Silicon Valley

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The next ‘Silicon Valley’ is everywhere: the key is to attract the right talent

SiliconValley_mby Nitin Dahad

Everyone wants to build the next Silicon Valley, says Dileep Rao in a Forbes article recently. He is spot on with his analysis. A common question I get asked is ‘where is the next Silicon Valley’ – and it is also one that many business and mainstream media also ask in various articles and commentaries.  All appear to be on a quest to identify the next big tech hub that has the ingredients that can generate the economic impact that Silicon Valley itself does.

The question ‘What is the Next ‘Silicon Valley?’ is also posed in in the New York Times. This is an interesting narrative on locations proclaiming to be the top destination for technology business or the next big Silicon Valley-like tech hub – places such as Chicago, Orlando or South Bend, Ind.  It says however that tech businesses and ‘nerds’ still want to go to Silicon Valley – despite the attraction of many other locations.

This attraction of Silicon Valley seems to be reflected in the numbers. If you look at research from the Brookings Institution, it highlights that among the 100 largest metropolitan areas in the United States, San Jose, California, ranks first in ‘advanced industry’ employment as a share of total employment. ‘Advanced Industries’ is characterized by its deep involvement with technology research and development (R&D) and STEM (science, technology, engineering, and math) workers; this sector encompasses 50 industries ranging from manufacturing industries such as auto-making and aerospace to energy industries such as oil and gas extraction to high-tech services such as computer software and computer system design, including for health applications.

The institute says advanced industries represent a sizable economic anchor for the US economy and this sector has led post-recession employment recovery. Modest in size, the sector packs a massive economic punch – as such, these industries encompass the country’s best shot at supporting innovative, inclusive, and sustainable growth.

The Progressive Policy Institute (PPI) also says that places with strong tech/information growth have survived the recession much better that their counterparts. In particular, counties with a higher number of new tech/information sector jobs from 2007 to 2012 had enjoyed substantially faster growth in both overall private employment and non-tech jobs over the same period.

In their PPI Tech/Info Job Index, which measures the number of new tech/information jobs between 2007 and 2012 as a share of 2007 total private sector employment in that county, San Francisco, San Mateo and Santa Clara counties come in the top three – all are in Northern California, embracing the broader area known as ‘Silicon Valley’. The implication of the index is that policies encouraging tech/info growth are more likely to boost the overall economy.

So the question ‘where is the next Silicon Valley’ is not really about replicating Silicon Valley. It’s more about asking which places are creating the tech jobs and ecosystems that can generate the type of economic impact that Silicon Valley has been able to do via this route – creating the tech jobs of the new economy. We now see many places are building their own local version of Silicon Valley, not necessarily just trying to replicate it.

This takes me back to Dileep Rao’s article – what are the key ingredients to creating a Silicon Valley like ecosystem? I summarize his seven ‘rules’ here:

  1. Attract the world’s best, brightest, and hungriest.
  2. Develop entrepreneurial radicals who will focus on the next hot trend.
  3. Don’t ration success from the top down. Build success from the bottom-up.
  4. Design the infrastructure to build new giants.
  5. Organize funding institutions to feed the growth after ‘Aha’.
  6. It’s the entrepreneurs, stupid.
  7. Beat Silicon Valley.

Overall, it’s about the people and openness – as Rao says, “It is not enough to encourage locals to become brighter. Silicon Valley was not built by the locals, who were mainly in orange groves. Silicon Valley grew because of its ability and openness to attract the world’s best, brightest, and hungriest. Other areas do try to pick their best and then educate them to do great things. But Silicon Valley can do that and more – it can draw them from the distant corners of the world.”

He adds, “In many parts of the world, bright minds are wasted because the rich and the powerful control, as in many Asian, African, and Latin American countries, or bright, young minds join the country’s established organizations rather than pursuing their dream, as in Germany. To grow, areas need to focus on smarts, not skin color; on potential, not breeding; on the motivated, not on the blue-bloods; on practical achievement, not academic brilliance; on open walls, not closed doors; and on law, not corruption. This is the most important rule.”

Many governments, innovation agencies and economic development agencies have recognized these factors, and are indeed creating their own thriving entrepreneur ecosystems focused on nurturing local talent and attracting talent from around the world.  And that means there is not just one next ‘Silicon Valley’, but many such places evolving around the world.

Beyond internet and social media: looking for the trends that really will transform the future

by Nitin Dahad

An article that captured my attention this week was the cover story of Spiegel Online, in the international version of the German publication, entitled ‘How Silicon Valley shapes our future’. Reading it gives you a real sense of the dominance of Silicon Valley, despite what we see as a democratization of innovation across the globe through the internet, and the ability to collaborate on global technology platforms.

It also talks about the technological advances we’ve seen in the last decade which, however breathtaking they may be, are still only just the beginning. It says the growth of new technologies has been exponential rather than linear, with ever larger advances coming at an increasingly rapid rate. “It is like a gigantic avalanche that begins as a tiny snowball at the top of the mountain,” says the writer, Thomas Schulz.

“Dozens of companies are trying to figure out how to use drones for commercial use, be it for deliveries, data collection or other purposes. Huge armies of engineers are chasing after the holy grail of artificial intelligence. And the advances keep coming. Machines that can learn, intelligent robots: we have begun overtaking science fiction.”

Schulz adds, “We are witnessing nothing less than a societal transformation that ultimately nobody will be able to avoid. It is the kind of sea change that can only be compared with 19th century industrialization, but it is happening much faster this time. Just as the change from hand work to mass production dramatically changed our society over 100 years ago, the digital revolution isn’t just altering specific sectors of the economy, it is changing the way we think and live.”

