How to Ramp Up Innovation in the U.S.
From venture capital to immigration law, “we’re leaving an enormous amount on the table.”
Everyone from business leaders to policymakers wants to spur innovation. But how, exactly, is that done? For a long time, it seemed there may not be a clear answer to that question.
“Innovation and creativity can seem almost magical,” says Ben Jones, a strategy professor at the Kellogg School, “like they might defy systemic insight.”
But in the past decade or so, a wealth of data on innovation and innovators has become available, meaning researchers like Jones can dig in to find patterns.
“We have data on every new business started in the United States in the last 10 years and every founder of all those businesses. We have data on every patent and all the inventors. We have data on every scientific article published around the world,” Jones explains.
Jones has studied these data and his research points to ways the business community and local and national governments are missing opportunities to invest in the right places.
“I think we’re leaving an enormous amount on the table and we’re really underperforming as a society,” Jones says. He discussed some of these findings during a recent The Insightful Leader Live webinar.
For starters, the public image of the ideal startup founder is flawed. Most people would describe a hoodie-wearing Mark Zuckerberg-esque figure in their 20s or 30s. But using an extensive data set from the U.S. Census Bureau, Jones and colleagues found that among the very fastest growing companies, the average founder was 45 years old when they started the company.
The research didn’t show exactly why the average age is a good decade older than most people assume. But Jones believes these older founders are accumulating something during their years in the workforce that younger innovators lack. This likely includes both a more robust professional network, which can help with funding, as well as experience and knowledge from within an industry.
Indeed, the researchers found that founders of the very highest growth companies were not disruptors who parachuted into a field but were much more likely to be insiders from that industry.
If you are a founder who came from within your startup’s industry, “your chances of a home run go up by a factor of two or three,” Jones says.
These findings should do more than simply challenge the public perception of founders, Jones says. Venture capitalists who fund these founders should take note.
“People later in life have more expertise, whether it’s market knowledge or a deeper scientific or technical knowledge,” Jones says. This is the expertise needed to fight climate change, or cure cancer, or tackle pandemics. “And if we’re rotating early stage financing away from those people because of a popular bias toward the young, what are we not getting? We need to be rotating funding in that direction.”
Another area of opportunity is to increase funding of research and development. Jones and a colleague analyzed the return in terms of social benefit for every $1 spent on R&D. They found that the answer was between $5–10, meaning that for every $1 spent on R&D, per capita income increases by as much as $10.
Yet the U.S. only spends 2.7 percent of GDP on R&D, Jones says. “We should do far more.”
Jones also discussed research he and colleagues conducted on immigrants and innovation. Again using U.S. Census Bureau data, they looked at every company founder during a five-year period and determined if they were born in the U.S. or an immigrant. Then they looked at how many people all these companies employed to determine if, overall, immigrants take more jobs than they generate, as many believe, or vice versa.
“The really striking finding is that immigrants are extraordinarily entrepreneurial,” Jones says. “They’re more likely to start companies than U.S.-born individuals, and they tend to start companies of all sizes, including very, very big ones.”
So, he explains, “on net, immigrants create jobs, and that means that the usual narrative is … exactly backwards.”
These findings shouldn’t dissuade anyone from pursuing their entrepreneurial dreams because they don’t fit into the right demographic group, Jones says. The more important issue is if a potential founder is prepared for the challenges of entrepreneurship.
“The question is, ‘Am I ready? Do I understand something that most people don’t? And do I have the requisite skills to execute against that?’”