Thought Experiment #38: Govups - Government Startups

Thought-experiment #38: 8-minute read

Having founded a growth-studio which has supported governments, accelerators, foundations, nonprofits and corporations to pursue all types growth, I’m putting forward a series of ‘thought-experiments’. A ‘thought-experiment’ offers an alternative to the prevailing ‘mental models’. It is (hopefully) a coherent ‘thought’ which summarises countless conversations and observations. And, it is an ‘experiment’ because it is the first step in putting something out there to the world, inviting others to build on it or knock it down, with the intent to rebuild it stronger. The following is a series of posts:

• Thought-experiment #38: Government Models: Govups - government startups 
• Thought-experiment #39: Government Models: Policies-as-Apps (PolicyStore)
• Thought-experiment #40: Government Models: Government business-models 
• Thought-experiment #41: Government Models: Government Ventures Studio

Please connect with me if you’d like to build on any of these thought-experiments.

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We are all used to viewing and interacting with the government as the single largest employer, funder, and influencer in our respective countries. I propose another, often neglected, non-formalised ‘role’ could be added to this list: a venture-creator. One possible pathway to creating a sizable, yet untapped segment of government-economy, is through what I am terming - Govups. Govups are designed to create ‘tipping points’, managed initially by small teams operating outside of traditional government risk/reward models, and focused on the ‘scale’ (not search) of new markets, R&D, or solutions. This ‘thought-experiment’ on Govups is an attempt to give Govups a definition, establishing what they are and what they are not. In short, Govups are a practical tool, to combine the power of government with the agility of startups. 

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Before going into details, allow me to highlight 4 key dots (factors) that I found through my observations during the build-up to writing this ‘thought-experiment’. 

Dot 1: An active player in creating tipping points

NASA has recently announced more than $300 million dollars worth of contracts awarded to over a dozen technology companies to create a ‘tipping point’ in the space industry. Similarly, the UK government has invested $500 million for a “significant equity share” in OneWeb, a British satellite tech company. Tipping points are needed for any technology to scale and benefit humanity. Just look at the smartphone’s success, and all it’s societal benefits, which was down to a unique convergence of technologies creating a tipping point. For the first time, touchscreens, batteries, data networks, compact computer chips, micro-sensors, and more, were cheap, reliable, and small enough to make a $600 smartphone possible. With Green Tech, it is a similar story: decades of playing at the edges with subsidies have now got to the point that the world's best solar power schemes are now the "cheapest source of electricity in history" (IAEA). This is because a myriad of government regulation, university research, and corporate solutions have brought us to the point where the cost is lower than the status quo alternatives and the distribution is global - be that through the extraction of raw materials, the production of the panels, the efficiency of conversion from light to electricity, the storage of that power for later consumption and grid distribution: this is what has led to the tipping point we are at today.  

Yet it shouldn’t take multiple decades to see this change. For example, despite huge progress and billions of hours of testing, there is slow progress in autonomous mobility, which some even say is 50 years from mass adoption. Many technologies offer hope, but the unit economics, or the infrastructure, or the regulation, isn’t there. Government has a key role in all of these technologies, from drones to 3D printing, either through the billions invested in R&D grants, procurement contracts, or incentive subsidies. Governments largely take the biggest risk, but are not set up to take the biggest reward (through any ownership) when they scale to help fund the next generation of life bettering technology. Just look at the iPhone: it was built with government-funded research, yet it is Apple's coffers which are filling up to the tune of hundreds of billions of dollars. I would argue that, as a venture-creator, through Govups, the government is uniquely positioned to focus on the long term horizon.

Dot 2: Speed of iteration (how fast you can tweak direction) is more important than absolute speed 

Most attempts at ‘innovation’ inside big governments (organisations) fail. Why? You only have to look at a recent poll on LinkedIn in which innovation leaders responded that 72% of their ‘innovation effort’ goes into “managing up”. In all this ‘managing’ - up, across, and down: what I call the ‘internal face of innovation’ - it’s no wonder there is often a lot of talk ‘about’ the work. Yet, the life - the vision - the idea is slowed down unintentionally because it gets documented, discussed, analysed, de-risked, shared, compromised, and complicated - but very little value is actually created.

