For several years now I have been thinking about the differences between various models of innovation and entrepreneurship. In particular, I have been trying to understand the key differences between the innovation and entrepreneurship models that have worked so well in Silicon Valley, the Boston-Cambridge area and similar high-tech, VC-based regions, and the models that might be more applicable to large metropolitan areas like New York and London.
The Silicon Valley model has become the most prominent example of what it means to be a successful innovation hub. Over the last few decades, it has been the leading region in the creation of new high-tech products and companies based on advanced digital technologies. A number of regions around the world have tried to become the next Silicon Valley, hoping to develop the right ecosystem mixture, - including technologists, entrepreneurs, venture capitalists, - that will establish their region as a world class center of innovation. Most such efforts have fallen short of their goals, - a number ending in outright failure.
Why is that? To begin with, most successful high-tech innovation hubs have been built around the great engineering universities in their midst - Stanford and UC Berkeley for Silicon Valley, and MIT for the Boston area. Over the years, these regions have brought together and carefully nurtured a large and fluid community of technologists and, entrepreneurs who share ideas as they move from company to company - as founders, employees, managers, board members or investors. They have achieved a remarkable network effect particularly suitable for high-tech innovation that give them an advantage in scale that is almost impossible to replicate.
Their university-based, high tech innovation model is particularly oriented toward finding The Next Big Thing, - that is, the next big technology, product or service that will take world markets by storm, transform whole industries, and in the process, create considerable wealth for their creators and investors. They have been at the center of several waves of disruptive innovations and creative destruction over the past few decades, and will continue to do so into the future.
But, beyond a few niche areas, this is not a model of innovation and entrepreneurship generally suitable for a large metropolitan region like New York. A model that would work for New York has to leverage the key strengths of the region. Let me briefly discuss three such New York strengths in particular.
Next is New York's position as one of the world's major global business centers. One sixth of Fortune 500 headquarters are in the area, as well as a very large number of medium and small companies serving its large consumer, business, health care and public sector base.
Last but not least, New York continues to attract talent from all over the world in a wide variety of fields. It is a place where smart, creative, hard working people want to live, work and make it.
This was confirmed in an October, 2009 study conducted by Japan’s Institute for Urban Strategies. The study looked at 35 of the world’s major cities to evaluate their ability to attract creative people and top companies from around the world. The resulting Global Power City Index (GPCI) evaluated each city in terms of six different functions - economy, research and development, cultural interactions, liveability, natural environment, and accessibility, - as well as attractiveness to residents, visitors, artists, business managers and researchers.
New York came out on top in the overall functional rankings, followed closely by London. Both cities also ranked very high as places to live and visit, with New York being the top ranked city by its residents, as well as ranking highest in attracting visitors, artists and researchers, and second highest to London in attracting business managers.
In the same way that Silicon Valley is the top model for high tech innovation and entrepreneurship, can we look at New York as a similar such model for large metro areas? I don’t think so, or at least, not yet. I come to this opinion partly because I believe that the New York metro area has not devoted anywhere near the energy to become an innovation and entrepreneurial hub that Silicon Valley and other high tech areas have.
But this is truly a new area, at least for me, that is not all that well understood. In the last few decades, the bulk of the innovation studies have been of the high-tech variety. We have not studied urban innovation ecosystems to the same degree, so it is hard to assess how well New York or any other metro area is doing.
What does it take to become such a leading model for metro area innovation and entrepreneurship? Let me offer some opinions.
First is the choice of primary objective. In high-tech hubs, the key objective is to develop the next major disruptive technology, as well as the key products and services based on that technology. In urban areas, the main goal should be the development of a dynamic entrepreneurial economy that will result in the creation of many new kinds of companies and jobs. This will lead to low levels of unemployment, a vibrant business environment, and a high standard of living and quality of life that will continue to attract top talent to the area.
Technology and innovation play an important role in developing such an entrepreneurial economy, as a source of ideas for new products and services, new customer needs to satisfy, and new problems to solve. But, unlike the high-tech segment, the focus is not so much on developing the next disruptive, transformative technologies, but more on the kinds of technologies and innovations, - whether high-, medium- or low-tech, - that will have a significant impact on business, government, health care, education and other major segments of society.
Can you be a center of technology-based innovation if you are not a high-tech center? In the past, that would have been very difficult. But as digital technologies have become increasingly standardized, commoditized, and ubiquitous, their key value is no longer found in the technologies themselves, but in their applications and transformational impact on industry after industry. IT is now going through a transition from an end in itself to an enabler of innovation for those industries and companies that use it extensively and wisely. Electricity went through a similar transition about one hundred years ago.
New York is unlikely to become a major center of advanced technology innovation, but it is very well positioned to be a major center of market-facing and business innovation. These are the kinds of innovation that are particularly suitable for the New York area given its very large population and the diverse kinds of talent that it attracts. This point was eloquently made by VC and entrepreneur James Robinson in a June 2010 article in Business Insider:
“The technology industry has been a standalone industry throughout most of its history, a vertical that stood alongside other large industries. Today, technology is becoming more of an integrated portion of the existing stacks - or the distinct components of hardware, middleware and software required to operate entire IT infrastructures - within businesses rather than a separate vertical industry. As a result, essentially all industries - including the seven industries [finance, media, publishing, advertising, communications, retail, and fashion] headquartered in New York - are increasingly able to make use of the lower-cost, better-integrated information technology that open-source software, cloud computing and related innovations are enabling.”
“With this evolution comes a striking change in calculating the optimal location for technology businesses. It is simply no longer true that technology companies must be located near technology centers. Today, the optimum strategy often puts these companies near business centers, where the customers are. Few business centers in the world are as central as New York City. No matter where something is invented or produced, it is sold here.”
Another big different between a high-tech and an urban innovation center like New York is the opportunity for entrepreneurs to work closely and partner with the many large companies in the area. Entrepreneurship in New York is not just a matter of creative destruction. It is also an opportunity to be part of the supply chain and overall business ecosystem of existing companies.
Large companies are increasingly disaggregating and relying on business partners for many functions once done in-house, opening up many new kinds of opportunities for startups. In addition, large companies can provide startups with badly needed global distribution for their products and services, as well as being a potential source of investment funds and expertise.
Given the continuing urbanization of the planet, I believe that the study of innovation and entrepreneurship in large metropolitan areas will receive increasing attention. It is absolutely critical for the economic development and job creation that these growing urban centers so badly need.
New York continues to be one of the world’s greatest and most livable metro areas in the world. Its talent base, large population, business expertise and overall wealth should help it become the innovation and entrepreneurship model for similar such areas.