Reform of the U.S. immigration system is a hot topic in Congress this year. While there are many sides and different perspectives on the issues surrounding the Immigration Innovation Act of 2013, it is clear that the U.S. has benefited and continues to benefit from immigrants coming from all over the world. But what does immigration have to do with innovation? Quite a bit, it turns out. Consider this— close to 40% of all Fortune 500 companies were founded by immigrants or children of immigrants and 76% of patents issued to the country’s top 10 university systems listed immigrant inventors.* While founding Fortune 500 companies and filing patents does not make one innovative per se, the impressive achievements of U.S. immigrants reflect a culture that embraces diversity and opportunity, which in turn drives innovation. And when you add to the mix diverse groups of highly skilled foreign workers in the science, technology, engineering, or mathematics (STEM) fields who come to the U.S. to train at the world’s leading universities, you have a winning formula for fostering innovation across many sectors. As a son of immigrants and co-founder of a biotechnology company that employs a diverse workforce, I fully appreciate how critical a sensible immigration policy is to America’s position as a global leader in innovation. Immigration-driven innovation The U.S. attracts a disproportionate number of highly qualified scientific and technical personnel from around the world largely because the resources these world-class researchers need can be found in many American universities. Given access to these resources, foreigners are generally very productive. A paper published in the Economic Journal showed that increases in the number of foreign students lead to significantly more publications and citations from science and engineering departments in the U.S. Obviously, many foreigners desire to stay in the U.S. after graduation to further their training and seek gainful employment. However, our immigration system ends up turning many of them away. Right now, the only way a matriculated foreign student can stay in the U.S. for any significant period of time and start a business is to get a green card. This can only be done by marrying a U.S. citizen, obtaining a sponsorship from an American employer, or investing at least $500,000 in a commercial enterprise that would create or maintain 10 permanent full time jobs for American workers. As a result, many of the best and brightest are forced to abandon their dream of starting a business in the U.S. or they take that dream somewhere else. Even for foreigners who just want to work for U.S. companies as employees, being able to stay in the country is far from guaranteed. For one thing, existing rules require newly graduated students to leave the country within 60 days unless they find a job with a company that will sponsor their H1-B (work) visa. And even if the employer is willing to sponsor an employee, the H1-B has a restrictive cap that limits the number of visas issued each year. This year, the U.S. Citizenship and Immigration Services received more than enough petitions to fill the statutory limit of 65,000 H-1B petitions and 20,000 H1-B advanced degree exemptions on April 5th, just five days after it opened the application process. Efficiency gains around the world Cisco Chairman and CEO John Chambers, speaking on the topic of immigration and innovation, recently said: “America’s success has been based upon its ability to attract the best, brightest, and most ambitious individuals. [It] needs a modern immigration policy that further fosters this culture to help spur continued technological innovation and economic growth.” I agree and anticipate that if passed, the Immigration Innovation Act of 2013 will be good not just the U.S. economy, but also for the economies of many other countries around the world. How is that possible? Because of limited access to strong scientific and technical infrastructure in their home countries, would-be inventors and innovators must emigrate to countries with strong university research systems, diverse populations, and risk-taking cultures to reach their full potential. These inventors and innovators then contribute significantly to their home countries and newly adopted countries, whether through remittances; by applying their newly-honed skills to solve critical problems; or just like at BRI, creating more business opportunities for companies and more job opportunities for citizens. *Flybridge Capital General Partner Jeffrey Bussgang, during his May 8 testimony on immigration reform before the U.S. Senate Committee on Commerce
Our last blog post discussed five drivers of an innovative culture in small businesses. But businesses are not the only institutions that benefit from a culture of innovation. It’s no accident that countries that embrace innovation are generally more prosperous and more attractive to outside investment. Innovation is clearly a competitive advantage—not just for companies, but for countries as well. So what makes some countries more innovative than others? In my view, there seems to be five characteristics that can be found in all countries that get innovation right (that is, they consistently apply new thinking to solve existing problems). These characteristics are, in no particular order: 1. Strong scientific and technical infrastructure Innovative nations have strong research university systems, without which it would be nearly impossible to attract the talent needed to drive innovation. High quality scientific and technical personnel gravitate toward places that have the resources they need to create new inventions and technologies. But a strong research university system isn’t enough. That system must also exist within a cluster of related and supporting organizations. New technologies, especially in the life sciences, often come out of universities (BRI’s patented enzyme products, spun out of North Carolina State University, is one example), but this is only the first step. To commercialize the technology, BRI had to work with firms that provide things such as incubator space, workforce development, and technology transfer services. All of these firms were conveniently located in Research Triangle Park, NC. Industry clusters also help to facilitate the flow of information, which leads to even more ideas and company spinoffs. 2. Diversity Much innovation happens at the edge of cultures. When we see the word “diversity,” we typically think of race, gender, and ethnicity. But it’s really the cognitive differences that go hand-in-hand with our identity differences that create better business outcomes. Diverse groups offer different ways of representing problems and situations, classifying and interpreting information, coming up with solutions, and predicting results. Their collective wisdom exceeds the sum of its parts. The U.S. is a prime example of this diversity, where people from a wide variety of cultures and backgrounds immigrate to and integrate into the population as a whole, many through the university education system (see item #1). In his book, The Difference: How the Power of Diversity Creates Better Groups, Firms, Schools, and Societies, Scott Page writes that while cognitive diversity doesn’t do much for routine tasks (e.g., sealing envelopes, flipping burgers), it’s a key performance variable in situations that require teamwork. And as mentioned in last week’s blog post, teamwork is a core principle of innovation. 