On the flip side of moving too slow, is moving too fast. However, speed is not just measured in one-dimension - the speed of ‘launching’ something is equally important. Whilst governments and startups - see Quibi as a recent example - can both be fast, it is not the absolute speed alone that determines success. Governments also need to look at the speed with which they manoeuvre and change direction whilst in execution - the speed of ‘iteration’. Let’s take the example of cheetahs hunting a sprightly gazelle: computer models show that the best predictor of a successful hunt is not a cheetah’s top speed, but rather how fast it can stop and change direction.‘ Similarly, governments need to hardwire this type of speed, which is rarely achieved with existing organisational structures, norms, systems or talents. 

Dot 3: Teams beat organisations

During this pandemic we’ve already seen a few examples of how governments (as institutions) act with its focus on tendering to the outside (private sector) in the name of speed. But, as with dot 2, these contracts hinder the speed of iteration that is required. 

We’ve seen this most clearly where the UK government has over-relied on the private sector - “DHL, Unipart and Movianto to procure, manage logistics of and store PPE (personal protective equipment)” - the problems of PPE supply are well documented now. This is because throwing money, people, procurement, a system, or companies at the problem won’t necessarily solve it. 

We’ve also seen counter-examples where “in just 6 weeks, 8 specialist AI experts created an AI platform to capture and analyse crowdsourced data for the Cabinet to make covid-defeating strategies. And it cost a fraction of normal commercial budgets.” (Clustre, Innovation Brokers). 

What can we learn from this? We need fewer big-government initiatives, strategies, ministries, partnerships and more little-Govups, comprising teams of experts that can design collaboratively, execute at scale and iterate at speed. Learn more about how Apple is organised for innovation, with experts leading experts. 

Governments find it difficult to leverage the advantages of startups.

These range from their agility-centered methodologies, supporting vehicles such as incubators and accelerators, various models of risk capital, from venture capitalists to security tokens, and mindsets from risk taking, to experimentation, to scaling.  

On the flip side, startups are unable to leverage the advantages of government. This includes its large-scale distribution to every citizen, often sitting on more data than all the corporates combined, authority on regulations, and R&D funding mechanisms.

In an attempt to marry the advantages of both sectors, Govups are created and owned by the government but run like startups in terms of valuation, funding, and talent, to name a few.   

Dot 4: Government is notoriously bad at scaling

The genesis of this concept is the result of conversations with various leaders in different government entities, who talk about how they’ve come up with an innovation that is successful in their sector, but find that they are unable to scale it because of some combination of:

• any profit they generate can’t be used to reinvest back into further product, service or business model developments 
• can’t service ‘outside’ requests for their expertise because it goes beyond their mandate 
• can’t take on any outside investment or expertise to help them scale 
• collaborating across entities becomes too political at the execution level when it comes to roles, control, trust and risks management 
• their core customers are different to the ones that the ‘mothership’ entity is used to serving. Therefore, the ‘centralised’ department (e.g. marketing) approach doesn’t work because new customised messages, channels and narratives are required  
• can’t move at the speed that their customers, users, or stakeholders require them 
• they have to compete for resources as another ‘project’, but actually require the scale of resources that facilitate scale of growth 

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Now, onto Govups themselves. Let’s look at it through four different lenses.  

1. Govup is a spinout for the purpose of scaling

A Govup will often be a spinout, but not necessarily so. Spin-outs are rare, without a clear, repeatable framework. Every government entity who embarks on a Govup goes on its own unique journey, reinventing the wheel, and - more likely than not - repeating failures of the past. 

• Universities have been spinning out ventures that allow them to commercialise their research and in return take a license or equity stake, to fund further research. 
• Governments have been known to spin out, one example being the UK behavioural insights unit, co-owned by its employees, the Cabinet Office, and the innovation charity Nesta. This has now grown into a British export success story. 
• Global institutions like the UN creating UNOPS, United National Operational Services, a Govup that is “a self-funded, sustainable, and entrepreneurial arm of the United Nations” (Link)
• Corporates who understand that sometimes transformations are best achieved through units that operate independently. For example, Etisalat (in the Middle East) running Etisalat Digital as a standalone unit. 

Of course, we are all familiar with the astonishing statistics that most startups and, for that matter, government-backed R&D fail during the ‘valley of death’ - that is, the commercialisation stage. This can be proactively addressed if we say that the focus of Govups, as a model, is not on ‘search’ (the technology transfer or the product launch stage) but on ‘scale’ (the commercialisation). 

