Hacking for Defense @ Stanford – Making the World a Safer Place

Introducing Hacking for Defense – Connecting Silicon Valley Innovation Culture and Mindset to the Department of Defense and the Intelligence Community
Hacking for Defense is a new course at Stanford’s Engineering School in the Spring of 2016. It is being taught by Tom Byers, Steve Blank, Joe Felter and Pete Newell and is advised by former Secretary of Defense Bill PerryJoin a select cross-disciplinary class that will put you hands-on with the masters of lean innovation to help bring rapid-fire innovative solutions to address threats to our national security. Why? Hacking for Defense poster

Army, Navy, Air Force, Marines, CIA, NSA
What do all these groups in the Department of Defense and Intelligence Community (DOD/IC) have in common? Up until the dawn of the 21st century, they defined military technology superiority. Our defense and intelligence community owned and/or could buy and deploy the most advanced technology in the world. Their R&D groups and contractors had the smartest domain experts who could design and manufacture the best systems. Not only were they insulated from technological disruption, they were often also the disrupters. (During the Cold War we used asymmetric technologies in silicon and software to disrupt the Soviet Union’s lead in conventional weapons.) Yet in the last decade the U.S. Department of Defense and Intelligence Community are now facing their own disruption from ISIS. al-Qaeda. North Korea. Crimea. Ukraine. DF-21 and Islands in the South China Sea.

Today these potential adversaries are able to harness the power of social networks, encryption, GPS, low-cost drones, 3D printers, simpler design and manufacturing processes, agile and lean methodologies, ubiquitous Internet and smartphones. Our once closely held expertise in people, processes and systems that we once had has evolved to become commercial off-the-shelf technologies. U.S. agencies that historically owned technology superiority and fielded cutting-edge technologies now find that off-the-shelf solutions may be more advanced than the solutions they are working on, or that adversaries can rapidly create asymmetric responses using these readily available technologies.

Its Not Just the Technology
Perhaps more important than the technologies, these new adversaries can acquire and deploy disruptive technology at a speed that to us looks like a blur. They can do so because most have little legacy organizational baggage, no government overhead, some of the best software talent in the world, cheap manpower costs, no career risk when attempting new unproven feats and ultimately no fear of failure.

organizational capabilitiesTerrorists today live on the ‘net and they are all early adopters. They don’t need an office in Silicon Valley to figure out what’s out there. They are experts in leveraging Web 2.0 and 3.0. They are able to collaborate using Telegram, Instagram, Facebook, Skype, FaceTime, YouTube, wiki’s, IM/chat. Targeting, assessments, technology, recipes, and tactics all flow at the speed of a Lean Startup.  They can crowd-source designs, find components through eBay, fund through PayPal, train using virtual worlds and refine tactics, techniques and procedures using massive on-line gaming. All while we’re still writing a Request for a Proposal from within the US Government procurement and acquisition channels.

technology capabilities

We’re Our Own Worst Enemy
In contrast to the agility of many of our adversaries, the Department of Defense and the Intelligence Community have huge investments in existing systems (aircraft carriers, manned fighters and bombers, large satellites, etc.), an incentive system (promotions) that supports the status quo, an existing contractor base with major political influence over procurement and acquisition, and the talent to deliver complex systems that are the answer to past problems.

Efficiently Being Inefficient
Our drive for ultimate efficiency in buying military systems (procurement) has made us our own worst enemy. These acquisition and procurement “silos” of excellence are virtually impenetrable by new ideas and requirements. Even in the rare moments of crisis and need, when they do show some flexibility, their reaction is often so slow and cumbersome that by the time the solutions reach the field, the problem they intended to solve has changed so dramatically the solutions are useless.

The incentives for acquiring and deploying innovation in the DOD/IC with speed and urgency are not currently aligned with the government acquisition, budgeting, and requirements processes, all of which have remained unchanged for decades or even centuries.

The Offset Dilemma – Technology is the not Silver Bullet
Today, many in the Department of Defense and Intelligence Community are searching for a magic technology bullet – the next Offset Strategyconvinced that if they could only get close to Silicon Valley, they will find the right technology advantage.

It turns out that’s a massive mistake. What Silicon Valley delivers is not just new technology but – perhaps even more importantly – an innovation culture and mindset. We will not lose because we had the wrong technology.  We will lose because we couldn’t adopt, adapt and deploy technology at speed and in sufficient quantities to overcome our enemies.

Ultimately the solution isn’t reforming the acquisition process (incumbents will delay/kill it) or buying a new technology and embedding it in a decade-long procurement process (determined adversaries will find asymmetric responses).

The solution requires new ways to think about, organize, and build and deploy national security people, organizations and solutions.

Stanford’s new Hacking for Defense class is a part of the solution.

Hacking for Defense (H4D) @ Stanford
In Hacking for Defense a new class at Stanford’s School Engineering this spring, students will learn about the nation’s emerging threats and security challenges while working with innovators inside the Department of Defense (DoD) and Intelligence Community. The class teaches students entrepreneurship while they engage in what amounts to national public service.

Hacking for Defense uses the same Lean LaunchPad Methodology adopted by the National Science Foundation and the National Institutes of Health and proven successful in Lean LaunchPad and I-Corps classes with 1,000’s of teams worldwide. Students apply as a 4-person team and select from an existing set of problems provided by the DoD/IC community or introduce their own ideas for DoD/IC problems that need to be solved.

Student teams will take actual national security problems and learn how to apply Lean Startup principles to discover and validate customer needs and to continually build iterative prototypes to test whether they understood the problem and solution.

Most discussion about innovation of defense systems acquisition using an agile process starts with writing a requirements document. Instead, in this class the student teams and their DOD/IC sponsors will work together to discover the real problems in the field and only then articulate the requirements to solve them and deploy the solutions.

Each week, teams will use the Mission Model Canvas (a DOD/IC variant of the Business Model Canvas) to develop a set of initial hypotheses about a solution to the problem and will get out of the building and talk to all Requirement Writers, Buyers (Acquisition project managers) and Users (the tactical folks). As they learn, they’ll iterate and pivot on these hypotheses through customer discovery and build minimal viable prototypes (MVPs). Each team will be guided by two mentors, one from the agency that proposed the problem and a second from the local community. In addition to these mentors, each H4D student team will be supported by a an active duty military liaison officer drawn from Stanford’s Senior Service College Fellows to facilitate effective communication and interaction with the problem sponsors.

Today if college students want to give back to their country they think of Teach for America, the Peace Corps, or Americorps. Few consider opportunities to make the world safer with the Department of Defense, Intelligence Community and other government agencies. The Hacking for Defense class will promote engagement between students and the military and provide a hands-on opportunity to solve real national security problems.

Our goal is to open-source this class to other universities and create the 21st Century version of Tech ROTC. By creating a national network of colleges and universities, the Hacking for Defense program can scale to provide hundreds of solutions to critical national security problems every year.

