Tag: Innovation

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McNair Center Startup Ecosystems

A Tale of Untapped Potential: Cincinnati

When you think of an emerging entrepreneurial ecosystem, you probably think of Austin, Texas or Boulder, Colorado, not a moderately sized city deep in the heart of the Midwest. But Cincinnati’s entrepreneurship ecosystem is positioning itself as a good place to start a high-growth, high-technology startup firm.

Picture of Cincinnati Skyline, Creative Commons

The Fortunate 500 companies that call Cincinnati home, such as Kroger, P&G and Macy’s, have been investing in their local ecosystem through a nonprofit organization. The resulting increase in resources and capital in Cincinnati’s entrepreneurship scene has led industry commentators, including TechInsurance and Entrepreneur.com to enthusiastically expound the city’s positive trajectory. In this blog post, I explore the driving forces behind Cincinnati’s transformation and ask whether it is real.

History of Entrepreneurship

Local and state governments have historically helped maintain the Cincinnati ecosystem. Individual grant programs provided the Cincinnati Children’s Hospital Medical Center, University of Cincinnati and the Cincinnati Regional Chamber with funding for high-tech projects. However, until recently, the Fortune 500 companies have been largely absent from Cincinnati’s entrepreneurship ecosystem, and there was no depth to the ecosystem’s support and service organizations. For example, less than a decade ago, there was not a single startup accelerator anywhere in the region.

Accelerators in Cincinnati

The past few years have seen an emergence of a spate of entrepreneurial resources available in and around Cincinnati. Accelerators  – 12 to 16 week entrepreneurship boot-camp programs for startups that typically end with a pitch day – now span the tristate area of Ohio, Kentucky and Indiana.

Cincinnati now boasts The Brandery, UpTech, OCEAN, First Batch, Founder Institute, a minority business accelerator housed in the Cincinnati chamber of commerce, and two university affiliated accelerators. There are also several incubators in the local area.

The Brandery

The Brandery, located in Cincinnati and founded in 2010, was inspired by successful accelerators such as Austin’s Capital Factory and Boulder’s TechStars. The Brandery offers a three-month program for seed-stage companies that use Cincinnati’s existing strengths: branding, marketing and design. Companies receive $50,000 in seed funding, office space, branding identity, legal support and more in return for 6% equity stake in the startup.

The Brandery has a portfolio of twenty-nine startups. Notably, the Brandery accelerated FlightCar, “a marketplace that allows owners flying out of an airport to rent out their cars to arriving travelers” that was acquired by Mercedes Benz and Skip, “a mobile checkout solution that allows you to scan items as you go through the store and skip the checkout line.” The Brandery has been ranked a top-ten U.S. accelerator.

UpTech and Ocean Accelerator

Launched in 2012, UpTech is a Greater Cincinnati tech accelerator program for data-driven startups. Located across the river from Cincinnati in Covington, Kentucky, UpTech was established as an effort by Northern Kentucky University College of Informatics and the Greater Cincinnati community. Up to ten startups per cohort participate in a six-month accelerator program and receive up to $50,000. UpTech differs from traditional accelerators in that it draws its hundreds of support staff from community volunteers and interns from Northern Kentucky University. Successful UpTech startups include online walking-tourism planning platform, Touritz, and software and data management company, Liquid.

The third and newest accelerator in Cincinnati is three-year-old, faith-based OCEAN Accelerator. Ocean runs a five-month program that provides mentorship, monetary support in the form of a $50,000 note, branding and legal advice. OCEAN claims to be the the only faith-based accelerator in the nation, and its curriculum features weekly bible studies. Alumni of Ocean include Casamatic, a real estate technology company that increases buyer engagement, and Cerkl, a startup that provides personalized email campaigns.

University Resources

The University of Cincinnati and Xavier University both have academic accelerator programs. The University of Cincinnati’s Technology Accelerator for Commercialization provides full-time faculty and staff with the opportunity to develop intellectual property at the University of Cincinnati. In order to be eligible for the TAC program, the technology must be developed at the University of Cincinnati and have a focus on commercialization. Start-up companies are not eligible for the TAC program.

Xavier University offers a business program aimed to boost the Greater Cincinnati economy. Called X-LAB (short for Xavier Launch A Business), the seven-year old competition provides want-to-be entrepreneurs – particularly including students – opportunities to launch a business. The Williams College of Business supports the winners by providing the business expertise of its professors, executive mentors and MBA students.

Seed-Stage Funding

Cincinnati has had stable seed-stage investors for some time. These include CincyTech and Queen City Angels, as well as some early stage venture capitalists and some nonprofits that provide grants to startups. In recent years, CincyTech and Queen City Angels appear to have had some successes and grown considerably, which bodes well for the future of the ecosystem.

CincyTech

1074px-Over-the-rhine-mapCincyTech, a public-private partnership focused on seed stage investments, was the first effort by the local government to jump-start entrepreneurship. Established in 2001, CincyTech’s mission has been to strengthen the regional economy through the creation and expansion of technology companies in Southwest Ohio. CincyTech is now investing out of its fourth and largest fund, a $30.75 million seed-stage fund, which is bigger than its first three funds combined.

CincyTech garnered considerable national attention after providing Lisnr, a company that has invented an ultrasonic technology for transmitting data through sound, with Stage A capital. Lisnr came to fruition aboard the 2012 StartupBus, a competition where participants launch a company in 72 hours on a bus headed to Austin for the South by Southwest Festival. Since Lisnr’s establishment, they have received $10 million in Series B funding from Intel Capital and garnered accolades from CNBC’s Disruptor 50 list, Cannes Lions International Festival for Creativity and Fast Company’s Innovation by Design Awards.

Queen’s City Angels

Likewise, Queen City Angels is the region’s longest running angel group and is currently investing out of its largest fund of $10 million. Queen City Angels provided the initial stage funding for Assurex Health. Now ten years old, Assurex grew out of research at Cincinnati Children’s Hospital Medical Center and the Mayo Clinic. Its singular product is the GeneSight Test, which analyzes twelve genes that influence mental health and psychoactive drugs that treat a spectrum of mental health disorders. Myriad Genetics purchased Assurex Health in April 2016 for $225 million with another $185 million to come when performance stipulations are met.

Coordinating the Ecosystem

Two organizations provide the glue for Cincinnati’s entrepreneurship scene. StartupCincy is a grassroots organizations that first registered its domain name in 2010. Cintrifuse is an example of a successful municipal government intervention in an entrepreneurship ecosystem.

StartupCincy

StartupCincy  describes itself as “the driving force behind [Cincinnati’s] new economy…a rallying cry.” In addition to maintaining a long list of upcoming network, education, accelerator and developer events in the city, Startup Cincy connects venture capitalists and angel investors to startups. StartupCincy is credited by the Cincinnati Business Courier as “one of the most influential groups leading the renaissance of Cincinnati’s startup community.”