2. Govups are rooted with purpose

• Most governments use existing tools or ‘forms’ that they already understand, such as creation of a new department, ministry, body, or partnership. Govups are an alternative tool: a practical mechanism towards the goal of reducing the size of government and keeping it down. 

• While governments are good at starting big bold initiatives, programs and projects - they are not inherently good at scaling - or rather, they are not good at using the right scaling approach. Operating independently, Govups have the flexibility to test different scaling strategies: from classic linear scaling, fastscaling, to blitzscaling (Reid Hoffman and Yeh). The focus on scaling can be driven by many different factors, ranging between the ability to access different (and riskier) funding models, ability to have an impact beyond the narrow mandate of a singular government entity, and the ability to generate a profit and therefore provide greater rewards for employees, to attract the best talent. 
• The newly released Dubai Charter’s 4th principle talks about creating growth through "public and government-owned companies that compete globally, and generate income for the government". This thinking turns the role of the state from a wealth redistributor - by taxing one part of an activity to fund another - to a venture-creator, which can create and charge for value abroad, in order to fund activity at home. 

3. What Govups are not

Sometimes, it brings greater clarity to define what something is not vs what it is. 

• Govups are not governments attempting to innovate new tech, products, services, or ventures that are trying to compete with the private sector, or something the private sector can do better. The Govup is for creating new ventures to help create tipping points in new industries. For example, one could argue that Emirates Airlines was a Govup when it was first formed, because there was no airline industry in Dubai. It needed the government to create this venture to help kickstart a new globally, connected economy. They took a bold step forward - one that had not been assigned to any specific government entity, and subsequently has scaled it globally. I would argue that we need to create many more Govups than we have seen so far. A counter example is Palmwood - which although a separate unit dedicated to embedding design thinking principles across government - it operates within government recruiting, procurement and systems and therefore is not classed as a Govup. 
• Govups are not ‘collaborations’ - for example, where a government entity poses a challenge and invites startups to apply with specific solutions. 
• Govups are not a pure public-private partnership, where government is the funder and private sector the executioner. 
• Govups are not taking point problems that are inside any one government entity and creating new, independently-operated ventures which solve these problems. Govups are for system- and industry-level problems that require ‘scaling’.

4. A Govup Studio is required to support existing entities, programs, or projects to operationalise a Govup model. 

It’s not enough to say we wish or aspire to have more Govups. There needs to be support programs, formal legal recognition of such models, regulation changes (where required) to recognise such models, access provided to talent and resources, shared services, and accessible risk/reward sharing agreements: 

• Talent access: There needs to be a way for governments to access talent - not just as employees (CEOs), vendors, or freelancers, but crucially ‘founders’, who can take true leadership of Govups. Although it’s always a team effort, a startup wouldn’t exist but for the founders' early sacrifices, vision, and belief in the pursuit of something better. Similarly, Govups, at least initially, need to be run with founder-mindset rather than CEO-mindset.
• Regulations: This office or agency needs to be responsible for ensuring the appropriate licenses are created and granted to enable Govups to succeed. Eventually, one can even visualise a more formal market of Govups around the world: collaborating, investing and building on each other’s work. 
• Support programs: Provide a model of support that allows government entities to actively test, iterate and launch new Govups. This would include ‘scaleup’ support programs, to overcome the valley of death. 
• Shared services: Govups are rare because the government, as a shareholder in the current approach to spin-outs, rarely offers useful ongoing contributions either by way of financial capital, human resources or additional research that is actually beneficial – hence they become ‘passive’ shareholders. Rather than relying on each entity to create their own Govup - where the costs of owning and managing shares in any Govup is relatively high, because it isn’t their core ‘business’ - Govups are provided a shared set of services to lower the initial costs. 
• Risk/Reward Agreements: Rather than have each government entity figure out its own revenue model - equity stake vs income stake vs license stake - which would then get delayed by the different layers of consultation required - it’s important to have standardised ‘starting’ agreements that can then be tweaked and adapted for different Govups. 

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In summary, this thought-experiment introduces the concept of a Govup, where each Govup is a separate independently operated entity, co-funded and co-owned by the government and/or the private sector. It is an attempt to marry the advantages of governments (distribution, regulation, scale) with the advantages of startups (agility, risk, valuations).

There is an untold societal value that can be created in shifting to government as a venture creator, through Govups. 

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Before you go, please engage (like/share/comment) if you feel there is value here for you, so that your network can come across it. Thank you, sincerely.