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Open InnovationAcademic and Practical Perspectives on the Journey from Idea to Market$

Arthur B. Markman

Print publication date: 2016

Print ISBN-13: 9780199374441

Published to Oxford Scholarship Online: June 2016

DOI: 10.1093/acprof:oso/9780199374441.001.0001

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Building an Innovation Coral Reef

Building an Innovation Coral Reef

The Austin Technology Incubator Case Study

Chapter:
(p.203) 9 Building an Innovation Coral Reef
Source:
Open Innovation
Author(s):

Gregory P. Pogue

Keela Thomson

Rosemary French

Francesca Lorenzini

Arthur B. Markman

Publisher:
Oxford University Press
DOI:10.1093/acprof:oso/9780199374441.003.0009

Abstract and Keywords

Building an innovative culture is a key goal of most companies. An open approach to innovation has been shown to offer important advantages accelerating this goal. Current models of innovation ecosystems do not provide a clear roadmap to visualize the best manner of bringing together the right types of people to accelerate startup and new product success. The coral reef model was developed to conceptually organize community social structures necessary to improve idea-to-product development within the historical trend of open innovation. In a reef structure, participating companies and innovators access necessary technical wisdom and market insight while gaining access to capital more quickly. The chapter includes an analysis of the Austin Technology Incubator, which serves as an example to help define the activities of community structures such as incubators and accelerators that assist new enterprises in a competitive business marketplace within the open innovation framework.

Keywords:   Open innovation, incubators, accelerators, organizational structures, community structure, idea-to-product development, innovation ecosystems, coral reef, commercialization

Innovation in Organizational Settings

This book is focused on open innovation. For innovation to be open, many different people have to get involved, particularly those who might not talk with each other normally. As a result, it is crucial to design social structures that promote interactions to support innovation.

What should those social structures look like? In order to address this question, we explore the social structures that are effective for supporting new entrepreneurial ventures. Successful technology incubators, accelerators, and communities do a good job of bringing together people who can allow new businesses to thrive. We can learn much about successful innovation by first understanding the communities in which new businesses grow.

In this chapter, we discuss the concept of innovation and some of the barriers to innovating successfully. Then, we discuss the social structures (p.204) that support new businesses and introduce the concept of the coral reef, which is a community structure that we have found to be successful. Finally, we discuss ways to implement a coral reef within an organization to support innovation.

Barriers to Innovation

There are many definitions of innovation, and so it is important to be clear about what we mean by this concept at the outset. We assume that innovation, the process of turning novel ideas into tangible goods and services, is both a risky and a powerfully disruptive process and thus quite fragile in nature. Although innovation involves high risk in the early stages of product development, it also has the capacity to improve quality of life and positively impact the economic situations of individuals, institutions, and regions.

Idea-to-product development occurs in existing firms, both large and small, as well as within newly established startup companies. Each of these two settings has its own host of unique challenges. Startups often form around an innovative idea, and so the process of generating ideas has already been dealt with. However, startups have to create an infrastructure (including an appropriate leadership and operational team), find outside mentorship, deploy a business model, and develop a strategy for entering one or more markets.

Large firms often have an infrastructure in place for marketing and distributing products, but they often do not have mechanisms in place to support the generation of new ideas. In addition, managers are often unwilling to take on new and highly innovative projects because these types of projects have a high risk of failure. Failure can have a significant negative impact on both their compensation and their reputation within the organization. Although innovation has a high probability of failure in both venues, startups are often organized with the knowledge that there is some chance they will fail. In contrast, large organizations are often less tolerant of failure.

(p.205) Overcoming these barriers requires both strategies for effective innovation and also appropriate personnel and mechanisms for supporting the kinds of collaboration that promote the components of innovation to realize products and benefits to organizations and society.

In this chapter, we are particularly interested in the social component of innovation. We want to understand the strategies that allow firms to bring people into contact to help them develop new ideas successfully and to generate plans that allow resources to be put behind these ideas in order to drive them forward toward the market.

