Government-as-a-Platform: Fewer startup-incubators, more market-incubators

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Government is often the single largest employer, funder, and influencer in any society. The purpose of this new series is to explore - “the government’s role, whereby government entities are no longer mere operational units, but rather centers for planning the future and catalyzing global innovation” (HH Sheikh Mohammed); what government (with a little g denoting the functions of government) could or should be; how to create practical support, models, solutions, programmes, and entities that enable these new roles; and answer the question of how might we shift from government as a provider to government as a platform?

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Every industry is going through some level of disruption. This disruption is blurring the lines, between consumers and producers, between one industry and another, and between status quo and what’s truly possible. All this implies that some ‘actor’ has a key role to play, not (just) as an enabler or facilitator of smoother transformations but also as a creator of many new industries that can be enabled by the Fourth Industrial Revolution.  

Taking a helicopter view of how value is created in society, we have all the entities who can be broadly categorized as those in pursuit of ‘search’. These can range from R&D units investing in new tech, to academia with its science discoveries, to think-tanks who make sense of mega-trends in society. These insights are then leveraged by institutions in the ‘start’ phase. These are startups, incubators, accelerators, venture builders, and investors who are in pursuit of the creation of ‘new’ innovations.

Then, there are scale institutions, from lobbies and regulators to trade bodies, who are more often than not operating in the domain of incremental, increasing operational efficiency, and are reactive to needs. Included in this ‘scale’ space are freezones, which as the UAE has shown, can be a strategic lever to create new markets such a financial services or creative services market. Yet these markets are ‘new’ to the country (fast-follower), but not necessarily ‘new’ to the world (early-leader). 

Anything truly new is up against the old-guard systems and mindsets. Building a venture is hard enough when focused on the internal problems (hiring, innovation, sales etc.) let alone when you’re fighting the external system to simply give you an opportunity to prove value to the greater good. This is the big problem. A big problem that is also a big opportunity. 

What is needed is practical mechanisms (solutions) which enable the bridging of start and scale. Just as startups have incubators, I’m proposing governments would do well to consider creating (new) market-incubators. market-incubators don’t work at the individual entity (startup) level but rather at the systems-level. 

Just as an incubator includes a cohort of startups usually at a similar life stage and industry vertical, likewise a market-incubators, focused on a particular industry. A market-incubators incubates problems at the industry level. It creates a portfolio-based approach where it sources, creates, and funds projects which have potential to create new markets through the following levers:

1) Regulations: A market-incubators needs to be the leader in creating and funding new regulations. This may mean making use of other vehicles; for example, the General Secretariat of the Cabinet (link) has created a RegLab, which allows anyone (not just government) to propose and create the case for new legislation which can tested on a smaller scale before a nationwide rollout. Where such vehicles don’t exist, the market-incubators, with its government connections, should create the case for such vehicles.

2) Experimentation corridors: Regulation merely gives you the permissions. But then “we need safe places where [we] can try things” (Google CEO) through physical corridors. The market-incubators’s job is to create and fund these corridors, so that they enable not just a few ventures but many to learn faster in the real world.

3) Unit economics: The market-incubators’s job is to foster the ‘tipping-point’ where the new market (solutions) are comparable to alternatives. That is to say, to put in motion initiatives, programs and projects that can reduce the unit economics of the industry, so it encourages new ventures. For example, if the market-incubators focuses on helping the country to become a data-center nation, increasing from 2 to 20 data centers, then the market-incubators needs to work with different players, from electricity producers to electricity regulators, to reduce the cost of electricity supplied to data centers, as that’s a critical decision-marker for anyone deciding where to locate their data centers.

4) Early-leaders: To help accelerate the creation of a new market, you cannot take the typical innovation lifecycle approach of appealing to the early-adopters. market-incubators need to be focused on early-leaders who, by creating their ventures in your country, send the right market signals for many others to follow.

5) Fast funding: The market-incubators can be a proactive in proposing and implementing new funding models that are more appropriate for the risk/reward potential of the new market. For example, for the shift to renewable energy to gain unstoppable momentum, the market-incubators can enable, back and support ‘small’ players to issue tokenised, tradeable securities, so that they can raise investment to scale. The alternative options available to these small players, in the form of VCs investors is too slow, or IPOs which are too expensive.

6) Speed: Bill Gross’ TED talk explains why the single biggest reason why startups succeed is market timing. Rather than wait for this timing to take its course, the market-incubator’s job is to create the right context for market timing to happen sooner.

7) Data and IP sharing: For any new industry to emerge faster than leaving it to industry dynamics, it is important to bring greater transparency. The market-incubators can stipulate for entities who want to be part of their programs to share their data, failures and patents for the benefit of all. 

These are just a handful of things the market-incubators needs to work on. Others include creating the right incentives, doing some of the jobs-to-be-done (e.g. landscape analysis) that are required in any decision for new ventures to launch, funding infrastructure where required to solve for the chicken and egg problem of adoption, reducing risks, creating easy access to talent through sponsored visas, developing shared spaces where different parts of the value chain can co-create together, and more.

Market-incubators give Adam Smith’s invisible hand, a visible face. They are focused on creating the right context, which then enables the content (entrepreneurs, funders, supply chain stakeholders) to flourish. Although most of us think the renewables or autonomous mobility will lead to transformation of the world - the question market-incubators own is how can we accelerate this from a 30+ year future scenario to circa 5+ years. 

Of course, there is economic value for the country to create new markets, and the subsequent benefits of employment, taxes, and investments could justify the funding of market-incubators by government. However, there is a case to be made with zero-government, that government shouldn’t fund them, except maybe for some seed capital to start. Just as startup incubators, from Y-combinator to Techstars, are investment vehicles for their funds, it is not a big leap to expect market-incubators to eventually be self-sustainable, without government money.   

In short, we see so much of societal energy going into the startup phase of institutions, and not enough into those that can bridge the gap between start and scale.