Sizing up your innovation ecosystem

Figure 1 illustrates the resources available to the knowledge economy on the left and the commercial economy on the right. Both are plotted against the different stages of the innovation spectrum: (1) discovery, (2) technology demonstration, (3) product development, and (4) commercialization. At the far left of the innovation spectrum (i.e. academe), there is a heavy concentration of government investment in fundamental research; while to the far right of the spectrum (i.e. in the commercial marketplace), there is a much higher level of industry investment in direct product development. The shortfall in resources available for technology demonstration and development is referred to as the valley of death.

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The actors engaged in moving innovations from discovery into commercialization are academia, small businesses, the investor community, and commercial industry. For these actors, it is within this valley that many potential innovations die for lack of the resources needed to develop them to a stage where either industry or the investor community can recognize their commercial potential and assess the risk associated with commercializing them.

Various characteristics of the innovation ecosystem influence the challenges encountered as Sue Student tries to commercialize her technology. For example, an important feature of an innovation ecosystem is that its entities are often clustered around specific technology sectors (e.g. information technology, biotechnology, aerospace, energy, etc). Most of the time, the entities in the ecosystem are geographically localized. However, there are cases where the ecosystem is virtual in nature; consisting of geographically disbursed entities that are bound together with a specific technology focus.

Two high profile examples of attempts to seed the development of strategically linked ecosystems are the US Department of Energy's Innovation Ecosystem Development Initiative [1], which is focused on speeding up the adoption of energy innovations, and the European Innovation Initiative's Digital Ecosystem technologies [2] that focuses on developing business systems based on information and communications technology. These national and international level strategic initiatives are just two examples; clearly innovation ecosystems can be structured around almost any subject matter. On a smaller scale, the Engineering Research Centers (ERC) program [3] at the National Science Foundation systematically funds potentially transformative engineering systems and then fosters the development of innovation ecosystems centered on the engineered system's technologies.

Although ecosystems comprised of non-co-located entities can be very effective in moving technology forward, there is a distance effect for non-co-located entities that tends to move the valley walls away from each other, as shown in figure 2. This widening of the valley makes it more difficult to be successful in translating the technology to the marketplace. To offset this effect, virtual ecosystems must build-in extra channels of communication that ensure high levels of interaction among the participating entities.

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Continuing with our case study, it turns out that Larry LabRat isn't a risk taker. He passes on joining the start-up and pursues an academic career at Scholarly U. This is unfortunate for the early-stage company's chances of success, because Scholarly U is the world leader in Profitium technology, in contrast to Academic U, which has very little established capacity in this area and is not located near enough to Scholarly U for Sue Student, now CTO of the start-up, to take advantage of a proximity to the Scholarly U ecosystem.

The capacity of the university's ecosystem is determined by a combination of the university's rank in the knowledge or academic economy, the vibrancy of the commercial economy local to the university, and the extent to which interactions between the two economies are readily accessible by the players. The university's institutional rank depends on its ability to train quality students and conduct research in the disciplines of science, technology, engineering, the arts, math, and business (STEAM-B). If the university covers the full spectrum of disciplines through both research and educational levels, it is ranked in the upper half of the university quality rankings depicted in figure 3. It would be ranked in the bottom half if it has a limited disciplinary spectrum—for example, educational offerings in only math, science, and the arts and/or has no research capacity.

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In this discussion, economic vibrancy refers to the vibrancy with respect to specific technology sectors. Entities comprise the firms (startup, mid-size, and large deep pocket corporations), entrepreneurs, investors (both early-stage angels, venture capitalists, and business bankers), and the myriad of startup support services (legal, insurance, mentors) that help make a venture successful. The local economic vibrancy will also include factors such as physical infrastructure, cyber infrastructure, and the policies and regulations that encourage venture development.

Figure 3 depicts the relative capacities of Scholarly U's and Academic U's ecosystems. Clearly Sue Student's problem is that her ties to the Profitium technology ecosystem, which has the capacity to support her proposed venture, are tenuous at best. To improve the chances of realizing her entrepreneurial vision, she must creatively find ways to overcome the lack of proximity (figure 2) and effectively move the valley walls of her ecosystem at Academia U towards each other. In contrast, Professor X at Scholarly U is well positioned to integrate into the ecosystem, if either he or his student had the desire to commercialize Profitium themselves.

The ecosystem does not manifest overnight, it takes the commitment of time and resources to initiate the ecosystem and allow it to evolve. However, once a sustainable ecosystem is set into motion, it is prudent to ask, how does one know whether the ecosystem is healthy? What are the indicators that determine whether the ecosystem will continue to be resilient? The answer is that the healthy ecosystem is one that maintains a sustainable recycling of resources, where the R&D investments are a fraction of the revenue generation, where poor venture concepts are allowed to fail fast; where the failed venture resources (including human capital) are rapidly recycled rather than discarded, and where there is a critical mass of human capital.

It is within the framework of these broad topic areas that Translational Materials Research will explore, in future articles, mechanisms that can be used to effectively move the valley walls of the valley of death toward each other or to raise the valley floor in a way that improves the chances that Sue Student or Professor X are able to translate their innovations into successful ventures.