Point: Crowdsourcing and open innovation efforts rely on participation.  Attracting participants and encouraging activity is a key success factor in obtaining and vetting new product, service and process innovation ideas.

Story: Crowdsourcing is only as good as the crowd.  Presenters at the World Research Group‘s Innovation Cubed Summit described several methods that they use to engage people for internal innovation efforts.  In particular, they talked about getting participation beyond just idea submission.

Although some innovation contests have an easy-to-score objective measure of success (such as NetFlix’s rating algorithm contest or the get-to-space Ansari X PRIZE), most participatory innovation efforts cast a wider net and have more open-ended, subjective measures of performance.  That means people need to evaluate all the submissions to find the best ones.  These broad innovation contests involve more than just submitting a great idea (the proverbial 1% inspiration).  The effort also requires the 99% perspiration to sort through hundreds or thousands of candidate ideas, score those ideas, and refine the ideas.  Motorola, for example, received 17,000 ideas in their system.  How can companies evaluate ideas?

The solution is to recruit and reward a crowd that helps curate, moderate, vote, and refine ideas even if those participants aren’t idea submitters. Kraft and PepsiCo, for example, emphasized ease-of-use in their efforts at increasing participation.  They make it very simple and intuitive to join the innovation effort, submit ideas, vote, comment, and participate in the effort.  The companies avoid the temptation of asking too many questions and putting approvals barriers on participation.

Real-time recognition also spurs interest and activity.   Both PepsiCo and Motorola post a leaderboard of “Who’s Hot” on their innovation portals.  The up-to-date ranking list enables competitive participants to see their standing at any time.  Timely updates to standings keep people more engaged than if the company ran a “submit-by-the-deadline-and-you won’t-hear-anything-for-a-month” black hole contest.  Game mechanics with well-defined ways of earning points or game currency help increase activity.

Finally, offer a sliding scale of rewards for valuable participation, not just idea submission.  Although some contests focus on rewarding a single big winner with the best idea, several of the companies at the summit sought ways to reward more of the participants in the system.  For example, PepsiCo offers participatory awards for reaching certain point totals.  Both Motorola and PepsiCo had side-contests for high levels of participation, such as “Top Voter” or “Top Point-Getter” in addition to awards for the best ideas.  Approximately 10% of PepsiCo’s 3000 participants reached some sort of award level for their participation in the open innovation efforts.

Action

• Minimize the labor, barriers, or hassles for participation in innovation efforts
• Create a transparent process with clearly-defined expectations and rewards for participation as well as idea submission
• Provide a sliding scale of rewards for all kinds of participation on the innovation process, not just one big prize for one big idea.

For further information: The next World Research Group Open Innovation Summit will be held August 10-12, 2011 in Chicago, IL.

Point: Open innovation is much more cost-effective than internal R&D

Story: Larry Huston, formerly Innovation Officer at Procter & Gamble, spoke at the World Innovation Forum on June 8, 2011. Huston praised open innovation as a way for big companies to speed their innovation and time to market.  Huston said that open innovation efforts give companies a 2x return compared to developing the innovation in-house because of risk reduction.  The reason, Huston said, is simple: the technology is already proven to work; it just needs to be scaled or adapted. In short, with open innovation a new technology has a much lower risk of failure than starting internal R&D from scratch. Also, given the realities of corporate life, internal R&D people aren’t just doing innovation all the time — they have administrative work and meetings — which means that internal innovation is much less efficient than open innovation.

Huston related the story of an internal P&G employee who had the idea of printing text and designs on Pringles potato chips — designs like Disney characters or trivia questions. The employee made a very thin potato dough and ran it through an HP printer to demonstrate the idea.  But P&G needed edible food dyes that wouldn’t clog the printer or a printing technology that could handle edible food dyes.

So P&G approached a big printer manufacturer to work together with P&G to come up with a way to print on potato chips. The two big companies spent a year in meetings trying to hammer out the intellectual property (IP) rights issue. The printer company wanted all the IP, even though the two companies would be developing it together. P&G even offered to give the partner the patents if P&G could own only the one application of printing on potato chips. If the partner company then wanted to sell the technology to McDonald’s to print on hamburgers, they could. But still the other company did not agree to those IP terms.

