Dispelling myths around innovation and economic growth

#Perspectives on #Innovation, #R&D and #EconomicGrowth

Most people have a hobby. Mine - despite a popular myth circulated by the Wall Street Journal a few years ago that my hobby is drinking coffee - is actually testing my assumptions. I positively love it and have learned to actually enjoy being wrong and changing my view (it gets easier over time especially if you stop trying to define who you are based on your views).

I consume a lot of knowledge in the form of long form podcasts (If you're interested in what I find I have a personal telegram channel I use to keep interesting podcasts I find... t.me/PerspectivesUnplugged) as well as academic papers (often AI summarised) and books...

BUT....

...lately a few books and research papers landed on my table that really tested me. As someone who has been in the startup, innovation and VC space for over 16 years I was faced with having to really look at the data and check if my assumptions are still correct.

The aim of this article is not to do a deep dive into the articles, but to highlight some of the research I read that is starting to change my mind and to invite you also to start consuming more sources that open your eyes and make you see things differently.

As Proust is fabled to have said,

"the true journey of discovery lies not in seeking new lands but in seeking with new eyes".

And as always, remember that I use these newsletters as a travel blog. If you like my pics you can always sneak into my private gallery at https://photos.app.goo.gl/bDMoWjAzKU5Ytv7z8

Here's a taste for you of what I recently read to challenge your own assumptions:

• Most innovation funding risk is actually taken by government rather than privately funded VCs. A lot of the tech that enable you reading this very post come from funding from government programmes. Tesla, Apple and many others are a testament to this (this doesn't take away from the entrepreneurial genius required to integrate and sell the tech, but just to remind us that the true innovations don't always stem from the companies we buy from).

• SMEs are not actually on the whole great contributors on the economy as most SMEs are not particularly innovative or high growth. The majority of innovation stems from government or large company backed contracts to specific young companies that have already demonstrated ambition (source: Mazzucato).

• For an economy to grow it is far better to support specific high potential startups (think Polihub in Milan or August-Wilhelm Scheer Institut in Saarbrucken for example) with specific mandates than just to hand out subsidies.

• Neither large companies nor small businesses create jobs. Most jobs are in fact created from busines startups and young innovative companies. This is anecdotally true: most small businesses are incapable of growing beyond owner operated business.

• The best way to support SMEs is not to give tax breaks and benefits to SMEs but to reduce red tape. SMEs will open and close very often (it is the nature of the beast). A good support system should be one the likes of what you can find in the UK or Estonia (vs for example Italy or Switzerland where the costs of starting and of compliance are prohibitive).

• The countries that grow the most are those with heavy government sponsored programmes that invest in R&D and not ones which rely on the private sector.... BUT...

• R&D is NOT the source of most growth per se. R&D is not linear in contributing to innovation. But if R&D is integrated in business so that innovations can be tested quickly, changed and then brought to market, the country grows substantially faster (this speaks to why it is so crucial not to incubate startups - deep tech or otherwise - in isolation but always in partnership with companies and organisations). Freeman states when R&D is viewed in this non linear context where education, training, design, quality control etc (source: Mazzucato, The Entrepreneurial State) are deeply interconnected that is when R&D is truly able to flourish and contribute to the economy.

• Most Startups only need to tackle 5 key areas (and a total of 17 sub areas) to be succesful. That's not to say that mastery of those 5 areas guarantees success, but often we saddle entrepreneurs with far too much complexity for their requirements. To give you a taste: Access to Markets, Access to Reputation, Access to Financing (not funding!) etc.

• The countries that experience and experienced the highest growth rates are countres where the government took a proactive decision and correspondingly supported the creation of sharing ecosystems and incentives to invest and learn. Eg. Germany with the creation of various educational programs that were deeply intricated with industry (today we would call them technical college or TVETs). When you have a population that is skilled and whose skills are actively sought in the market you have low unemployment, increasing standards of quality of work and generally higher productivity. People who have learned a trade and are working are often also more open to continuous education so also less resistant to change.

Change your mind!

I shared the above to make the point that often what we think, the business we have setup and the rules we operate by are often based on outdated sets of knowledge. Today there are millions of incredible researchers, innovators and scientists completely turning on the head many of the assumptions that much of society operates on.... and in the process helping us improve our quality of lives.... But as humans we are often resistant to change. Even if we pay lip service to how open minded we are, we are often fighting it internally because learning new things means having to let go of a lot of what we based our security on, both financial (or work) and psychological.

This is a post about inviting you to have the courage to believe in yourself. To not worry about changing your mind. Only an idiot judges you for changing your mind when presented with new facts.

The world is truly amazing teacher. Don't be afraid to listen to it. A lot of what you will learn might make you a little uncomfortable at first, but it won't be long before you will feel like life is just easier.

You are amazing irrespective of what you know. Here's to you and your passion for life long learning.