Tackling the Growth Challenge: We need to focus on Chasm II

Politicians and Policy-makers of different ideological orientations all agree on one thing: We need to think about how we grow our economies if we are to deliver the economic, social and political benefits so critical to our future.?

Ideological prescriptions for tackling this vary, ranging from free-market philosophies (current UK mantra) to heavy state intervention (the Chinese model), with a variety of different compromises between these two extremes (for example the US approach adopted under the Inflation Reduction Act). However all these approaches are fundamentally rooted in a binary macro-economic perspective, which contrasts science and technology enabled innovation versus the availability of financial capital, with an implicit commitment to the idea that ‘the market knows best’.?

In the UK most policy interest and subsequent investment is focused around research and the technologies associated with early-stage prototype development, for example in the UK the focus is on The 8 Great Technologies, or the promise of Quantum or AI/ML. The other aspect of this binary approach is the emphasis on providing funding for what is loosely described as ‘scale-up’ – defined by the OECD as enterprises with average annualized growth in employees or turnover greater than 20% a year over a three-year period, which actually excludes many of the companies with the highest potential for very rapid growth.?

As a result, the UK has been very effective at taking new science and technology to the prototype stage but poor at translating these prototypes into companies that can contribute significantly to economic growth. The journey between validated prototype to significant market traction is generally poorly understood and sometimes described in vague terms such as ‘the valley of death’.?

We found no evidence of this mystical ‘valley of death’ in our 10-year global programme which led to the creation of the Triple Chasm Model – instead, our data identified the existence of 3 ‘Chasms’, where growth stalls,? along the commercialisation journey:?

• ?Chasm I involves converting research ideas into validated prototype products and services. This is where the bulk of R&D investment goes, for example the investments in the UK via UKRI (and hence also Innovate UK). Maybe not surprisingly, our data shows that 90% of products and services successfully cross this Chasm.?
• Chasm II involves validating the product or service with customers and developing viable and scalable business models. This is the most challenging of the Chasms with only a 10% success rate, and what has probably been dismissed as the ‘valley of death’.?
• Chasm III involves rapid deployment with mainstream customers based on a clear distribution strategy, leading to real Scale-up. 90% of products and services successfully cross this Chasm, provided of course they have successfully navigated Chasm II.

Tackling Chasm II requires a wide range of vectors (or drivers) to be addressed, not just technology and funding, encompassing ‘external’ vectors which drive market take-up, ‘internal’ vectors which include technologies, IP and manufacturing, and ‘composite’ or ‘trade-off’ vectors which determine the best balance between ‘pull’ and push’.?

Unfortunately the current approach to this challenge is to lament the absence of ‘patient’ capital and to encourage venture capital to tackle this, without a nuanced understanding of how this class of investment needs to balance the risk-reward relationship for its own investors (for example, urging pension funds to invest in this space will not work unless investors can see how this risk can be mitigated by fundamental changes in commercialisation strategy).?

We clearly need new forms of structured interventions which directly tackle the Chasm II challenge: this of course will involve changing the ‘distribution’ of state support along the commercialisation journey, which has serious policy and resource allocation implications which need to be tackled head-on.