It is crucial to overcome these barriers because successful innovation leads to improved medical procedures, alternative energy sources, and better ways to manage data, and it drives the growth of companies and economies alike. Innovation has the potential to improve quality of life, create new job opportunities, and make a positive impact on regional economies.

In order to develop lessons for the way large organizations can structure their social environment to support innovation, we start with an extended exploration of the innovation environment, or ecosystem, for small firms or ideas within larger organizations. In particular, we have explored the ecosystems that surround entrepreneurial communities. In order to place this work into perspective, we first examine some of the core challenges surrounding innovation and then discuss previous theoretical approaches to understanding the ecosystem surrounding small firms. We are not the first to explore the structure, components, and actions of innovation ecosystems, so we seek to set the context for open innovation’s relations to ecosystem thinking.

The Transition from Closed to Open Innovation

Through the first half of the 20th century, innovation happened largely within the context of single firms. It was common for large firms to orchestrate innovation projects, for which they would acquire all the financial, technological, and human resources necessary to develop a new technology and commercialize it through a product vehicle. The large (p.206) industry leaders with access to excellent resources, such as Bell Labs, GE, DuPont, and Merck, performed the most internal research and development (R&D) and subsequently reaped the benefits (Chesbrough, 2003). Relatively recently, however, large firms have lost their lead in innovation.

Today, there are better, more economical ways of reaching the market without investing in costly in-house research facilities. The innovation process has been democratized in the past 40 years—with the rise of the applied conceptual expertise within the research university, the availability of risk financing, and the advent of the Internet era. The passage of the Bayh–Dole Act in 1980 paved the way for private and public research institutions to leverage public research funds to make fundamental scientific discoveries and to transfer technology to the private sector, in which technologies are transformed into useful and valuable innovative products and services. Growth in capital to finance early stage ventures from business angels, venture capital organizations, and corporate-sponsored research allows early stage entrepreneurs to take creative ideas (which are the raw material of innovation) and turn them into products, allowing for financial reward to be shared by inventor and investor alike.

In response to the growing dominance of small firms as engines of innovation, large companies have tried to become more agile by looking outside their four walls to other entities and using a more “open” strategy for innovation—integrating parts from disparate partners into a single marketable product. Thus, in the 21st century, innovation has evolved from a focus on large, tightly controlled projects toward a more dynamic process driven increasingly by smaller and newer companies and individual research laboratories (Chesbrough, 2003, 2006).

In this new open paradigm, innovation projects are not controlled by a single company or group but are cultivated within an ecosystem of “role” players: The team that originates an innovative idea often is not the same as the one that funds its development, finalizes development, or commercializes it. In addition, as companies grow and evolve, they may find that improvements to existing products as well as new ideas originate from external groups. For example, although Apple clearly developed the iPhone and iPad platforms, the success of these platforms rests on an (p.207) open innovation model that allows external developers to create compatible applications.

However, as technology and the ways that it is used evolve, innovation is becoming more difficult in some ways. As technology progresses, the resources and skills needed to innovate or transform basic scientific discovery into a useful and profit-bearing product are becoming ever more advanced in many fields. People require more training to understand the current technologies, the ruling regulatory policies, current market needs, and strategy for new product introduction. Clearly, innovation projects do not cleanly fit into one discipline (Chesbrough, 2003, 2006) and thus may require a cross-disciplinary team with many disparate skills (Bunderson, 2003; Stoker, Looise, Fisscher, & DeJong, 2001). The growth in team complexity creates a more dynamic innovation process in which the required human resources might change dramatically within a company over the life span of developing a single technology.

How are these teams of multidisciplinary experts identified, incentivized, and brought into a team to develop an idea into a product using open strategies? The answer largely lies in the activities occurring in the innovation ecosystems surrounding the innovators and associated “role” players.

The History of Innovation Ecosystem Models

The open innovation concept discussed previously is only one of the many models proposed to conceptualize and categorize the ways in which new technology development is successfully performed. Here, we discuss the history of innovation theory and the ways in which these concepts have evolved in response to market realities.