We’re going to create a network of entrepreneurial students who understand the security threats facing the country and getting them engaged in partnership with islands of innovation in the DOD/IC. This is a first step to a more agile, responsive and resilient, approach to national security in the 21st century.

Lessons Learned

 Hacking for Defense is a new class that teaches students how to:

  • Use the Lean LaunchPad methodology to deeply understand the problems/needs of government customers
  • Rapidly iterate technology to produce solutions while searching for product-market fit
  • Deliver minimum viable products that match DOD/IC customer needs in an extremely short time

The class will also teach the islands of innovation in the Department of Defense and Intelligence Community:

  • how the innovation culture and mindset operate at speed
  • advanced technologies that exist outside their agencies and contractors (and are in university labs, and commercial off-the-shelf solutions)
  • how to use an entrepreneurial mindset and Lean Methodologies to solve national security problems


Sign up here.

Blank’s Rule – To predict the future 1/3 of you need to be crazy

In a rapidly changing world those who copy the past have doomed their future.

When companies or agencies search for disruptive and innovative strategies they often assemble a panel of experts to advise them. Ironically the panel is often made up of people whose ideas about innovation were relevant in the past.

I’ve seen this scenario play out in almost every large company and government agency trying to grapple with disruption and innovation. They gather up all the “brand-name wisdom” in an advisory board, task force, panel, study group, etc.  All of these people – insiders and outsiders – have great resumes, fancy titles, and in the past brilliant insights. But unintentionally, by gathering the innovators from the past, the past is what’s being asked for – while it’s the future that’s needed.

You can’t create a blueprint for the future. But we know one thing for sure. The future will be different from the past. A better approach is to look for people who are the contrarians, whose ideas, while they sound crazy, are focused on the future. Most often these are not the safe brand names.

If your gathered advisory board, task force, panel, study group, etc., tasked with predicting the future doesn’t have 1/3 contrarians, all you’re going to do is predict the past.

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In the 1950’s and 60’s with the U.S and the Soviet Union engaged in a full-blown propaganda war, the race to put men in space was a race for prestige –  and a proxy for the superiority of one system of government over the other.

In 1961 the U.S. was losing the “space race.” The Soviets had just put a man in orbit and their larger rockets allowed them to launch larger payloads and perform more space spectaculars than the U.S. The new President, John Kennedy looked for a goal where the U.S. could beat the Soviet Union. He decided to raise the stakes by declaring that we would land a man on the moon “before the decade is out” (brave talk before we even got someone into orbit.) This meant that NASA had to move quickly to find the best method to accomplish the journey.

NASA had panels of experts arguing about which of two options to use to get to the moon: first they considered, direct ascent; then moved to another idea, Earth-orbit rendezvous (EOR).

Direct ascent was basically the method that had been pictured in science fiction novels and Hollywood movies for a decade. moon rocketA giant rocket would be launched directly to the moon, land and then blast off for home. But there were three problems:

  • direct ascent was the least efficient way to get to the moon and would require a giant rocket (the Nova) and
  • the part that landed on the moon would be 65 feet tall (requiring one heck of a ladder to the surface of the moon.)
  • it wasn’t clear that a rocket this big could be ready by the end of the decade.

So NASA settled on the second option: Earth-orbit rendezvous. Instead of launching a whole rocket to the moon directly, Earth-orbit rendezvous would to launch two pieces of the spacecraft – one at a time – using Saturn rockets that were then in development. These pieces would meet up in earth orbit and send a ship, (still 65 feet tall as in the direct flight mode), to the moon and back to Earth. This idea was also a decade old – it was how they proposed building a space station. The advantage of Earth-orbit rendezvous to go to the moon was that it required a pair of less powerful Saturn rockets that were already under development.

If you can’t see the movie click here

All the smartest people at NASA (Wernher Von Braun, Max Faget,) were in favor of Earth-orbit rendezvous and they convinced NASA leadership this was the way to go.

But one tenacious NASA engineer, John Houbolt believed that we wouldn’t get to the moon by the end of the decade and maybe not at all if we went with Earth-orbit rendezvous.

Houbolt was pushing a truly crazy idea, Lunar-orbit rendezvous (LOR). This plan would launch two spaceships into Earth orbit on top of a single Saturn rocket. Once in Earth orbit, the rocket would fire again, boosting both spacecraft to the moon. Reaching orbit around the moon, two of the crew members would climb into a separate landing ship they carried with them – the lunar excursion module (LEM). The LEM would detach from the mother ship (called the command module), and land on the moon.landers The third crew member would remain alone orbiting the moon in the command module. When the two astronauts were done exploring the moon they would take off using the top half of the LEM, and re-dock with the command module (leaving the landing stage of the LEM on the moon.) The three astronauts in their command ship would head for home.
The benefits of Lunar-orbit rendezvous (LOR) were inescapable.

  1. You’d only need one rocket, already under development, to get to the moon
  2. The part that landed on the moon would only be 14′ tall. Getting down to the surface was easy

Yet in 1961 LOR was a completely insane idea. We hadn’t even put a man into orbit, let alone figured out how to rendezvous and dock in earth orbit and some crazy guy was suggesting we do this around the moon. If it didn’t succeed the astronauts might die orbiting the moon. However, Houbolt wasn’t some crank, he was a member of the Lunar Mission Steering Group studying space rendezvous. Since he was only a mid-level manager he presented his findings to the internal task forces and the experts dismissed this idea the first time they heard it. Then they dismissed it the 2nd, 5th and 20th time.John Houbolt

Houbolt bet his job, went around five levels of NASA management and sent a letter to deputy director of NASA arguing that by insisting on ground rules to only consider direct ascent or earth orbit rendezvous meant that NASA shut down any out-of-box thinking about how to best get to the moon.
Luckily Houbolt got to make his case, and when Wernher Von Braun changed his mind and endorsed this truly insane idea, the rest of NASA followed.

We landed on the moon on July 20th 1969.

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I recently got to watch just such a panel. It was an awesome list of people. Their accomplishments were legendary, heck, every one of them was legendary. They told great stories, had changed industries, invented new innovation platforms, had advised presidents, had won wars, etc. But almost none of them had a new idea about innovation in a decade. Their recommendations were ones you could have written five years ago.

In a static world that would be just fine. But in a corporate world of continuous disruption and in a national security world of continuously evolving asymmetric threats you need to have crazy people being heard.

Or you’ll never get to the moon.