Cintrifuse

However, the most important element of Cincinnati’s ecosystem is probably Cintrifuse. Established in 2011 with the goal of creating a sustainable technology driven economy for the Cincinnati metropolitan area, Centrifuse primary manages a fund of funds. This fund of fund has created a network of venture capital funds, including Allos Ventures, Mercury Fund and Sigma Prime Ventures, that invest in Cincinnati startups.

For big companies, like Kroger, USBank, the Greater Cincinnati Foundation and Duke Energy, investment in Centrifuse isn’t just about financial returns. Corporate investors get access to new companies and new ideas, while the startups receive mentorship and connections that help them access potential partners and customers.

Cintrifuse also provides co-working space in Over-the-Rhine, a neighborhood of Cincinnati, and entrepreneur-focused educational programs. More than four hundred companies have gone through Cintrifuse’s programs, and both CincyTech and the Brandery are located in Over-the-Rhine just feet away, providing unique collaboration opportunities.

Cincinnati’s Venture Capital Woes

CincinnatiFirstRound
Author’s calculations based on data from SDC Platinum VentureXpert

Despite all of its great resources, Cincinnati is still not producing enough successful startups to be considered a mature and effective ecosystem. Although there is no consensus among experts, ecosystems that close around thirty to thirty-five deals a year are markedly more stable. Cincinnati falls far below this. While the number of first rounds has been increasing, it appears that the city’s ecosystem may be leveling out at an average of just five first rounds per year.

CincinnatiVC
Author’s calculations based on data from SDC Platinum VentureXpert

The largest barrier to Cincinnati’s emergence as an entrepreneurial ecosystem is probably the quality of its deal flow. Despite the recent increase in startup activity, Cincinnati’s venture capital investment peaked in 2002 at $343 million. The recent maximum was $235 million in 2014, with 2016 reverting to pre-2010 levels. Since the turn of the millennium, the venture capital investment has averaged just $139 million per year. Mature ecosystems, like Austin or Denver, are much bigger.

Untapped Potential

Cincinnati’s entrepreneurship ecosystem is small but does genuinely seem to be growing in an exciting way. From 2000 to 2009, Cincinnati saw an average of around two new venture capital deals each year. From 2010, when the Brandery opened its doors, to the present, the number of Cincinnati based startups receiving venture capital for the first time has more than doubled to almost five each year.

There have been many factors at play: more venture capital, more seed stage investment, more mentorship and engagement with established firms, the arrival of accelerators, a co-working space, and specialist training and professionalization programs, and, just possibly, that the Over-the-Rhine neighborhood has achieved a critical mass of startups in close proximity. These factors appear to be working together to reinforce each other and grow the region’s startup ecosystem and the local economy. Cincinnati is surely a startup city to watch!

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McNair Center Women

Wanted: More Women Entrepreneurs

Introduction

The increase of women in the workforce in the twentieth century drove U.S. GDP growth to new highs. However, as U.S. growth slowed, so did the rate of women entering the workforce. Pushing for equal representation in fields where women have been historically underrepresented may be the key to stimulating our economy.

Women’s entrepreneurship is one of these fields. Lauded by the Kauffman Foundation as an “economic tailwind that will give a boost to twenty-first-century growth” in the global economy, there is a lot of excitement surrounding the potential of women in entrepreneurship. By looking at characteristics of successful women entrepreneurs, we may gain a better understanding of how to make entrepreneurship more accessible to women.

Characteristics of Successful Women Entrepreneurs

The Kauffman Foundation and Stanford University uncovered some interesting results by surveying 350 founding CEOs, presidents, chief technology officers, and leading technologists of tech startups founded between 2002 and 2012. First, women in tech entrepreneurship are highly educated. Ninety-four percent have at least a bachelor’s degree and 56 percent have graduate degrees. Their educational training centers around business, the liberal arts, and STEM. Female entrepreneurs clearly represent a highly educated slice of the population. In comparison, only 33 percent of women in the United States possess a bachelor’s degree or higher; further, only 12 percent of women possess a graduate degree.

Performance

Research shows that female entrepreneurs experience success. On average, female entrepreneurs of all types (not just tech industries) perform seven percent better on the Kauffman Opportunity Entrepreneurship Share than male entrepreneurs. The KOES tracks the percent of new entrepreneurs who come from prior employment each year; these entrepreneurs leave their jobs to start businesses because they identified market opportunities. This indicates that women are better at identifying the market “gaps” where entrepreneurs thrive. Furthermore, women start their equally successful companies with 50 percent less capital than their male counterparts.

Nonetheless, some research finds that women entrepreneurs perform worse than men. Studies by Fundera found that women-owned businesses earn 30 percent less annual revenue than men. This could be creating a vicious circle, though; when companies make lower revenue, it is harder to access credit, making it more difficult to increase revenue in the future.

Gender Gaps

If women entrepreneurs tend to experience success, why are there so few women involved in entrepreneurship as a whole? Female-owned businesses only represent 16 percent of employing firms. Even then, these firms tend to be small, usually with employee counts in the single digits. Among high-growth, high-technology firms, women represent a mere 10 percent of founders.

https://www.flickr.com/photos/ges2016/27831680936
Penny Pritzker (U.S. Department of Commerce Secretary), Ruth Porat (CFO and Senior Vice President of Google and Alphabet Inc), and Ann H. Lamont (Managing Partner at Oak HC/FT) speak at the Global Entrepreneurship Summit in June 2016

Female entrepreneurs cite lack of available financial capital, lack of mentors or advisors, and the high requirements for time and effort as some of the toughest challenges in starting their businesses. Seventy-nine percent of women surveyed by the Kauffman Foundation reported using their own personal funds to start their business.

Male founders are more than three times as likely as female founders to secure financing through angel donors or VCs. Research at Babson College indicates that this difference may be linked to gender discrimination: “Because women entrepreneurs do not conform to the ‘role’ of the entrepreneur in the high growth venture, role incongruity may lead to greater perceived risk on the part of venture capital investors.”

Supporting Female Entrepreneurs

If women entrepreneurs are unable to secure funding on an equal basis with men, it may be impossible to ever see equal gender representation in entrepreneurship. We need to address gender-based biases of VC firms and other investors. Recruiting more women to the venture capital industry could help reduce unintended gender discrimination when making investments. Employee bias training programs may also help in this process.

Private and nonprofit efforts to encourage women’s leadership and entrepreneurship can be helpful as well. Initiatives like Women’s Entrepreneurship Day, the Women’s Entrepreneur Festival, and the Microsoft’s Women Think Next network are all examples of non-governmental programs that try to address women’s representation issues. Lean In Circles—small support groups made up of women in local communities and around the world— also serve as valuable tools to promote women’s economic involvement.

