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The Rainforest

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What makes places like Silicon Valley tick?
Can we replicate that magic in other places?
How do you foster innovation in your own networks?

The Rainforest is a groundbreaking new book from two of the world’s leading experts at the intersection of venture capital and global development. Victor W. Hwang and Greg Horowitt propose a radical new theory to explain the nature of innovation ecosystems -- human networks that generate extraordinary creativity and economic output. They argue that free market thinking fails to consider the impact of human nature on the innovation process. This ambitious work challenges basic assumptions that economists have held for over a century.

Kirkus Revews: "insightful, forward-thinking..." "provocative..." "Hwang and Horowitt write with authority and wit, carefully backing up their theory with substantive examples. Readers get the feeling that the authors have unveiled a very big, important concept, one that could serve as the basis for intentionally, methodically developing other “rainforests” similar to Silicon Valley."

Read a preview at: www.therainforestbook.com

The Rainforest

  1. 1. A new book by Victor W. Hwang and Greg Horowitt
  2. 2. Meet the Gauches…
  3. 3. 1994 Professors Susan and John Gauch at the University of Kansas received a $15,000 grant to build a meta- search technology. They called it Jayhawk Search.
  4. 4. 1995 A spectacular success. 300,000 users per month. Moved to dedicated server. Launched company called ProFusion. 1996 1,000,000 users per month. 1997 PC Magazine named Meta-Search Engine of the Year 1998 Company attempted to grow. Entered into strategic partnerships. Recruited business management. 1999 Eventual failure.
  5. 5. By the time it was done, the Gauchesearned a grand total of about $100,000.
  6. 6. What are the lessonsof the Anti-Google?
  7. 7. Neoclassical economists say… “Meh.”Individual stories are no big deal. The macro-systemworks when self-interested rational actors compete. Eugene Fama & Efficient Market Theory
  8. 8. Cluster theorists say… “Natch.”It’s all easy to explain. Micro-level enterprises onlythrive when pools of talent are concentratedgeographically. Michael Porter & Cluster Theory
  9. 9. But there is a huge disconnectbetween theory and reality.
  10. 10. The neoclassical model does notaccount for the serious difficulties facedby the Gauches based in Kansas…Massive lack of access to customers,talent, capital, markets, managers, etc.
  11. 11. Yet the traditional Silicon Valley “cluster” model…
  12. 12. …does not resemble real-world startups today either.
  13. 13. An exhaustive study of 1,604 companies…“The results indicate that firm innovation inurban Norway is mainly driven by globalpipelines, rather than local interaction. … Localand even national interaction seems to beirrelevant for innovation.” Rune Dahl Fitjar and Andrés Rodríguez-Pose, “When local interaction does not suffice: Sources of firm innovation in urban Norway”, February 2011
  14. 14. So what’s going on?!
  15. 15. The world needs a newparadigm that is bothdescriptive and prescriptive.Billions of lives, hundreds ofbillions of dollars at stake.
  16. 16. The Development of Economic Thought? “…the understanding that principles that underlie biological systems are the same principles that underlie all living systems.” James Kenneth Galbraith
  17. 17. Can we now weave together a tapestry ofinter-disciplinary ideas to create a new Frederick“bottom-up” economic model? Jackson Turner Ade W. Edwards Mabogunje Deming Robert Sapolsky Annalee Saxenian Danah Boyd HernandoSean de Soto fMRI imagingGourley James Ronald Coase Fowler “Design Thinking”E.O. Wilson (Rolf Faste, et al) Ilya Prigogine Richard Francis Thaler Fukuyama
  18. 18. A different approach to innovation growth… Plantation Rainforest
  19. 19. While plants are harvested mostefficiently on farms,weeds sprout best in Rainforests.
  20. 20. For a new species For a new startup temperature, humidity, capital, entrepreneurs, precipitation, sunlight, laws/norms, ideas/inventions,soil/nutrients, other flora/fauna talent, markets
  21. 21. A radical shift in perspective.Neoclassical economics has dominated our thinkingon systems for over 100 years.
  22. 22. The real world.Not gears, but human beings. Landlord Land Engineer Labor Output Capital Investor Technology? Scientist
  23. 23. And real human beings are separated… by geography, culture, language, social networks, andlack of trust.