3. Young people A nation can have all the raw materials it needs to innovate, but if the market doesn’t want what it’s producing, there won’t be any incentive to do it. The demand side of innovation is typically associated with young people, because let’s face it: young people are more likely to try new things and not be encumbered with the old way of doing things. Young people also contribute to the supply side of innovation. They tend to take more risks and challenge the status quo—two traits necessary for innovation to happen. You’ll notice that more and more people in their 20s are launching and growing startups, especially in the information technology and software industries. 4. Intellectual property protection Some might argue that regulations can actually stymie innovation by requiring businesses to jump through hoops. But in some ways, they also facilitate it. Let’s be honest: most of us want to make the world a better place, but we’re in business to make a profit. No company will devote massive amounts of resources to research and development if anyone can simply copy its products, not to mention sell them for a fraction of the price. Innovative countries respect intellectual property rights. They offer patent protection and honor contracts (e.g., license agreements, buy-and-sell agreements) that make it possible for innovative individuals and businesses to earn reasonable returns on their investments. 5. Risk-taking culture While several countries in Asia have already surpassed the U.S. with regard to producing the so-called “raw materials” of innovation (e.g., high educational achievement of citizens, number of people graduating to become engineers and scientists, speed and penetration of broadband Internet service), they’re still not nearly as innovative. In her article for the Fung Global Institute, Rachel Chan, co-founder of a Hong Kong-based organization that empowers young people in Asia to create positive personal, economic, social, and environmental change, noted that this lag has been attributed to Asian countries’ “overemphasis on rote learning, obedience to authority, hierarchical relationships, and conformity.” Innovation takes place in a “climate where people feel free and safe to try out new ideas,” said Chan. She then goes on to express hope that the situation in Asia will change, because many second or third generations of Asian business leaders—many of whom are influenced by Western education and an organizational culture that encourages experimentation and risk taking—are gradually taking over. Obviously we at BRI have more of a U.S.-centric view and have benefited from many of the pro-innovation characteristics described above while starting and growing our business here. For example, we were founded by immigrants who studied in some of the best research universities in the country. Our headquarters are based in Research Triangle Park—a thriving biotechnology hub. We have a diverse team, most of whom are in their 20s, 30s, and 40s. Last but not the least, our business is protected by patent and contract laws, which motivates us to continue investing in research and development for the betterment of the country that made it possible for BRI to take off and grow.
I believe it was the famous business writer and management guru Peter Drucker who wrote that “culture eats strategy for breakfast.” As any successful entrepreneur who’s been at it for a while can tell you, at some point you’ll realize that you just can’t control everything that happens to your company. But if you get the culture right, many things will go well without you even knowing about it. Take, for instance, innovation. At BRI, we try to foster a culture of innovation. A couple of years ago, I wrote a blog post on certain principles that enable companies to successfully innovate. I believe these principles still apply and so, if like us, you want to position your business for the future, here are my five principles for building a culture of innovation in your company: 1.) Innovation is based on teamwork. Innovation is a multistep process that draws upon the talents of many. It’s not just about people who can come up with new ideas (the inventors), but about people who excel at recognizing good ideas (Steve Jobs comes to mind). It’s also about those who have a knack for selling ideas, as well those who are great at challenging, refining, and improving them. And finally, it’s about people who can successfully implement ideas. There is no way one person can be strong in all those areas. So before you can actualize an idea and use it to solve existing problems (the definition of innovation), make sure you’re working as a team. 2.) Innovation requires open communication. Efforts to innovate will fail unless everyone understands the “where” and “how.” You need to communicate to your entire team where you want to go and how you’ll get there. While many aspects of a project may be highly technical, goals and processes shouldn’t be. Clearly defined goals and processes enable those involved to measure (and celebrate) their progress, understand the impact of their decisions, and resolve problems early on. I would argue that open communication is one reason why start-ups often outpace larger, more well-funded companies when it comes to innovation. 3.) Innovation is based on creating positive change. Moses Ma, who writes the column “The Tao of Innovation” in Psychology Today, says that innovation is a spiritual discipline that requires “exemplary positivity, perspective, and perseverance.” It may take several years to a decade to commercialize an idea, and many things can and will go wrong along the way. At BRI, we worked through various crises and challenges before finally turning the corner. Innovative small companies guard against discouragement by focusing on the future. We’re constantly moving forward and changing things for the better because we see how things could be, rather than how they are. 4.) Innovation is based on fair competition. Innovation thrives in a properly regulated environment. However, in business, there will always be opportunities to take shortcuts or bend the rules to get ahead of the competition. My advice is...don't. There are legitimate ways to win in the marketplace, and while they usually require more work, winning fair is the only sustainable way to succeed. 5.) Innovation happens within an ecosystem. You may think that if you build a better mousetrap, the world (or at least those with a rodent problem!) will beat a path to your door. However, successful innovators work within an ecosystem that considers factors such as cost and convenience. Your product or service may be innovative, but if it costs significantly more than a competing offer, or if it requires several complicated steps or a paradigm shift in the industry to implement, then its chances of success will be low. As a startup, building a culture of innovation might not be as high on your priority list as raising capital, hiring staff, and meeting product development milestones. But every company has a culture, and if you don’t define and nurture it, your employees will define and develop one for themselves. So if you want to build a culture of innovation, why not start now with a few of these principles in mind and see if it works for you?