Government programs may also be successful in jump-starting greater women’s involvement in entrepreneurship. The City of Atlanta provided 15 women entrepreneurs the opportunity to incubate their businesses for 15 months through their the Women’s Entrepreneurship Initiative in 2016. On a federal level, implementation of more programs like the State Department’s African Women’s Entrepreneurship Program may benefit women, especially those in minority groups. One of the greatest challenges for women entrepreneurs is finding mentorship opportunities; local and state government initiatives to pair mentors with women entrepreneurs could help address this problem.

The U.S. economy is at a tipping point. In early 2016, Forbes magazine pointed out that female entrepreneurs are an “under-tapped force that can rekindle economic expansion.” However, despite strong evidence for growth potential and data supporting female entrepreneurs’ power, many barriers still exist. Through integration of more women into entrepreneurship ecosystems, we can achieve a brighter economic future for all.

Related Posts

To learn more about treatment of women within top tech companies, see the McNair Center’s blog post here.

To learn more about women in STEM fields, see the McNair Center’s blog post here.

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McNair Center Weekly Roundup

Entrepreneurship Weekly Roundup: 2/17/17

Weekly Roundup is a McNair Center series compiling and summarizing the week’s most important Entrepreneurship and Innovation news.

Here is what you need to know about entrepreneurship this week:

The International Entrepreneur Rule: The US Startup Visa

Ramee Saleh, Research Assistant, McNair Center for Entrepreneurship

During the last days of the Obama Administration, the United States Citizenship and Immigration Services (USCIS) passed the International Entrepreneur Rule. The legislation intends to attract international entrepreneurs to the U.S. by granting them “discretionary parole.”

Under the rule, entrepreneurs can apply for temporary five year visas, as long as they partially own a startup that has received at least $250,000 in VC funding from “established U.S. investors” or $100,000 from “government entities.” If a startup fails to meet these funding requirements, the applicant must prove that a “significant public benefit” would result from the his or her entry into the United States. Due to the strict standards, the Department of Homeland Security estimates the program to admit only 2,940 entrepreneurs annually.

Scheduled to go into effect July 17, the International Entrepreneur Rule is still subject to change by any reforms to the H-1B visa program by the Trump Administration.

With $6B in Deals in 2016, ID Management Is a Hot Sector You May Have Missed

Joanna Glasner, Contributor, TechCrunch

In 2016, startups involved in identity management collectively claimed over $6 billion in acquisitions from private equity buyers. Identity management startups also experienced successful funding rounds, raising over $200 million from VCs. These startups are responding to a growing need for improvements in health care IT and authentication. Last year,ECRI Institute, a global nonprofit focused on patient safety, listed “patient identification errors” as the second most important safety concern for health care organizations.

TechCrunch’s Glasner highlights tech unicorn Otka, an identification management and authentication platform provider, that has raised over $200 million from VCs. Otka is considering going public this year.

Lawmakers Try to Stop State-Sponsored Retirement Plans

Anne Tergese, Reporter, The Wall Street Journal

Last week, Republican Congressmen introduced measures to prevent small businesses from automatically enrolling employees in state or locally sponsored retirement plans. The bill comes as several states have enacted retirement savings programs that automatically deduct earnings from employee’s paychecks for deposit into individual retirement accounts.

These programs only affect residents who do not have access to a workplace retirement plan; AARP estimates that this number stands at 55 million people nationwide by. AARP executive vice president Nancy LeaMond has publicly stated that Congress should take steps to support, rather than end, these state savings programs.

Supporters of the bill believe that state-sponsored retirement plans “discourage small businesses from offering private-sector plans” by forcing employees “into government-run plans with fewer protections and less control over their hard-earned savings.”

Banks Are Finally Sprouting Anew in America

Rachel Witkowski, Reporter, The Wall Street Journal

In the past few months, the Federal Deposit Insurance Corporation received the greatest volume of applications for “startup banks” since the financial crisis.The increase reflects an improving economy and expectations for future deregulation of the financial sector.

Startup, or “community,” banks are traditionally viewed as banks that hold less than $1 billion in assets. According to Q3 FDIC data from last year, community banks are responsible for 43% of loans to small businesses. The Wall Street Journal’s Witkowski reports that many community bankers believe that “the decline in the number of banks has led to fewer lending options for startups and small businesses.” Supporters of deregulation believe that greater numbers of community banks spur economic growth and job creation.

Don’t Panic Labs Pioneers “Dev-for-Equity” Model to Help Startups

Christine McGuigan, Reporter, Silicon Prairie News

Don’t Panic Labs is an offshoot of the engineering arm of successful VC fund, Nebraska Global. Don’t Panic Labs adopts a “dev-for-equity” model, assisting startups and entrepreneurs with software and product development in return for company equity. The firm also provides software development services for publicly traded companies that do not require capital investment.

Despite serving established companies, Bill Udell, Integrator for Don’t Panic Labs, told Silicon Prairie News that the firm’s “DNA is in creating startup companies.” In 2016, the firm poured $396,000 of dev-for-equity investment into startups. Don’t Panic Lab focuses on product development and training for its clients’ in-house software engineers.

PitchBook Brings Company Financial Data to Its Mobile App

John Mannes, Writer, TechCrunch

MorningStar, Chicago-based investment research and management firm, acquired PitchBook in 2016. Pitchbook is an industry leader in providing investors with up-to-date coverage of VC, PE and M&A transactions. According TechCrunch’s Mannes, PitchBook, although known for its comprehensive coverage of tech firms, is also increasingly expanding its database to include coverage on non-tech companies as well.

PitchBook recently announced plans to add financial data for 226,000 private companies to its mobile app. The update will provide the database’s 7,000 active members with previously unavailable insight into the financials and revenue figures of private companies.

And in startup news…

Ford to Invest $1 Billion in Artificial Intelligence Start-Up

Mike Isac, technology reporter based in The Times’s San Francisco bureau, and Neal E. Boudette, Reporter, The New York Times

Many automakers are hoping to achieve some of the success that many Silicon Valley startups have found by investing in autonomous vehicle technology and ride-hailing services. Ford recently announced that it will invest $1B in Argo AI, startup focused on utilizing artificial intelligence to develop self-driving cars. Mark Fields, president and CEO of Ford, told reporters last week that the automaker hopes to become “part of the ecosystem of Silicon Valley.”

With the rise in popularity of “mobility services,” car ownership is growing increasingly unnecessary for consumers living in urban centers. Ford’s move suggests an industry-wide shift in strategy, as traditional automakers must adapt to shifting consumer attitudes. For instance, last year General Motors invested $500 million in ride-hailing startup, Lyft, and acquired Cruise Automation, a startup geared toward developing roadway technologies that support autonomous vehicles.

Fields explains the motives behind Ford’s investment: “If we can combine the best of a start-up and marry that with proper equity compensation, then that’s the best of both worlds.”