In the early 1800s, as the Industrial Revolution began to spread to other countries outside of Great Britain and manufacturing became increasingly central to many economies, various economists cited a need for mechanisms to foster early stage business development. One of the earliest conceptual models of innovation was proposed by the German economist George Friedrich List in 1850, in which he argued that Germany needed a (p.208) national system in order to catch up with Great Britain (Andersen, 2011). List successfully developed a national manufacturing base to protect nascent industries from foreign competition until they attained the ability to compete on the international level. Other developing nationals at the time were inspired to follow List’s model, such as Japan (Andersen, 2011). This concept is analogous to the business incubation concept, in which early stage companies are nurtured in a close-knit scenario in order to improve their potential for success.

Proximity of like-minded businesses has been proposed in a number of models as a key to success. In 1899, the English economist Alfred Marshall coined the term “agglomeration” and advocated the advantages for companies to be located in proximity to other companies in the same industry. This concept was expanded to include the role of entrepreneurs and capital in 1950 when the Swedish economist Eric Dahmén proposed the need for “development blocks” as a mechanism for Sweden’s economic development and industrial makeover (Andersen, 2011).

Furthermore, the importance of the advantages inherent in specific geographic regions has also been highlighted in a number of innovation models. In the late 1980s, Christopher Freeman and Bengt Ake Lundvall coined the concept of a “national system of innovation” (Freeman & Lundvall, 1988; see also Freeman, 1995). This model exposed not only the need for the key players of entrepreneurs, companies, and capital but also the effect of governmental policy on the labor market, education, and other economic development policies.

Among others, Smilor, Gibson, and Kozmetsky (1988) analyzed the various players in the evolving innovation ecosystem within Austin, Texas, and coined the term “technopolis.” In their article, the authors present seven segments within the technopolis: the university, large technology companies, small technology companies, the federal government, state government, local government, and support groups. Key findings in the study include the pivotal role of the university, the need for continuity in government policies, the catalytic role of large corporations, the importance of new company creation, and the need for consensus for (p.209) the sustained development of the technopolis. In summary, a coordinated approach is needed for emerging high-technology company development.

In 1990, Michael Porter published The Competitive Advantage of Nations (Porter, 1990a; 1990b) that introduces the concept of “clusters” as a vehicle for economic development of industries, regions, and nations. Although this cluster analogy contained many of the same elements of innovation models mentioned previously, Porter’s model achieved a higher level of recognition than many of the other previous models. Today, many regions and/or nations have deployed aspects of Porter’s clustering concept into their policy (Muro & Katz, 2010).

More recent models have emphasized the interplay between various groups. In the 1990s, Loet Leydesdorff from the University of Amsterdam proposed a “triple-helix” model of innovation (Etzkowitz & Leydesdorff, 1995), in which regional universities, governments, and firms all play a role in the promotion of sustainable technology development. Building on this concept, the quadruple helix model proposes four interrelated sectors: public, private, civil, and academic. Both of these models emphasize the role that governments and universities play and their effects on regional innovation, and they reflect derivations of the technopolis model (Smilor et al., 1988).

Studies suggest that localized hubs of institutions, businesses, and personnel promote successful innovation (Muro & Katz, 2010). These clusters are often specific in terms of geography as well as market sector. Silicon Valley is the most famous example of such clusters. In such clusters, there are frequent interactions between technology experts, entrepreneurs, funding partners, and other associated members of the tech community, on both a formal and an informal basis. A variety of models have attempted to re-create Silicon Valley in the form of region-specific and even shared working space-specific hubs such as technology incubators and science parks. Many of these clusters are built around a university site that provides access to novel research and talent. Unfortunately, billions of dollars have been spent to reproduce Silicon Valley in distant locations with little return (Wadhwa, 2013). The unique milieu of university, (p.210) industry, capital, and the quality of people involved has proven difficult to replicate.

