Failure’s role in innovation

Krisztina Holly has an interesting take on innovation in a Huffington Post blog item titled “The Innovation Ecosystem.” Had she been a venture capitalist at the end of the Mesozoic Era, she writes, she would have placed her investments with the adaptable mammals—not the dominant dinosaurs of the time, which of course were on an evolutionary path to extinction.

She then cites Thorstein Veblen’s 1898 questioning of “whether the rules of natural evolution can be applied to economics.” It’s still a relevant question, she says, as US government and economists work to avert mass extinction of US auto companies.

Should the government work to prevent this possible mass extinction or stand aside? She doesn’t take a clear stand on this question. “Determining the right path is not easy, and either way the results will be painful,” she writes. What interests her is, “How can we prevent it from happening again?”

She believes that the rules of natural evolution can be applied to economics. She writes, “Although I am the director of a leading university institute for innovation and a serial entrepreneur myself, in some ways I’ve learned as much about business lifecycles by observing nature on my weekend mountain bike rides.

“What I’ve seen is that a thriving ecosystem, whether in nature or economics, emerges from an evolutionary culture that nurtures diversity, doesn’t artificially pick ‘winners,’ and embraces failure early and often.”

She praises entrepreneurs, “the diverse and future-oriented thinkers that will advance our economy despite times of struggle. This group gives us the mutations—the radical changes that enable groundbreaking ideas to enter the ecosystem if they are worthy.” But she adds that big companies have a role as well: “They help amplify—through acquisition, licensing, or even copying—the impacts of successful ideas."

The danger, she says, is in picking winners prematurely, before evolutionary mechanisms indicate the optimum solution. She provides an example: “In the recent green energy debate, for example, the US chose to subsidize corn ethanol as the winning new clean fuel, giving $7.0 billion in subsidies in 2006 alone. But according to an April 2008 World Bank report, world food prices have increased by 75 percent due to increased production of biofuels. Ethanol burns dirtier than gasoline, and it’s no cheaper. Through premature decision making, have we thwarted cheaper and cleaner competitors?” She adds, “What we should have done, and still can, is to encourage innovators developing a wide range of fuel-alternatives including wind, algae, solar, methanol, and so on.”

She further explains, “Death is inevitable in an ecosystem, and furthermore it can be healthy. It’s this brutal process of failure that prunes out the weak from the herd. And as my friend John Seely Brown likes to say, it’s these failures that form the fertilizer for the next generation.”

She elaborates: “Global Crossing may be the most striking example. In the late 1990’s they had built an extensive IP-based network connecting four continents, 27 countries and 200 major cities. Despite their spectacular bankruptcy, we have a global information infrastructure unimaginable a decade ago.”

She notes the irony of the fact that the decay of doomed Mesozoic life resulted in the formation of petroleum, “which has in turn fueled the internal combustion engine and today’s failing auto industry.” She concludes, “I look forward to seeing what today’s failures will fertilize.”