  24. 24. This happens across entire systems. Across an entire system
  25. 25. The Secret of Innovation Ecosystems Rainforests thrive because of culture that overcomes social system Across an entire barriers and fosters a special style of collaboration between people…
  26. 26. The InnovationEcosystem Ideas Opportunity Talent Capital
  27. 27. It’s not just creative destruction.Far more important—and harder—is creative reassembly.
  28. 28. Like a fractal equation in nature… Across an entire system
  29. 29. …what is the micro cultural pattern thatgenerates macro phenomena in placeslike Silicon Valley?
  30. 30. The culture of the American frontierrequired strangers to trust fast, or die…
  31. 31. Rules of the RainforestRule #1: Break rules and dream.Rule #2: Open doors and listen.Rule #3: Trust and be trusted.Rule #4: Experiment and iterate together.Rule #5: Seek fairness, not advantage.Rule #6: Err, fail, and persist.Rule #7: Pay it forward.
  32. 32. How do humans change behavior? Across an entire system
  33. 33. Tools to Build RainforestsTool #1: Learn by DoingTool #2: Enhance DiversityTool #3: Celebrate Role Models and Peer InteractionTool #4: Build Tribes of TrustTool #5: Create Social Feedback LoopsTool #6: Make Social Contracts Explicit
  34. 34. • are the entrepreneurs?•Who has the reputation, resources and •Who are the service providers? •What is the regulatory environment forcommitment to lead new initiatives? •Who are the inventors? innovation?•Who will champion new initiatives within •Who are the capital providers? •What legal/bureaucratic barriers stand intheir own organizations? •Who are the support organizations? the way of entrepreneurship?•How can leaders and champions be more •What is the role of government? •What widespread social norms surroundinclusive? •Who are the other key participants in the innovation ecosystems? the innovation ecosystem? •What are people already doing to stimulate •Where, when and how do stakeholders•What resources are available to aspiring innovation/entrepreneurship? •Who are the local entrepreneurs that have interact? built successful companies?entrepreneurs (knowledge, mentorship, •How are these people collaborating with •How do ideas, talent and capital comecloud hosting, etc.)? each other? •Who are the local entrepreneurs that together?•What sources of capital are there in the •What activities drive participation in the •What are the lines of communication haven’t yet been successful and what canmarketplace? we learn from their failures? community? between partners?•How does this capital flow and interact with •What events create ‘buzz’ and generate •What regions have similar attributes andgrowing businesses? •How do members of the community resources? interest? collaborate with each other?•What is the volume and quality of talent in •What organizations have sharedthe labor pool? •How does the community engage external visions/values? or global partners? •Are there other regions with successful•What are the main sources of innovative •How does the community encourage recruitideas/discoveries/inventions? innovation ecosystems that we could learn new constituents?•What resources are available to service and •How do young people get involved? from or emulate?support organizations that interact withentrepreneurs (workforce training, etc.)? •What forums exist that allow the breakdown of social and professional hierarchies? •Where do people come from? •What is the density and quality of service providers (law, IP, consulting, real estate, etc.)? •What are their value systems? •What boundary spanning organizations exist? •What are their motivations (money, reputation, lifestyle, self expression, etc.)? •What is the local level of serial entrepreneurship? •What are the ‘amenities of place’? •What is the density and quality of physical infrastructure (airports, internet connections, etc.)? •How do we create and maintain a sense of urgency? •What are the core sectors of the local economy? •What kind of innovative social networks exist already? •What are the strongest regional comparative advantages? •How do people deal with uncertainty, risk or randomness? •How is failure perceived? •Do people build for perfection or iteration?
  35. 35. The Power of Two People Across an entire systemMultiplied Millions of Times
  36. 36. A “Davos for doers” who are discoveringhow to build Rainforests… www.innosummit.com
  37. 37. Across an entire systemwww.therainforestbook.com

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