Lessons Learned

  • Most companies and agencies have their own John Houbolts. But most never get heard. Therefore, “Blank’s rules for an innovation task force”:
  • 1/3 insiders who know the processes and politics
  • 1/3 outsiders who represent “brand-name wisdom”
    • They provide cover and historical context
  • 1/6 crazy insiders – the rebels at work
    • They’ve been trying to be heard
    • Poll senior and mid-level managers and have them nominate their most innovative/creative rebels
    • (Be sure they read this before they come to the meeting.)
  • 1/6 crazy outsiders
    • They’ve had new, unique insights in the last two years
    • They’re in sync with the crazy insiders and can provide the insiders with “cover”

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Innovation Outposts in Silicon Valley – Going to Where the Action Is

This is the second in a series about the changing models of corporate innovation co-authored with Evangelos Simoudis. Evangelos and I are working on what we hope will become a book about the new model for corporate entrepreneurship. Read part one on the Evolution of Corporate R&D.

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Innovation and R&D Outposts
For decades large companies have set up R&D labs outside their corporate headquarters, often in foreign countries, in spite of having a large home market with lots local R&D talent. IBM’s research center in Zurich, GM’s research center in Israel, Toyota in the U.S are examples.

These remote R&D labs offered companies four benefits.

  • They enabled companies to comply with local government laws – for example to allow foreign subsidiaries to transfer manufacturing technology from the U.S. parent company while providing technical services for foreign customers
  • They improved their penetration of local and regional markets by adapting their products to the country or region
  • They helped to globalize their innovation cycle and tap foreign expertise and resources
  • They let companies develop products to launch in world markets simultaneously

Other companies operating in small markets with little R&D resources in their home country (ABB, Novartis and Hoffmann-La Roche in Switzerland, Philips in the Netherlands and Ericsson in Sweden) pursued R&D outside their home country by necessity.

Internationalization of R&D

source: Market versus technology drive in R&D internationalization: M von Zedtwitz, Oliver Gassmann

Innovation Outposts Are Moving To Innovation Clusters
Today, large companies are taking on a decidedly 21st-century twist. They are putting Innovation Outposts into Innovation Clusters -in particular Silicon Valley – to tap into the clusters’ innovation ecosystems.

(An Innovation Cluster is a concentration of interconnected companies that both compete and collaborate. Silicon Valley, Herzliya in Israel, Zhongguancun for software and Shenzen for hardware in China are examples of technology clusters, but so was Detroit for cars, Hollywood for movies, Milan for fashion.)

In the last five years, hundreds of large companies have established Innovation Outposts (and here) in Silicon Valley. The charter of these Innovation Outposts is to monitor Silicon Valley for new innovative technologies and/or companies (as emerging threats or potential tools for disruption) and then to take advantage of these innovations by creating new products or investing in startups.

While that’s the theory, the reality is that to date, most of these Innovation Outposts are at best another form of innovation theater – they make a large company feel like they’re innovating, but very few of these outposts change a company’s product direction and fewer impact their bottom line.

Companies who want their investments in Silicon Valley to be more than just press releases need to think through an end-to-end corporate outpost strategy.

This series of posts offers companies the tools to develop an Innovation Outpost strategy:

  • Determining whether a Corporate Innovation Outpost is necessary
  • Planning how to establish an Innovation Outpost
  • Deciding how to expand the Outpost

Sense and Respond

The first objective of an Innovation Outpost is to sense, i.e., look for or monitor the development of potential innovations that:

  1. Can become threats that could lead to the disruption of the corporate parent. For example, American Express’s Silicon Valley Innovation Outpost is monitoring innovations in financial technologies that are created by companies such as Square. Evangelos and I are in the process of developing a tool for diagnosing corporate disruption through innovations pursued by startups.
  1. Would allow the corporation itself to be disruptive by entering adjacent markets to the ones it currently serves or creating and introducing novel and disruptive offerings for new markets. For example, USAA is looking for software innovations that will enable it to introduce Usage-Based Insurance products to disrupt the car insurance market.

The second objective of the corporate Innovation Outpost is to respond to identified threats and potential opportunities. Companies tend to set up their outposts to respond in one of five ways:

  1. Invent: They establish project-specific advanced development efforts like Delphi Automotive’s autonomous car navigation project or broader Horizon 3 basic research efforts that take advantage of, or investigate, technologies and business models the innovation ecosystem is known for in order to create new products and services. For example, Verizon’s Silicon Valley R&D center focuses on big data and software technologies, as well as online advertising-based business models. Sometimes these Horizon 3 research efforts may be associated with a moonshot the corporation would like to pursue as is the case with Google (Google Car), Apple (iPhone) and IBM (Watson).
  1. Invest: They allocate a corporate venture fund that invests in startups working on technology and/or business model innovations of interest. For example, UPS recently invested in Ally Commerce in order to understand the logistics opportunities arising from manufacturers selling directly to consumers rather than through distributors.
  1. Incubate: They support the efforts of very early stage teams and companies that want to develop solutions in areas of interest–for example, Samsung’s incubator focuses on startups working on the Internet of Things—or they experiment with new corporate cultures and work environments –for example, Standard Chartered Bank’s startup studio.
  1. Acquire: Companies buy startups in order to access both the innovations the startups are developing and their employees, and in the process inhibit competitors from getting them. For example, Google acquired several of the robotics startups that had what was considered the best intellectual property.
  1. Partner: Collaborate with startups in order to develop a disruptive new solution using their innovations along with the corporations or to distribute innovative solutions the start up has developed. For example, a few years ago Mercedes partnered with Tesla in batteries for electric vehicles.

After working with over 100 companies, Evangelos and I clearly see that some of these five responses are more effective than others. Moreover, the speed of the response is as important as the ability to respond.  Corporations that establish Innovation Outposts often lose on speed, not on their ability to sense. What makes an outpost an effective contributor versus one that’s simply an expense item starts back at corporate headquarters with a company’s overall innovation strategy. So before we talk about the tactics of establishing an outpost, lets think about what types of discussions and decisions should first happen at the “C-level” before anyone leaves the building.

Lessons Learned

  • Companies are establishing Innovation Outposts in Silicon Valley
  • They do this to sense and/or respond to technology shifts
    • Sense means monitor the development of potential innovations that can become threats or would allow the corporation to be disruptive
    • Respond means, Invent, Invest, Incubate, Acquire or Partner
  • Most of these Innovation Outposts will become Innovation Theater and fail to add to the company

The next post will describe The Six Critical Decisions to Make Before Establishing an Innovation Outpost.

Innovation Outposts and The Evolution of Corporate R&D

I first met Evangelos Simoudis when he ran IBM’s Business Intelligence Solutions Division and then as CEO of his first startup Customer Analytics. Evangelos has spent the last 15 years as a Venture Capitalist, first at Apax Partners and later at Trident Capital. During the last three years he’s worked with over 100 companies, many of which established Innovation Outposts in Silicon Valley. He’s now helping companies get the most out of their relationships with Silicon Valley.

Evangelos writes extensively about the future of corporate innovation on his blog.

Evangelos and I are working on what we hope will become a book about the new model for corporate entrepreneurship. His insights about how large companies are using the Valley is the core of this series of four co-authored blog posts.