It’s easy to think that big, established companies are more likely to innovate than small ones. After all, they have more resources. They can hire new people and even create a department that focuses solely on applying new thinking to solve existing problems. A number of Fortune 500 companies now have chief innovation officers in their leadership teams. In contrast, startups have too few people for too many jobs. Many are wearing multiple hats and working an ungodly number of hours. Who has the time to innovate when there are tests to run and money to raise? Also, they are not yet financially viable, so it doesn’t make sense to throw cash at risky experiments. But here lies the paradox of entrepreneurial innovation: the more constraints there are, the more innovation is likely to take place—or at least, the disruptive kind. Sustaining vs. Disruptive In his book, Innovator’s Dilemma, Clayton M. Christensen distinguished disruptive innovation from sustaining innovation. Sustaining innovation improves past successes and provides the market with incremental value. An example would be a smaller, faster, and/or cheaper laptop computer. Large companies are well-positioned for this type of innovation because not only do they have more money and technological prowess, they also have an established reputation and a better understanding of customers. There’s virtually no chance for a competitor that’s starting from scratch to catch up. Disruptive innovation, on the other hand, changes the game. It displaces industry leaders by rendering existing solutions obsolete. It’s either so much cheaper that it opens up a new market, or it grows within a niche that established companies ignore about because it’s too small. However, the disruptive technology performs so well that it catches up with—and eventually surpasses—the more mainstream technology. An example would be digital music and its devastating effect on records, tapes, and CDs. Clyde Smith, PhD, who blogs about innovation in higher education, describes disruptive innovators as “stealth companies in plain view.” Industry leaders see them but aren’t threatened by them, only to realize their mistake later on. In his book, The Master Switch, Tim Wu describes how Western Union, which dominated the telegraph industry in the late 19th century, settled out of court their challenge to AT&T’s patent for telephony (AT&T’s predecessor is Alexander Graham Bell’s The Bell Telephone Company, which CNN refers to as “America’s original startup”. The two companies agreed not to compete with each other. AT&T would leave the telegraph market and Western Union would exit the telephone market. At the time, few people were using the telephone and long distance communication was only possible through telegraph—a technology that Western Union considered infinitely more valuable. But as we all know, the telephone eventually rendered the telegraph obsolete, and Western Union stopped providing the service in 2006. Different Mindset Why does this happen? What is it about the culture of enterprising companies that makes it more conducive to out-of-the-box thinking? Wu explains: “The men dreaming of a better telegraph were, one might say, mentally warped by the tangible demand for a better telegraph. The demand for a telephone, meanwhile, was purely notional. Nothing, save the hangman's noose, concentrates the mind like piles of cash, and the obvious rewards awaiting any telegraph improver were a distraction for anyone even inclined to think about telephony, a fact that actually helped Bell.” In addition, the larger a company is, the more it has to lose. Thus, it takes longer to make decisions, has a lower tolerance for risk, less flexibility, and needs more quantitative data to support new ventures. The consequences of success or failure are also different. For big companies, it’s a bonus or a promotion (or the lack of it). For a startup, it’s life or death of the company. So while employees working at a large company might have a professional interest in its success, those who work at startups tend to have a personal stake as well. So what’s a mature company to do? How does it innovate without compromising the very traits that allow it to be so efficient and profitable? And how do entrepreneurs and startups, which lead in innovation, scale and build sustainable enterprises? The trend in the pharmaceutical industry is for large companies to create venture capital firms that provide funding to promising startups. Then once these startups reach certain product development milestones, the companies absorb them. Companies in a variety of industries also form strategic partnerships, a topic that we wrote about in more detail in a previous blog post. For instance, a mature company will partner with a startup that has specialized research and development capabilities, technology and patents, or a proprietary database of information. In BRI’s case, we owned patented enzyme technologies that fit strategically with Novus International’s existing CIBENZA feed additive portfolio. Novus is an animal health and nutrition company that operates in over 90 countries. In summary, just because their culture is not very conducive to innovation doesn’t mean that large companies should stop innovating in-house. But they shouldn’t rely solely on that strategy either.