Innovation Economics

I was recently reminded of the "hit rate" for investment in innovation (I'm also including entrepreneurial ventures here).  Most companies, VC's and others use estimates as rules of thumb.  An optimistic one is something like 1/3 of their investments will be winners, 1/3 will break even, and 1/3 will fail.  Others are more like 1% will be wild successes, 2 - 3% will do OK, and the rest will fail.

What's interesting to me is that most people accept these rules of thumb.  The reason why this is interesting is because this means that for the most part, people buy into the idea that the likely success of a new venture is largely random.  And yet there is a lot of money being spent on market research, market testing, basic due diligence, etc. before deciding to pursue a new opportunity. 

Clearly, there are forces at work that the current business community and education system do not yet recognize, let alone support and develop.  Steve Jobs' success at identifying and developing winning ideas may be intuitive, but it is not as if he is a magic person with a crystal ball.  He is just an example of someone who naturally has the ability to connect underlying market motivations with new and different offerings to satisfy them.  I'm sure there are others who have this natural ability, but if they do not also have the desire or skill to be the CEO of a large company, then the output of this ability will not be as apparent. 

There is a lot of talk about the "new economy", and how the skills that got us through the industrial age will not work to take us forward.  And yet we are so entrenched in nurturing the skills necessary for success in the industrial age, that we no longer remember the fact that it took a lot to get people to focus less holistically so they could work more efficiently within the required corporate silos. 

Success in the future will require that we recognize, develop, and nurture the ability to think holistically; to be able to see similarities in ideas and objects that appear dissimilar on the surface.  This is what is necessary to make a connection between an underlying motivation, and developing a new solution to satisfy that motivation.  In my opinion, the current "rules of thumb" tolerate a lot of waste in the system.  I think we can do better.  Until then I'll continue my work in helping to build a linear path for organizations to reduce the random nature of their innovation investments.  It seems that it's currently the only way for the people who can think like Steve Jobs, but are not Steve Jobs, to make their ideas heard.

This all makes me wonder about two things.  Will we ever get to the point where most of us can spot the difference between a good creative idea and a bad creative idea before we invest in developing a product to see real market results?  And will we ever get to a point where people will recognize the limitations of linear logic, and use it in good balance with more holistic logic?