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The last 40 years have seen an explosive adoption of new technologies (social media, telecom, life sciences, etc.) and the emergence of new industries, markets and customers. Not only are the number of new technologies and entrants growing, but also increasing is the rate at which technology is disrupting existing companies. As a result, while companies are facing continuous disruption, current corporate organizational strategies and structures have failed to keep pace with the rapid pace of innovation.

This burst of technology innovation and attendant disruption to corporate strategies and organizational structures is nothing new. As Carlota Perez points out, (see Figure 1) technology revolutions happen every half-century or so. According to Perez, there have been five of these technology revolutions in the last 240 years.

carlota perez 5 tech cycles

Figure 1: Five technology revolutions   source: Carlota Perez

Perez divides technology revolutions into two periods (Figure 2): The Installation Period and the Deployment Period.  In the Installation Period, a great surge of technology development (Perez calls this Irruption) is followed by an explosion of investment (called the Frenzy.) This is followed by a financial crash and then the Deployment period when the technology becomes widely adopted. In between the Installation and Deployment periods lies a turning point called Institutional Adjustment when institutions (companies, society, et al) adjust to the new technologies.

life cycle of tech

Figure 2: The two periods characterizing technology revolutions   source: Carlota Perez

Historically during this Institutional Adjustment period companies have to adjust their corporate strategies to deal with these technology shifts. The change in corporate strategy forces a change in the structure of how a company is organized. In the U.S. we’ve gone through three of these structural shifts. We’re now in the middle of the fourth. Lets quickly review them and see what these past shifts can tell us about the future of corporate R&D.

Institutional Adjustments
In the first 50 years of commerce in the then-new United States, most businesses were general merchants, buying and selling all types of products as exporters, wholesaler, importers, etc. By 1840 companies began to specialize in a single type of goods like cotton, wheat or drugs, etc. and concentrated on a single part of the supply chain – importing, distribution, wholesale, retail. This shift from general merchants to specialists was the first structural shift in American commerce.

These specialist companies were still small local businesses. Ownership and management were one and the same – the owners managed, and there were no salaried middle managers or administrators.

In the 1850’s and 60’s, the railroads changed all that. The railroads initially served a region of the country, but very quickly grew into nationwide companies. The last quarter of the 19th century, what Perez calls the Age of Steel and Heavy Engineering, saw the growth of America’s first national corporations in railroads, steel, telegraph, meatpacking, and industrial equipment. These growing national companies were challenged to figure out how to organize an organization of increased complexity that resulted from their large size, and geographic scale as well as their horizontal and vertical integration.  For example, US Steel had integrated vertically and was involved in the mining of the iron ore all the way to the production of various steel products, e.g., nails. These new corporate strategies drove companies to build structures around functions (manufacturing, purchasing, sales, etc.) and to develop professional managers and management hierarchies to run them. Less than 50 years later, by the beginning of the 20th century, the modern form of the corporation had emerged. (For the best explanation of this see Chandler’s The Visible Hand.) This shift from small businesses to corporations organized by function was the second structural shift in American commerce.

By the 1920’s, in Perez’s Age of the Automobile and Oil, companies once again faced new strategic pressures as physical distances in the United States limited the reach of day-to-day hands-on management. In addition, firms found themselves now managing diverse product lines. In response, another structural shift in corporate organization occurred. In the 1920’s companies moved from monolithic functional organizations (sales, marketing, manufacturing, purchasing, etc.) and reorganized into operating divisions (by product, territory, brand, etc.), each with its own profit and loss responsibility. This strategy-to-structure shift from functional organizations to operating divisions was led by DuPont and popularized by General Motors and quickly followed by Standard Oil and Sears. This was the third structural shift in American commerce.

The 1970’s marked the beginning of our current technology revolution: The Age of Information Technologies, Telecommunications and Biotech. This revolution is not only creating new industries but also affecting existing ones – from retail to manufacturing, and from transportation to financial services. We are now somewhere between the end of Installation and the beginning Deployment – that confusing period between the end of the Frenzy and the beginning of the Turning Point, during which time institutional adjustments are necessary. Existing companies are starting to feel the pressures of new technologies and the massive wave of new entrants fueled by the explosion of investment from a recent form of financing – venture capital. (Venture capital firms, as we know them only date back to the 1970s.)  Companies facing continuous disruption need to find new corporate strategies and structures. This fourth structural shift in American commerce is the focus of this series of blog posts. In particular, we are going to focus on how each of these shifts has changed the organization and role of Corporate R&D.

Corporate R&D Evolves With Each New Structural Shift
Each institutional adjustment also changed how companies innovated and built new products. During the Age of Steel and Heavy Engineering in the 1870’s to 1920’s, innovation occurred outside the corporation via independent inventors and small companies. Inventors such as Thomas Edison, Alexander Graham Bell and Samuel Colt come to mind. Patents, inventions and small companies were sold to larger corporations. By the 1920’s, in the Age of the Automobile and Oil, large companies sought to control the new product development process. To do so they brought innovation and invention into the company by setting up storied Corporate R&D Labs such as GE Labs, DuPont Labs, Bell Labs, IBM Research, 3M, Xerox PARC, and Kodak Labs. By the 1950’s Shumpeter observed that in-house R&D had replaced the inventor-entrepreneur. The technology cycle was in the Synergy and Maturity phase, and little innovation was happening outside of companies. It was corporate R&D labs that set the pace of innovation in each industry.

Corporate R&D Labs

As the Age of Information Technologies and Telecommunications gained momentum in the 1970’s, the Irruption phase of this new technology cycle created an onslaught of new startups funded by venture capital. Think of companies like Apple, Digital Equipment Corporation, Sun Microsystems and Genentech.  The beginning of a new technology cycle didn’t come with a memo or a formal announcement. Corporate R&D and Strategy groups that had been successful for the past 70 years were finding their traditional methods no longer worked.

Historically Corporate Strategy and R&D groups worked hand-in-hand to keep companies competitive. They were adept at analyzing competitors, trends, new technologies and potential disruptors to the corporation’s business. Corporate Strategy would develop plans for new products, and R&D would then create and patent the disruptive innovations. Tasked with “looking over the horizon,” Corporate R&D and Strategy organizations looked at the last technology cycle and the existing incumbents instead of seeing the new technology cycle and the new wave of startups.

Corporate R&D in the Age of the CEO as Chief Execution Officer
Ironically as the new technology cycle went from Irruption to Frenzy (remember Perez’s stages of technology revolutions), existing corporations headed in the other direction. Over the past 15-20 years as startups were funded with ever-increasing waves of investment, companies have cut back their investment in innovation. Corporations focused on financial metrics like Return On Net Assets and Internal Rate of Return to reap the benefits of the last technology cycle. This meant R&D organizations have been pushed to work more on D (development) and less on R (research.) Researchers addressed short-term, Horizon 1 problems (existing business models, last technology cycle) rather than working on potentially disruptive Horizon 3 ideas from the next technology cycle. (See here for background on horizons.)

