BUSINESS:INNOVATION IS risky. Innovation may fail. Failure is an anathema. We have had outrageous failures in our banks, health system, the Catholic Church, in corporate governance, public procurement and regulatory oversight. Failure is devastating and unacceptable when there is no reason to expect any deficiency. Failure may, however, be acceptable – if perhaps disappointing – when we know in advance that a venture may fail. For example, the reason we accept failure in sport is because we cannot reasonably expect perpetual success.
For professional engineers “failure is not an option”. Scientific researchers, by contrast, expect occasional failures: the 1887 Michelson-Morley experiment is one of the most celebrated negative results which nevertheless provided insight. Entrepreneurs take calculated business gambles, knowing failure may occur. Ventures may fail due to changing market conditions and competitor strategies; insufficient balance sheet strength; poor execution by the team; or weaknesses in the assembled technologies. However, business failures result in experience and insight, strengthening the competence of those involved and making their subsequent ventures more likely to succeed.
Publicly-funded research is one pillar of the smart economy. There is an understandable expectation that such research will usually provide a direct return for the taxpayer, for example by way of royalties. Yet research may fail.
We may consider universities such as Stanford and MIT among the top scientific universities in the world, also producing commercially valuable intellectual property. Yet in 2008 the Stanford Office of Technology Licensing shows that only 2 per cent of the university’s $3,800 million annual operating budget came from licence royalties. MIT’s Technology Licensing Office for the same year produced just 4 per cent of that university’s operating budget. Cumulatively, since 1970, Stanford has disposed of its equity holdings in spinout companies to the cumulative value of $364 million – of which its stake in one company, Google, contributed the greatest share. So 40 years of equity disposals by Stanford has yielded less than 9 per cent of a single year’s operating budget.
Dr Burton Lee, a colleague from Stanford, noted that from 1992 until 2001, of the 10,530 start-ups backed by venture capital in the US, just 8 per cent were spinouts from academia; 92 per cent of venture capital was targeted to industry start-ups.
It appears that, while curiosity-driven research may provide insights for humanity, it may not yield short-term commercial opportunities. Some argue that the primary economic benefit of publicly-funded research, such as the majority of the science undertaken in Ireland, is more likely thus to be the development of an insightful and inquisitive graduate pool than of direct commercial value. This is a pessimistic view.
The competence of the research community, especially principal investigators, is nationally strategic. Not only do they lead the development of the graduate pool, and may produce new commercially-applicable ideas, they can solve tough technology challenges. The ability of our research community to solve obstinate technology problems greatly strengthens our indigenous companies, further embeds multinational companies in Ireland and it can attract further foreign direct investment.
The Innovation Taskforce strongly urged a consistently growing number of start-ups to drive our economy. In the case of start-ups from publicly-funded research, can we do significantly better than the top universities such as Stanford and MIT? I think we can.
The key to increasing the number of successful academic start-ups is coupling insightful world-class research with deep knowledge of specific global markets. While we look to principal investigators for the former, our export-led indigenous companies and multinational sector should provide the latter. An academically led start-up is more likely to be successful if guided to a global market opportunity.
Established companies, both indigenous and multinationals operating here, may believe it overly risky to take unproven novel technology to the market: it may be a distraction to their core business; it may potentially damage brand and reputation; and, in the case of multinationals, the parent headquarters may overrule it.
On the other hand, it may be legitimate and prudent for an established company to enable a dynamic, technology savvy start-up to take novel research and prove it in a nascent market. If the start-up validates the new technology in an early market, the established company can further catalyse, license or even acquire the junior partner. If the technology fails in the market, little damage has been caused to the established company, the financial losses can be modest and further knowledge and valuable market experience has been acquired.
Ireland is in a unique economic opportunity. We have a healthy cohort of multinationals and indigenous companies. We have, particularly over the last decade, built a strong confederate of scientific competence. Our entrepreneurial base has strengthened, with experienced business angels and serial entrepreneurs.
We can reduce the risk of failed innovation by strong collaboration between established but risk-averse companies, academia and entrepreneurial start-ups. Collaboration, which is difficult to put in place in other jurisdictions due to competitive mistrust, is possible immediately in Ireland.
Innovation is indeed risky. But Ireland is truly uniquely placed to enhance the likelihood of success.
