"Great Oaks from Little Acorns Grow," Growing High-Impact Companies Around Major Anchors

Great Oaks from Little Acorns Grow: Strategies for New Venture Growth is a very interesting research study into why entrepreneurial firms grow. In an interview, its author concludes:

Although firms are economic entities, they are nevertheless affected by social variables such as legitimacy, status, and reputation because all economic transactions are embedded in a social supra-structure... New, unfamiliar activity or entity does not possess legitimacy because of its inherent novelty. A new firm, therefore, lacks legitimacy and may be looked upon with suspicion by stakeholders.

Maybe you have to have been there to really get what she is saying. I left KPMG, where I sold lots of consulting, and started Capital Insights, a company no one knew. I was stunned to find it so difficult to sell even to former KPMG clients. I underestimated how important KPMG, versus John Warner, was on the business card. I had a partner observe that our business had signifincalty more credibility three years after starting just because we were still around. Merely surviving that long meant to the outside world that we had to be doing something right, even if they weren't sure what that was.

The author goes on:

When a young, unknown firm has affiliations with high-status entities, stakeholders tend to impute the status of the latter onto the former, thus granting higher status to the young firm... While having a large prestigious client may seem like a double-edged sword because of the power such a client has over a young, struggling firm, the signal that the prestige of the client sends out is more valuable than any potential negative impact. Hence, entrepreneurs and managers should almost never shy away from stepping out of their comfort zone and taking on large jobs, since the payoff does arrive.

InnoVenture is focused on creating Communities of Innovation around major economic anchors in our region. We believe this is the best place to breed successful, high-impact companies, and to a large extent this is why.

How would you spent part of $20 million on education?

The BellSouth Foundation has committed $20 million over five years for state-led virtual schools and technology based learning. Carver School of Technology, part of the Atlanta Public School System’s The New Schools of Carver, will serve as a pilot site. On paper this school looks very impressive.

What kind of application would you make to BellSouth to spend a part of this $20 million?

InnoVenture 2006 Update Conference Call - November 30 at 8:00 am

There will be a conference call at 8:00 am on Wednesday 30, 2005, to provide an update on the progress of planning for InnoVenture 2006. The call will include details of plans for corporation, university and government facility innovation displays in the Innovation Hall, as well as presentations by emerging companies in the Venture Hall and by reseachers in the Invention Hall.

If you would like to participate in the call, please contact Brenda Laakso, InnoVenture Executive Director, and she can provide you with the call-in details.

Select leaders with the right backgrounds, not just "the right stuff"

On the blog at Innosight, a website related to Harvard Professor Clayton Christensen, an observation is made about selecting top talent.

One of the tenets of Innosight's thinking is that organizations need to select managers with the right backgrounds, not just "the right stuff." An organization should look for managers with the right "schools of experience" to deal with situations that may be unfamiliar to the organization as a whole.

In Swamp Fox Insights: Innovation and Entrepreneurship in a Time of Profound Change, the second of four principals for growing high-impact companies is "Assembling Outstanding Leadership."

The most critical part of identifying the right CEO is developing a very clear profile of what is essential to lead a specific company launch as a guide for assessing potential candidates... Carefully review a candidate's accomplishments, his failures, what negative feedback he thinks references might give, and his reasons for leaving prior companies. The objective is to accurately assess the candidates’ past behaviors that have led to his success or failure as the best indication of future behaviors that can be expected.

Great minds think alike.

Liberty Fellowship seek nominees for Class of 2008

I recently had lunch with Liberty Fellowship Executive Director Jennie Johnson. The Liberty Fellowship is currently seeking nominations for the class of 2008, and in particular is seeking nominations of outstanding women in business. As a member of the inaugural class of 2006, I can attest that the Liberty Fellowship is a life changing experience. Click here for information about the nomination process.

The mission of the Liberty Fellowship is "to inspire enlightened, values-based leadership in South Carolina." Founder Hayne Hipp said ,"Our vision of values-based leadership is founded in the capacity to do what it takes to lead a life that is good, useful, worthy, and meaningful. It necessitates confronting one’s human nature, and cultivating one’s humanity to become more self-aware, more self-correcting and more self-fulfilling... Our goal is that in the very near future, we need look no further than South Carolina’s leadership to understand the meaning of values-based leadership."