As a result, corporate R&D organizations have been producing sustaining innovations that protect and prolong the life of existing business models and their products and revenue streams. While this optimizes short-term Return On Net Assets and Internal Rate of Return, it destroys long-term innovation and investment in the next technology cycle.

While that’s the good news for short to mid-term revenue growth, the bad news is that corporate R&D’s is investing much less on disruptive new ideas and the next technology cycle and instead focusing on the development of incremental technologies. The result is a brain-drain of researchers who want to do the next big thing. Corporate researchers are voting with their feet, leaving to join startups or to start companies themselves, further hampering corporate innovation efforts. Ironically as the general pace of innovation accelerates outside companies, internal R&D organizations no longer have the capability to disrupt or anticipate disruptions.

Because of declining corporate investment in disruptive research and business model innovation, the typical corporate R&D organization can’t:

  • Keep up with technology innovations: Even corporations with high R&D spending are concluding that their existing R&D model cannot keep pace with exponential technologies and the accelerating pace of information technologies, biotechnologies, and materials
  • Address the global creation of innovation: Disruptive innovation is now created around the world by companies of any size, many of them startups. These companies are funded by abundant capital from institutional venture investors, private investors, and other sources. Our hyperconnected world is amplifying the effects of these companies and enabling them to have global impact, as seen with companies from Israel, India, China, and Brazil
  • Properly align technology with other types of innovation: Corporate R&D remains focused on technology innovation. Certainly these organizations have little, or no, ability to appreciate and create other forms of innovation

By the 1990’s corporate innovation strategies changed to a focus on startups—investing in, partnering with or buying them.  Companies built corporate venture capital and business development groups.

But by 2010, this technology cycle moved into the Frenzy phase of innovation investment. Corporate R&D Labs could not keep up with the pace of external invention.  Increasingly corporate venture capital involved too long of a lead-time for corporate technology investments to pay off.

To adapt to the current frenetic pace of innovation, corporations have created a new organizational structure called the Innovation Outpost. They are placing these outposts at the center of the source of innovation: startup ecosystems.

The next 3 posts will explore the rise of Innovation Outposts, Six Critical Decisions Before Establishing an Innovation Outpost and How to Set Up a Corporate Innovation Outpost for Success.

Be sure to check out about the future of corporate innovation on Evangelos Simoudis blog.

Hacking For Defense In Silicon Valley

Lead, follow or get the heck out of the way

In peacetime the U.S. military is an immovable and inflexible bureaucracy. In wartime it can adapt and adopt organizational change with startling speed.

BMNT, a new Silicon Valley company, is combining the Lean Methods it learned in combat with the technology expertise and speed of startups.

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But first some history…

World War II
In World War II the U.S. government reengineered its approach to building weapons. In a major break from the past, where the military designed all its own weapons, 10,000 scientists and engineers from academia worked in civilian-run weapons labs (most headquartered in universities) in an organization called the Office of Scientific Research and Development (OSRD).

OSRD was tasked to develop military weapons systems and solve military problems but had wide autonomy to determine how to accomplish its tasks and organize its labs. (The weapons were then manufactured in volume by U.S. corporations.)

OSRD

The OSRD developed advanced electronics: radar, electronic warfare, rockets, sonar, proximity fuse, Napalm, the Bazooka and new drugs such as penicillin and cures for malaria. One OSRD project – the Manhattan Project  – the development of the atomic bomb – was so secret and important that it was spun off as a separate program. The University of California managed research and development of the bomb design at Los Alamos while the US Army managed the Los Alamos facilities and the overall administration of the project.

After the war the U.S. split up the functions of the OSRD. Nuclear weapons went to the new Atomic Energy Commission (AEC), basic weapons systems research went to the Department of Defense (DOD) and all U.S. biomedical and health research went back to the National Institutes of Health (NIH). In 1950, government support of basic science research in U.S. universities became the charter of the National Science Foundation (NSF). Each of these independent research organizations would support a mix of basic and applied research.

The Cold War
During the Cold War the U.S. and the Soviet Union faced off with a nuclear deterrence policy called mutually assured destruction (aptly named MAD.) But to fight a conventional war in Europe, Soviet forces had built a 3 to 1 advantage in tanks, artillery, armored personnel carriers, and soldiers. In response the U.S. developed a new strategy in the late 1970’s to counter the Warsaw Pact. Instead of matching the U.S.S.R. tank for tank or solider to solider, the U.S. saw that it could change the game and take advantage of a lead we had that was getting longer every day – using our computer and chip technology to aggressively build a new generation of weapons that the Soviet Union could not. 

At the heart of this “offset strategy” was “precision strike,” – building stealth aircraft to deliver precision guided munitions unseen by enemy radar, and designing intelligence and reconnaissance systems that would target for them. The offset strategy was smart weapons, smart sensors, and stealth using silicon chips, electronics and computers that only the U.S. could design and produce.

By the mid-1980’s the Soviet military was struggling to keep up with this “revolution in military affairs. The announcement of the Strategic Defense Initiative (Star Wars) further destabilized the Soviet Union.

The Gulf Wars
When I first started teaching customer development (searching, validating and executing a business model), one of my students pointed out that customer development was similar to the theory of a military strategist, John Boyd. In the 1960’s, Boyd, who was a fighter pilot, proposed that instead of executing a fixed plan, wars would be won by those who can Observe, Orient, Decide and Act (the OODA Loop.) After being ignored for decades, Boyd’s OODA Loop drove the U.S. war fighting strategy in both Gulf Wars. The OODA Loop was the Lean Startup philosophy before lean.

Large ooda loop

Iraq, Afghanistan and the Army’s Rapid Equipping Force (REF)
In Afghanistan in 2002 U.S. soldiers were tasked to clear caves that the Taliban used to store equipment. Many of the caves still had Taliban fighters inside while others had been booby-trapped. To clear the caves soldiers threw grappling hooks inside then pulled the hooks out to catch trip-wires and explode bombs. But often this technique did not work and soldiers died. The Army realized they needed to do something more effective. They gave the problem to Colonel Bruce Jette, and 90 days and $750,000 later he had bypassed the existing Army acquisition system and bought existing robots from companies. Exponent provided the PackBot and the Marcbot and deployed them to the field.

From that day the Army’s Rapid Equipping Force (REF) was born.

The REF’s goal is to deliver technology solutions to front-line soldiers in days and weeks, instead of months and years either by using solutions from previous REF efforts or existing government- or commercial-off-the-shelf technologies purchased with a government credit card.

The REF had permission to shortcut the detailed 100+ page requirements documents used by the defense acquisition process. It developed a ten-line short form that listed the most important parts of the requirement. The REF also had its own budget, which it could use to acquire equipment.

Soon the REF was sending teams of civilian and military subject matter experts out into the field to discover what they needed. REF expanded its operations to include forward teams in Kuwait and Iraq to provide technology to fill capability gaps and to counter the highest priority threats.

