What is the opportunity: Create a “landing experience” for entrepreneurs from emerging world regions increasing the odds of their success in the global scaling and in particular in landing here in Silicon Valley. While entrepreneurship at its core is Darwinian and there is NO process that could guarantee the success of everyone. At any given moment there are probably a few start-ups which actually could succeed. Such difference, going from let’s say 1 Mercado Libre to a few (2-4) would make a phenomenal impact in the development of the Buenos Aires innovation ecosystem and spill overs effects felt across Argentina and the Southern Cone.

In my next blogpost, I will address the conceptual construction of the “landing experience” for ambitious entrepreneurs and their global ventures born in emerging countries.

Until then – Carlos B.


[1] This is due to Moore’s Law, named after Intel co-founder Gordon E. Moore, who theorized that the number of components in an integrated circuit would double every year since its invention in 1958. 50 years later, Moore theory has proven to be still accurate.
[2] This is due to the Network Effect, which was popularized by Robert Metcalfe. Also known as Metcalfe’s law.
[3] San Francisco Bay Area or simply the “Bay Area”, Silicon Valley or the “Valley” is used interchangeably.
[4] Also called frugal innovation
[5] Guestimate of the increase of the probability of success when compared with the factor not being present.
[6] More recently it has expanded its focus into the Middle East and Africa.

About Carlos S. Baradello

Investor, thought leader, and advisor in areas of corporate innovation, born global entrepreneurship and global scaling.
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4 Responses to Flattening the Global Innovation Landscape – Part I: The Motivation

  1. jacques says:

    Excellent post, as usual. A few thoughts:

    – Maybe the leverage factors are too high. If with a multiplying factor, the total would be 10^25, maybe too much? Not even SV has generated this quantity of startups in the last 50 years.

    – I would believe we should take into account “centripetal endogamic ecosystems successes”: Startups that have to be considered successes from an statistical point of view (i.e. are bought by some huge company) but that in the end really failed to prove a successful business model or to deliver products to the markets at a reasonable cost. The ecosystem moved and was able to swallow another successful?? startup. But the total value delivered was very low.

    – Although many ecosystems around the world have improved significantly in many of the aspects shown in the table (i.e. funding availability, talented people), there seems to be a global mantra disqualifying any improvements shown elsewhere. Anyone with a different thought will not be taken seriously.

    – If we are talking globally, we should may think of measuring not only using US measuring tapes. Just in case we are being too SV oriented.

    – I fully support the concept of the world being less flat in some places than in other. Thus, the
    world not yet being flat. It is true any entrepreneur can try to fly to SV but this does not seem to be the optimal solution from none of the points of view. We should try to find better solutions globally.

    • Jacques, thank you for your thoughtful comments. I will take some of your comments into account for Part II fo this blog-post.
      In fact most of your points could be the basis for a future blog-posts.

      – Indeed it is not optimal for entrepreneurs from the Canary Islands to fly to Silicon Valley. I think it is only a temporary solution until the time the islands, where you live, would have developed an ecosystem which is as vibrant or dynamic as this on its own way.

      – The Canary Islands ecosystem, need to be created developing its own “secret sauce” however it need to provide high leverage factor in favor of the accelerated development of the embryonic venture. Also agreed that the success metrics can be different as long as society embrace and celebrate them. In fact, I am thinking that here in the Bay Area often there is an over-emphasis of the financial metrics (certainly I share the guilt!), while many would agree that the creation of social value, is also critically important.

      – Lastly, about my “guesstimate” of the leverage factors. I can defend each one on qualitative basis, but I have not quantitative research proving them that they are as stated. However, I picked large numbers between x10 and x1000 to illustrate the fact that the probability of success of any given new venture is so small (let’s say 1 in one thousand or less) that to obtain a real home-run success (i.e. the next Google) it is needed very high leverage factors de-risking and time-compressing its successful development.

      Thank you for you comments amigo, and I welcome your follow-up thoughts.

      Carlos B.

      • jacques says:

        Thanks for your answer. Just one remark. While commenting, I was not really thinking of the Canary Islands, more precisely I was not thinking AT ALL in the Canary Islands. In the Islands, size and other context factors configure an environment in which talking about “entrepreneurial ecosystems” seems adventurous. I was thinking more or Madrid+Barcelona, Berlin, London, Santiago de Chile, Bombay+Bangalore, etc.

  2. domingostern says:

    Great note Carlos!!
    From the standpoint of a consumer I had experiences trying to buy a product through internet that makes me wonder about the “flattening” you refer to.
    Some companies have a website where they offer products that I ordered and eventually found out that they do not have it, they have to get it from a third party. However, others do have what they offer and deliver as agreed.
    I had that experience both in the US and Argentina. In the US with suppliers of check scanners. In Argentina with Fravega. I bought a Whirlpool washing machine, I prepaid, they delivered a defective unit, I returned it, requested them to give another and they didn’t have it. Eventually, after a month, they returned me the funds, I paid Garbarino, and had it delivered the next day.

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