One reason why regions such as Silicon Valley may be difficult to re-create is that there are interesting sociological factors that are difficult to legislate. For example, Saxenian (1996) compares the development of the technology communities in the Boston area and in Silicon Valley in the 1970s and 1980s. She argues that these regions had similar government and university support for innovation, but they differed in the size of the firms in the regions. Boston had large technology firms, whereas Silicon Valley was dominated by startups. The large firms in Boston tended to punish executives who led failed projects. In contrast, executives who led failed startups in Silicon Valley were quickly pulled back into new projects. Because the business talent in Silicon Valley was able to learn from its mistakes and to take risks without fearing permanent career damage from failure, West Coast firms ultimately tried out new technologies at a higher rate than East Coast firms. Ultimately, that led to the dominance of Silicon Valley over Boston. It is difficult to re-create this kind of environment, however, because much depends on the people making up the community and not just the legal and economic climate of the region.

Likewise, studies show mixed results in terms of whether business incubation promotes successful innovation throughout the world. Clustering and incubation appear to work better in certain geographic regions than in others. Although clustering is strongly indicated as a means to promote regional economic growth, more research needs to be performed with regard to the reasons why some geographies have higher innovation success rates than others. Such factors as cultural barriers, governmental policy, and transportation infrastructure have been proposed as possible factors involved in the variation in success rates.

In addition to the conceptual models behind novel product development, a number of theories have been proposed regarding the ways in which business incubators can nurture and improve the outcomes for those ideas. Hansen, Chesbrough, Nohria, and Sull (2000) propose the development of the networked incubator, in which the value proposition is not found in space, coaching, services, or traditional activities but, (p.211) rather, by the purposeful and organized activities of networking startups to funding and partners to accelerate their business. The transition from financial capital emphasis to intellectual and social capital is key to providing more economic opportunities for the incubated companies.

Open Innovation as an Ecosystem

As attractive as networked incubators appear, businesses need more than an incubator and nascent relationships. Whereas Silicon Valley offers a ready-made ground for networking and the realization of potential of intellectual and social capital, most regions are not well prepared for this model. Indeed, most regions lack mechanisms to attract and organize the necessary talent to provide the scale and scope to reduce operational costs through shared resources; the stimulation to encourage individuals to pursue high-value and risky business options; and mechanisms to exploit proximity to develop partnerships for advice, strategy, team building, and commercial acceleration. Therefore, a broader, more resource-agnostic model is required to build a translatable and operational model for new venture acceleration to developing or disadvantaged regions.

Our research has explored technology incubators in order to help us understand how ecosystems can function. As discussed in the next section, technology incubators were initially designed to provide nascent startups with office space. Throughout the years, they have developed to support a broad set of interactions among startups, funders, business talent, technology experts, and members of the government and university communities.

In the next section, we describe our work with the Austin Technology Incubator (ATI) at The University of Texas at Austin, which is one of the premier business incubators in the United States (Wiggins & Gibson, 2003). Our observations have led us to characterize the ecosystem surrounding ATI as similar to that of a coral reef. In the rest of this chapter, we explore how this “coral reef” model overcomes many of the cited barriers to incubation. The coral reef model posits that an innovation (p.212) ecosystem, like a coral reef, should provide a dense centralized hub of resources and interaction.

ATI Model

Business incubators have been supporting the growth of innovation in new and small companies for decades. Since the first incubator was established in Batavia, New York, in 1959 (Smilor & Gill, 1986; Wiggins & Gibson, 2003), business incubation models have been evolving to meet the needs of the startups they serve. Early business incubators tended to provide cheap, shared office space to help lower startups’ costs. Over time, many have shifted their focus toward providing value-adding services such as coaching and advice, including “networked incubators” that provide “value-adding” services as other incubators but also supply strategic access to talent and capital (Aldrich & Zimmer, 1986; Bollingtoft & Ulhoi, 2003; Grimaldi & Grandi, 2005; Hansen et al., 2000; Ratinho, 2011). Business incubator function and practice have evolved from more tangible offerings to more intangible contributions that reduce business risk and accelerate commercialization.