In the article, investor Peter Thiel says he doesn’t understand why the world has become so exclusively focused on the internet today. “Smartphones and social networks, he says, are all fine and dandy, but ‘thinking has become far too narrow’. He wonders what happened to the ‘really big dreams’ of the 1950s and 1960s when our pursuits were defined by things like ‘underwater cities’ and ‘supersonic transport’.” It adds, Thiel believes we need to find our way back to far more fundamental visions and that we should be working toward a future of ‘radical breakthroughs’, with things like ‘clean energy sources’ and ‘deserts that can be transformed into fertile landscapes’.

Education, innovation and technology

Education-technology

One of the areas yet to be significantly transformed by technology, suggested by Sebastian Thrun (founder of the Google X research laboratory) in the article, is education. Technological change is one of the drivers of increasing inequality in the world and Thrun says he is convinced that society must adopt concepts of life-long learning in response, affordable and accessible to all.  Education is a sector where change is difficult, to which Thrun says, “The more resistance the better. I love doing things that people say are impossible.”

The link between education, technology and innovation in this sector is the key theme of the 12th annual Global Technology Symposium taking place in Silicon Valley on 1-3 April 2015. Around 400 venture capitalists, technology entrepreneurs, startups from emerging markets, and other business influencers will gather to hear speakers highlighting where the next big thing will be around the globe and what will drive the next big thing.  It will explore and debate global trends in innovation and in education, educational startups and the technologies of the future. One session on this theme will look at maps of the future – what education technology means for the world.

In addition to a debate on education and entrepreneurship, there will be a special presentation by the DFJ Global Network on the future of robotics and AI (artificial intelligence). With the global collaborative and sharing economy, there will also be a discussion entitled, ‘Does geography matter:  budding startups around the world.

Last year (2014), the conference drew more than 300 participants from 12 countries, and panels addressed space exploration, venture capital and emerging markets. At last year’s event, 500 Startups founding partner Dave McClure said after his talk on reinventing venture capital, “For us I think emerging markets are a pretty big focus – about 20-30 percent of our capital is going to startups outside the U.S.”

Another feature of the Global Technology Symposium is the ‘Global Innovator Competition’, organized in conjunction with the world’s leading startup incubators, and enabling promising entrepreneurs from all over the world to present ideas and visions that will bring new products to market and transform industries. The winner of the competition receives the Global Innovator Award, as well as the opportunity to meet with prominent Silicon Valley venture capitalists.

The Global Technology Symposium will hopefully see the innovation and entrepreneurship ecosystem debating some of the big trends and challenges that are discussed by Thomas Schulz in his article, and also as highlighted by Peter Thiel – to look beyond the internet, smartphones and social media, and look at how to enable the radical breakthroughs that will really transform the future.

Colombia: using technology and innovation to lift people out of poverty

by Nitin Dahad

Colombia vive digital image 2In a country of about 46 million, more than a third of the people in Colombia live below the poverty line. In an interview with The Next Silicon Valley, Colombian Minister for Information and Communications Technologies (MinTIC), Diego Molano Vega, spoke about how the ‘Vive Digital’ initiative is utilizing technology, innovation and entrepreneurship to reduce poverty.

Colombia has 26 million unique mobile subscribers and 51 million mobile connections, making it one of the fastest growing mobile markets in Latin America. It has been rolling out internet connectivity across the country too, enabling even villages to be connected so that they can have the same opportunities to participate in the digital economy as cities. The minister commented, “It is essential to take advantage of mobile technology to help improve the lives of Colombians. Our focus is on reducing poverty – we don’t want to be the Silicon Valley of Latin America, we just want to use technology to give the same opportunities to poor schools and kids that the children in Bogota or London have.”

Diego Molano Vega was at Mobile World Congress as GSMA, the mobile industry association, together with the Colombian mobile operators Claro, Telefónica Movistar and Tigo and trade association Asomóvil, announced a series of joint initiatives to enhance mobile users’ experiences throughout the country. These initiatives are supported by MinTIC and the Ministry of Environment and Sustainable Development, and are part of the GSMA’s wider “We Care” campaign in Latin America, focusing on tackling the key challenges of improving network coverage, managing electronic waste, reducing handset theft, as well as the use of mobile for disaster response in Colombia.

According to the minister, 96 percent of the country is already connected by fiber, and the remaining four percent would be connected by high speed microwave links. “Any location in rural areas with more than 100 inhabitants must have internet,” he added.

In order to achieve their objective, the ministry has been implementing its ‘Vive Digital’ program over the last four years – an initiative intended to give the country a ‘technological leap’ by providing internet connectivity throughout the country and developing the national digital ecosystem. It is part of the government plan to achieve democratic prosperity through the appropriation and use of technology.

There is a direct correlation between internet penetration, the rollout of information, communications and technology (ICT), employment generation and poverty reduction. Based on this Vive Digital was developed to enable significant social and economic benefits in Colombia. According to studies by Raul Katz from Columbia University, in the Chilean case a 10 percent increase in internet penetration led to a reduction in unemployment of two percent. And according to the UNCTAD Information Economy Report 2010, in developing countries such as the Philippines and India, for each job created in the ICT industry, between 2 and 3.5 additional jobs in the economy were generated.

There was also supporting data from the World Bank and the World Economic Forum report, The Global Information Technology Report 2010, demonstrating a direct correlation between the Network Readiness Index, which measures the use and development of ICT, and international competitiveness. Colombia therefore looked at using its plan to overcome several barriers in order to enable widespread internet penetration as a priority.

Lowest cost ICT in Latin America

At the infrastructure level, the minister said, “We first encouraged competition among carriers – from three operators, there are now 10 operators. We changed the rules of the game so competition is allowed. We have the lowest prices for handsets in Latin America, and subscribers are not locked to any one operator as they are in some parts of the developed world. We eliminated taxes for handsets and computers. This way, we are empowering the consumer, and making life easier for the consumer.”

