Chairman’s Corner: April 2009

The Innovation Imperative

by Mario Morino, Co-founder of VPP

I set out to write this month’s column about President Obama’s forward-thinking decision to create an Office of Social Innovation to unleash new approaches to solving problems that have resisted traditional approaches. Even though the office and a related social innovation fund are still in their early planning stages and have not been officially announced, it is already clear to me that they represent a significant opportunity.

By creating this office and fund, President Obama is giving a clear signal of support for principles near and dear to Venture Philanthropy Partners: that the nation must invest in innovation targeted at the public good, that outcomes and impact matter that dollars should flow preferentially to those who are having the greatest impact in addressing our growing social needs.

But a funny thing happened on the way to that column. After sharing a draft with others, wiser than I, to test ideas and “poke the system,” it became apparent that I was missing the forest for the trees. There’s no question that shining the spotlight on social innovation is remarkably important. Yet it will require innovation of the broadest possible breadth and depth if we are to solve our most vexing social challenges.

So instead of focusing on social innovation, I feel compelled to lift up a level and talk about innovation more broadly. I am convinced that, amid the many challenges facing our President, nothing is more important for the long-term strength of our nation than driving greater levels of innovation across all sectors of our economy, including the nonprofit sector.

From the halls of Congress to the rural towns in our heartland, we simply have to come to grips with the fact that the rest of the world is no longer ceding the role of lead innovator to America. Emerging powers like China are seriously challenging us in our core competency. As the journalist James Fallows concludes in an outstanding cover story in this month’s Atlantic Monthly, “China [is using the economic downturn] to design innovative products that will get it the high profits and the high-value jobs Americans kept to themselves for decades. And that is very bad news for the United States, unless it uses tough times to reinvent itself, too.”

Existential Urgency
My family and I visited Israel in 2006 as part of an awards program. I remember leaving extremely impressed by the positive attitude toward achievement, the concentration of intellectual talent, and the advanced thinking relative to the reuse and conservation of scarce natural resources.  I also remember that this attitude was present in everyone we met, from top officials and business leaders to the tour guides and shop vendors. In a trip report immediately following our visit, I shared this observation: “Israel is finding solutions to the scarcity of resources in ways we can’t yet comprehend. Their compelling advantage is that as a people and culture they know they have to in order to survive.”

America has a deep, proud tradition of innovation. But we don’t have this existential urgency and, in spite of all we’ve done, we do not enjoy a full cultural embrace of innovation. We desperately need that urgency and embrace.

Through radical innovation in our commercial, nonprofit, and public sectors, we must break the status quo that is too often miring us in mediocrity—from how we manufacture our products to how we educate our children, from how we consume energy to how we provide health care. We have no choice but to discover and deliver new, different, and better ways of dealing with our most vexing challenges. The aftermath of the financial crisis and threats to our global leadership will put America’s spirit of innovation and entrepreneurship to the test of its life!

Yes, We Can
We know we have it in us as a nation to meet this challenge. I witnessed the drive to innovate while growing up in the 1950s, when starting my career in the 1960s, and while riding the wave of information technology through the 1980s as an entrepreneur. But nothing in my experience compared to what I saw in the 1990s, when three forces converged to ignite an exuberant burst of innovation and entrepreneurship.

Motivation. The tumultuous industry shake-ups in the 1970s and ’80s caused a breakdown in trust for a generation of employees, blue and white collar alike. The shake-ups dramatically changed the mindset of millions who lost their jobs as a result of—pick your euphemism—“downsizing,” “restructuring,” “consolidation,” “merger,” “outsourcing,” or “reductions in force.”

I witnessed this in several ways. First, the software firm I co-founded helped a number of Fortune 500 firms consolidate operations, with resultant large, well, reductions in force. And, in our own firm, when I had the bitter task of telling good friends that I was letting them go, one looked me in the eye and said, “I understand what you have to do, but, @%*!, I’ll never work for someone again!” He struck out on his own; many others across our nation did the same.

Less obvious is how their sons and daughters internalized what they saw. When many of them started careers in the 1990s, they became entrepreneurs, embraced “free agency,” or went to work for smaller start-ups. They chased their dreams, drove change, and satisfied their desire for independence and self-actualization.

New Capital. Although wealthy individuals had invested through venture capital for a long time, the volume of capital exploded in the 1980s and ’90s as a result of changes in the Tax Reform Act of 1986 and an influx of large institutional investors. This vast source of capital funded many aspiring entrepreneurs and emerging business opportunities through the turn of the 20th century.

Disruptive Technology. Early in the 1990s, the Internet, previously the domain of the Department of Defense and academic researchers, went mainstream. It gave the Davids of the world the power to compete with corporate Goliaths. Suddenly, an entrepreneur working from his or her basement had the power to access the world’s resources—anyone, any place, any time. The price of basic business technology plummeted.

The Tailwinds Today
Great crisis and disruption can lead to important new inventions, as discoveries often emerge out of a period of economic collapse. I have a sense that something totally new and really big is going to emerge out of our current crisis. An innovator—or, more likely, a group of innovators collaborating across great distances—is going to create something that will fundamentally change the way we live. I haven’t a clue what it might be and, if past experience holds, I wouldn’t even recognize it if it were in front of me.