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Government and Policy McNair Center

The International Entrepreneur Rule: The US Startup Visa

SAN FRANCISCO, CA - SEPTEMBER 7: Atmosphere during the TechCrunch Disrupt SF 2013 Hackathon inside The Concourse at San Francisco Design Center on September 7, 2013 in San Francisco, California. (Photo by Jeff Bottari/TechCrunch) *** Local Caption ***

The Obama administration proposed new provisions for immigrant entrepreneurs in August 2016. The administration designed the proposal to attract international entrepreneurial talent to the United States, especially in advanced technology fields. In mid-January, with only days left in President Obama’s term, the United States Citizenship and Immigration Services (USCIS) finalized the details of the “International Entrepreneur Rule.” It is scheduled to go into effect on July 17, 2017. Whether it goes into effect will depend on President Trump’s immigration plan, which may see changes in the current H1-B visa program.
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Overview

The International Entrepreneur Rule would allow USCIS to grant discretionary parole to international entrepreneurs for two and a half years . However, entrepreneurs may struggle to qualify for a parole grant unless they are already involved in a successful venture. The rule states that first-time applicants must own at least 10% of a U.S. startup that is less than five years old and play a significant role in its management.

Applicants must also demonstrate that their startup has high potential for growth and job creation. The two main avenues for satisfying this criterion are demonstrating that the company has received $250,000 or more in venture capital from “established U.S. investors” or at least $100,000 or more in funding from government entities. Applicants that do not meet these standards may still qualify if they can demonstrate “significant public benefit that would be provided by the applicant’s (or family’s) parole into the United States.”

After their initial parole is over, entrepreneurs may apply to extend their stay for an additional two and a half years. In order to receive an extension, entrepreneurs must show that their startups have “shown signs of significant growth.” A total of two parole grants is the maximum; there are no further extensions. If entrepreneurs wish to stay longer, they must find another method to secure a visa or a green card.

Analysis

When this rule was originally proposed by the Obama administration, it received early praise; Tim Ryan, the co-founder of Startup San Diego, applauded the proposal as a step in the right direction.

However, government agencies only expect this rule to impact a very limited number of entrepreneurs. The Department of Homeland Security estimates that a mere 2,940 international entrepreneurs will qualify annually. DHS also estimates they will bring approximately 3,234 dependents and spouses. In contrast, the USCIS approved 85,000 H1-B visas in the 2014 fiscal year.

The high level of investment required may serve as a hurdle for applicants. Y Combinator, widely considered the world’s best startup accelerator, only offers startups a maximum of $120,000 in investment funding. However, to qualify for the proposed International Entrepreneur Rule, USCIS expects companies to have at least $250,000. Not only that, but this money must come from investors with a record of repeated investment successes. Some policy advocates worry that there simply will not be enough reputable investors able to provide that level of funding. Moreover, even if some investors can fulfill the requirement, they may not all have the necessary experience to satisfy the rule.

The rule may help to keep entrepreneurial talent in the U.S., but will do little to attract new recruits. The applicant pool may be limited by the requirements that the company must be U.S.-founded and that the applicant have a significant role in the company. Because of these specifications, applicants must be individuals who are already in the U.S. Nonetheless, this rule may help international students at U.S. universities who are unable to acquire H-1B visas.

There is also an issue of time — entrepreneurs only have five years, maximum. The high levels of investment required for initial application and renewal may put strain on startups. TechCrunch puts the average time of an “IPO-track startup” at about seven years, although it can take up to ten years. Given this information, the parole periods may not be long enough to positively impact startups.

Ultimately, potential investors may view the startup visa as an undesirable risk. Investors will be aware of the possibility that a company, or at least its key members, could lose immigration status.

Lastly, it is unclear whether the Trump Administration will alter the details of the rule. A Department of Homeland Security spokesman informed CNN on January 23 that the DHS is still awaiting guidance on how President Trump’s executive order freezing new and pending regulations will impact the International Entrepreneur Rule’s implementation.

Learning from Other Countries

The U.S. is not the first to propose a visa for startup entrepreneurs. Many other countries have established their own processes for admitting international entrepreneurs, including the United Kingdom, Canada and France.

The U.K. allows individuals wishing to set up or take over a business within its borders to apply for a Tier 1 (Entrepreneurship) Visa which can be extended before they can apply for settlement or an indefinite leave to remain. The U.K.’s financial requirements for applicants are also more flexible than the U.S. requirements in sources and amounts of funding. The U.K. startup visa does not require that applicants start the business themselves. Instead, intention of starting a new business, taking over one or providing significant funding is enough.

Canada seeks to attract innovative talent by tying them to government-approved Canadian entities with a goal of facilitating long-term success. The Canadian Start-Up Visa Program focuses on the creation of new startups. Applicants must obtain at least one letter of support that details funding from a list of designated organizations. This includes venture capital funds, angel investor groups and business incubators.

France launched its French Tech Visa in 2016 to complement the “French Tech Ticket” program it began in 2015. The French Tech Ticket program selects 70 international entrepreneur teams and provides funding and support with a French incubator for a year. The French Tech Visa expands this program to attract foreign startup founders, exceptional talent, investors and angels by offering renewable visas.

The U.S. could look into incorporating aspects of these programs to compete for the top foreign entrepreneurs. For example, the entrepreneurs can only renew this visa once; perhaps lawmakers could extend its duration or allow additional renewals. The U.S. could also aid the integration of accepted businesses into the startup and tech communities. These changes, however, would be dependent on President Trump’s immigration policy.

Conclusion

Eligibility requirements of the International Entrepreneur Rule are rigorous, and the time period allotted by the visa is short. It is reasonable to assume that the proposed startup visa would have little, if any, economic impact. Moreover, if President Trump repeals the order, there may be little hope for a truly meaningful startup visa. While Trump vows to “establish new immigration controls to boost wages and to ensure that open jobs are offered to American workers first,” his exact plans for reforming H-1B visas, including the possibility of a startup visa, are unclear.

Categories
Government and Policy McNair Center

Reducing Recidivism through Entrepreneurship

Reducing Recidivism through Entrepreneurship

High rates of recidivism in the United States negatively affect prisons, inmates, the government and tax-paying citizens. In 2013, the U.S. imprisoned 2,220,300 people. A Bureau of Justice Statistics study found that within three years of release, 67.8% of released prisoners were rearrested. Utah_State_Prison_Wasatch_FacilityWithin five years, 76.6% of released prisoners were rearrested.

Researchers typically link recidivism to unemployment, low levels of education, mental health problems, inability to re-integrate into society after prison, impulsiveness, association with other criminals, family instability and as well as other factors.

High levels of recidivism costs states millions of dollars; A Pew Charitable Trusts study estimated that if 41 states cut their recidivism rates by 10%, they would save $635 million. On top of the monetary costs for the states, recidivism rates have a negative effect on families and communities including family instability and a higher probability that a family will live in poverty. Solving the recidivism issue would not only save the government and taxpayers money, but it would also improve the lives of former inmates and those around them.