At the applications layer, things are different though – the minister commented on this, “For us the digital ecosystem is different to the developed world, and comprises infrastructure, services, applications and users. The bottleneck is in the application layer.” He illustrated with an example, “Many small businesses in Colombia operate in an informal economy – small family businesses which operate on a daily cash flow business. We therefore had to focus on how we help these small businesses use technology and the internet to help them make more money.”

The minister was keen to emphasize this focus on the base of the pyramid, with applications for the majority of small businesses and poor farmers, making it different from the developed world. “We’re focused completely on developing applications for the base of the pyramid.  As a result we have gone from seven percent of small companies connected to the internet four years ago, to 72 percent now being connected. This was possible because we focused on showing them the value of technology. We showed them how moving from the informal cash economy to a connected business could help them make more money.”

‘Silicon Valley startup ecosystem has no clue what poverty is’

He said that this focus on the base of the pyramid gives a completely different meaning to raising capital, unlike the developed world venture capital ecosystem. “Silicon Valley has no clue what poverty is,” he commented. He explains this by saying that the Colombian programs are focused on using technology to help small time farmers and businesses to raise small amounts of capital that help them make a difference and lift their families out of poverty – unlike in Silicon Valley, where large amounts of cash are invested into startups and businesses focused on applications addressing the top of the pyramid.

The minister explains further, “We are focused on ICT for farmers, ICT for local government, and access to health. For example we have poor kids being able to sell onions on the internet, and generating capital – that’s our venture capital ecosystem.  Our version of innovation is a local innovation ecosystem to solve local problems – for example, by understanding the entire value chain of the onion.”

He said there are many programs now in place to encourage entrepreneurship and innovation – for example, there are 70,000 people on the apps.co program.  The latter is a (MinTIC) initiative to promote and enhance business creation through the use of ICT, with particular interest in the development of mobile applications, software and content.  In addition, there is also the iNNpulsa Colombia program, established to stimulate business ‘hyper-growth’, and Ruta N, a corporation created in the city of Medellín, to promote the development of innovative technology-based businesses.

Colombia is certainly beginning to make its mark in its own way as an innovation and entrepreneurship ecosystem – as TechCrunch said in a recent article, poverty, extreme poverty, and unemployment are all down thanks in part to tech-based programs designed to address inequality, and labor formalization is up; and in comparison to the other emerging Latin American tech hubs — Buenos Aires, Sao Paolo, Santiago — Colombia not only has competitive public incentives, but also the general structural growth that attracts immigration.

Minister Diego Molano Vega concludes, “Our goal is to expand the exposure of the poor to technology to give them the same opportunities as people in other parts of the world. In five years, Colombia will be the leading country developing applications for the base of the pyramid, with a whole innovation ecosystem around solving local problems.”

Top five cities to startup in Latin America

by Nitin Dahad

Latin America img_continent_big courtesy Impaktu

Image courtesy of Impaktu

In March 2011, on my first ever visit to Latin America, I discovered that there was an emerging startup scene in Brazil, in places like Sao Paulo, Recife, Porto Alegre, Rio de Janeiro and Florianopolis. And of course there is Campinas, which is sometimes cited as Brazil’s Silicon Valley. But as I continued to work there and understand the challenges faced by businesses trying to sell into Brazil, I also discovered that it would be some time before the innovation and entrepreneurship ecosystem flourishes like in some cities in the USA, UK or India.

The challenge in Brazil is a whole system that is geared up to encouraging people to go into public sector jobs, and the aversion to risk, or starting your own company, is significant, as one Silicon Valley based entrepreneur I once met trying to establish himself in Brazil had told me – his wife was running a technology business accelerator in Florianopolis. Also the bureaucracy, employment law and taxes make it difficult for an entrepreneur – but despite this, there are startups that succeed, but they would have done so with huge hurdles to cross.

On the other hand, Chile was at that time running an aggressive marketing campaign to show how easy it was to start up and grow a business in the country.

So it is with curiosity that I read the latest press release entitled ‘Top 5 cities to launch a company in Latin America’, issued by Dafiti Group, a Sao Paulo based e-commerce site for apparel, shoes, accessories, beauty, home and décor, with operations in Brazil, Argentina, Colombia and Mexico. This list looks similar to the four cities highlighted as the best cities to launch a startup in Latin America by GigaOm in September 2014.

So here is Dafiti’s list:

Buenos Aires, Argentina

As well as being the political, financial and commercial centre of Argentina, Buenos Aires is one of the most cosmopolitan cities in South America and subsequently the region’s most dynamic startup hotspot.

Funding and support: the local seed fund accelerator NXTP Labs provides upcoming startups with a seed investment of US $25,000. Local government recently announced an initiative to invest US $3.5 million to support local startup accelerators.

Trump card: the workforce is both highly skilled and cost efficient: 35.2 percent of the working population hold a certificate in tertiary education, whilst the minimum wage stands at a reasonable US $548 per month (2015).

Success story: Mercadolibre is the Argentinian eBay and the most successful startup in the country. Its service is now available in 13 countries and eBay is a listed shareholder.

Medellín, Colombia

The startup flow in Colombia is growing exceptionally fast. The most recent Colombia Startups meeting, an annual event for entrepreneurs and investors, hosted 1500 attendees of whom 164 were investors – an increase on the previous year’s attendees by 25 percent.

Funding and support: programs like Ruta N, an innovation and business centre created by local government, aim to boost new businesses which promote and strengthen the scientific, technological and innovative development in Colombia.

Trump card: Medellin runs on a similar time zone to the west coast of the United States. In 2013 Medellin was named the most innovative city of the year by the Urban Land Institute due to its progress and potential.

Success story: PagosOnline started with just US $5000 in 2002. Thirteen years, a rebrand and an investment of US $10 million later, PagosOnline by PayU is now is the biggest platform for online payments in Latin America.

São Paulo, Brazil

The Brazilian economy is expanding rapidly and is subsequently a good landscape for both foreign and local businesses.