By the end of 2007, the REF had delivered more than 550 types of equipment and more than 75,000 individual items. The average time from receiving a request from the field to delivering a solution to the soldiers was 111 days.

In 2010 Colonel Peter Newell took over the REF and turned its focus into what we would call a Lean Startup. Pete Newell
Newell insisted that REF started with a deep understanding of soldiers’ problems
 before purchasing a proposed solution. Newell found that four problems accounted for two-thirds of REF requirements:

  1. defeating roadside bombs
  2. supporting soldiers on foot with communications and load carrying devices
  3. providing soldiers with timely intelligence, surveillance, and reconnaissance in combat
  4. supplying and protecting small isolated combat outposts

He came up with his version of the OODA loop to explain to people how REF should behave.

REF Problem Solving Cycle

To get closer to his customers, Newell commissioned three mobile laboratories that were airlifted to forward operating bases. These labs included a Computer Numerical Control milling machine and 3-D printers for rapid prototyping.REF Mobile Lab

Hacking For Defense (H4D)
When Colonel Peter Newell left the Army, he came to Silicon Valley at the urging of a friend and fellow retired Army Colonel, Joe Felter, a Stanford PhD who moved to Palo Alto and Stanford after a career in the Special Forces. Newell accepted Felter’s invitation to join a company he had originally established. BMNT does for the Department of Energy, the Department of Defense and the Intelligence Community what the REF did for the U.S. Army – build teams that deliver solutions to complex problems, with access to the entire network of suppliers and partners that Newell and Felter developed throughout their careers.

To tap into the innovation of Silicon Valley, BMNT, in collaboration with Stanford’s Preventive Defense Project organized Hacking For Defense (H4D) – a series of hackathons – to help the Department of Defense do four things:

  1. Identify new ideas that will solve problems the military expects to see in the future
  2. Map those ideas to the technology that could be used to solve them
  3. Recruit the people who can make it happen
  4. Show the DoD how to engage Silicon Valley with challenging problems and build networks of people to solve them

BMNT‘s first hackathon, “Hacking the Supply Chain,” brought together diverse teams of technologists and users to provide solutions to the questions: How do you supply troops which can be sent on short-notice, for long periods to places where there are no existing bases or supplies? How might we create the most resilient and efficient supply chain possible for our forward-deployed land forces in 2025?

“Hacking the Supply Chain” is focused on:

  • energy and power generation
  • potable water and field expedient sewage systems
  • advanced manufacturing and repair maintenance technologies
  • training and readiness technologies
  • command, control, computers, and communications technologies

In mid-April, the ideas generated at BMNT‘s first hackathon will be presented to a panel of experienced senior entrepreneurs, engineers, and military and government officials and then sent to the Department of Defense with specific recommendations on the technologies with potential to support them.

Ultimately Newell and Felter say they want to use BMNT to create an “insurgency” in Silicon Valley to get cutting-edge innovation into the organizations defending our country. (Click here for information on Hacking for Defense events.)

Hacking the Prime’s
In reality, what BMNT is trying to fix is the way the Department of Defense acquires radically new technology and ideas. While DARPA tries to fill that need, today the primary conduits for bringing new technology to the government are the prime contractors (e.g., Lockheed, Boeing, Raytheon, Northrup Grumman, L3, General Dynamics, et al.) But most of these contractors focus on fulfilling existing technology needs that can be profitable.

If a startup wants to provide new technology to the Department of Defense (DoD),  they have to sell through the prime contractors who own the relationships with the DoD. Most startups and innovative companies are unwilling to risk exposing their Intellectual Property and go through the paperwork of dealing with the government, so they choose not to pursue government ventures. In this way, the primes artificially restrict DoD’s technological funnel.  (Palantir is the most visible Silicon Valley insurgent in this space.)

Today, incentives for bringing innovation into the government with speed and urgency are not aligned with the government acquisition, budgeting, and requirements process. As a result, the DoD fails to acquire truly innovative technologies (much less paradigm-changing technologies) in a timely fashion.

Lessons Learned

  • In peacetime the U.S. military is an immovable and inflexible bureaucracy
  • In wartime it can adapt and adopt organizational change with startling speed
  • The Rapid Equipping Force operated with speed and urgency to deliver solutions to real customer problems
  • BMNT and Hacking for Defense are trying to bring this same process to Silicon Valley

I-Corps at the NIH: Evidence-based Translational Medicine

If you’ve received this post in an email the embedded videos and powerpoint are best viewed on www.steveblank.com

We have learned a remarkable process that allow us to be highly focused, and we have learned a tool of trade we can now repeat. This has been of tremendous value to us.

Andrew Norris, Principal Investigator BCN Biosciences

Over the last three years the National Science Foundation I-Corps has taught over 700 teams of scientists how to commercialize their technology and how to fail less, increasing their odds for commercial success.

To see if this same curriculum would work for therapeutics, diagnostics, medical devices and digital health, we taught 26 teams at UCSF a life science version of the NSF curriculum. 110 researchers and clinicians, and Principal Investigators got out of the lab and hospital, and talked to 2,355 customers. (Details here)

For the last 10 weeks 19 teams in therapeutics, diagnostics and medical devices from the National Institutes of Health (from four of the largest institutes; NCINHBLI, NINDS, and NCATS) have gone through the I-Corps at NIH.

87 researchers and clinicians spoke to 2,120 customers, tested 695 hypotheses and pivoted 215 times. Every team spoke to over 100 customers.

Three Big Questions
The NIH teams weren’t just teams with ideas, they were fully formed companies with CEO’s and Principal Investigators who already had received a $150,000 grant from the NIH. With that SBIR-Phase 1 funding the teams were trying to establish the technical merit, feasibility, and commercial potential of their technology. Many will apply for a Phase II grant of up to $1 million to continue their R&D efforts.

Going into the class we had three questions:

  1. Could companies who were already pursuing a business model be convinced to revisit their key commercialization hypotheses – and iterate and pivot if needed?
  2. Was getting the Principal Investigators and CEO out of the building more effective than the traditional NIH model of bringing in outside consultants to do commercialization planning?
  3. Would our style of being relentlessly direct with senior scientists, who hadn’t had their work questioned in this fashion since their PhD orals, work with the NIH teams?

Evidence-based Translational Medicine
We’ve learned that information from 100 customers is just at the edge of having sufficient data to validate/invalidate a company’s business model hypotheses. As for whether you can/should push scientists past their comfort zone, the evidence is clear – there is no other program that gets teams anywhere close to talking to 100 customers. The reason? For entrepreneurs to get out of the building at this speed and scale is an unnatural act. It’s hard, there are lots of other demands on their time, etc. But we push and cajole hard, (our phrase is we’re relentlessly direct,) knowing that while they might find it uncomfortable the first three days of the class, they come out thanking us.