Nomination Criteria

Liberty Fellowship nominees must meet the following criteria to be considered for candidacy:

* Executives/professionals between the ages of 25 and 45 who have achieved success in their fields;

* Men and women who have demonstrated their potential for leadership at the highest levels of corporate and civic responsibility;

* Possessed of a breadth of experience and level of maturity that will enable them to contribute effectively to the seminar experience; as well as inherent intellectual curiosity and capability;

* From diverse backgrounds in terms of ethnicity, race and gender;

* In charge of South Carolina companies, business units or entities -- or comparable professional positions -- in either the private, nonprofit or public sectors.

Why do some company have more spin outs than others?

Recently, Dolph Bell of the Greenville News wrote an excellent article, The Children of Fluor. It is not well understood how important major companies are to stimulating the creation of entrepreneurial ones in their sector. This story highlights a great example of the benefits of clustering. In places like Austin or Silicon Valley, there would be lots of examples like this. Here, there are only a few.

Previously I have commented on how important this phenomena is. We have a culture that creates lots of community banks, but not technology companies.

Les McCraw, former Fluor CEO, opined that there were more Fluor spin-outs than at other large companies because "the skills that Fluor employees possess are typically more "transportable" than the more specialized skills of employees at other large corporations in Greenville such as BMW, Michelin or General Electric. Fluor is a services company, selling a range of services to a variety of clients, he noted, while BMW, Michelin and GE are manufacturers focused on making specific products."

I'm not sure it's really true that the skills of people were less transportable at Liberty Corp or at Multimedia, just to name a couple of major Greenville companies in the past couple of decades, but they didn't spawn 12 spin-out companies. I think there are much more challenging cultural issues at play.

What do you think? Why do some large companies have more spin-outs than others?

Does anyone have experience with TRIZ?

Recently I was introduced to TRIZ (pronounced "trees"), which is an acronym for the Russian phrase for "Theory of Inventive Problem Solving." TRIZ was developed by Genrich Altshuller and his colleagues in the former USSR starting in 1946, and is now being developed and practiced throughout the world. I have become convinced that TRIZ is a very valuable tool for systematic innovation, but I'd like to know more.

Do you or anyone you know have any experience with TRIZ? If so, please leave a note below, and I would appreciate they opportunity to connect and compare notes.

Is the Governor right? "School choice is central to moving state forward."

Mark Sanford is nothing if not persistent in pursuing his core values. Recently the Governor wrote an op ed in which he stated:

I believe becoming more competitive means pushing for reforms that are consistent with market principles, common sense, and fiscal responsibility. When it comes to making our state more competitive and more successful in the education arena, I have always firmly believed that giving parents more choices in the marketplace is critical.

Governor Sanford closes the editorial:

We can -- and should -- have a legitimate discussion on how to best implement broad school choice, so that every parent can choose the best option for each child. Our one-size fits all approach to education hasn't gotten us where we need to be, and I firmly believe we must try something new -- something that's worked in other states -- for the students who need it most.

I'm open to any new idea that will move our schools forward, but rest assured I'm more convinced now than ever that a big part of that solution lies in expanding access to additional educational choices.

So, do you think he is right? Is giving parents more choices in the marketplace in some form central to moving the state forward?

The Tragedy of the Commons

Those of us involved in civic entrepreneurship appreciate how difficult it is to create a common area where everyone can benefit. One the one hand, few want to pay for the commons, while on the other hand everyone wants to benefits from it.

In the December 13, 1968 issue of Science, Garrett Hardin writes a very insightful article, The Tragedy of the Commons. He includes this analogy to describe the tragedy.

The tragedy of the commons develops in this way. Picture a pasture open to all. It is to be expected that each herdsman will try to keep as many cattle as possible on the commons. Such an arrangement may work reasonably satisfactorily for centuries because tribal wars, poaching, and disease keep the numbers of both man and beast well below the carrying capacity of the land. Finally, however, comes the day of reckoning, that is, the day when the long-desired goal of social stability becomes a reality. At this point, the inherent logic of the commons remorselessly generates tragedy.

As a rational being, each herdsman seeks to maximize his gain. Explicitly or implicitly, more or less consciously, he asks, "What is the utility to me of adding one more animal to my herd?" This utility has one negative and one positive component.