Funding and support: the national startup initiative, Startup Brazil, supports companies less than four years old. This program provides support for startups in the form of investment, physical infrastructure, legal advice and training. The Brazilian government is also promoting initiatives for startups through its Tech Sampa program, which aims to create and attract innovative technology ventures.

Trump card: as the largest economy in the southern hemisphere, Sao Paulo is a great environment for building contacts and expanding operations.

Success story: worth more than US $250 million, Dafiti, Brazil’s largest online fashion retailer is one of the most interesting startups in Latin America. Available in six countries, Dafiti is helping reshape the future of e-commerce in Latin America through its use of iBeacon technology.

Monterrey, Mexico

As México’s richest city, Monterrey is considered to be one of the best places to do business in the country and stands as a symbol of progress in Latin America.

Funding and support: Startup Studio Monterrey, a Mexican startup incubator, recently launched a program to provide entrepreneurs with projects in the IT sector with specialized mentoring and workplaces. Entrepreneurs don’t have to pay to be part of the program but the incubator takes 6 percent of each project’s profits.

Trump card: the tech industry in Monterrey has grown three times faster than the global average in the last 15 years. This rapid growth is generally attributed to the support and funding available in the city.

Success story: Huichol Vertical Gardens has grown from a hobby to a thriving startup. Since growing the niche market in Monterrey, they have extended their operations all over Mexico and plan to expand from residential to corporate projects this year.

Santiago, Chile

Santiago is the economic, cultural and now the financial centre of the country. Its increasing appeal to international entrepreneurs is one reason why the startup scene here is quickly becoming known as the ‘Chilecon Valley’.

Funding and support: the Chilean government’s program Startup Chile aims to attract world-class entrepreneurs to the country. If accepted onto the program, participants receive an initial US $40,000 grant, a year-long resident visa and support from entrepreneurs in the relevant sector.

Trump card: due to Chile’s reduced regulatory complexity, businesses are fully registered within an average of 5.5 days – a drastic difference to the continent’s average of 30.1 days (World Bank Group).

Success story: Motion Displays is an app which optimizes client – sales team contact for businesses. The startup currently has a partnership with Falabella, the largest department store in South America, and plans to expand into larger foreign markets in the coming year.

Is ‘Silicon Desert’ the next Silicon Valley?

In watching successful innovation clusters evolve around the world, we’re beginning to see the theory of creating an innovation ecosystem being successfully deployed in practice, with appropriate localization according to the destination. Whether it be the USA, UK, Germany, India, Brazil, or some countries in the Middle East, every government (national and local) appears to now recognize that they need to work with industry and academia to create the right environment, highlight role models and case studies for innovation and entrepreneurship, and stimulate an ‘innovation economy’.

While this week many people are gathered at the Global Innovation Summit in California to ‘learn’ how to create innovation ecosystems in their own regions (see report related to last year’s event here), others are successfully demonstrating the fruits of their efforts over recent years.

One such example is the state of Arizona. Next week, they will have their own ‘Phoenix Startup Week’, which will embrace over 130 free events for the startup community, created by entrepreneurs for entrepreneurs. While this is a pattern seen in many cities around the world, Arizona seems to have made this part of a plan, and commentators in the USA appear to be calling ‘Silicon Desert’, as Arizona is sometimes labeled, the next Silicon Valley.

city-03-luhrs Phoenix technology and innovation hub location-small

Innovation hubs coming up in Phoenix

For example, GeekWire said recently that Phoenix is quickly and quietly becoming a hub for innovation. It is creating ideas, with vibrant startup programs at Arizona State University, plus a growing number of incubators, accelerators and co-working spaces, together with a number of potential customers and investors, plus streamlining of regulations and taxes by the state government. Even companies from Silicon Valley, California, are establishing bases in Arizona, because of the more attractive working and living conditions and lower cost of living that Arizona offers, while still having proximity to their headquarters.

Testament to this, Apple has just announced a major $2billion investment in Arizona to set up a global data center in Mesa, Arizona. While it will employ 150 people there, it also has the benefit of Arizona’s sunlight, so it has pledged to completely power the facility with renewable energy.

Courtney Klein, founder of an accelerator called SeedSpot, said a key catalyst to the startup ecosystem growth in Phoenix has been the increase in incubators, accelerators, and co-working spaces. But this is just one aspect. For example, Arizona runs an annual Scitech Festival to encourage science and technology interest among youngsters, nurturing the next generation of talent and skills for a technology-enabled economy.

Then there is an innovation challenge held every year, in which the Arizona Commerce Authority commits $3million annually in grant funding to help innovative startups and early stage companies commercialize their technology and generate revenue within 12 months. Each company awarded can receive up to $250,000 in grant funding, and so far seven rounds of the competition have been run since 2011. In the latest competition (Fall 2014), 44 Arizona Innovation Challenge grants were awarded to Arizona’s entrepreneurs.

In addition to this, Arizona Commerce Authority, in conjunction with Invest Southwest, also holds an annual ‘Venture Madness’ competition (see report from last year), which is a unique competition that pits 64 early stage growth companies against one another in a bracket-style, head-to-head competition.  According to Sandra Watson, president and CEO, Arizona Commerce Authority,  “Venture Madness is a unique program among the many opportunities Arizona offers early-stage growth companies. Engaging with these companies is an important part of our mission to strengthen and expand Arizona’s overall economy.”

Writing in Forbes magazine, she adds, “Arizona developed a blueprint for success three years ago that streamlined our tax and regulatory environment, established a suite of programs for companies of all sizes, and put us on the map as a global contender for major business expansions.” Steven Zylstra, president and CEO of the Arizona Technology Council, added that the recent explosion of tech growth in Arizona is anything but accidental.

In the article, the ACA says Arizona has more than 7,600 high-tech companies operating within the state, providing hundreds of thousands of jobs for technology professionals. Bioscience and healthcare, two of the state’s biggest technology sectors, have created over 100,000 jobs, generating $36 billion in annual revenue in the process.

