Shomit Ghose – September 2017

Onset Ventures

The World is Flat?  

Was Thomas Friedman right?  Perhaps only partially. Just like water, jobs that are commoditized and standardized certainly spread in a flat world, always seeking lowest cost.  Jobs that are high-skill and high-wage, however, tend to agglomerate, creating geographic clusters that become magnets for talent and engines of economic growth.  Silicon Valley provides a ready example: of the 3,000-plus counties in the United States, the three that comprise Silicon Valley took 3 of the top 4 places among large counties in average weekly wage in the fourth quarter of 2016.  

Needless to say, Silicon Valley does not have an exclusive remit as the engine of high-wage US jobs.  But what’s the key to driving job growth in other regions? Here are four factors that may provide some direction.

 

  • Focus on Technology

 

Enrico Moretti is an economist at the University of California, Berkeley.  His work in “local multipliers” – i.e., the multiplier effects within job growth – has found that each new manufacturing job in a given city creates about 1.6 additional jobs in that city.  This is good. What’s even better? Moretti has found that high-technology jobs have the greatest multiplier effect on the creation of new jobs. For each high-tech job created in a city, almost 5 non-tech jobs are created.  Simply put, the high-tech industry’s biggest impact on job creation is in non-tech jobs. If you’re a state or local government, the most productive way to drive local growth in non-tech jobs is to create an environment that’s conducive to the generation of tech jobs.

 

  • Focus on the City and Regional Level

 

Richard Florida is an economist at the University of Toronto.  Florida, building on the work of Jane Jacobs, has focused on the role of regions and cities – not individuals, incubators, universities, companies, or nations – as the drivers of economic growth.   It is in this Goldilocks Zone, a geography big enough to provide a diverse ecosystem with access to talent, but small enough to provide clustering, density and efficiency effects, that economic growth is best driven.  And when looking at a city or region, what factors did Florida find that correlated with higher levels of GDP, economic growth and rates of innovation? The drivers were diversity, the tolerance of self-expression, and the tolerance shown to visible minorities.  Diversity at the city and regional level provides the essential catalyst for the generation of new perspectives, while tolerance enables the sharing and acceptance of disruptive new ways of thinking.  

 

  • Focus on Diversity

 

Diversity, and cognitive diversity more specifically, is the antidote to business-as-usual groupthink.          Academic studies have repeatedly shown that cognitive diversity, as defined by differences in knowledge, thinking styles, skills, values and beliefs, is the key factor driving innovation.  Teams with cognitive diversity are able to free themselves from functional bias and envision problems and solutions in disruptive new ways.

In the area of ethnic diversity, a study by the Information Technology & Innovation Foundation found that 35.5% of US innovators were born outside the country, and a further 10% of US innovators were born in the country but have at least one parent born abroad.  In 2016, 67% of 25-to-44- year-olds holding tech jobs in Silicon Valley were foreign-born.  And in the report American Made 2.0, the National Venture Capital Association found that fully 1/3 of the US start-ups going IPO between 2006 and 2012 were founded by immigrants.

Want high quality innovation?  The economic data says opt for diversity.

 

  • Focus on Data-Driven Business Models

 

So, what exactly is innovation?  Innovation is not just about new technology, with business model as an afterthought.  It’s the opposite that’s true: innovation is 100% about new business models, with technology playing a supporting role.  New technologies don’t drive the formation of new start-ups and create jobs. New business models do.

The business model of the future is data-driven and is best exemplified by the planet’s three most lethal (to their competitors) corporations: Google, Amazon, and Facebook.  These companies, as well as a host of smaller, as-yet-unknown start-ups, have built their businesses on a single value proposition founded on the collection and understanding of infinitely-large oceans of data.  While the companies may differ in the mechanics they utilize to collect their data – search/email/etc., e-commerce, social networking – all are facsimiles of each other in that they derive 100% of their value from the semantics of the data they collect.  

The successful business model of the future will be crafted exactly on the Google / Amazon / Facebook model, with a commoditized “mechanics” layer that can be anything from a social network, to a search engine, retail platform, IoT device, self-driving car, smartphone or robot.  The role of the mechanics layer is simply to act as an engine for the creation and collection of as much data as possible. These large-scale data creation engines are then backed by a “semantics” layer that correlates and interprets all of the data collected using supervised and unsupervised machine learning techniques.  Success lies in mechanics that lead to the accretion of the largest possible quantity of data, semantics derived from machine learning on that data, and a business model based on monetizing the results.

Genius is Global

Today, opportunities for harnessing our global genius abound.  Mankind faces major challenges in the areas of agriculture, healthcare, clean air and water, and next-generation engineering technologies.  Each of these challenges is global. Each presents a massive opportunity for growth. And in each, data-driven approaches provide the cheapest, most scalable, most globally relevant solutions.

People are passionate, intelligent, inventive and entrepreneurial the world over.  No one region has an inherent monopoly on disruptive thinking. No one region has an exclusive right to economic expansion.  But building a successful ecosystem for innovation-driven growth does require orchestration in key and proven ways; innovation success does require that society and technology be able to work together in concert.  

We face global challenges and opportunities.  Global challenges require global solutions. Let’s build an environment for global innovation.