1) The positive component is a function of the increment of one animal. Since the herdsman receives all the proceeds from the sale of the additional animal, the positive utility is nearly +1.

2) The negative component is a function of the additional overgrazing created by one more animal. Since, however, the effects of overgrazing are shared by all the herdsmen, the negative utility for any particular decision-making herdsman is only a fraction of -1.

Adding together the component partial utilities, the rational herdsman concludes that the only sensible course for him to pursue is to add another animal to his herd. And another; and another. . . . But this is the conclusion reached by each and every rational herdsman sharing a commons. Therein is the tragedy. Each man is locked into a system that compels him to increase his herd without limit--in a world that is limited. Ruin is the destination toward which all men rush, each pursuing his own best interest in a society that believes in the freedom of the commons. Freedom in a commons brings ruin to all.

Click for the full text of The Tragedy of the Commons

A Call for Disruption in Education

This article originally appeared in the Wall Street Journal on November 4, 2006.

S.O.S. (Save Our Schools)
By CHRIS WHITTLE
November 4, 2005; Page A14

What if Ford announced tomorrow that it was eliminating all research and development in order to add $7.4 billion to its annual bottom line? Readers of these pages would instantly recognize the absurdity of such an action because only through R&D can a company maintain its competitiveness and value. That an organization with more than twice the annual revenues of Ford has virtually no R&D budget will surely be surprising. But R&D was not stopped. Rather R&D was never seriously begun.

The entity with virtually no R&D? American public education. The revenue for K-12 schooling in the U.S. is around $400 billion per year. Our spending on K-12 education in just two school days equals the entire revenue of an entry-level Fortune 500 company. Yet despite spending so much to operate our schools, our investment in advancing their design and updating their systems is negligible. Why?

It was not intentional. It largely just happened -- an artifact of the historical development of public schools. As cities and towns sprang up, school systems were built to serve them, which resulted in one of the most fragmented sectors imaginable. The U.S. has around 15,000 school systems, with only six schools in the average district. This immense fragmentation means that virtually all of our school systems lack the scale to conduct any meaningful R&D. Ask any school superintendent about the district's R&D budget. He or she will laugh -- or appear puzzled.

If school systems were businesses, only three would have scale sufficient to be included in the Fortune 500 -- and those three would be a long way from the top of the list. Even the few large-scale districts find that pressing operational issues prevent their conducting significant research and development.

This seems like a perfect example of where the federal government could and should step in to fill a breach. Certainly it has the required scale. Certainly such involvement seems appropriate, if the prerequisite for federal action is the inability of local or state entities to act. Federal engagement in innovation in other categories critical to our national well-being provides ample precedent. Consider the $27 billion of R&D money pumped into the National Institutes of Health every year to help bring our citizens one of the finest health-care systems on the globe. How about the $9 billion that went into just one Department of Defense project: the design and development of the Joint Strike Fighter?

So is our federal government contributing to the future of our children by investing in school design on a similar scale? I am sorry to report that it is not. Within the Department of Education is a small entity called the Institute of Education Science that is charged with conducting educational research activities. Unfortunately, the part of its annual appropriation devoted to education research is $260 million: 1% of annual federal spending on health-care research. If the federal government were to spend on education research an amount pro rata to its investment in health-care research, the IES would be receiving 30 times its current funding -- and we would have much better schools to show for it.

So where are our national policy makers? Where are the Bell Labs, Xerox Research Parks, Ford Test Tracks, Strategic Defense Initiatives and NASAs of education? Why is America so slow to arrive at the inevitable conclusion that schools are a national security priority -- and that federal funding of R&D investment in them would serve as, shall we say, Homeland Offense?

Perhaps it's the longstanding view that our schools should be locally governed. But one can adhere to the concept of local control of schools, as I do, and still support national investment in their improvement. Our inaction is something beyond the local-control bias. We are suffering from a decades-long national failure of imagination as to what our schools could become. After 15 years of up-close involvement with public education, I have heard the same refrain all too often: "We know what to do to improve schools. Our problems are just a failure of execution." I don't buy that. I believe that our current school "design" is suffering from educational "metal fatigue," and that we must intentionally seek -- and invest in -- a fundamentally new gestalt.