This essentially highlights how one state, Arizona, has been able to implement a plan to nurture talent and skills to provide a melting pot for startups, high growth tech companies, and established companies, while providing a good business environment for an economy to stimulate growth through innovation and entrepreneurship. So ‘Silicon Desert’ is, in its way, becoming its own version of the successful Silicon Valley ecosystem that many regions often aim to model themselves on.

While world is focused on start-ups, supporting scale-ups would create a bigger economic impact

by Nitin Dahad

Over the years, governments have looked to emulate the success of Silicon Valley in California, USA, in their own countries, and in that process, many places around the world have encouraged and now have thriving start-up and entrepreneur ecosystems.  The importance of entrepreneurship became even more significant after the industry downturns of 2000 and 2008 – and particularly in recent times of austerity when governments have been looking to the private sector to stimulate economic growth and to create more jobs.

The growth of entrepreneurship is evident from the release of the 2015 Global Entrepreneurship Index (GEI) this week to coincide with Global Entrepreneurship Week. It shows that entrepreneurship is on the rise around the world but that there is much room for growth. The GEI, measuring the entrepreneurial ecosystems in 130 countries—from Albania to Zambia—measures global entrepreneurial capacity at 52 percent. “There is a rapidly growing demand from start-up communities and policymakers alike to help new firms start and scale,” said Jonathan Ortmans, president of the Global Entrepreneurship Network. “This index identifies each country’s unique challenges and serves as a compass for prescribing the most effective interventions.”

GEDI map

The 254-page report provides a detailed look at the entrepreneurial ecosystem of nations by combining individual data such as opportunity recognition and risk perception with institutional components like the depth of capital markets, globalization and spending on research and development. The United States tops the list of countries, followed by Canada, Australia, United Kingdom, Sweden, Denmark, Iceland, Taiwan, Switzerland and Singapore.

Start-up is great, but scaling up makes more impact

The real ambition when governments started looking at creating their own Silicon Valley like ecosystems was to create another Google or Apple in their own countries – I recall being at the launch of the Tech City marketing campaign in November 2010 in London, UK, when the British Prime Minister had talked of the UK’s desire to create the next Facebook.

So more than starting up a business, the ability to scale up is where the real value lies. A new report issued this week in the UK takes this exact debate to the next level. Start-ups may be the fashion right now, but how many are actually succeeding? The report, entitled ‘The Scale-up Report on UK Economic Growth’, highlights a strategy to secure greater economic growth by supporting businesses in the UK in their ambition to scale-up more quickly – with better targeting of support to those companies that are already growing fast, since they are the ones that are more likely to be the next Google.

Published by serial entrepreneur and investor, Sherry Coutu, the new report suggests that we should be focusing more on scale-ups rather than just start-ups. It argues that closing this “scale-up gap” is the single most effective thing that leaders in government, business and academia can do to drive economic growth. It also provides 30 simple case studies for leaders of local communities to drive the growth and prosperity of their communities.

This report explains how a boost of just one per cent to the scale-up population should drive an additional 238,000 jobs and £38 billion to gVA (gross value add) within three years. In the medium-term, assuming issues like the skills-gap are addressed, the UK stands to benefit by UK£96 billion per annum; and in the long-run if scale-up gap is closed, then the country stands to gain 150,000 net jobs and £225 billion additional gVA by 2034.  The report sets out a clear plan of action to close the scale-up gap, focusing on using data already collected by government to provide a platform that enables both public and private sector organizations to work together to improve the community of which they are a part.

Closing this scale-up gap could bring a significant benefit to the UK in terms of jobs and wealth creation. Sherry Coutu comments, “Britain’s start-up community is flying. The next stage of creating wealth, prosperity and jobs will come from focusing on scale-ups. We have the chance to identify and support the companies that are already creating new jobs and help them further drive the UK economy.”

She adds, “People often ask if the UK could be home to the next global success story, like a Google or Facebook. The answer is yes, and there are plenty of great initiatives already showing we can do it. But we need to be more effective at identifying the companies that have the greatest potential, and making sure they can find the most talented people and serve more customers, in more countries, more easily. Focusing on closing the ‘scale-up gap’ to the US and other countries is the next natural step that will help Britain create a string of world leaders.”

The report’s findings are based on an analysis of 50 scale-up programmes piloted in 20 different countries. The research also involved interviews with the CEOs of more than 200 scale-ups in the UK. The report identifies five important issues hindering scale-up leaders:

  1. Talent shortages
  2. Leadership capacity building
  3. Accessing customers in home markets and overseas
  4. Accessing the right combination of finance
  5. Navigating real-estate moves more easily

All these issues are easily addressed using simple, proven techniques that are already being deployed in many places. The report makes 12 recommendations for action. Some are directed to central government, which holds the data, and some are directed towards local government and community stakeholders, who will directly benefit from supporting their local champions.

Coutu says that getting an ecosystem to produce a greater number of scale-ups is more ambitious and challenging than producing a greater number of start-ups or celebrating entrepreneurs. She says that abundant evidence from countries around the world shows that collaborative initiatives can ‘super-charge’ an economy to increase the ability of companies to scale-up and to make superior contributions to the economy.

As we have seen, everyone now talks about start-ups – they are being created in huge numbers. The latest Global Entrepreneurship Index also proves that the world is now adept at producing start-ups and encouraging start-up ecosystems. However, as the comprehensive report from the Sherry Coutu has illustrated, if the goal is to produce large successful companies like Google, Apple and Facebook, then the debate needs to shift its focus to more support for those with the potential to scale-up.

