Do Competititions & Prizes Increase Innovation?

Our buddy BrianH over at Schumpeter’s Century pointed us to an article in BusinessWeek investigating the usefulness of big money prizes, such as the X Prize, in spurring innovation.

This blog looks into the value and typology of business plan competitions that exist out there. We often wonder whether these a) are good teaching tools b) are good business planning tools and c) whether they are useful policy tools for economic growth, innovation, and education. These goals are a bit different from contests like the X prize, but similar enough to warrant investigation.

I often wonder of these are American constructs or these are human constructs. The love of competition and recognition for greatness and success?

From the BusinessWeek article by Steve LeVine,

These days, patrons are knocking on Diamandis’ door. “I don’t make the claim that incentive prizes are a panacea,” he says. But he adds that there are hundreds of billionaires on the planet. “There will come a time when you can only name so many buildings,” he says. “I won’t be surprised if over the next decade we see $100 million or $1 billion megaprizes to solve big problems. We are genetically bred to compete.”

Although his name is most associated with scientific contests today, Diamandis isn’t the first to see that money can be a powerful motivator. Prizes to determine how to measure longitude were around for 200 years before British clockmaker John Harrison solved the mystery in 1761. More recently, contests helped begin the canning industry, accelerate progress in the automotive industry, and produce the first computer to beat a chess grandmaster (Garry Kasparov in 1996). In the 20th century, government grants and corporate R&D budgets became the favored way to fund scientific advances, with contests almost dying out until Diamandis came along.

But can prize money do more than existing incentives?

The notion that wealthy philanthropists will back these contest is a pretty novel notion, especially given the research that Zoltan Acs is currently engaged in regarding the role of philanthropists in increasing opportunity in the American capitalist system.

BTW, after reading about the founder (Peter Diamandis) I wonder how does he and his organization fit into our developing notions of social entrepreneurship. Its clear that Diamandis is an entrepreneur — but is commercial space travel an important and scalable social goal? I am sure that I am not aware of the practical uses of commercialized space travel, as opposed to my assumption that it is space toursim for the Super Rich. Are we going to start sending our trash into space in order to green the planet? Will we grow food in space and then ship it back to the earth? (not good for the locally grown movement, I’d imagine or the farmers in Iowa)

The X Foundation has some more contests coming up including a few in the transportation, alternative fuel, and energy space.

Zoltan Acs Interesting Theory on American Capitalism

I attended a really intriguing talk by Zoltan Acs earlier this week where he discussed his latest research on American Capitalism. His basic thesis is that the US exhibits such high rates of entrepreneurship, innovation, and growth because of philanthropy.

Philanthropy in the US is much larger and intertwined in the US social and cultural institutions than other OECD countries. Zoltan argues that it is the mechanism of philanthropy that reconstitutes opportunity (via the wealth accumulated by US entrepreneurs) back through society. Philanthropists have used  foundations (Ford, Gates, Rockefeller) and world leading universities (ie Duke, U of C, Stanford) to improve society and expand opportunity in a variety of directions.

In most other countries it is the government that takes accumulated wealth and decides where it goes. Or elites keep wealth and live behind big walls. Or in some cases it is a combination of both. The US system that Zoltan describes appears unique.

I find Zoltan’s ideas pretty compelling and it doesn’t hurt that they fit within the frameworks of American Exceptionalism that I am making use of for my dissertation.

(I am looking for any of Zoltan’s writings on the topic and will post when I find).

Women’s BPlan Comp in NW Philly

Entrepreneurship is a great tool for sustainable economic growth and increased liberty. Check out the description of the group sponsoring the event and notice that their name includes the term social enterprise. From the article:

The Business Center for Entrepreneurship and Social Enterprise is a nonprofit incubator located in the Northwest section of Philadelphia, which targets start-up and existing small businesses. The purpose of the Business Center is to aid in the development of professional management and entrepreneurial skills. Services include consulting, workshops and technical resources through a combination of in-house expertise and community network resources.

Various actors continue to make use of business plan competitions to achieve educational, policy, social, and revenue goals. Check out their site.