Entrepreneurship Potential of Inmates

A variety of entrepreneurs and public service organizations have developed programs to empower prisoners and combat high recidivism rates. Notable social entrepreneurship programs such as the Last Mile and Cafe Momentum provide leadership skills and help reduce recidivism through a variety of methods. The Last Mile, as the McNair Center’s Julia Wang describes, focuses on teaching inmates business and computer skills in California. Cafe Momentum, a functional restaurant in Dallas, gives released youth offenders transferable life skills related to the restaurant industry.

While social entrepreneurship is a start, what about actually teaching entrepreneurship skills to prisoners?

While some might assume that inmates are incapable of holding down a job, let alone establishing their own businesses, the reality is that many people leaving the prison system are potential entrepreneurs. Inmates that took the Miner Sentence Completion Scale-Form T test, an assessment of entrepreneurial aptitude, scored higher than average entrepreneurs, slow-growth entrepreneurs and manager scientists. Additionally, many inmates are in prison due to their participation in illegal forms of entrepreneurship, including drug trafficking and smuggling. In Freakonomics, Steven Levitt remarks that the gang in Sudhir Venkatesh’s study of the drug trade acted as a franchise for the larger Black Disciples organization. Coupled with the willingness to take risks that characterizes many inmates, prisoners could be prime candidates for entrepreneurship.

Prison Entrepreneurship Program

One of the most notable and successful programs is the Prison Entrepreneurship Program (PEP), an innovative rehabilitation program aimed at transforming inmates in Texas. PEP places carefully selected inmates through a four-month business education program. This program teaches them skills valuable in entrepreneurial settings, including financial literacy, an employment workshop, a business etiquette course and a Toastmasters class. Participants take over forty exams and interact with business executives. The final exam involves a thirty-minute business-plan presentation. PEP also provides a prison-release and post-prison components including follow-up and startup mentoring.

PEP’s results demonstrate a fantastic return on investment, especially given the 1,300+ participants. 100% of PEP graduates find jobs within 90 days of release. Nearly 100% of these graduates stay employed after a year. Since 2004, PEP graduates have launched more than 200 businesses. Six of these generate over $1 million in gross annual revenue. Most importantly, PEP graduates have a recidivism rate of less than 7%.

Defy Ventures

Defy Ventures also provides an entrepreneurial education to inmates. This national organization, which mostly operates in New York and California, describes itself as “an entrepreneurship, employment and character development training program for currently and formerly incarcerated men, women and youth.” It puts former inmates, mostly former leaders of drug rings and gangs, through a two-month training program. Defy Ventures graduates of this program are eligible to apply for a 12-month entrepreneurship program in which they compete for startup grants. This program has a 3% recidivism rate and has produced more than 150 startups. Most of these startups are small businesses, such as eco-friendly cleaning services. Defy has distributed over half a million dollars to these startups and small businesses through business-pitch competition awards and micro-loans. Additionally, participants report a 95% employment rate within 7 months of enrolling in Defy.

Inmates to Entrepreneurs

Inmates to Entrepreneurs provides educational seminars on entrepreneurship, online resources and group-based support to help former inmates start low-capital businesses. This program, based in North Carolina, focuses on giving seminars on starting businesses in local prisons to inmates with six or fewer months to serve. Additionally, the organization brings in ex-offender mentors who run successful businesses. A.J. Ware, a member of the Board of Directors for this nonprofit noted in a TEDxRaleigh talk that participating inmates had less than a 3% recidivism rate. Additionally, former inmates had 75% employment rate within 90 days of release. Ware also stated that in 2012, participants started 14 business. Inmates to Entrepreneurs is unique in its ability to provide large-scale learning. Its online resources and seminars are easier to implement in a variety of locations compared to the other two programs.

For the Future

These three programs illustrate the potential of entrepreneurship programs in reducing U.S. recidivism rates. Expansion of these programs could potentially make the same positive impact on prison populations across the nation. However, it is also possible that the small size of these programs is integral to their success.

All of the programs described here carefully select a small group of participants. It may not be possible to target all parts of the prison population. Many of these programs have a competitive application process and low acceptance rate. Researchers could conduct further studies to see the effects of entrepreneurship programs on a large scale without rigorous selection criteria.

It may be impossible to use these programs to help all prisoners, so how many can these programs help? A 2012 Bureau of Justice Statistics statistic table on federal arrests indicates that approximately 20% of inmates could have entrepreneurial potential based on their crime. White-collar crime and drug trafficking offenses all indicate entrepreneurship potential. Targeting these specific offenders with entrepreneurship programs can help reduce recidivism.

Focusing on a small subset of the population still has long-term beneficial effects for inmates and their communities. PEP has a 340% return on every dollar donated due to reduced recidivism and reliance on government assistance. The potential economic benefit of an expansion of these programs could save the government and taxpayers millions of dollars.

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Government and Policy McNair Center

Patents and the Cancer Moonshot

Patents and the Cancer Moonshot: How Subject Matter Eligibility Affects Research

When standard cancer treatments fail, some doctors are turning to the developing field of immunotherapy. Immunotherapy involves treatments that use the patient’s own immune system to combat cancer. Both pharmaceutical companies and the federal government see the promise in funding research in this innovative field. However, R&D in cancer treatments is a time-intensive process, and it takes months, if not years, before doctors can bring cutting-edge research to their patients.

In January 2016, President Barack Obama called for the Cancer Moonshot to double the rate of progress in cancer research. Vice President Joe Biden traveled across the country and the world (including to Rice University) to collect information on current barriers in cancer research, like inefficiencies in the patent process. However, is the lengthy patent examination process truly what is slowing cancer research?

Accelerating the Process with “Patents 4 Patients”

To help accelerate cancer research, the United States Patent and Trademark Office launched the Cancer Immunotherapy Pilot Program (also known as “Patents 4 Patients”) in July 2016. This program aims to fast track the review of patents that involve treating cancer using immunotherapy.

Usually, the USPTO examines patents in order of their U.S. filing dates. However, under “Patents 4 Patients,” the Patent Office will grant special status to patent applications relating to cancer immunotherapy. The USPTO aims to finish examining petitions submitted before June 29, 2017 within twelve months of granting special status.

Often, USPTO examination takes a long time. Over the last two years, first office action pendency, or how long it takes to mail a First Office Action after a patent application is filed, takes an average of 16.5 months. Additionally, traditional total pendency, or how long it takes to decide whether to issue or abandon a patent, takes an average of 26.4 months. The new Pilot Program certainly has the potential to reduce these wait times. However, long patent examination periods are not the only barriers that researchers face when developing cancer treatments.

Patent Subject Matter Eligibility: A Look at Section 101

Under Section 101 of Title 35 of the United States Code, “any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement” is patent-eligible. Over the past few years, the U.S. Supreme Court has affected what is patentable. Under judicially recognized exceptions, laws of nature, natural phenomena and abstract ideas cannot be patented.