The experience is demanding but time and again we have seen I-Corps teams transform their business assumptions. This direct interaction with potential users and customers is essential to commercialize science (whether to license the technology or launch a startup.) This process can’t be outsourced. These teams saved years and millions of dollars for themselves, the NIH and the U.S. taxpayer. Evidence is now in-hand that with I-Corps@NIH the NIH has the most effective program for commercializing science.

Lessons Learned Day
Every week of this 10 week class, teams present a summary of what they learned from their customers interviews. For the final presentation each team created a two minute video about their 10-week journey and a 8-minute PowerPoint presentation to tell us where they started, what they learned, how they learned it, and where they’re going. This “Lessons Learned” presentation is much different than a traditional demo day. It gives us a sense of the learning, velocity and trajectory of the teams, rather than a demo day showing us how smart they are at a single point in time.

BCN Biosciences
This video from team BCN Biosciences describes what the intensity, urgency, velocity and trajectory of an I-Corps team felt like. Like a startup it’s relentless.

BCN is developing a drug that increases anti-cancer effect of radiation in lung cancer (and/or reduces normal tissue damage by at least 40%). They were certain their customers were Radiation Oncologists, that MOA data was needed, that they needed to have Phase 1 trial data to license their product, and needed >$5 million and 6 years. After 10 weeks and 100 interviews, they learned that these hypotheses were wrong.

If you can’t see the BCN Biosciences video click here

The I-Corps experience helped the BCN Bioscience team develop an entirely new set set of business model hypotheses – this time validated by customers and partners. The “money slides” for BCN Biosciences are slides 22 and 23.

If you can’t see the BCN Biosciences presentation click here

You Can’t Outsource Customer Discovery
What we hear time and again from the Principal Investigators is “I never would have known this” or “I wouldn’t have understood it if I hadn’t heard it myself.” Up until now the NIH model of commercialization treated a Principal Investigator as someone who can’t be bothered to get out of the building (let alone insist that it’s part of their job in commercialization.) In the 21st century using proxies to get out of the building is like using barbers as surgeons.

Clinacuity
While the Clinacuity video sounds like an ad for customer discovery, listen to what they said then look at their slides. This team really learned outside the building.


If you can’t see the Clinacuity video click here

Clinacuity’s technology automatically extracts data in real-time from clinical notes, (the narrative text documents in a Electronic Health Record,) and provides a summary in real time. Their diagrams of the healthcare customer segment in slides 15-18 were outstanding.

If you can’t see the Clinacuity presentation click here

GigaGen
The GigaGen team – making recombinant gamma globulin – holds the record for customer discovery – 163 customer interviews on multiple continents.

If you can’t see the GigaGen video click here

GigaGen’s learning on customer value proposition and who were the real stakeholders was a revelation. Their next-to-last slide on Activities, Resouces and Partners put the pieces together.

If you can’t see the GigaGen presentation click here

Affinity Therapeutics
Affinity came into class with a drug coated Arterial Venous Graft – graft narrowing is a big problem.

One of things we tell all the teams is that we’re not going to critique their clinical or biological hypotheses. Yet we know that by getting out of the building their interaction with customers might do just that. That’s what happened to Affinity.

If you can’t see the Affinity video click here

Affinity was a great example of a team that pivoted their MVP. They realized they might have a completely new product – Vascular wraps that can reduce graft infection.  See slides 17-23.

If you can’t see the Affinity presentation click here

Haro
Haro is making a drug for the treatment of high risk neuroblastoma, the most common extracranial cancer in infancy and childhood. On day 1 of the class I told the team, “Your presentation is different from the others – and not in a good way.”  That’s not how I described them in the final presentation.

If you can’t see the Haro video click here

After 120 interviews the Haro found that there are oncology organizations (NCI-funded clinical development partners) that will take Haro’s compound and develop it at their own expense and take it all the way into the clinic. This will save Haro tens of millions of dollars in development cost.  See slides 12 and 13.

If you can’t see the Haro presentation click here

Cardiax
Caridax is developing a neural stimulator to treat atrial fibrillation. Their video points out some of the common pitfalls in customer discovery. Great summary from Mark Bates, the Principal Investigator: “You don’t know what you don’t know. Scientific discovery is different than innovation. You as a prospective entrepreneur need this type of systematic vetting and analysis to know the difference.”

If you can’t see the Cardiax video click here

After 80 interviews they realized they were jumping to conclusions and imparting their bias into the process. Take a look at slides 8-11 and see their course correction.

If you can’t see the Cardiax presentation click here

The other 15 presentations were equally impressive. Each and every team stood up and delivered. And in ways that surprised themselves.

The Lean Startup approach (hypotheses testing outside the building,) was the first time clinicians and researchers understood that talking to customers didn’t require sales, marketing or an MBA – that they themselves could do a pretty good first pass. I-Corps at NIH just gave us more evidence that’s true.

The team videos and slides are on SlideShare here.

A Team Effort
This blog post may make it sound like there was no one else in the room but me and the teams. But nothing could be farther from the truth. The I-Corps@NIH teaching team was led by Edmund Pendleton. Allan May/Jonathan Fay taught medical devices, John Blaho/Bob Storey taught diagnostics and Karl Handelsman/Keith McGreggor taught therapeutics. Andre Marquis, Frank Rimalovski and Dean Chang provided additional expertise. Brandy Nagel was our tireless teaching assistant. Jerry Engel is the NSF I-Corps faculty director.

Special thanks to Paul Yock of Stanford Biodesign and Alexander Osterwalder for flying across the country/world to be part of the teaching team.

I created the I-Corps/Lean LaunchPad® syllabus/curriculum, and with guidance from Allan May, Karl Handelsman Abhas Gupta and Todd Morrill adapted it for Life Sciences/Health Care/Digital Health. The team from VentureWell provided the logistical support. The I-Corps program is run by the National Science Foundation (Babu Dasgupta, Don Millard and Anita LaSalle.) And of course none of this would be possible without the tremendous and enthusiastic support and encouragement of Michael Weingarten the director of the NIH/NCI SBIR program and his team.

Lessons Learned

  • The I-Corps/Lean LaunchPad curriculum works for therapeutics, diagnostics and device teams
  • Talking to 100 customers not only affected teams’ commercial hypotheses but also their biological and clinical assumptions
  • These teams saved years and millions of dollars for themselves, the NIH and the U.S. taxpayer
  • Evidence is now in-hand that the NIH has the most effective program for commercializing science
  • In the 21st century using proxies to get out of the building is like using barbers as surgeons

Engineering a Regional Tech Cluster-part 3 of 3 of Bigger in Bend

Dino Vendetti a VC at Bay Partners, moved up to Bend, Oregon on a mission to engineer Bend into a regional technology cluster.  Over the years Dino and I brainstormed about how Lean entrepreneurship would affect regional development.

I visited Bend last year and caught up with his progress.