ATI is an example of a networked incubator that has created its own innovation ecosystem. Founded in 1989 as a part of The University of Texas at Austin (UT), ATI was born from the first organized model for regional innovation ecosystem building—the technopolis—and benefits from the vision of providing entrepreneurs with close proximity to wisdom, services, and capital providers (Smilor & Gill, 1986; Wiggins & Gibson, 2003). ATI assists early stage, technology-based firms operating in one of four industry verticals—health care, clean energy, information technology, and wireless—as well as a portfolio of student companies from UT. Reputation, recommendation, and ATI events are the most frequent manner that companies become aware of ATI’s services and potential value. Companies apply through interactions with ATI directors of the appropriate vertical and are evaluated for “fit” into ATI. The criteria for company acceptance is not due solely to the potential market value of the (p.213) product or service but, rather, a measurement of the “fit” of the company’s leadership team into the local ecosystem. This ecosystem provides legal and accounting services at below-market prices or in exchange for equity, market channels, technology expertise, developmental experts, talent for corporate activities, and funding sources. In order to be accepted, firms must go through a formal competitive application process that screens for the viability of the technology, the market opportunity, the credibility and “coachability” of the company’s team, the fit with one of the ATI verticals, and the ability of ATI to provide value to the company in terms of commercial acceleration or capital access.

One of the most important contributions that ATI makes to companies is that it surrounds them with talent that they cannot yet afford. The directors at ATI are industry experts who provide extensive coaching services and also spend much of their time maintaining an informal external network of knowledgeable community members such as funding providers, industry experts, large company executives, technological experts, lawyers, and other people who can be helpful to the member companies. The final stage in the application process for a company is giving a pitch in front of a “success committee” composed of ATI staff and a select group of relevant “externals” selected specifically for their ability to assist the company to grow and provide relevant feedback to ATI. The recommendations of the success committee are in essence a two-way commitment: the company commits to the incubator, and the incubator and externals commit to helping the company find the capital and market access it needs for success. Once admitted to ATI, companies are often referred to externals both to help them obtain deals with funding providers or customers and to receive advice.

Member companies at ATI have a clear goal or return on investment (time, effort, and financial) model: to obtain seed round or Series A funding. Much of the assistance that ATI provides is centered around developing companies to the point at which they are ready to compete for funding and helping companies find and pursue opportunities to obtain funding from grants and equity investments by angel networks and venture capitalist firms. Generally, companies aim to obtain between $500,000 and (p.214)

Table 9.1 ATI and Coral Reef Structure and Content Comparison

Attribute

Coral Reef

Austin Technology Incubator

Size

Occupies 0.01% of ocean floor surface.

Occupies 0.1% of the square footage at UT Austin in part of one floor of one building.

Diversity

32 of the 34 animal phyla are found in coral reefs, compared with only 9 in rain forests; virtually all phyla of plants are found in reefs.

ATI unites university researchers, students, new entrepreneurs, experienced entrepreneurs, expert generalists, service providers, capital providers, etc.

Specialized conditions for growth

Found in ocean depths of less than 150 feet and temperature range of 23–29°C and salinity range of 32–40%.

Collaborative conditions found in Austin, not larger cities or neighboring states. Established reputation for fair trading of knowledge, talent, and resources and proven track record of delivering value.

SOURCE: Data for coral reef from Henkel (2010) and Swart (2013).

$5 million in funding. Once companies have obtained Series A funding, they typically graduate from the ATI program.

Observations at ATI: ATI Is Like a Coral Reef

Many of the practices at ATI provide a model of innovation ecosystems that is similar to a coral reef in several ways (Table 9.1). Coral reefs represent unique ecosystems within the broader ocean environment. Although marine life is present between the beach or coast and the reef, it is dilute and not organized into a relational environment. Life beyond the reef dwells in a deeper water context that is rich with life, including larger, more predatory organisms live, thus requiring “schooling” for community, not individual, protection and the primary relationship transactions are in the currency of food and nourishment. The reef stands in stark relief of these adjacent environments. It is a relationship-rich, localized (p.215) environment with organisms aggregate dilute chemical nutrients to provide the basis for extraordinary life support. Reefs contain many organisms that trade in mutualistic biological currencies, including shelter, protection, nutrient processing, and cleaning. Furthermore, the reef is a fragile environment, which can be easily disrupted by changes in the environment, nutrient flow, and population dynamics of its inhabitants.