Most controversially, in Mayo v. Prometheus (2012), the Court held that correlations between blood test results and patient health were “laws of nature” and that any claims relating to these correlations were patent ineligible under 35 U.S.C. §101. Similarly, in AMP v. Myriad (2013), the Supreme Court held that claims relating to isolations of naturally occurring DNA cannot be patented.

Because of these decisions, the USPTO has rejected or abandoned many patents relating to cancer immunotherapy treatment on the basis that they claim laws of nature. According to Patently-O, patent rejections based on Section 101 objections increased substantially after the Mayo ruling from 15.9% of office actions to 86.1%.

For example, the USPTO has rejected patents relating to using gene expressions to predict chances of breast cancer (US20100035240A1) and using a specific protein as an early indicator of cancer (US20150072355A1) because they are applications of laws of nature. However, unlike the USPTO, the patent offices in Europe, Japan, and China have accepted these applications and granted their patents. Current U.S. patent law does not conform with internationally recognized forms of patent eligibility. Stifling the progress of research through patent rejections does not bode well for U.S. cancer patients. By refusing to protect emerging discoveries, the USPTO undermines cancer treatment research, especially in innovative fields like immunotherapy.

More Barriers with the FDA Approval Process

Even after a treatment is patented, it can take years to go through the phases of the clinical trial process. Phase I and II determine the safety and promise of a treatment. Phase III tests the effectiveness of the new treatment compared to existing standards. After successfully going through trials, companies file a New Drug Application (NDA) for Food and Drug Administration (FDA) approval.

According to DiMasi, Grabowski and Hansen (2016), clinical trials take an average of 9 years and 8 months. After a company submits an NDA, the FDA takes an average of 16 months to review it. This lengthy approval process further slows down R&D in cancer treatment.

Improving Subject Matter Eligibility Guidelines

Excludability in fast-growing fields like immunotherapy is extremely valuable in the early stages of R&D. Patents provide stability and a relative level of certainty, so a more quickly granted patent can help firms stake their claim in a developing treatment. However, the higher amount of claims rejections decreases the probability that companies will be able to protect their research. Questions about what is patent-eligible material could discourage investment and deprive researchers of necessary funding.

The Cancer Moonshot initiative is eager to make the patent process more efficient to quicken the progress of cancer treatment. While Patents 4 Patients could potentially help expedite research, long pendency periods are not the only barrier to accelerating research. Many discoveries are patentable, nonobvious applications of laws of nature. Yet, after recent court rulings, the USPTO still rejects their patent applications.

In late 2016, the USPTO held two roundtables to improve the its guidance for patent examiners on subject-matter eligibility.  As judges and policymakers continue to define what can be patented, they must recognize the impact of their decisions on cancer treatment innovation.

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McNair Center Weekly Roundup

Entrepreneurship Weekly Roundup: 1/27/2017

Weekly Roundup is a McNair Center series compiling and summarizing the week’s most important Entrepreneurship and Innovation news.

Here is what you need to know about entrepreneurship this week:

The Right to Entrepreneurship

Tay Jacobe, Research Assistant, McNair Center for Entrepreneurship and Innovation

This week, McNair’s Jacobe focuses on the link between entrepreneurship and human rights. While the intersection between activism and entrepreneurship has yet to gain significant traction in the U.S., international collaborations between the two sectors have found success. Jacobe points out that “Human rights and entrepreneurship have the ability to reinforce one another,” citing reports from Fordham University and Pontifical Catholic University of Peru on the potential of human development-centered entrepreneurial ventures. According to Jacobe, U.S policy should reflect a balance that advances entrepreneurship and promotes protection of human rights.

Prairie meets CES: Top 10 trends to watch in 2017

Keith Fix, Contributor, Silicon Prairie News

The annual Consumer Electronic Show (CES) took place earlier this month in Las Vegas. Silicon Prairie’s Fix shares his 2017 predictions for major trends to shake consumer technology, and artificial intelligence, smart homes, intelligent systems (Amazon Echo), wearables, self driving cars, virtual reality, and drones are among his top picks. Fix expects the industry to experience further fragmentation and democratization as startups continue to develop new technologies in order to keep pace with consumer expectations.

In a tech-saturated world, customer feedback is everything

Jeremy Bailey, Contributor, TechCrunch

TechCrunch’s Bailey emphasizes the importance of gauging customer feedback throughout the design process in the tech industry. Too often, design teams undervalue the power of customer interactions. As evidence, Bailey cites AirBnB’s notorious success in growing its consumer base by 200% after meeting for one afternoon with its early users. In order to achieve a dynamic and responsive design model, companies should restructure their “internal bureaucracy” and adopt a “customer-centric” mindset. Bailey suggests that design teams take a simple approach: development of a problem statement, collaborative hypothesis-generation, and constant reevaluation.

Most Small Businesses Create Fewer Than One New Job a Year, Study Finds

Ruth Simon, Senior Special Writer, The Wall Street Journal

According to a recent study from JPMorgan Chase & Co. Institute that spanned the payroll records of 45,000 small business in 2015, small business hiring has been sluggish and inconsistent. In fact, the sector’s median level of employment growth sits at less than one new full time position per year. Although small businesses are often considered the crucial driver of the American economy, most do not expand. While small businesses employ 17% of America’s labor share, 89% employ fewer than 20 workers. Professor Scott Stern, who studies entrepreneurship at MIT, explains that the “belief that entrepreneurship in general is a driver of economic growth and prosperity” might be misguided.

How to Find and Start Your Next Entrepreneurial Effort

Nathan Resnick, Contributor, Entrepreneur

Nathan Resnick, founder of Sourcify, a startup based in Tel Aviv that helps connect entrepreneurs with trusted manufacturers, offers helpful advice for millennial entrepreneurs who are considering their next venture. Resnick advises entrepreneurs to consistently gauge audience feedback during early planning stages as audience responses help narrow the focus of a project.  Resnick emphasizes the importance of an entrepreneur’s willingness to acquire new skills and embrace market competition.

Fintech Companies Could Give Billions of People More Banking Options

Jake Kendall, Author, Harvard Business Review

Harvard Business Review’s Kendall is the director of Digital Financial Services Lab, an early stage incubator that supports entrepreneurs who launch fintech startups in developing companies. Financial technology, or fintech, refers to the high-tech industry involved in computer software development of innovative financial services, such as digital banking programs. Despite investment into fintech increasing eight-fold since 2011, its benefits have largely been restricted to mature economies.

Kendall identifies three main challenges that fintech startups operating in developing countries must overcome: “lack of cloud infrastructure, users who are “less digital” than rich-world users, and users who live economically chaotic lives based primarily in the informal sector.” Still, many entrepreneurs are launching fintech startups to support the 2 billion customers living in regions without formal banking services. Plus, an increasing global trend of mobile phone ownership serves as a promising platform for fintech startups.