Exasperated by the slow pace of the negotiations, P&G wrote a public brief describing the technical problem to be solved and sent it out worldwide. An innovation network in Europe picked it up, and the brief landed on the desk of a professor in Bologna. The professor, as it turns out, had inherited a bakery. He had dabbled with the equipment and created and edible food dye that could be printed on cakes and cookies.  P&G licensed the IP from him and launched Pringles Prints in eight months, compared to spending one year just discussing IP with the large company.  Within one year, the new product grew P&G’s revenues 14% — a very impressive result given the size of P&G.

Publicizing its R&D needs was a big change for P&G.  In the past, P&G kept its R&D efforts closely guarded. “We were afraid to share our technology needs,” Huston said.  “We thought competitors would read our briefs and launch their product first. But not once did that happen, out of hundreds of briefs”  The reality, Huston said, was “Companies work on what they think the problems are.  Reading a brief, they don’t see the end product, and they’re not likely to reorient their efforts as a result.  Once they see the product in the market, then they’ll respond.” Instead, Huston advocated, “let the world know what you want and that your door is open to ideas from the outside.” In response to a question from the audience, Huston elaborated: “Half of our briefs have our name on them, and those get many more responses.  Other briefs do not have our name.” Those briefs couch the request in more scientific terms, solving the underlying problem rather than explaining the consumer product application.

Action:

• Don’t be afraid to advertise your R&D needs in order to attract outside innovators. Competitors are unlikely to reorient their own thinking to follow you.
• If you’re still concerned about competitors taking your nascent idea, don’t put your company name on the brief, and phrase it in terms of the underlying science to be solved
• Look for smaller, nimble open innovation partners with early-stage prototype technologies.
• Innovate faster by leveraging proven technologies created by third parties.
• Focus on lower-risk adaptation and scaling of existing external technologies rather than high-risk creation and scaling of unknown internal technologies.

For more information: World Innovation Forum

Point: Entrepreneurs in high-growth companies can influence the federal government to increase their company’s access to capital, people, and markets.

Story: Accelerating high-growth entrepreneurship

Background: The Startup America Partnership, an initiative launched by President Obama in 2011, seeks to accelerate high-growth entrepreneurship. One step is to reduce the barriers entrepreneurs face when starting high-growth businesses. To accomplish this step, senior Obama Administration officials convened roundtables in eight US cities to hear from entrepreneurs and local leaders about what the federal government can do to help high-growth entrepreneurs.

Event: Congressman Jared Polis kicked off the event, along with panelists Phil Weiser (White House National Economic Council), Don Graves (Department of Treasury & President’s Council on Jobs and Competitiveness), Michael Fitzpatrick (Office of Information and Regulatory Affairs) and local leaders like venture capitalist Brad Feld (Managing Director & Co-founder of The Foundry Group) and Kathy Rowlen, (CEO and founder, InDevR).

After the short panel presentations, the 150 invited attendees from Boulder’s entrepreneur community divided into four groups to discuss possible short-term improvements of federal government regulations and procedures that affect high-growth entrepreneurial companies. Startup America will prioritize the suggestions, distribute them to respective federal agencies, and implement them as quickly as possible.

Definition: Startup America focuses its efforts on entrepreneurial high-growth companies as distinct from both small business and larger, more established companies. These high-growth companies differ from small local businesses (e.g., local restaurants and service providers) in that high-growth companies push the limits in their efforts to scale new innovative products, services, and business models. High-growth companies hire hundreds of employees as the entrepreneur pursues national or global scale. Unlike small businesses, high-growth companies often aspire to be the next Fortune 500 company that defines new and innovative industries. Discussions in the breakout sessions suggested that creating scale means gaining access to three key resources: capital, people, and markets. Changes at the federal level could markedly improve access to these resources, spur economic growth, and create jobs.

Issue: Improving Startups’ Access to Capital
Solutions Suggested:

• Exemptions that let banks extend loans to entrepreneurs. (Some participants cautioned, however, that even if regulators let traditional banks lend to high-growth entrepreneurs, the banks wouldn’t make the loans due to cultural mismatches — they see startups as too risky.) Venture capitalist Brad Feld recommended focusing efforts on venture banks that do understand entrepreneurial companies, such as Comerica, Silicon Valley Bank, and Square One.
• Tax-code changes that encourage equity investment in start-ups rather than investments in more established firms that can borrow from banks.
• Expanding the government’s SBIR program for funding innovators and startups. One problem with today’s SBIR grant rules is that SBIR funds can only be applied to prototyping ideas, not commercializing them. The rules assume that entrepreneurs can find private capital once their ideas are ready for commercialization. But in these times of limited access to private capital, many innovation-focused companies can’t find the money they need to convert their SBIR-developed innovations into products. Attendees suggested more funding for SBIR grants and liberalization of SBIR-related regulations to increase job creation.