Digital skills and the role of universities in driving innovation clusters and economic growth

The good thing about the many emerging innovation and tech clusters around the world today is that the internet has created awareness of what works and what doesn’t in the creation of regional and local ecosystems capable of nurturing successful high-growth tech companies from nothing. In the last few weeks, I’ve been in Cairo, Boston and London, and seen the same questions being debated, obviously to different levels. The fact is, wherever you sit in the world, you can learn from others successes and failings, identify your own ecosystems’ strengths and weaknesses, and then create local solutions to create a thriving environment for economic growth.

This is exactly what happened at the local gathering of the great and the good of London’s tech ecosystem this week, run by Tech London Advocates at the Bloomberg headquarters in the UK. Digital skills and employability of graduates were two of the key issues that the collective said are a hindrance in enabling growth and scalability of the UK’s tech companies. As one headline from the press coverage of the event says, ‘Tech London Advocates tells universities to buck up their ideas’. At a fundamental level, the consensus at the event suggested unanimously that children at schools need to be inspired to learn digital skills as well as learn coding. At the next level, it felt universities were out of touch with their local ecosystems in terms of digital employability.

It’s not surprising then that the UK’s higher education funding council also welcomed a report last week from the country’s City Growth Commission, focusing on the need for universities to do more to play a role in city-scale and wider economic development (read their press announcement here). The report emphasizes the importance of universities in developing high-tech clusters, and of university technology transfer offices in forging close links with local venture capital and entrepreneur communities.

Since the government invests over UK£7 billion in public funds in the higher education sector for teaching and research, it would be useful to see an economic outcome for the city, town or region in which the university is located. Currently, the financial and performance incentives which universities respond to are largely agnostic to the location of their impact. Competing in the global economy, universities will increasingly be important ‘anchor institutions’ in UK cities. In order to respond to growth opportunities related to workforce skills and industrial innovation within the local metro area, a range of measures could be implemented to maximize the local and regional economic growth benefits from university activities.

The report highlights the role of entrepreneurial universities in stimulating innovation ecosystems, the need for collaboration between universities and external partners such as businesses and civic and local partners, and recognizes that many universities are now ahead of government proposals to increase activity on student enterprise, supporting 3,502 additional start-up companies set up by students and graduates in 2012-2013.

The latter point is important – you cannot expect governments to spark innovation and support local clusters. As the UK’s City Growth Commission’s Rohan Silva says, “…there are limits to what Whitehall [central government] can do centrally to spark innovation and support local clusters. Why? Because innovation clusters cannot be dropped from 40,000 feet – they need to be nurtured from below. What’s more, clusters are – to quote the great Jane Jacobs – systems of ‘organized complexity’, and interventions need to be designed with the specific challenges and opportunities of a local area in mind.”

In order to nurture innovation and grow a cluster, Silva says city mayors need to do three things: unlock the growth potential of universities, improve connectivity, and attract bright entrepreneurial people to live, work and start business in the cities.

In terms of unlocking growth potential of local universities, they may be world-class research institutions, but much more needs to be done to encourage academic spinouts and entrepreneurialism on campuses. For example, mayors could make use of their financial freedoms to build startup incubator spaces close to university campuses, and support local angel investment networks that provide the essential risk capital and mentoring for fledgling companies. Mayors could also consider creating their own ‘intermediary institutions’ to support next generation technologies emerging from their local universities.

On connectivity, Silva says since the 21st century economy is increasingly dependent on sharing information, cities need to quickly emulate Singapore’s 1Gb/s broadband speeds to drive inward investment and innovation. This will require mayoral leadership to punch through the planning red tape that impedes broadband rollout, as well as a collective willingness to introduce real competition in the wholesale broadband market. Connectivity also means better transport links between clusters, which have the potential to spark new business partnerships and collaborations between leading technology clusters in different areas.

On attracting talent, Silva cites that 70 percent of Silicon Valley’s engineers were born outside of the United States; similarly, immigration policy can be used intelligently to encourage talented graduates to study and reside in the key urban areas of the UK. He also adds, as the American academic Richard Florida has shown, cities benefit economically when mayors take steps to improve quality of life and support art, culture, live music, food markets and nightlife.

What the UK City Growth Commission report and the Tech London Advocates debate have shown is that to nurture successful innovation ecosystems, and create scalable companies, inspiring the next generation with the right digital skills is important, and giving universities the right incentives to produce employable talent and connect with their local economies is going to be increasingly important.  This is especially so university establishments are to survive in a growing online age, and a future of needing new funding streams other than government.

The US already has some good examples of successful clusters resulting from local universities (eg. Stanford, Harvard, MIT) which have closely integrated themselves with the local innovation, startup and venture capital community. It is clear that in many other parts of the world, universities have a stronger role to play in creating the right environment for local and regional economic growth.

Middle East and Africa: youth are driving its innovation ecosystems

A headline that caught my eye this week was in the Huffington Post, ‘Why a War & Shrinking Economy Can’t Stop Syrian Innovation’, and having just returned from Libya, I can see the point of the article.  It suggests that war, terrorism or violence doesn’t stop the enthusiasm of youngsters to make things happen, sometimes despite government.

Whether in Syria, Libya, Egypt, Israel, or many parts of the Middle East and Africa, you often only hear news reports of the troubles. But look deeper and there’s a lot more that’s going on.  There are initiatives like PITME (progress in technology middle east) encouraging Middle East entrepreneurs, there is Israel’s Silicon Wadi which has shaped many of our electronics and wireless technologies of today, and even a VLSI (‘very large scale integration’ electronics systems design) industry in Egypt forming part of the next generation Bluetooth low energy technology.

In Libya, post-revolution, there is a boom in entrepreneurship. You can sense the eagerness of the young of the country to make things happen, to build tech parks, create their own environment to boost business and startup opportunities despite slow government decisions. One meeting in a coffee shop in Libya and you can see the vibrancy of the youthful environment – it’s like sitting in a coffee shop anywhere in a major city in the world, and in that I include New York and London.