ATI is likewise a very small part of UT Austin, occupying part of one floor of one building among the ~230 buildings on the campus. Participants in entrepreneurship tend to be scattered throughout a city based on various factors. However, within ATI, a high concentration of stakeholders critical to startup survival frequent and make particular investments in ATI-incubated companies to increase their chances of survival and funding. ATI advice supports companies as they seek to develop technology into products, develop the team that can both lead and function as a unit, identify and penetrate initial market opportunities, and develop a scalable organization strategy for growth. ATI further protects its companies from the predatory activity of some organization through advice and wisdom networks. This environment is fragile like a reef, and ATI must maintain the quality of relationships, participants, and value transactions to keep all participants fair and incentivized. Next, we explore this analogy between ATI and a coral reef in more detail.

Although coral reefs occupy only a very small surface area in comparison to the ocean as a whole, they are home to the densest population of life on earth. Similarly, ATI creates a dense community with a critical mass of concentrated talent. The directors at ATI network to assemble the contributors necessary to nourish startups in one place, such as advice, knowledge, investors, and recommendations to service providers such as lawyers and consultants. Furthermore, ATI attracts expert generalists who have broad and significant knowledge about commercialization and company operations. This usually comes through serial entrepreneurial activities and/or deep experience with capitalization strategies and company operations. They provide cross-cutting expertise that links sector-specific advice into a strategic whole. This amalgamation of expertise that a startup company needs is accomplished through the dedicated (p.216) networking efforts of the ATI staff over an extended period of time and also through the favorable conditions of the city of Austin. Austin is a hub for technology startups and contains many of the right resources. It is home to several venture firms, as well as the Central Texas Angel Network, which is one of the most active angel networks in the country. There are also many technical experts due to the proximity of UT Austin and the technology hub in Austin as well as a healthy population of serial entrepreneurs. This concentration of social capital lowers the transactions costs to find the right talent.

As in a coral reef, ATI is able to leverage this talent by creating an environment of symbiotic or mutually beneficial relationships (Table 9.2). The company members benefit greatly from advice and funding received, and the externals benefit as well. ATI’s reputation as an effective incubator helps it attract the most promising startups in the region. Many externals volunteer time at ATI in order to gain the opportunity to search for their next investment or employment opportunity. Others are entrepreneurs who have already achieved significant exits and want opportunities to remain connected to their industry and give back to the community. This emphasis on relationship building not only promotes startup success but also encourages serial entrepreneurship. The development of these high-quality business relationships creates an atmosphere in which “externals” want to be involved with multiple ATI companies. In turn, as member company entrepreneurs see the value of these relationships, many founders return to ATI with new business ideas.

The specific selection criteria and defined member company objectives ensure that there is a tightly integrated community organized around a central goal. Coral reefs shelter and nourish specific types of organisms from the more harsh conditions outside this protected environment. Similarly, in its admissions process, ATI seeks out companies that will thrive in the environment it provides and align with its return on investment model. Furthermore, companies are expected to provide valuable additions to the environment. Not all ocean life finds a home in a reef. Those participating must function in concert with the established biological niches and mutually beneficial relationship necessitated by close (p.217)

Table 9.2 Comparison of Coral Reef and ATI Function

Functionality

Coral Reef

Austin Technology Incubator

Houses diverse and robust networks

Densest population of plants and animals on earth.

Robust, diverse regional networks around specific market sectors (wisdom, capital, entrepreneurs, technologies, expert generalists).

Encourages mutually beneficial relationships

Corals, coralline algae, waves, fish, sea urchins, and sponges all contribute to and strengthen the reef structure and ecosystem.

All participants agree on and support return on investment model—funding for rapid growth companies.

