The Invisible Forces of Innovation: How They Shape Our Ecosystem

Forces that shape our innovation ecosystem

“What would it take for Michigan to rival the success of Tech Hubs like San Francisco and Boston?”  

This guiding question led us to sponsor the Ross MBA “Bold Vision Challenge” MAP team.

To help us unravel that loaded question, let’s explore some socio-economic forces that may help us visualize the connected nature of our innovation ecosystem.

In 1942, Austrian economist Joseph Schumpeter developed the economic theory of “creative destruction.”

The central commandments of this theory are:

1. Innovation and knowledge diffusion are at the heart of the economic growth process.

2. Innovation relies on incentives and the protection of property rights.

3. Innovation renders old technologies and ideas obsolete.

Schumpeter discussed this theory at the macroeconomic level. However, Creative destruction occurs on multiple levels within an innovation ecosystem.

1. Start-up Ecosystem Level

• Collaborations and congregations lead to community growth: Start-up hubs flourish when collective learning is enhanced through organized efforts by universities, non-profits, and other ecosystem support organizations, such as Government agencies. These may be conventions where speakers and panels share insights and connect, business plan award competitions, workshops, and incubators providing working space. Participating and contributing to these community efforts may return long-term ROI for ecosystem leaders. (Ref-2)

• Government support is crucial to industry success: Leading hubs often benefit from government incentives, working alongside grassroots community efforts. For instance, the life sciences innovation community requires funding assistance and lobbying efforts to influence public policies as well as access to basic infrastructure, such as available real estate for wet lab spaces. To fully unlock Michigan’s potential as a top life science innovation hub, there is a need for increased state-level support, comparable to the bold investments seen in California and Boston.

• Managing creative destruction in the ecosystem: Is creative destruction always beneficial to an ecosystem?  Most experts agree that low-performing companies should fail quickly to make way for emerging startups. No one wants zombies littering the ecosystem. However, this perspective doesn’t consider the human toll that arises from constant company turnover. A healthy ecosystem thrives on a diverse blend of emerging startups, established large corporations, and proactive government and community initiatives to soak up displaced workers and create a positive feedback loop.

2.        Firm Level

• Innovation comes from investing in Research & Development and Intellectual Property strategy: A central tenet of creative destruction theory states that innovation happens when entrepreneurs invest in R&D and IP strategy (ref 1). Investors, in turn, are attracted to startups with a strong IP portfolio. They are motivated by the potential monopoly rewards arising from IP protection laws. If Michigan is to win, we must invest in developing cutting-edge intellectual property that drives real value.

  
  

• A firm’s position determines how it reacts to competition: Deciding where and how to position your product or service is business strategy 101. But did you know your company’s overall position in its sector decides its response to competition?  Two types of companies emerge from the study of firms from the macroeconomic viewpoint- the ones considered the “leader firms” who innovate close to the technological frontiers, while the “laggard firms” innovate just to catch up with the leaders. (ref 1) This phenomenon is beautifully illustrated by the example of what happens to a classroom when a new brilliant student arrives. The best students with the highest grades push themselves to better their position on the curve, whereas the weaker performers get discouraged and perform below their baseline. One way to ensure Michigan rivals the West and East Coast tech hubs? We encourage and invest in more leader firms!

3.        Personal Level

• Creative destruction leads to personal growth: Let me expand Schumpeter’s economic theory by proposing that creative destruction leads to personal development. Creative destruction at the individual level teaches us that growth often requires letting go of outdated habits, beliefs, or practices that no longer serve us. Just as old technologies must make way for new ideas, individuals may need to abandon certain mindsets or routines to emerge stronger and wiser.

  
  

• Staying current by investing in continuous learning:  How do you stay ahead of the learning curve in today's world of information overload? A little discernment about what to retain and discard will benefit you and your organization. Traveling, attending conferences and workshops, networking, seeking mentors, and widening your horizons by exploring new ways of gathering knowledge are all creative ways to remain relevant. 

  
  

• Passing on the knowledge: As a founder and leader of the ecosystem, guiding and mentoring new participants is a key part of your responsibility. This skill will eventually help you spread your knowledge to wider circles. Your ecosystem is eager to hear your stories and learn from your insights. Engage actively in your ecosystem and contribute back to it, as learning and participation are reciprocal processes that fuel your growth and the growth of your community.

  
  

Ultimately, creative destruction is not just an economic theory but a lived experience for entrepreneurs and the surrounding startup community. It shapes their approach to innovation, business strategy, and personal development, intertwined like a tree with deeply connected branches reaching different directions, yet rooted in the same purpose. The short answer to how a community can win is age-old wisdom: definitive action through collective learning!

References

1.         Aghion, P., Antonin, C., & Bunel, S. (2021). The power of creative destruction: Economic upheaval and the wealth of nations. Harvard University Press.

2.         Feld, B. (2020). Startup communities: Building an entrepreneurial ecosystem in your city (2nd ed.). Wiley.

3.        Ries, E. (2011). The lean startup: How today's entrepreneurs use continuous innovation to create radically successful businesses. Crown Business.