Promoting innovation is more about removing barriers than increasing incentives.
Author: David Grainger
Innovation is good. New solutions to old problems are good for the individual, good for society and good for the economy. Promoting innovation, therefore, is often near the top of the list of priorities for companies and governments alike.
But innovation is inherently risky, and most humans, it turns out, are risk-averse. Without help and support, most people will take the safe route, and work within the existing framework rather than risk it all to shake up the status quo. Hence the key challenge for the 21st century is how to foster sensible risk-taking that has a chance to deliver real innovation without creating a moral hazard of thoughtless gambling on hopeless causes.
The answer has to be risk sharing between the individual and society. We need to provide enough of a safety net so smart people are isolated from the full impact of failure, while leaving them to shoulder just enough pain to keep their decision-making over which risks to take as sharp as possible.
This is no simple task — not least because different people’s character and circumstances mean they begin with differing appetites for risk.
One thing is clear, though: successful innovation is a numbers game. Nobel Prize-winning economist Daniel Kahneman describes innovation as occurring in a “low validity environment” — by which he means that there is insufficient knowledge to predict the outcome. You have to resort to trial and error. And as with the infinite monkey cage, the more players there are in the game the greater the chance of winning.
Similarly, diversity is important. If all the players are set on variations of a common strategy, there is a huge risk they will all fail for the same reason. Diversity of thought requires diversity of thinkers, and that means any strategy to promote innovation has to provide a sufficient safety net to allow everyone to play the game be they young, old, male, female, rich or poor.
If enough people aren’t playing the game of their own volition there are, in essence, two ways of increasing participation: you can increase the incentives to play, or you can lower the barriers that keep people out. Both cost society’s common resources so it’s important to think carefully which interventions might give you the most bang for your buck.
Providing incentives is often more obvious and simpler than understanding and lowering barriers — and are often the first lever that policy-makers reach for. But unfortunately, incentives are less effective than they seem. Incentives (such as favourable tax-breaks for innovators or even direct cash subsidies for research and development) are, for the most part, eagerly gobbled up by those who would have played the game anyway. Few new players join in — because they are held back by the barriers no matter what the incentives.
In any case, even without state largesse, the incentives to spin the entrepremneurial roulette wheel are already pretty large. Success brings riches that few, if anyone, ever achieves through conventional employment. The sight of the Founders of the successful companies I have backed over the last decade driving their supercars onto the driveways of their mansions is a powerful driving force for the next generation, even if replicating that success is far from guaranteed (just as the highly-unlikely possibility of a multi-million pound win drives sales of lottery tickets). Any additional incentive is not just cake but jam as well.
Incentives, then, provide a poor return on capital for stimulating innovation, and usually do nothing at all to increase the diversity among participants.
So what are the barriers?
The principle one is the need for a secure income. Only a privileged few can risk joining a company, or leaving their stable employment to start a company, either of which may fail within six months. Even if they want to take a risk, the simple pragmatism of paying the mortgage or feeding the children can make it all but impossible.
Lack of prior experience is another major barrier for first-time entrepreneurs. Investors like proven winners, which can make the game easy (maybe even too easy) to play once you have one success under your belt.
Even culture can hold people back who might have a great idea. Lack of role models remains a significant issue particularly for groups not well represented in past cohorts of entreprenurs. If you cannot point to someone like yourself who has succeeded, it can be daunting to believe you can make the grade — all the more so if you lack prior experience or the independent means to support yourself.
How do we lower these barriers? Once you recognize how powerful these factors are, it is relatively straightforward to reduce their impact. Organizations like Panacea Stars, and accelerators such as Accelerate@Babraham, which provide training and mentorship as well as access to seed funding, play a crucial role in promoting those very first steps. And they do it at a fraction of the cost of the incentives that are made available to the established entrepreneurial community. Governments and companies need to recognize the critical role these support networks play, and use state funding to substantially expand them.
Cushioning the risk of leaving stable employment to follow your innovation dream also needs to become a focus for policy-makers. One important strand is encouring the development of technology clusters — where there are lots of innovative companies in close proximity, the chance of finding another job quickly if your current gig collapses is substantially increased.
But encouraging and supporting technology clusters is only part of the story. Career academics are often superbly placed to innovate based on their (usually state-funded) education. But the culture in our Universities often discourages them from doing so. Allowing young academics to start innovative businesses while in full-time employment at our Universities, even allowing them to use those state-funded University facilities for a limited period to incubate their fledgling ideas, would lower the barrier for many new entrepreneurs.
Today, too often we hear University authorities and colleagues grumbling about individuals trying to create a private venture while still taking the University’s shilling. This is short-sighted in the extreme — policy-makers need to encourage and incentivise those responsible for our Universities to embrace and encourage the would-be entrepreneurs — not brand them leeches or cuckoos.
Governments, and even companies, could go further still and provide a period of direct support for entrepreneurs when they first cut the “life-support” cord from stable employment. Having the guarantee of a basic income for a year could be difference between dreaming and acting.
Best of all, measures such as these aimed at lowering barriers to entrepreneurialism will disproportionately benefit those who have, until now, been excluded from the game: women, young, first-time entrepreneurs, those from poorer backgrounds and minorities. More numbers and more diversity will drive an innovation boost to our economy that incentives have largely failed to deliver, despite their cost.
Next time someone asks you what else we can do to promote innovation and entrepreneurship, stop and ask yourself what is stopping more people playing the game. And rarely will the answer be lack of incentives.
About the author:
David Grainger, Co-Founder & Chief Scientific Advisor, Medicxi.
David is a co-founder and the Chief Scientific Advisor at Medicxi. He is currently the Chairman/CEO of several Medicxi portfolio companies. Prior to Medicxi, David was a venture partner with Index Ventures for four years, having joined the life sciences team in 2012.
David has over 150 patents and patent applications in his name, and holds MA and PhD degrees in Natural Sciences from the University of Cambridge. In addition, he led an internationally-recognised research group in Cambridge University’s Department of Medicine, where he published more than 80 first author papers in leading journals including Nature, Science and Nature Medicine.