Trades in various forms of “currency”

Food, protection, mutualistic relationships, cleaning, housing, nutrient filtration, and micronutrient metabolism.

Employment opportunities, “giving back” to community, investment and service opportunities, being “where the action is.”

Efficiently recycles resources through open systems

Phytoplankton, seaweed, and algae filter nutrients to corals and are eaten by fish and crustaceans, which pass nutrients through the food web.

Entrepreneurs, advisers, and graduating students “graduate” from ATI and then return to reinvest in companies and mission.

Colonizes new space based on critical mass in a local network

Horizontal and vertical growth in warm, shallow, clear, and agitated waters with the correct nutrient recycling balance.

Serial introduction of technology “verticals” based on fit and value to Austin community: wireless, information technology, clean energy, health care, and student-based entrepreneurship.

proximity. Similarly, ATI is home to companies that mesh well with the expertise and value that it can provide, and it specifically screens out companies that do not fit into one of its verticals or that are not actively seeking early stage funding. Those companies or entrepreneurs who seek (p.218) to act as “lone rangers” or are unwilling to take advice or direction from the more experienced leadership to whom ATI exposes them need to find incubation from other sources. For example, in the success committee process at ATI, the community is asked to determine whether a prospective member company can be assisted by ATI and is a good fit in the Austin ecosystem. If a company’s leader would add value to the larger entrepreneurial community or has already proven to be a valuable member of the network, the company might be given a boost in the admissions process.

The ATI network is open and informal, which allows for a healthy flow of people and ideas into and out of the network. As in a coral reef, there is no clear boundary line between ATI and the rest of the community. People from many organizations are free to mingle, and often talent is recycled through ATI in many different roles. Indeed, the rapidly evolving and innovative climate of ATI draws in expertise from throughout the region and nation using ATI as an organizing center for communication and community. For example, the founding team of a company that has already graduated from ATI might be called upon to give advice to a new team working in the same industry.

Finally, the nonprofit nature and university affiliation of ATI allow for an extraordinarily diverse network. The reef works to grow and build its environment, but not at the expense of its constituents. Mutual benefit of the individual players and the reef as a whole is necessary. ATI does not stand to significantly gain directly from the participation of network members, and it is able to stand as a neutral party and provide a “safe zone” for both companies and advisors. This position increases the credibility of ATI’s recommendations to important stakeholders and capital providers. These trust networks are jealously maintained for clarity, quality, and fluidity of conversation.

The outcomes from these structural and relational activities at the ATI reef are impressive and have catalyzed a remarkable change in the Austin community and the central Texas region. Since its inception in 1989, ATI has helped companies raise more than $1 billion in early stage capital and produce more than $1.5 billion in revenue, launch six initial (p.219) public offerings on the NASDAQ exchange, create more than 10,000 local jobs, and facilitate dozens of acquisitions generating immense wealth in Austin. Since the “Great Recession” of 2008, ATI’s reef strategy has been most keenly observed where it has done the following:

  • Worked/trained 70 companies (admitted ~1/15 applicants)

  • Found funding for 85% of resident companies

  • Facilitated the raising of more than $500 million in investor capital

  • Saw greater than $500 million in local company exits

  • Created more than 400 jobs/year, direct and indirect

  • Returned $67 for every $1 invested in ATI by the city of Austin

  • Produced greater than $880 million in local economic impact in a 10-year period (Jarrett & Field, 2014)

These outcomes speak to the effectiveness of using the reef model to coalesce a critical mass of resources to drive value for both resident companies and the region under very challenging economic conditions in which other organizations failed to produce such a return on investment.

The Reef Model Solves Innovation Ecosystem Barriers

The elements of the ATI reef model combine to overcome barriers to the commercialization of innovations by mitigating some of the risk inherent in early stage technologies and lowering the costs of obtaining the necessary resources. ATI provides a concentration of social capital targeted toward specific industries and at the appropriate stage of innovation, providing insight into needs and potential value of each member of the network. The directors provide an informal matchmaking service to appropriate high-value individuals that lowers the transactions costs to find the right talent. The community is naturally organized around early stage innovation in specific industry sectors, which allows it to be more focused and self-organizing for full value provision. Members of this (p.220) community mutually benefit from interactions which creates an incentive to participate in start up operations, link with funders or provide mentoring. The informal nature of the network makes it flexible and dynamic, allowing for a healthy flow of people and ideas. Finally, ATI is viewed as a “safe zone” with no profit motive.