3 charts that show the effect of venture fundraising on founder ownership

Adley Bowden, VP of Market Analysis, PitchBook

PitchBook released an article illustrating the diluting effects of venture fundraising on founder ownership. The data used in the graphic analysis are taken from the results of a survey conducted by J.Thelander Consulting’s of 380 private venture-backed companies in the US. Although capital raises are a critical and necessary component of any startup’s success, PitchBook’s Bowden emphasizes that founders should understand the diluting effects of venture fundraising on their equity percentages. According to Bowden, “If all goes well and the company’s value increases, this is a win-win situation, but in the case that things don’t go well, the economics can turn against founders fairly quickly.” The article includes three charts that track founders’ shares in their companies – distinguishing between biotech, medical device, and tech industries – through various funding stages. At pre IPO, all three industries reveal founder ownership percentages below 10%.

15 charts that illustrate how the US venture industry looked in 2016

Kyle Stanford, Analyst, PitchBook

PitchBook also recently released an article that depicts the state of venture capital in 2016. The article features 15 charts of the key performance indicators that are frequently used in measuring VC activity. Utilizing standard industry metrics, PitchBook’s full report offers an in-depth analysis of VC-backed firms in the U.S, including graphics on angel and seed funding, fundraising by quarter, VC-backed exits, and corporate VC participation.

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McNair Center Rice Entrepreneurs

Spotlight on Rice Entrepreneurs: Elevator Pitch Competition

What is an elevator pitch?

The 8th Annual Rice Undergraduate Elevator Pitch Competition was held on Wednesday, November 16. Elevator pitches describe a problem or need and a design solution in 90 seconds or less. Judges evaluated the pitches based on technical merits of the project as well as the team’s perselevator-358249_1920uasive speaking abilities.

Who can participate in the Rice Elevator Pitch Competition?

Although the competition was open to any Rice undergraduate student or team with a business concept or idea, this year senior engineering design teams won each of the ten finalist positions. Some of the ideas pitched in the finals included cost-efficient retractable needles targeted toward patients in India, single-arm propulsion wheelchairs for low-income patients who have shoulder injuries and a mechanical hippotherapy device.

The 2016 winners: Diabetes Compression Sock

Jessica Griffiths, Nikitha Cherayil, Crystal Lin, Amy Fox and Lucas Navarro won First Place and the Popular Choice Award for their pitch. This senior engineering design team pitched their plan to design a more effective compression sock for diabetes mellitus patients. The inspiration for team’s design is personal; a team member’s grandfather had to wear traditional compression socks to prevent blood clots. Her grandfather struggled to put on these socks by himself, and resorted to enlisting family members for help. Many patients forgo the socks altogether due to this struggle. Jessica Griffiths says a redesigned compression sock could increase patient compliance in wearing the socks, which in turn would decrease their risk for blood clots.

Benefits of participating in the elevator pitch competition

Griffiths praises the elevator pitch competition for giving senior design teams a unique opportunity to showcase their projects. “[The competition] was good for us and the other teams to compete in, because we don’t usually compete against each other.” She also recommends that non-senior design teams enter the competition, particularly freshman pasted-image-at-2016_12_15-04_51-pmengineering students enrolled in ENGI 120. She says that “The entrepreneurship at Rice is one of the best in the nation because we have such creative students here, the Elevator Pitch Competition is excellent practice to learn to present not only something you’re working on but also yourself.”

Upcoming Rice Entrepreneurship Event

The 17th annual Rice Business Plan Competition, the world’s “richest and largest” graduate-level student startup competition, will be held April 6-8, 2017. Applications are being accepted through February 10.

Hundreds of teams apply to the competition, hoping to receive some of the over $1.5 million in cash and prizes available. Over 180 corporate and private sponsors provide support to the competition and investors from all around the nation volunteer to judge.

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Government and Policy McNair Center

True Impact of the Bayh-Dole Act

Addressing the True Impact of the Bayh-Dole Act

Since the passage of the Bayh-Dole Act in 1980, many researchers have debated its contribution to the transfer of technology from universities to industry. Some credit the act as an engine of economic growth responsible for the emergence of the biotechnology industry. Critics say that the law decreased data sharing and basic research and increased health care costs. Others think that the act had little impact and that changes in university patenting were inevitable.

University patenting would have increased regardless of the Bayh-Dole Act. However, the act did help universities license patents, creating positive economic benefits especially in the biotechnology industry.

Background

The Bayh-Dole Act was intended to improve the commercialization of federally funded research.

Former Senator Birch Bayh and Senator Bob Dole, authors of the Bayh-Dole Act, in Washington D.C. on July 22, 1985.
Former Senator Birch Bayh and Senator Bob Dole, authors of the Bayh-Dole Act, in Washington D.C. on July 22, 1985.

Before 1980, only 5% of government-owned patents were ever utilized in industry. Corporations found it difficult, risky or unappealing to receive licenses for government patents. Several government agencies did not want to give up ownership of patents to universities or corporations. Agencies such as the National Science Foundation tended to give nonexclusive licenses to anyone, unappealing for companies. As it was easy for any company to procure licenses, the system did not incentivize companies to purchase licenses; most wanted exclusive rights.

The Bayh-Dole Act enabled institutions to keep control of patents invented using federally funded research. The university or business could then grant licenses on its own terms. The act also required universities or businesses to have clear patent policies and encourage development of inventions.

Did the Bill Work?

Claims that the Bayh-Dole Act alone led to increased patenting and economic activity surrounding university patenting are not true. Economic models show that the acceleration of patenting would still have occurred even without the act. David Mowery finds that universities increased their shares of patenting from 0.3% in 1963 to 4% by 1999. However, he notes that this increase had already begun before 1980, which indicates that the Bayh-Dole Act was not its cause.

Since the passage of the Bayh-Dole Act, more than 5,000 new companies have formed from federally funded university research. In 2008, more than 600 new university products were introduced to the marketplace. According to MIT, about 30 billion dollars of economic activity per year and 250,000 jobs can be attributed to technology born in academic institutions.

The Bayh-Dole Act may not have been the only contributor, but these large numbers show the importance of university innovation to the economy and make it clear that innovation spurring legislature can have enormous positive effects on economic growth.

Creation of the Biotechnology Industry

From the 1968-1970 period to the 1978-1980 period, biomedical university patents increased by 295%. Biomedicine, an important part of biotechnology, was therefore growing rapidly before the introduction of the Bayh-Dole Act. Most likely increased funding in the field, advances in science and emergence industry interest also played major roles in the growth of university patenting in this area.

The Bayh-Dole Act likely contributed to increased licensing of university biotechnology patents. The ability of universities to license patents created strong incentives for many scientist-entrepreneurs to form companies around their inventions. At least 50% of current biotech companies began as a result of a university license. Additionally, 76% of biotechnology companies have at least one license from a university.