Springwise on Transparency in Higher Ed

The latest Springwise Newsletter offered a few sites that attempt to bring transparency to the college market. From Ratemyprofessor.com to Unigo.com (our review) and College Prowler, the editors of Springwise offer some examples of startups viewing the campus as a market. From the article,

Transparency tyranny has already been striking terror into the hearts of companies far and wide, as both customers and employees have begun sharing their experiences and impressions of them for all the world to see. No real surprise, then, that universities are next in line.

RateMyProfessors.com has already made faculty popularity public, and now a few new sites offer a way for students to share an insider’s perspective on campus life in general…

Finally, Pittsburgh-based College Prowler offers both print books and an online guide to more than 250 American schools. Each guide is written by a current student at the college, with the addition of quotes and comments from others in the student population. College Prowler launched online last year; a subscription for full access costs USD 39.95 per year.

Clearly these sites are focused on traditional notions of what an undergraduate experience is comprised of. With lifetime education, online education, increased populations in part-time studies, certificate programs, and multiple detours through grad school all becoming more common, we look forward to higher education guides for the changing nature of higher education.

Panda Attack: College Markets & Entrepreneurs

We often write about the campus as a market. A diverse market with lots of segments and many consumers willing to try new, risky, and sometimes off the wall things.

From China, a story about a college student who jumped into a panda exhibit because he wanted to hug a panda! From the USA Today story,

A college student in southern China was bitten by a panda after he broke into the bear’s enclosure hoping to get a hug, state media and a park employee said Saturday.

“Yang Yang was so cute and I just wanted to cuddle him. I didn’t expect he would attack,” the 20-year-old student, surnamed Liu, said in a local hospital, according to the official Xinhua News Agency.

Liu underwent surgery Friday evening and was out of danger, but will remain in the hospital for several days, Xinhua said.

So if you have a crazy idea, try it out in a campus environment. Students, no matter where they are in the world, have the capacity to continually amaze us (sometimes to the upside).

Pelosi’s $25 Billion Business Plan Competition

The other day, this blog announced the First Annual Save Detroit Business Plan Competition. It appears that the leadership in congress feels this is a good idea and is also demanding plans. Pelosi’s Save Detroit Business Plan Competition is awarding up to $25 billion in prizes!

From CNN Money, “It is all about accountability and viability,” said House Speaker Nancy Pelosi, D-Calif. “We [need to] see a plan where the auto industry is held accountable. Until they show us the plan, we cannot show them the money.” (Note to the Speaker Pelosi– I would love to be on the judging panel to decide who gets the money… contact me soon so we can determine our judging criteria. thank you)

We will forward all plans submitted to our competition to speaker Pelosi and leader Reid. So be sure to include how much of the $25 billion your plan requires (if you are using government funds in your plan). Thanks for submitting your plan to campusentrepreneurship / @ / gmail.com!

Harvard MBA Student: Nightmare on the Charles!

Elana Berkowitz, an MBA student at Harvard, has a piece in today’s WSJ describing life for 2nd year MBA students looking for jobs in the current downturn. Some describe ‘feeling like a punching bag,’ while others are  ‘mentally preparing for unemployment’ upon graduation. There are some interesting insights into the changing nature of the economy and the survival strategies that these once optimistic students are employing. From the article,

That’s quite a blow for these soon-to-be holders of M.B.A.s, who normally are among the world’s most courted future graduates. Many HBS students, who came to school with an average of three or four years work experience, have professionally experienced only healthy economic times. Much in the way that so many Americans bet on the equity in their homes appreciating eternally, some students assumed the good times would roll on and failed to fully appreciate the risk inherent with careers in, say, investment banking. Though most students are confident that by graduation they will have secured an offer, for now, many are deferring their great expectations.

Some, believing that government work is safe from the business cycle, and energized by the promise of a new president and a new New Deal, are looking toward public-sector jobs.

Others are warming to nonprofits. Through one business-school program, graduates can apply for one-year management positions at organizations like Teach for America, Lincoln Center and the Gates Foundation. Thirteen percent of the class of 2009 applied, representing a 39% increase in the number of applications since last year.