The startup model itself reduces barriers to innovation faced by large tech-based corporations. A startup is free from many hurdles to developing an innovative product found in existing corporations, including decision-making and budgetary bureaucracy, measures and management of risk, and demands for quarterly revenue reporting (Chesbrough, 2003). A lean startup can de-risk novel product concepts. This in turn makes the innovation more attractive to corporate parties that may potentially license the innovation or acquire the startup.

Recommendations for Creating Coral Reefs

These observations at ATI can be adapted to creating innovation ecosystems more generally. Regions, universities, and companies should seek the necessary resources for innovation from both inside and outside their organization. Companies that make use of more resources will ultimately profit from the broader breadth of ideas available to them. Instead of holding onto innovations from concept stage until entry to market, organizations should learn to profit from licensing and/or selling intellectual property (IP) when it does not fit their goals or business model, and they should learn to make use of external IP when it is a good fit.

Creating an innovation reef is not simple, but it can be done and, as evidenced by ATI, can yield significant value to organizations and regions. The reef model must be used as an organizational strategy, not dictated from the top or initiated by consultants, but born out of joint vision and participation throughout the organization. Organizations and incubators must be open to the innovation process—encouraging participation and cooperation across groups or normal siloed structures. The environment (p.221) must tolerate risk—which brings with it opportunities for both success and failure. In all cases, engagement, responsibility, and “pulling one’s own weight” are required to form and operate successful teams.

Experienced individuals who track problems to solutions through innovative approaches must be linked with subject matter experts to develop reasonable approaches. In this context, the expert generalists play a critical role. Their broad knowledge, openness to new knowledge, and experience allow them to cut across technical and market verticals to conceptualize strategies that are both reasonable and testable. Furthermore, they tend to bring together disparate players, increasing the richness of the discourse and depth of evaluation. Managers must be trained to evaluate the proximity of an innovation strategy to market realization and assist teams to accelerate toward monetizable ends. Monetization requires connecting different parts of the business community to the innovation strategy, both to validate and cooperate, so that it can be realized.

Managers must understand that their role is not to dictate outcomes but, rather, to create structures that encourage engagement and cooperation across traditional siloes. The energy and outcomes of such a structure should encourage and recruit participation through the trading of broadly applicable currency within the organization. Value is the ultimate measure for both individual participants and the reef itself. Individuals should amplify their contributions through the synergistic power of network effects that are put in place, and the reef must create measurable outcomes providing value to the participants and the overall organization. Reef management must fight the tendencies of individuals to form or joint siloes diluting the needed resources as observed in the environment between the shore and reef. The reef must also mitigate the tendency of individuals to approach one another with a strictly competitive perspective as observed in deeper waters full of predators. Careful management of rewards and team-based value can create a vital, collaborative environment in which individuals invest in the formation of a larger organism, like a reef, and produce results beyond their separate potential.

(p.222) Conclusions

We began this chapter by asking the question, “What should social structures look like to support innovation and new entrepreneurial ventures?” We have observed the importance of open structures to not only develop innovations but also bring together the right types of people to help new businesses thrive. The coral reef model conceptually organizes the social structures that are necessary to accomplish this goal. The reef provides an open structure to not only develop innovations and collaborate on their development but also to bring together the right types of people to help new businesses thrive that seek to commercialize the resulting products. In a reef, companies can more efficiently find capital to develop these novel products and launch these into the market under more efficient timelines through the effective use of resources. Outside guidance from industry experts plays a critical role in iteration of the business model and target markets, which continue to evolve in the startup process based on industry and potential customer feedback. This helps companies to not only launch their products faster but also launch better products and to do so in a more strategic manner.

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