These license based biotech companies have made huge impacts on the economy. University licensing of biotechnology patents generated more than $40 billion in economic activity in 1999. According to Boston University, biotechnology companies represented over 1.42 million jobs in 2008, and the bioscience sector as a whole represents an employment impact of 8 million jobs. By 2009, 1,699 biotech firms generated annual sales of $48.2 billion.

Addressing Criticisms

Critics of the Bayh-Dole Act cite the decrease of data sharing, higher health care costs and a shift away from fundamental research as flaws of the law.

Because researchers patent new inventions, they might tie up research data in patent rights. This could prevent other researchers from accessing this data, slowing the research process. An article by Neil Thompson and others suggest that this isn’t true in practice. They find no evidence that licensing of academic patents limits the sharing of research data. However, their work leaves open whether licenses on research tools lead to restrictions on continual research in a subject.

Many also argue that health care costs have increased as a result of the Act. Biomedical university patents often can be utilized in the process of drug creation. As these discoveries are not final products, companies must license each patent that they use to create a drug. The cost of licensing many of these patents allegedly drives up the cost of the final product, hurting the consumer. The NIH and USPTO have created guidelines to prevent the unreasonable licensing of biomedical patents. However, these guidelines are not all concrete.

While this “royalty stacking” may contribute to high prices, it is unfair to blame the costs solely on the Bayh-Dole Act. Drug development includes a multitude of phases with high costs that extend beyond patents at each step. Many drugs could also not have been developed without the help of the patented technologies.

Finally, others point out that applied research generates more money from patenting. They argue that the Bayh-Dole Act therefore incentivizes universities to focus on applied research instead of basic research. This too is not true. According to the National Science Foundation, the percentage of basic science research from 1980 to 2001 increased from 66.6% to 74.1%. Applied researched actually decreased from 33.4% to 25.9%.

Conclusion

The Bayh-Dole Act was not the sole factor in the increase of university patenting. However, it does appear to have played an important role in the licensing of university patents, particularly in the biotechnology industry.

The biotechnology is sector is large and growing. In 1980, it was almost nonexistent. By 2009, the sales of just 1,699 biotech firms were worth more than 2.5% of U.S. GDP. Academic intellectual property provides the crucial foundation for this sector. Further incentivizes for university patenting and its licensing could therefore drive yet more economic growth.

In addition, the government could encourage the use of unlicensed academic patents by offering tax breaks to companies who commercialize them. It could also encourage universities that excel at technology transfer such as Stanford or MIT to share best practices to other universities.

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Government and Policy McNair Center

Bureaucracy and Public Sector Innovation

The public benefits greatly when there are innovations in how our government approaches policymaking and regulation. However, sometimes barriers created by bureaucratic structures can slow implementation. When regulation and rigidity are holding us back, leaders are responsible for ensuring that our government institutions are allowing for change when our old ways of approaching challenges become antiquated.

Innovation in the Public Sector

Our traditional idea of innovation tends to point science and technology developments, like the iPhone or social media. Innovation within the public sector takes many forms. Journalist Alex Howard broadly defined public sector innovation as any government-created “new idea, technology or methodology that challenges and improves upon existing processes and systems, thereby improving the lives of citizens or the function of the society that they live within.” For example, the introduction of speeding cameras in the late 1980s in the U.S. is a public sector innovation that allowed local police to improve public safety by catching speeders more efficiently.

In the U.S., innovation in public policy takes place in many levels of government. For example, the Rebuild by Design program, launched in response to Superstorm Sandy, created a competition for innovators to develop creative solutions to problems posed by natural disasters. In Boston, this program created Climate Ready Boston (CRB). CRB works with the Boston city government to ensure that infrastructure is created to withstand the impacts of climate change, like rising sea levels and extreme temperatures. Another public sector innovation, the Citizen Archivist Initiative, uses online tools and crowdsourcing to make public records more easily accessible to the public.

United States Efforts to Encourage Public Sector Innovation

Within the last 30 years, federal executive and legislative action have also encouraged innovation within the public sector. For example, the Small Business Research and Development Enhancement Act of 1992 gave the Small Business Administration the ability to conduct the Small Business Innovation Research Program to better serve small businesses. Later, President Bill Clinton’s Executive Order 13103 placed an emphasis on increasing government awareness of computer vulnerabilities, demonstrating that the government would be adapting to new technologies.

President Barack Obama emphasized this as well. In 2009, his administration released the Strategy for American Innovation to increase efforts to support American innovators. In 2015, they released an updated strategy that placed importance on public sector innovation. The new strategy includes “new efforts to make the Federal government more innovative to improve performance and create a better environment for innovation by the private sector and civil society.”

Public Sector Innovation Around the World

Public sector innovation is not unique to the United States. The Organization for Economic Cooperation and Development’s Observatory of Public Sector Innovation tracks these innovations for each member country.  In Iceland, the Reykjavik Metropolitan Police Department began using social media to connect with citizens. In the United Kingdom, policy innovation took place through the creation of the What Works Network, an evidence-collection initiative to inform policy decisions.

Although there are success stories, innovation in the public sector can be difficult. Government agencies tend to be deeply entrenched in the rigidity of bureaucracy, a structure that can hinder creativity.

How Can We Boost Innovation within Government Agencies

We should want to encourage policy innovation. However, this is easier said than done. The hierarchical layout of many government agencies can be beneficial for clarity and accountability, but it can also inhibit creativity, thereby stifling innovation. Bureaucratic structures can prevent change and creativity. How can we overcome these obstacles?

University of Connecticut and Georgia Tech researchers found that workplace environment can enhance or curtail creativity. Encouraging creativity is essential for innovation. Employees must have the time, physical resources and supportive peers to implement innovative solutions. Within a government agency, these factors could manifest in many forms: Collaborative and open work spaces, efficient technologies like portable laptops and tablets and smart deadlines that are both challenging and realistic can all be effective.

The Importance of Leadership

The barriers to change in the government bureaucracies can make innovation difficult. Leadership plays a large role in whether bureaucratic organizations successfully overcome the obstacles that accompany bureaucracies. Leaders must actively prioritize innovation. The Harvard Business Review suggests, “Leaders of big bureaucracies need to get — and keep — everyone enthused, create and communicate a future vision, assure support during the transition, insist on excellence, create demands on managers and convince everyone of top management’s conviction and commitment to change.”

Simply articulating creativity as a goal can improve creativity of groups. When leaders direct groups to develop creative solutions, their groups generate more creative results than groups who are not given this instruction. If leaders want to see creativity amongst their employees, they should communicate that creativity is a goal for every project.

Hierarchies can often be complex and make it difficult for senior leadership to stay in touch with employees on the lower end of the hierarchy. To combat this, leaders need to make themselves available to employees. Open communication between leaders and lower-level employees can promote development of new ideas.

Further Applications

Any business that is looking to transform their culture to encourage creativity and innovation can use these lessons. Change requires sustained efforts on the part of leadership. With continuing organizational support, the benefits can be great.