America in a Lost Decade

Sadly, America — like Japan in the 1990s — is now fully immersed in a "lost decade" caused by deflationary price expectations. We've lost the two greatest drivers of economic growth, which are a healthy IPO market and a robust housing market. When people think that some tiny startup might be worth a billion bucks someday, investment into stocks will naturally flow. And when people think that a house will be more expensive next year, they won't wait to buy. Certainly, the recent Facebook IPO didn't help much to infect many investors with IPO fever.

Hence, spending and investment are in the toilet, and as the Japanese proved during their lost decade, once a deflationary spiral begins, it's like an airplane stalling out -- you learn pretty fast that it's really hard to restart the engine if you're in the pilot seat in a glider. With no engine, the best you can do is hope for a soft landing. In other words, with no "next big thing" on the horizon, there really isn't a hope of restarting the economy. Bill Clinton was lucky in that his restart coincided, by sheer dumb luck, with the advent of the Internet. So the key isn't whether you're using up gas to restart the engine, the issue is whether there's an engine powerful enough to restart the economy hiding somewhere in the plane... or if your spending can create one. Unfortunately, so far, the alternative energy movement hasn't been strong enough to power anything more that fodder for political campaigns (see Solyndra for Bush and Obama, and Konarka for Romney)... and nowhere near strong enough to create 10-20 million high paying jobs.

There are two ways to manage either a company or country during a "lost decade". One is if you are in the GOP camp, in which case you will seek to cut costs, lay off people, and figure out a way to "ride out the storm" until better days. Or, maybe perform some accounting magic to make things look better than they are, so you can sell the company off to some larger, stronger entity. In other words, you do whatever you can to preserve shareholder value - which usually requires that management breaks its promises to employees and find ways to restructure debt. In a way, Mitt Romney is perfectly embodies this school of thought, having followed exactly this strategy for decades at an M&A house. Plenty of billionaires are certainly backing his play.

The other path is based on hope, and oddly, President Obama likewise perfectly embodies this other school of thought. As Keynesians, the Obama administration believes that you can restart the economy with stimulative spending. However, the caveat is that during that spending, you need to either intentionally or accidentally fund the acceleration of a new giga-market - aka, "the next big thing" - that can generate enough revenues to power a recovery for the company. Simple Keynesians believe at all stimulation is good, but more cautious Keynesians will seek to insure that every penny of stimulus is carefully targeted at kickstarting growth.

The problem is that true innovation rarely provides enough evidence to convince naysayers, and the board usually perceives innovation proposals as if they will only run the company into the ground faster - using up that scarce and precious fuel. This is probably the most important ingredient for entrepreneurship and innovation - perseverance, the ability to persist indefatigably in an undertaking in spite of counter-influences, opposition, discouragement and despair. This is required for both the truly innovative CEO as well as the POTUS.

This brings to mind Steve Job’s success story at Apple Inc: At 30, Steve Jobs was fired by Apple's Board in a very public falling out; the board simply didn't believe in his vision for how the future of operating systems should evolve. A more cautious approach was preferred, offered by a reasonable sounding grayhaired guy in a suit from Pepsico. However, the cautious approach eventually led to Apple's near bankruptcy. As for Steve, he persevered and started two more companies, NeXT and Pixar. Pixar went on to become the world’s most successful animation studio. And NeXT was eventually bought by Apple, which enabled Steve’s return to Apple, and the operating system he developed at NeXT is now at the heart of Apple’s current renaissance. The point is this... the entire board lost confidence in Steve Jobs, and that guy could talk just about anybody into anything. What hope do mere mortal CEOs have against all that gray hair reasonablenss on a typical Board of Directors?

Also, you really can't cheat either. For example when Yahoo! unceremoniously fired its CEO, Carol Bartz, the “not-for-sale” Yahoo! directors and temp CEO wrote the troops, urging them to keep up the good work — while quietly working with investment bankers for a sale. The Board consistently sent out platitudes about the need to accelerate innovation, reignite inspiration, and "give our users what they want now…” But action trumps words, the troops figured out that those platitudes were empty words, and the company has rapidly deflated into somewhere between also-ran and has-been.