Today with every city, state, country trying to build out a technology cluster, following Dino’s progress can provide others with a roadmap of what’s worked and didn’t.

Here’s Part 3 of Dino’s story…


As a transplanted Silicon Valley VC and now a regional investor, I often get asked, “How do we go about building up our local tech ecosystem?”

The short answer is, “One step at a time.”

In the beginning in Bend, “necessity was the mother of invention.” Local entrepreneurs just made it up as they went. But today we are intentionally engineering six distinct activities to support this tech cluster: entrepreneurial density, university, transportation, capital, accelerator, and business community.

Let’s look at each of these six elements in more detail and I’ll explain what we have been doing in Bend to accelerate each of these.

1. Entrepreneurial Density:
Density – the connection of like-minded firms and their support services – is a critical component of a cluster. The most fertile source of entrepreneurs is the population of existing entrepreneurial companies. But for clusters without sufficient firms you first need to attract companies to your region. However, it’s difficult to create density overnight. Entrepreneurs need to understand and believe the reasons why they should want to cluster in your region given there are other alternatives (nationally Silicon Valley or New York; regionally Seattle and Bellevue, Portland and Bend).

In addition to technical and entrepreneurial talent, a region also needs experienced executive talent with industry appropriate backgrounds and personal networks. The goal of this talent is to help mentor startups as they scale and navigate the myriad of issues they will face in growing their business.

Bend’s economic development agency (EDCO) and city leaders (Visit Bend, City of Bend) get it – and have started communicating that Bend welcomes and is friendly to entrepreneurs and startups. Word is spreading and there are lots of people up and down the West Coast who know of and have been to Bend. But it’s easy to get drowned out by the noise from Silicon Valley and other cities in Washington and Oregon. That means that in regional communities like Bend, everyone needs to turn up the volume to consistently sing praises that will not only put the community on the map but also ensure it doesn’t slip.

2. University
Almost every successful tech cluster has a local technical university. This provides a source of technical talent, research, etc. It’s extremely difficult to import enough talent to fuel a rapidly growing tech cluster, so a university is critical to organically generate and retain talent within the region. In particular it’s critical to offer technical degrees that train the talent pool needed to drive the local tech cluster

OSU-Cascades is a new four-year university in Bend that is beginning the build out of its new campus in Bend and offer computer science and user design courses. This effort was over a decade in the making and something that the local community fought hard for.

3. Transportation
Direct flights to the San Francisco Bay Area and other major metro areas (depending on location of the region) are vital to reduce the friction of conducting business, encourage talent to test drive your community, and attract investors and other ecosystem partners to the region.

Bend’s economic development agency (EDCO) has worked very hard to establish direct flights to major West Coast cities including San Francisco, Los Angeles, Seattle, Portland, and Denver. At times this required rallying local business leaders to make advance purchases of flights to ensure enough passenger volume for the airlines.

4. Local Early-Stage Risk Capital
Early stage venture funds are more important than your mother. If this doesn’t exist your regional cluster is dead-on-arrival.  Organize risk-capital in the form of angel funds or venture funds, particularly at the early stage where the largest capital gap exists. This should be a strategic initiative within your state to close the capital gap with in-region capital sources.

Bend is now home to Seven Peaks Ventures and Cascade Angels, both born over the past year in response to the opportunity in the region. The state of Oregon is also making funds available to invest in and support the formation of venture funds within the state.

bvc-winner

Bend Venture Conference Winner

5. Local Entrepreneurial Community Entrepreneurial-driven Events
The local entrepreneurial community has been active in running Startup Weekends, launching the FoundersPad accelerator, running hackathons and Ruby on Rails conferences (Ruby on Ales), building out shared tech space, offering incentives (The Big Bend Theory) for startups to relocate to Bend from the Valley, and building up the state’s largest tech/venture conference, the Bend Venture Conference which is now going on its 11th year. There are many more efforts underway to build upon what has worked and continue the process of evolving and learning.

6. Business Community Support
One of the most difficult things to do is technically the easiest – a dispassionate self-assessment to understand what assets your community has and what you lack.

First, what is your value proposition to a family or business to locate in your region? Recognize that a big part of your job is to remove friction, drive awareness, and amplify the efforts of your local entrepreneurs. Successful entrepreneurs attract other entrepreneurs, so it’s vital to kick start the cycle.

Next, identify your goal. Is it creating a job works program? Stopping brain drain in the region? Attracting and building some key core competency in the region? Ideally your existing talent base and ecosystem naturally support the “core competency magnet” you want to develop.

Finally, put your money where your mouth is – help fund the events and programs in the early years. Once the tech cluster forms, these activities will become self-funding. The ROI won’t be obvious for some early on, but will pay dividends in time.

Regional Cluster Ecosystem

Regional Cluster Ecosystem

Summary: Bend Is a Global Entrepreneurship Experiment
There are about 25,000 economic development agencies in regional markets across the U.S., all trying to expand the number of businesses that create products and services sold outside their region. These regional businesses create primary jobs that lead to the creation of local secondary jobs.

The Bend experiment is a model to consciously engineer an entrepreneurial cluster in a regional market to spur economic development and job creation.

In the past most regional growth strategies have focused on attracting established companies looking to expand or open a new plant. While it may be strategic for the region to recruit some of these established businesses, those deals usually involve huge tax subsidies and typically create a small finite number of jobs. What isn’t part of most regional growth plans is the organic growth of an entrepreneurial tech cluster in the region. If successful, sewing the seeds of entrepreneurship can lead to a more rapid and sustainable job growth for the region.

By engineering a regional tech cluster, we can impact the trajectory of growth in the region and:

  • Slow and even reverse the historical migration of tech talent and capital out of the region/state
  • Locally grow successful tech companies to become amazing primary job creators
  • Recycle the wealth that is created by re-investing in the region versus transferring wealth to Silicon Valley
  • Help local successful entrepreneurial and technical talent stay local – by creating their next startup in the region versus emigrating to Silicon Valley
  • Create a more diversified and healthy economic base that includes tech entrepreneurs

The democratization of entrepreneurship has created a huge opportunity for any region with the right characteristics to create its own sustainable tech cluster. But, as with any true democracy, it won’t happen without the combined participation of the community and desire of entrepreneurs to lead the movement. This is happening in Bend, and I look forward to hearing from others about your own experiments.

Lessons Learned:

  • Regional tech clusters can be engineered if …
    • the region has key attributes and a focused effort from the entrepreneurial and business community
  •  Opportunity exists for economic development in regions where tech clusters can be formed
    • potential to dramatically increase the growth of entrepreneurship and job creation in the region.
  • Entrepreneurs are the path to job creation and growth…
    • attract them, reduce the friction to growth, and do everything possible to cause the wealth created to recycle locally

Listen to the blog post here [audio http://traffic.libsyn.com/albedrio/steveblank_hplewis_140124_FULL.mp3]

Download the podcast here

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