So what might schools of the future be like? Although our vision may be obscured by our attendance at "old design" schools for most of our formative years, educational visionaries can see, through the mist, the coastlines of these new schools. They see schools in which students are much more engaged in their "job" of learning; schools where teachers are paid like other professionals; schools that are hybrids between our current brick-and-mortar model and home-schooling techniques; schools where the assets of our magical digital age are fully unleashed, not to replace teachers, but rather to work in seamless combination with them. These designers know we can move our schools -- and our educational results -- to another level, just as we moved from the candle to the light bulb, from the prop plane to the jet.

For this to happen quickly and well, however, our national political leadership must fund a whole new level of educational innovation. Great new schools do not just happen. As with every business innovation, they must be thoughtfully developed and designed -- and that takes real resources that are simply not available to local school systems.

Mr. Whittle, author of "Crash Course -- Imagining A Better Future for Public Education" (Riverhead, 2005), is founder and CEO of Edison Schools, the largest private partner of public schools.

The Center of the Southeastern Megalopolis: Where did you hear this first?

Robert E. Lang and Dawn Dhavale, from the Metropolitan Institute at Virginia Tech, recently published a report, Beyond Megalopolis: Exploring America’s New “Megapolitan” Geography.

Their research identifies ten US “Megapolitan Areas,” clustered networks of metropolitan areas that exceed 10 million total residents. They quote from Jean Gottmann's book Megalopolis,

the Megapolitan concept seems to have popularized the idea that the modern cities are better reviewed not in isolation, as centers of a restricted area only, but rather as parts of “city-systems,” as participants in urban networks revolving in widening orbits.

On page 14 of their report is a map of the megapolitan areas they have identified, including the "The Piedmont Megapolitan" is roughly defined between I-85 from Research Triangle Park to Montgomery and I-59/75 from Birmingham to Knoxville.

This area is very similar to the "Southeastern Innovation Corridor," described as Research Triangle Park to Birmingham, and Oak Ridge to Charleston, that is the focus of InnoVenture.

In an increasingly global economy, it makes sense to think in terms of economically interconnected regions that have the critical mass of talent and resources to be globally competitive.

Anyone up to creating South by Southeast?

The PINFO blog commented on the Swamp Fox Insights entry: Austin's entrepreneurial spirit offers lessons for city.

PINFO queries, "Perhaps, Greenville would like to consider launching SXSE."

In Austin, the South by Southwest Music and Media Conference (SXSW) 2006, in its twentieth year.

Anyone up to creating South by Southeast?

The voice of the best and brightest students - Part I

Friday I attended an Advisory Board meeting of the Clemson College of Business and Behavioral Science. The highlight was a discussion with 20 or so members of the College's Student Advisory Board. It is always encouraging and uplifting to be around the best and brightest young people.

I told them that recently the Greenville Chamber had gone to Austin, TX, where we were told that Austin was entrepreneurial in large part because of the large concentration of students. The point was made that several large companies in Austin had been founded by people 19 to 24 years old.

I asked the Clemson students how many of them anticipated starting their own company versus getting a job right out of school. That led to a very interesting discussion.

Several said they were very interested in starting their own company, but weren't sure how. They very much wanted to get plugged into the business community, but didn't know how. They didn't feel the culture at Clemson, and the Upstate in general, encouraged and fostered entrepreneurial risk taking.

That should be a wake up call for us. We all know that is critical we retain the best and brightest young talent, and we are concerned that we lose too many to other more supportive regions. Students are interested in building relationships with the business community, but don't know how.

That is a problem the business community needs to solve. My guess is that it is not much different in other regions of the southeast. Retaining the best and brightest talent already at our strong universities is low hanging fruit.

The voice of the best and brightest students - Part II

Thursday I taught an entrepreneurship class at Clemson. There were about 30 students, half undergraduates and half graduate students, mostly engineering majors with few prior business courses. They were a bright and engaging group, and teaching them was a blast.

I was struck that over three quarters of the class were students from outside the United States, mostly from China and Germany.

Hmmm ... why weren't American engineering students interested in taking a class in entrepreneurship?

Innovision Technology Awards - November 9 - Register ASAP

The 2005 InnoVision Technology Awards Dinner will be held this Wednesday, November 9, 2005, at the Palmetto Expo Center in Greenville, SC. There is still time to register by contacting Amy Robichaud, at Deloitte & Touche 864-240-5474 or dmullinax@deloitte.com

Amy and the rest of the InnoVision Advisory Board always do a fabulous job. The InnoVision Awards is always one of the most interesting and enjoyable evenings of the year.