Youngsters are creating their own opportunities in the Middle East and Africa, and as the Huffington Post article also suggests, there are no big companies in technology, so there aren’t many job opportunities for graduate engineering students. The only way to make a good career is to start your own. Otherwise graduates find themselves working as IT support, coders, or system administrators.

While it’s not exactly true in Egypt that there are no large global multinational technology companies, there are places like the Technology Innovation and Entrepreneurship Center (TIEC) which aims to drive innovation and entrepreneurship in ICT for the benefit of national economy.  One of its successes from the mobile, embedded and integrated circuits competence center is Silicon Vision, which provides Bluetooth low energy and power management semiconductor intellectual property to global electronics companies.

Israel and its Silicon Valley

Another part of the region has had its place in the global technology scene for several decades. I first noticed this when I was working in electronics in the 1980s and 1990s, when you would hear about potential customers and partners in Israel. It was difficult to imagine when news about the region only ever reported troubles.

In Israel, its Silicon Valley like spirit has been known for a couple of decades, and it is sometimes referred to as the Silicon Valley of the Middle East, or as ‘Silicon Wadi’.  The companies in this tech ecosystem have already been influencing global electronics and mobile technologies for some years.  So it’s no surprise that some 4,000 of the 75,000 visitors at this week’s annual mobile event, Mobile World Congress in Barcelona, speak Hebrew, says Roy Barzilay, a technology scouting service provider in Israel, and a senior advisor to the Israel Export Institute.

He says that 100 companies presenting their solutions on the Israeli national pavilion at Mobile World Congress were selected out of 4500 Israeli vendors. Israeli tech companies are developing technologies at the forefront of many current trends – such as the Internet of things. Barzilay says, “Personally, I believe that it may take longer for the IoT vision to ramp up. Many carriers see the domain of machine to machine (M2M), smart city, smart home and other ‘everything is connected’ areas, as an opportunity. The point is that becoming a significant player in those markets requires not only building a structured and reliable technological ecosystems, but also deep sales skills, integration capabilities and support organization.”

Hence he says Israeli companies are developing and showcasing at Mobile World Congress a wide set of M2M solutions – smart home, remote medical care, mobile payments, location based tracking, biometric ID, smart grid, smart city, M2M billing, and remote M2M device management.

Two years ago, I saw the Middle East and Africa well represented at the Global Innovation Summit (GIS) held in Silicon Valley. At the 2012 GIS, we interviewed Nima Adelkhani (see ‘Middle East peace, one startup at a time’). According to his organization, PITME (which stands for ‘Progress in Technology Middle East’, and also ‘Peace in the Middle East’), there is a huge amount of entrepreneurial talent in the region.

The region’s founder spirit comes out of hunger for disruptive, political, social, and economic change. Belief that technological innovations are the long-awaited answer to many problems in the region has resulted in the uprising of a bottom-up entrepreneurship ecosystem. This ecosystem is succeeding in spite of government failures, societal influences, poverty, and lack of resources.

In recent years, the media has conveyed generally negative sentiments on areas of political unrest, economic risks, and infrastructure. This has created a need for supportive organizations whose goal is to uphold the entrepreneurs and developers who have been ignored. PITME™, under Nima Adelkhani’s stewardship, showcases the region’s tech talent, founder energy, local and regional incubation programs and links them skilfully with Silicon Valley (USA) thought leaders, VCs and funds. Its goal is to provide traction for local and regional entrepreneurs through acceleration programs, creating the needed exposure and revenue to equip them to rise as the next generation of tech stars on top of the global entrepreneurship scene.

The combination of youth and a drive for having technology is going to be the key driver in growth in the Middle East and Africa. It has been suggested that data traffic carried over mobile networks is forecast to increase 14-fold in the Middle East and Africa from 2013 to 2018, according to Cisco’s Visual Networking Index Global Mobile Data Traffic Forecast. This follows a 107 per cent increase in the region’s mobile data traffic to 105,655 terabytes per month during 2013. Cisco forecasts that data traffic on mobile networks will rise to 1.49 exabytes (about 1.6 billion gigabytes) per month in the region by 2018, a compound annual growth rate of 70 per cent.

What’s clear is that, despite what you hear in the news, the youth and young startups in the Middle East and Africa have the enthusiasm to put their mark on the global map, and be known for their innovation and entrepreneurial nature.  The Middle East and Africa is not all about war and unrest. There’s plenty of innovation and technology development which is emerging, and we will no doubt see more as and when peace and stability comes to the various countries in the region – possibly even with stronger growth than the so called BRICS nations.

Global Innovation Week: why creating Silicon-Valley like ecosystems is still an ambition

At the recent World Economic Forum, Eric Schmidt, chairman of Google, said that, “On a net basis, more jobs were created by small companies and therefore entrepreneurs needed more support, otherwise the situation would get worse.” Hence the growing consensus in many economic quarters that entrepreneurial-driven business formation may be the best way to improve the state of the world (see article).

As noted in my article on technology changing economic development, this is indeed the focus of economic development agencies looking to grow their entrepreneur ecosystems within their location, and drive jobs and economic growth. In 2012, we took part as a media partner at the first Global Innovation Summit, and saw the appetite for government agencies and NGOs around the world to make this happen – our team, of Richard Wallace, Nishant Dahad, and myself were immersed during the conference in the debates and workshops and learned of example of various initiatives around the world to nurture their innovation ecosystems including in Africa and India.

At the 2012 summit, Victor Hwang of T2 Venture Capital and responsible for creating the Global Innovation Summit, said, “We see it as the start of a movement that seeks nothing less than the transformation of the way we think about economic development.” As noted then, the world “has squandered untold resources in funding technoparks, incubators, clusters, scientific research, technical training, and venture capital that have not yielded the expected results.”  Today’s process of innovation depends on the vibrancy of entire systems, not just the strength of isolated, individual components.