There are no shortcuts, you have to put your money where your mouth is and take some risk to be truly innovative and make a difference.

What the Obama administration needs to do, in addition to keeping alive the flame of hope, is to think different and execute flawlessly. After all, that's what they do better than the other team. A better analogy than restarting an airplane that's stalled comes from the boxing world - America is on the ropes. We have a choice - we either throw in the towel and take our beating, or we figure out how to change our strategy and fight back with renewed spirit. Thinking innovatively during a setback is just as hard as figuring out how to win the match when you're in the corner... but it's not only possible, but often the key trigger for true innovation. The key is to base your decisions on the data, stop doing what isn't working and most importantly, questioning the underlying rules of the game and the environment you're stuck in.

When you're stuck in the corner and getting pummeled (metaphorically), sometimes you need to go deeper and deconstruct the process and meaning of innovation itself. In other words - and this is a tip for Team Obama - put more energy into figuring out HOW to find that next big thing faster - i.e., find ways to improve America's underlying methods for how it innovates. We need to innovate about innovation. America needs to create what I call "third wave" innovation tools and methodologies.

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What do I mean by third wave innovation? If we look at humanity’s slow rise from prehistory, there have been three waves, or bursts, or evolutionary acceleration. The first was the transition from hunting-gathering to the development of the agricultural age, propelled by man’s ability to fashion basic tools, like hammers, spears and plows – this happened roughly a few thousand years ago. The second was the industrial revolution, propelled by the invention of automation, assembly lines and organized workflow and standardization – this happened a few hundred years ago. And the third is the information revolution – which is rapidly evolving humanity’s relationship with the tools it invents – and this started a few decades ago.

Similarly, the methods and tools of innovation are evolving in a similar fashion… the processes and technologies that comprise the art and science of innovation have progressed in three oddly similar phases, albeit in 50 years instead of 5000. In what I call the BC era – “before computers”, innovators were equivalent to hunter gatherers of ideas. The best that even the mighty IBM could do, in terms of innovation technology, was print posters admonishing workers to think harder. The village shaman would cast an occasional fishbone diagram and invoke the Pareto Principle to conjure up a little quality for the organization. Hung like totems around the office, such items become artifacts for the social ethnographer.

But in the AD era – "After Digital" – the invention of computers changed everything, in much the same way that hand tools changed cavemen. We are building brain tools now, not hand tools. Brain amplifiers. What Steve Jobs called "bicycles for the mind." The first wave of innovation evolution came with the invention of early innovation tools – mindmappers, idea catchers, eventually we saw BBS forums that allowed discussions to be temporally distributed. The second wave of evolution started with the deployment of innovation pipelines and stage gate technologies that allow the production of ideas to be “industrialized” and automated.

At long last, a third wave of innovation is now finally beginning. Third wave innovation seeks not only to simplify and automate the production and processing of ideas, it aims to enable inventors to create fundamentally better ideas and more revolutionary ones. And just as we see in society today, the tools change the user as well as the other way around, leading to what we’ll see in the future, a critical mass singularity of new innovation tools and technologies. Whatever the Next Big Thing turns out to be, its emergence is likely to be accelerated by the development of third wave innovation.

One terrific step in the right direction has been offered by the National Science Foundation (NSF) : the Innovation Corps Program (I-Corps). The NSF is now helping to nurture a national innovation ecosystem that spurs translation of fundamental research, to encourage collaboration between academia and industry, and to train students to understand innovation and entrepreneurship. The Innovation Corps purpose is to identify NSF-funded researchers who will receive additional support - in the form of mentoring and funding - to accelerate basic innovation that can attract subsequent third-party funding.

[ACTION TIP] If you're interested, the NSF holds a webinar on the first Tuesday of every month, to answer questions about this program: http://www.nsf.gov/news/special_reports/i-corps/