I have two personal favorites among the finalists. InnoVenture is a finalist in the Community Service Award category. TiBA Solutions is a finalist in the Technology Application Award for their development of the SC Business One Stop. Keep your fingers crossed.

The best and brightest of the finalists though is a group of students from the Southside High School Robotics Team, for inventing a stair climbing robot which could carry firefighting gear up stairs and injured people down. It is so good they are going to commercialize it. These students are awesome and inspiring. There's hope for America as long as there are kids like these.

Austin's entrepreneurial spirit offers lessons for city

Originally appeared in the Greenville News
Monday, October 31, 2005

By John Warner

I really enjoy going to Austin, Texas, because every time I come home inspired.

In 2001, a small group from South Carolina went to study Austin's endowed chair program. Since then, several industry/academic partnerships have been launched, like the Clemson International Center for Automotive Research and the SC Health Science Collaborative.

Recently, the Greenville Chamber of Commerce made an intercommunity visit to Austin. In the past 30 years, Austin has emerged as an entrepreneurial haven that attracts the third-most venture capital in the country. Why?

People really enjoy living in Austin and are dedicated to preserving and celebrating their distinctiveness. Their attitude is captured in a bumper sticker: Keep Austin Weird. The distinctiveness of a city starts with its local, independent businesses, so Austin fosters the growth and development of local companies and doesn't subsidize the mega chains that are making America look homogenized.

Creative energy takes many forms. Austin has a vibrant local music scene and is the self-proclaimed "Live Music Capital of the World." Several of us old fogies were surprised to find that the live music didn't really start until 11 p.m.

The answer that we heard over and over again is that the entrepreneurialism comes from tens of thousands of students at the University of Texas and other universities within 100 miles. There is a brain drain from other places to Austin, with 55 percent of the population having a college degree. Several large, homegrown companies, like Dell Computer, were started by people 19 to 24 years old.

John Thornton of Austin Ventures pointed out that many of the best entrepreneurs are managers in large companies with an idea about how to serve a niche of customers not well served today. They go to their boss and get the answer, "That's a great idea, but that is not the business we are in." Austin Ventures likes to talk with those managers.

John Sibley Butler of the Institute of Innovation and Creativity said that much of the entrepreneurial energy comes from immigrants and other outsiders, who have the inner fire to create something new and different.

Austin nurtures all these folks -- students, managers with new ideas and immigrants -- who don't fit into the power structures that exist in the community. On the plane ride to Austin, I sat next to a woman who had lived in Greenville only a year and told me how difficult it had been to get plugged into the leadership of our community. Now, if this was the only time I had heard this about Greenville, it would have been easy to write it off as an isolated case. But I hear it frequently, in particular from African Americans trying to become part of the leadership.

Leaders in Greenville don't perceive that it is a tight, closed system. We think of ourselves as enlightened and open to new ideas and people. So where does the disconnect come from? It's not uncommon to find major companies and other organizations in Greenville where almost all of the senior leadership has been in place 20 or 30 years. These leaders have deep relationships going back decades, and like anyone would, they tend to rely on people they have known and trusted for a long time.

The economist Joseph Schumpeter famously described the entrepreneurial dynamic that seeks "new consumers, new goods, the new methods of production or transportation, the new markets, the new forms of industrial organization ... that incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one. This process of Creative Destruction is the essential fact about capitalism."

Austin has a creative destruction furnace that creates enormous wealth and keeps the community vibrant to a much greater degree than Greenville does. If we want to ignite an entrepreneurial furnace in Greenville, we need to tap into the creative energy in our community the way Austin has. We need to identify what is distinctive about Greenville and celebrate it. We need to make sure outsiders -- like students, managers with new ideas, and immigrants -- are supported and nurtured.

We left Austin with the feeling that a lot of people in Greenville are doing a lot of things right. I couldn't help but notice, though, how Keep Austin Weird made several Greenvillians very uncomfortable. But we can't have it both ways. We can't become a highly innovative and entrepreneurial place without promoting and celebrating the creative energy that comes from people with highly different backgrounds and perspectives.

And the really hard part for some of us is that a bunch of that creative energy is going to be really noisy at 2 o'clock in the morning.