It’s not just about Khosla’s passionate entrepreneurs, but it is equally crucial to have communities of investors, scientists, engineers, advisers, executives, lawyers, bankers, accountants, landlords, artists and other professionals that support and nurture the full life-cycle of innovation, a complex human network akin to biological ecosystems. Read the original article, A Tale of Two (Silicon) Valleys published in 2012 here.

One of the other key takeaways from the 2012 summit was related to the characteristics of Silicon Valley that made it successful – that in Silicon Valley, social, cultural, ethnical or language barriers were overcome by a prevailing sense of trust within and between communities that allowed exchanges of ideas, and paved the way towards a number of collaborations that may not occur in other places in the world (read GIS 2012 Day 2: Trust is Key to Collaboration).

So energetic was this conference that in follow up discussions, even we encouraged the organizers to create a Global Innovation Week for their next conference, very similar in nature to the Global Entrepreneurship Week that happens in the fall every year (this year during 18-24 November). This is exactly what has happened, and the Global Innovation Summit embraces a series of events, ranging from the summit conference itself, to sideline events like ‘the art of innovation’, ‘the innovative life science incubator experience’, ‘technology transfer models and impact on innovation: an international discussion’, ‘the women in innovation lab’, and ‘creativity and innovation in Brazil’. The event details for the week (17-21 February 2014) are all available on the web site.

Creating and nurturing innovation ecosystems and people who can create companies that create jobs and growth is a major ambition for many governments and development agencies around the world. What started many years ago in some countries as ‘we want to be like Silicon Valley’ has now become an international passion, with several cities around the world having created their own recipe for success (London, Berlin, Tel Aviv, New York, to name but a few). With this global passion for innovation, we are sure to see many more such successful innovation ecosystems or ‘Silicon Valley’- like places around the world in months and years to come.

A set of tools to nurture your own Silicon Valley

Around the world, governments are making huge investments in creating their own version of Silicon Valley, in the hope it stimulates innovation-based growth in their economies, and hence generating wealth.  This money is often spent in developing ecosystems of science parks, incubators, accelerators and fostering industry-academia links.

A new book aims to make the creation of these innovation ecosystems more of a science –Rainforest book a short 66-page book entitled, “The Rainforest Blueprint: How to design your own Silicon Valley”, claims to be a practical guide for putting the lessons learned from Silicon Valley to work in businesses, organizations, and communities around the world.

It’s written by Victor Hwang, who was also co-author of the Rainforest book which formed the foundation for last year’s Global Innovation Summit, for which The Next Silicon Valley was an official media partner (see ‘Creating successful innovation ecosystems – the rainforest analogy’). In that first book, it covered the theory of the biology of innovation and the social and cultural fabric that is an essential part of the success of Silicon Valley. It uses the rainforest analogy to describe the creation of the right environment and conditions for producing a thriving Silicon Valley-like innovation ecosystem.

Writing in Forbes magazine, Victor Hwang says, “The Rainforest Blueprint fills a practical need, not a theoretical one. It helps people engage collaborators and partners with diverse experiences and expertise. It helps them create shared understanding and provides some common tools.  And it can be applied in corporations and nonprofits, not just geographic regions.  What, after all, was the legendary Bell Labs, if not a mini-precursor of Silicon Valley?”

“Whether in a corporation, organization, or community, the challenge is to create an ecosystem, not just an infrastructure.  Yes, it’s tempting to focus on infrastructure—as so many companies, cities, universities, and startup incubators do.  Gathering the office space, the equipment, the money, and the labor is like starting a farm. It’s tempting in part because they are hard assets; you can prove that the work has been accomplished based on visible evidence.”

“But an innovation ecosystem is a Rainforest, not a farm. It doesn’t produce the crops that were intended.  It produces crops that could never have been imagined. It comes from a serendipitous environment in which the cross-pollination of diverse ideas can thrive on trust, sharing, a willingness to fail, and a readiness to start over.  With the right framework, we believe that such an ecosystem can be blueprinted. Everywhere.”

The book contains two parts – one is the foundation, recapping on the rainforest concept and the foundational structure of innovation ecosystems, and the second part, the ‘frame’ details the ‘how to’: how to seed, cultivate and nourish the innovation ecosystem.

Innovations are like weeds

To understand the rainforest analogy used by the author, this extract should explain the concept:

Innovation is basically the opposite of mass production. We don’t want predictable crops. We want weeds. And weeds are birthed from uncontrolled environments. We call such places—like Silicon Valley—Rainforests.

Think about some of the hottest companies today: Facebook, Twitter, Google. Not that long ago, these companies were like weeds. They were little sprouts, and no one knew for sure if they would grow bigger. In Rainforests, we seek to nurture the growth of weeds. So we end up with this interesting paradox… Plants are harvested most efficiently on farms, but weeds sprout best in Rainforests.

To grow Rainforests, instead of trying to count individual weeds or the flowers they create, what matters is the quality of the soil. Flowers come and go. Good soil, however, will sprout good weeds. And their flowers will continue to bloom, season after season.

In the book, it also explains the culture of trust and collaboration needed in successful ‘rainforests’ (see “Trust is key to collaboration”).

The second part of the book provides the tools that people can use to identify values and create their own blueprints for building an innovation ecosystem. For example, there’s the initial ‘Rainforest canvas’ for planning, and then delving down into the rainforest tools (for example, tool number three is ‘Celebrate role models and peer interaction’). After goals have been defined, then there is the rainforest timeline, which is effectively a project planner, followed by the rainforest scorecard.

The new book is an interesting approach with common sense tools to help focus thinking on the key elements of building an innovation ecosystem, using the rainforest analogy. The analogy is a good one, in that a Silicon Valley cannot be mass produced but needs all the right ingredients in terms of people, culture and assets (infrastructure). It helps create the thinking for an iterative process in nurturing the right environment for a Silicon Valley-like culture to evolve.

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