Issue: Improving Access to Talent
The problem is that many regulations assume — or almost mandate — a traditional workaday paycheck relationship between company and labor. In particular, IRS tax code elements (e.g., contractor/employee tax rules and Section 409A deferred compensation) and SEC regulations (e.g., on secondary markets of shares in private companies and stock-option accounting rules) stymie the kind of flexible access to skilled talent and gain-sharing that high-growth companies need.
Solutions Suggested:

• Exemptions to some of these regulations during the early stages of a company’s founding, so startups could have both arms-length and sweat-equity relationships with people.
• Immigration reform to retain foreign-born college graduates and to encourage both entrepreneurs and investors to come to the United States. US colleges and universities profit from full-tuition foreign students, but the country loses that educational investment when current immigration rules force the graduates to leave the US.
• Move forward on “Start-up Visa” programs that enable early-stage, high-growth entrepreneurs to come to the US and start their companies here. Attracting and retaining both talent and capital will help create innovative future companies that create future jobs.

Issue: Improving Access to Markets
Regulations designed to protect consumers can backfire if the approvals process is so cumbersome or takes so long that entrepreneurs run out of resources before they get approval. Waiting months to hear back on SBIR funding or years for regulatory approvals can exhaust startups’ resources. The root cause of the problem is unbalanced incentives on government. Regulators and politicians face high penalties for under-regulation (i.e., they worry about “what if someone gets hurt by permitting X”). But, these same government officials experience little or no counterbalancing penalties for over-regulation of innovation (the millions of people awaiting healthcare or environmental solutions that are delayed or stymied due to over-regulation). The problem is that everyone can see the failure of lax regulation but few can see the lost opportunity when a regulator says “no.”  Problems  like economic underperformance — or disease and death caused by a lack of entrepreneurial solutions — aren’t as noticeable. As one participant said, the regulator’s motto that “failure is not an option” all but implies that innovation is not an option, either.

Solutions Suggested:

• Pinpoint and cut out as much paperwork and unnecessary regulation as possible.
• Remove delays from grant-approval and regulatory approval processes
• Opt for self-policing solutions or data reporting rather than up-front regulation.

As Go Entrepreneurs, So Goes America
To me, the most distressing stories I heard at the event were from entrepreneurs who felt that their only option was to leave America for more growth-friendly countries like the UK and China. Excessive regulatory demands and delays, combined with high legal costs, are driving entrepreneurs to go overseas, and countries are offering incentives and capital to attract them. These entrepreneurs aren’t just thinking about outsourcing a few low-skill jobs, but taking the whole company — along with the innovation, business growth and new jobs — overseas.

Phil Weiser noted that America’s venture capital environment does have a unique quality of allowing entrepreneurs to fail and resurrect themselves to produce later greatness. Yet despite this “permission to fail,” some participants feared that the government-imposed limits in the U.S. on access to capital, people, and markets mean that high-growth companies aren’t permitted to succeed. And if they can’t succeed in the U.S., they can too easily move. In today’s competitive world, more countries have the resources and motivations to host the best and brightest. Today’s mobility of capital, people, goods, and information mean that high-growth companies can readily relocate and take their energy, innovation, and success with them.

At the same time that some entrepreneurs felt that the U.S. government may have failed their high-growth companies, those in government see that these entrepreneurs have failed government, too. Panelists urged the attendees to participate in government. Although entrepreneurs focus on telling and selling their ideas to customers and investors, they have not spent sufficient resources telling and selling to government. If citizens, including high-growth company entrepreneurs, are the customers of government, then government can only succeed with timely and useful feedback from high-growth company entrepreneurs.

Action

• (Note for our international readers: Although this particular post focuses on the U.S., I’m sure your country has analogous means for improving your government’s understanding of the value of innovation and high-growth entrepreneurship.)
• Think about what regulations and government processes create needless obstacles to innovation and growth for your high-growth business.
• Post your ideas or vote on the Startup America’s open innovation forum (http://reducingbarriers.ideascale.com/)
• Track and comment on pending regulations at Office of Regulatory Affairs
• Lobby your senators and congressional representatives for more entrepreneur- and innovation-friendly laws