IP vs. IT: Innovation in the Entrepreneurial Age

AngelList’sBabak Nivi published a great post earlier today titled “The Entrepreneurial Age“; his thesis statement is as follows:

In the entrepreneurial age, physics and information will be replaced by entrepreneurship: the ability to serve a customer at the highest level of quality and scale, simultaneously. We will learn to put entrepreneurship to great use and it will be the basis for an organization’s differentiation and victory.

His words are different than mine, but Nivi’s argument immediately struck a chord with me as a manifesto-grade statement about the culture gap between “old” and “new” modes of innovation that I’ve been seeing in my work at Founders Co-op and TechStars.

To back up a little, I’ve been in the software business for over 20 years (my first PM role was at AT&T, building an “audiotext” information service, just a year before the Mosaic browser changed everything).

In those 20 years, I’ve witnessed what I believe is a fundamental, permanent shift in the way that business value is created through technology.

The “old” mode — the one I began with 20 years ago — viewed hard assets as the foundation of value creation: established brands, protected intellectual property (IP), massive amounts of capital, lobbying and regulatory capture.

Human capital — meaning anyone outside the executive suite or boardroom — was a commodity input that had to be managed, but not a fundamental constraint.

The “new” mode was shocked into existence after the Internet bust of 2001 — when the both cultural and capital support for software innovation effectively dried up — and has been steadily gathering speed ever since.

The enablers of the “new” mode should be familiar to anyone reading this blog:

  1. The collapse in the cost of software innovation (powered by open source tools and cloud infrastructure)
  2. The explosion of global internet connectivity, linking nearly every human and business to every other in close to real time.
  3. The smartphone (and tablet) revolution — making digital (as opposed to voice, paper or f2f) the primary mode of service access for both consumers and professionals, for an ever-growing share of economic activity.

The current generation of technology entrepreneurs take all these things for granted. They’ve never known a world in which capital and patents were the foundation of business success. For them, smart software is a lever that can be applied to almost any human problem, the tools of production and distribution are freely accessible to all, and new customer insights can be turned into product improvements as fast as they can write and ship code.

The only real constraints on technology innovation today are human capital and speed — the most technically skilled AND customer-agile teams are the ones that win.

Many people who have been in the innovation business for a long time — old-school VCs, university commercialization offices, business-school academics — have had a hard time shaking loose from the “old” model — the most common tell is an obsession with “defensible IP”, especially patents, as the core of enterprise value creation.

For better or worse, there is nothing stable or defensible about business success in an Entrepreneurial Age. the new model of success is “permanently emergent” — the only way a company can win is to listen better and adapt faster to its customers’ changing needs than anyone else in the race. And to keep doing that, day in and day out.