What I do know for sure is that I’m picking up the early signs of a new convergence.

Influx of Talent. The carnage in big corporations is going to drive millions of additional people—especially the young people who grew up in homes hit by corporate layoffs in the 1980s—to explore the entrepreneurial route. Clearly, the conditions are once again ripe for bright young minds to pour their energies into bootstrapping their own entrepreneurial ventures rather than tethering themselves to big companies.

In addition to young talent, we will also see an influx of seasoned Baby Boomers, the most highly educated generation ever, who are looking for purpose through an “encore career” rather than retirement. Not all encore careers are entrepreneurial in nature, but the potential for innovation is enormous. Just take a look at the remarkable winners of the Purpose Prize, sponsored by Civic Ventures. I love the story of the former lighting director who built a $28 nut sheller that has made a huge impact on the lives of farmers in West Africa!

In addition to these talent infusions, we will also see huge contributions from New Americans. A key ingredient to American success in innovation and invention has been its openness to new people with new ideas. A disproportionate number of innovators in America were born outside the United States, just as literally millions of small businesses were created by immigrants over the years. This is a vibrant source of talent for our future.

New Mindset. With youth setting the tone for this talent, a new mindset is emerging. Compared with previous generations of entrepreneurs, a far greater proportion of entrepreneurs today seek to do well by doing good. From engineering students at MIT developing an inexpensive shock absorberthat harnesses previously wasted energy and uses it to improve fuel efficiency to Stanford grads selling hundreds of thousands of solar-powered LED lights in poor communities in Africa and Asia, the new entrepreneurs are rejecting the greed and ethical lapses they’ve witnessed in their young lives.

They have been heavily influenced by macro events like Katrina, global terrorism, growing threats to our climate, and the meltdown of our global financial system. They are much more socially conscious, inherently global, more concerned about the state of our planet, less enamored of traditional political-party orthodoxy, United Way, apple pie, and Chevrolet. YouTube, Stephen Colbert, and the Smart Car are much more relevant.

New Network Technologies. Thanks to an entire new class of social networks, resource-matching and open-source models, and other innovations of the second generation of web development and design (Web 2.0), the Internet is becoming the ultimate tool, not just for connecting but also for organizing and coordinating across a broad and diverse continuum of resources—with a speed, ease, and effectiveness we’ve never witnessed before. The cost of coordination is falling to zero.

If you had a good idea in 1970, it was incredibly hard to move it forward and bring it to market; it was often one man or woman against the world. In the 1980s, the arrival of the PC allowed the little guy to look big and compete in new ways. When the Internet arrived in the 1990s, one man or woman could suddenly sell to the world. Now, thanks to the newest Web-based tools, it’s not just about selling to the world anymore. The next wave is collaborating with the world. The time from idea to result will—again—shrink dramatically.

We’ve only seen the first glimpses of this potential. For example, Barack Obama would still be the junior senator from Illinois if not for the online tools 20-something Facebook co-founder Chris Hughes and other innovators put into action. With a modest budget and small team of developers, Hughes and others created community-building tools for the Obama campaign website which made it far easier than ever before for motivated volunteers to organize themselves and mobilize others.

Even when the vast majority of the Obama campaign’s staff and budget were focused in the critical early-voting states of Iowa and New Hampshire, the Obama website was giving volunteers in every corner of the nation the training, talking points, images, databases, and other tools they needed in order to find supporters and get them to the polls. When it became clear that neither Obama nor Hillary Clinton was going to land a quick knockout, “all of a sudden it made a difference that we have 60 really organized groups in Kansas, a caucus state,” Hughes told Fast Company.

Dallas Mavericks owner Mark Cuban just launched a fascinating experiment in what he calls “open source funding.” He has invited entrepreneurs anywhere in the world to post business plans on his blog. He hopes that his open approach will produce not just good investment opportunities for his company but also spark widespread innovation. “I expect other people can and will comment on [your idea]. I also expect that other people will steal the idea and use it elsewhere. That is the idea. If it’s a good idea and worth funding, we want it replicated elsewhere. The idea is not just to help you, but to figure out how to help the economy through hard work and ingenuity.”

Half Full
These three converging vectors—talent, mindset, and technologies—could create the conditions for commercial and social innovation on a scale we’ve never seen before. This is the forest, the iceberg below the surface, the big kahuna. This is why our national cup could be half full even at this time of deep recession. This is what President Obama has a chance to harness.

If necessity is the mother of invention, then this crisis, which has laid bare the depth of our needs, provides us the dramatic necessity to drive innovation and spur entrepreneurs of all types and sizes to find ways to deal with our challenges. The real change makers will be those throughout the land in small and big enterprises, the new and the old, the scientific innovator to the obsessively compelled entrepreneur, across all sectors, who take up this challenge.

So while I could not be more supportive of the Office of Social Innovation, I believe this is a chance for the President to systematically foster a mindset in America that is nothing short of a cultural and economic ground-shift. He must broaden the focus across and among the private, public, and nonprofit sectors—to seek and spark the most promising innovations whether they come from commercial or social entrepreneurs, executives or line workers, community leaders, public servants, researchers, or citizens who don’t fit into any of these categories. The real opportunity before the President is to supercharge innovators from all walks of life and make commercial and social innovation our national imperative.