BR:  Boulevard of Broken Dreams and The Architecture of Innovation, by Josh Lerner. Josh is professor of Investment Banking at Harvard Business School and co-director of the Productivity, Innovation and Entrepreneurship Program at the National Bureau of Economic Research.

I am delighted to be sharing 2 new book reviews with you. To understand the true culture of entrepreneurism, innovation, venture and corporate investments, we need to disrupt and expand our thought process. We need to look with a much broader lens to deepen our understanding. I find Josh’s thoughts insightful and diverse as he explores the truth, and not the myth and hype of entrepreneurism. The truth is not always pleasant or convenient and that sentiment, Josh and I share deeply in common. Josh and I will be meeting this spring, and I will be posting additional thoughts at that time. I must add that Josh is a highly progressive and collaborative thinker, whose style and dynamics of communication, elicits participation, collaboration and enthusiasm. A great plus!

Boulevard of Broken Dreams:  Why public efforts to boost entrepreneurship and venture capital have failed and what do about it

An excellent book that takes an in-depth look at the role of the public sector (i.e. government) in promoting entrepreneurship. Although the public sector can play a critical role in helping entrepreneurship, this book makes it clear that there are hard boundaries for such efforts, and the very likely (and dramatic) failure, if the scope of such well-intended efforts cross these boundaries.

Public sector efforts can be manifested through several forms, from limited operations to Sovereign funds. This book brings together many in-depth discussions drawn from real world examples such as the successful effort demonstrated by the Singapore government, or by the New Zealand investment fund. But for every successful outcome, we see numerous failures by an order of magnitude or more.

I found the Singapore example very interesting as it compares Singapore with Jamaica, where both nations became independent about mid 1960s from similar colonial framework (British tradition of colonial rule, a strong capitalistic mindset), similar trade opportunities (centrally located ports), similar wealth ( GDP around mid-two thousand dollars),  and a population of under five million. Yet, four decades later, Singapore’s GDP had reached $31K while GDP of Jamaica had grown to only $5K. This tremendous rise by Singapore demonstrates the positive outcome of policies and initiatives by the public sector, such as investment in infrastructure, subsidized education, open and corruption free economy, and wide variety of investments by sovereign funds.

Another interesting comparison is between Israel and Japan, where similar initiatives to grow entrepreneurship had dramatically different results due to key differences in their respective policies. Today, Tel Aviv is regarded as second to the Bay Area in terms of the most venture activity, while Japan with tremendous strength in technology and academics has failed to match its tremendous potential. We need to ask ourselves why, when we think about Japan’s global economic dominance of 2-3 decades ago!

The book makes a compelling argument that the right role of the public sector is to ‘set the table’, as in, create the environment (identify the necessary assets such as particular strengths of local academia, education, policies, high level direction and criteria for engagement), but let the private sector fuel the dynamics nature of entrepreneurship, a complex model that is highly prone to failure if managed through central planning. To be clear, public sector has a role, but it should be limited to helping the private sector (entrepreneurs, VCs) and allow market forces to drive such efforts.

The Architecture of Innovation: The economics of Creative Organizations

In this book, Josh explores the dynamic interplay and roles that Corporate R&D spending, VC spending, private equity and corporate startups investments have on cultivating meaningful innovation. Analysis and insights are offered for each area and the reader is encouraged to think and analyze.

What many of us hopefully know is the huge difference in how much Corporations spend on R&D vs. what is spent on start-ups and the ROI (which is staggering). Spend of R&D trumps corporate investments, and R&D generates huge number of patents. Startups on the other hand, are measured by and are focused on productizing innovation. What if R&D was as well? When is corporate venture investment more suitable than VC investments? VC investments have pros and cons and can easily create bubbles. Unrealistic bubbles.

A very recent example includes Facebook’s acquisition of What’sApp. A messaging application for $19B!  This acquisition alone will now completely destroy the already hyped-up and unrealistic bubble in Silicon Valley. Not only are now apps going to overvalue themselves, but any and all startups are going to look at $19B as the ‘target number’. VC’s are the unstoppable fuel, keeping the ‘hype’ flame alive, hence, they are going to be looking through their portfolio’s and drive many of their Junior investments to be the next big App acquisition. A great machinery like VC’s can help grow and nurture entrepreneurism or create illusive bubbles. This can be good and/or bad. Let’s think hard. Do we remember the 2000 internet bubble? We are now entering the social media and Whatever-App bubble.  Now think about corporations. The ultimate buyers of these technologies. What has FB’s acquisition done in jacking up prices?

Josh and I are also hugely aligned about needing a hybrid to put corporate R&D spend into far better use and bigger ROI. This is going to require major disruption. Personally, I firmly believe that once we allow ourselves to DISRUPT the old school R&D model of investment, large corporations (enterprises) will not only trump startups in terms of diversity of product offerings and depth/functionality of products, but we will finally be able to have a hybrid R&D plus Corporate venture model. There is no need to continue the current model of A) R&D expenditure and a highly disconnected and separate (B) Corporate investment.

Great takeaway of any book you read is to open up your lens and imagine the what-if and allow disruption.

Let’s Disrupt | Innovate |Lead!