The American innovation machine?

Like most people, I am fascinated by the process of innovation. How does it start? Is it an individual effort, necessity, or the result of team-think? Does it take the charisma and unrelenting passion of a Steve Jobs, or can innovation be done in a less stressful environment? When I attended business school, the concept that small innovative companies become large non-innovative institutions (with rare exceptions) was dogma. That was more than 40 years ago, but it seems even more true today.

Anecdotally speaking, my first job was with a company with $200 million in annual sales, it invented nothing. I joined a company with $2 million in annual sales, it was an innovation machine. As a result, it quickly became a company with $500 million in sales. Then, it invented nothing.

The case for the inability of large companies to innovate grows with each acquisition by Microsoft or Google. For example, Microsoft announced today it is buying a 2008 startup Yammer for $1.2 billion, a business with estimated sales of $15-20 million. I should add that Yammer had previously raised approximately $140 million in venture capital from many of the same people that invested in Facebook. Google has purchased over 100 companies. It did not have a revenue strategy until it bought the firm that introduced the now ubiquitous adwords concept.

Keep this fact in mind when watching the POTUS candidates throw a small bone to small business because it is the leading engine of jobs in the economy. Small business needs larger bones because it is not only the engine for new jobs it is the engine for American innovation. Whether by individual or by team-think, it is the startups, the small businesses, fueled by investment capital, passion, persistence and single-minded focus that keep the American innovation machine running. The POTUS candidates should recognize this fact and establish regulations that would enable significant sums, $500 billion or more, of private investment capital to easily flow into small business in the next 6 months. To be fair, there has been legislation pointed in this direction, but the economy needs a transformational revolution enabling startups unfettered access to new capital.

If Americans understood how the job innovation engine works, they would be in favor of special treatment for investment capital in startups. It is the fuel for the innovation machine.