Though the credit crunch may create daunting hurdles for new businesses seeking financing, a number of HBS students are still planning to start businesses. Allison Floam, a former investment banker and current co-president of the Entrepreneurship Club, says there has been much more interest in the organization than in previous years. Ms. Floam, who intends to start her own tech- media venture, explains that “the current financial crisis has, in a way, made the decision to pursue your own business less risky now that the big enticing bonuses are no longer on the table.”

Is this downturn going increase the number of traditionally risk averse MBAs who choose entrepreneurship and social entrepreneurship as their career paths. Will this economic episode create a lifelong change in mindset among these fresh MBAs?

Besides the fact that there are far fewer lush jobs and some MBAs may become entrepreneurs by necessity, the way this has all played out has highlighted that in our ‘post-industrial’ economy, being an employee offers great risk with little control. Alternatively, entrepreneurship and social entrepreneurship offer much risk but also much control.

Free Markets in Organs Coming to Singapore

My first class at Chicago’s GSB (now the $300 million Booth School of Biz) was micro economics.  Early in the course the professor offered organ donations as an example of potential inefficiencies caused by government interventions. The professor wondered what the true value of kidneys were, how many people would sell one of theirs, and how quickly the waiting list would disappear if the market were allowed to solve the problem (sales of organs are illegal in the US). 

Alex Tabbarrok over at Marginal Revolution reports that Singapore is going to start compensating donors of kidneys and eggs. The government’s proposal has passed a bioethics review and legislation may be forthcoming in the new year. Pretty interesting stuff. Apparently Tabbarrok, a GMU economist, has written on the subject.

Campus Entrepreneurship: Hawaii Style

Tim Kane over at Growthology has a pretty nice post on his visit to Hawaii and various startups and campus institutions supporting entrepreneurship in Hawaii. The thought of being part of a startup in Hawaii is pretty enticing (would trade ice skates in for a surfboard), but Kane investigates some of the challenges facing entrepreneurs in Hawaii. Guess  From the post:

The most heartening visit was with three entrepreneurs at Yuka Nagashima’s incubator at the University of Hawaii (the High technology Development Corporation). The first presenter, Dr. Adelheid Kuehnle is a tenured biotech scientist who is launching an altenrative energy company that you can only dream about – using algae to grow jet fuel.

An incubator is a tough institution to model properly, but Yuka is a former entrep and is building a role model. I learned a lot about the unique challenges facing Hawaii. Consider how the Internet opened up possibilities for the knowledge economy to blossom here by linking the islands to researchers on the mainland. Consider the attractiveness for a tech community in the physical environment. Yet Honolulu faces the same funding challenge as the flyover Midwest — VCs eventually pull local protfolio companies back into their orbits in San Jose or Austin. The “Broadway Joe” problem.  So Hawaii is struggling to build a gravity well of tech talent.

The Coming Civil War: Corporations v Entrepreneurs

I just read in the USA Today that a group of CEOs is asking for a $500 billion dollar stimulus package. Good for them, bad for entrepreneurs. With all of the money going from Washington to corporate giants, it is becoming obvious that entrepreneurs and those in high growth industries have been forced into a civil war against old line corporations. 

The government is clearly choosing its side (after years of patronage this was obvious) and will favor their hand picked corporate friends over new, more radical companies offering creative destruction. (Is the government going to give $$ to Tesla Motors?)

Entrepreneurs have had a great run over the last 25 or so years, but that era may be coming to an end. The obvious irony is that only entrepreneurs can pull us back onto a sustainable path of innovation and growth. 

As an entrepreneur I am trying to ignore this reality and stay focused on building my firm, but I know the landscape has shifted and I can’t help but be appalled by what I am seeing and reading.  

As my partner and I use our savings and investments to self-fund our business, bloated corporations, homeowners, governors, and unions demand trillions from the government. Trillions that entrepreneurs will pay in the end. The first shots of the economic civil war have been fired and entrepreneurs are already on the defensive.