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The Innovation Blindspot: An Interview with Ross Baird of Village Capital

September 13, 2017

Ross Baird is the author of The Innovation Blindspot: Why We Back the Wrong Ideas and What To Do About It. Ross is the president and co-founder of Village Capital, a venture capital firm backing companies that address society’s biggest challenges, with an emphasis on supporting entrepreneurs with ethnic, geographic, and racial diversity. He has a Masters in Philosophy from the University of Oxford, where he was a Marshall Scholar, and a BA from the University of Virginia.

Impact Design Hub: Why this specific book and why now?

Ross Baird: We have a massive existential problem in front of us. The Dow Jones is at an all-time high and the most successful companies have never been more valuable, but inequality is also at a 100-year high.

In addition to that, even though it seems like we’re in a golden age of entrepreneurship, more firms actually die each day than start. In the book I argue that the reason why we have problem is not only because of what we’re investing in, but also because of how we’re investing. The current system that we use to find new ideas, to get financing, and support the entrepreneurs that grow the economy is actually making all our other problems harder to solve.

IDH: This is one of the first books that has come out post-Trump that directly addresses the economic issues that brought him into office. What was the relationship between this book and the 2016 election?

Baird: Books take a long time; I have been working on this project for about two years, so the idea for the book wasn’t directly influenced by Trump. But I will say this. 90% of all venture capital goes to states that Hillary Clinton won. At Village Capital, about 60% of our investments are in states that Trump won. I spend a ton of time in places like Cincinnati, Ohio and Nashville, Tennessee and Salt Lake City, Utah. The economy that I have been seeing over the last decade looks very different than the TechCrunch, Wired, Wall Street Journal economy. These trends were going on long before when Trump got elected. But I think that the Trump election really showed a lot of people who live in a bit of a bubble that a huge part of the country feels very differently than they do.

IDH: The Innovation Blind Spot focuses on the importance of ecosystems. If you push that metaphor, ecosystems in nature benefit in some important ways from catastrophe. When you look at the hurricane destruction in Texas and Florida, do see opportunity for new entrepreneurial activity?

Baird: Definitely. A great example of this is what happened in Louisiana post-Katrina. The very first investment I made was in a company called Kickboard, which is an education technology company in New Orleans. You might think, “Why is New Orleans a hub for education technology?” But after Katrina the people rebuilding New Orleans made some really good decisions in this specific sector.

Instead of putting concentrated resources in a few big companies or a few big employers, they actually invested in a broader ecosystem of entrepreneurs and ideas. And they got results. New Orleans had a higher increase in educational achievement for lower and middle class kids than any other city over the last decade and that’s because there’s been investment in an ecosystem for schools. Great principals, great teachers, great technology to power these schools. When you see a great company like Kickboard coming out of New Orleans, it’s the result of people investing in an ecosystem.

If you look at what the Department of Commerce and the Economic Development Authority did after Katrina, they invested in New Orleans incubators to fund new ideas. They invested in various funds to back companies. They didn’t just go with a few big ribbon-cutting, which a lot of economic development does. They invested seed dollars in a lot of different ideas.

I do think that there’s a really great opportunity right now. Houston and Miami are two cities where Village Capital has been very active. I think there’s a really great chance to use the dollars that are almost certainly going to flow after the storms to build a more inclusive, more regenerative ecosystem.

IDH: What about other parts of America, that has experienced a more gradual economic decline?

Baird: I have an entire section of the book called “Topophilia“. And that is a phrase that I got while I was writing the book from Gov. John Hickenlooper of Colorado, a state that has four of the ten most successful entrepreneurial communities in the country. I asked them, “What do you have going on in Colorado that is making things successful?” And he said, “I’m going to tell you a word and it’s my favorite word, topophilia. It means love of place.”

Colorado Springs is very different than Boulder. It’s very different than Fort Collins. And each of these communities has developed industries – and ecosystems around those industries – that are very distinct and unique to that specific place. If you’re Louisville, you have a thriving local agriculture economy, for example. If you’re Colorado Springs or you’re Fort Collins, you have energy and water conservation.

I think that there are a lot of failed efforts I’ve seen happen in cities that are building huge innovations hubs and trying to recreate Silicon Valley-style consumer tech. Silicon Valley-style consumer tech works great for Silicon Valley. It probably doesn’t work great for a declining Rust Belt city.

Cities that have been very successful have been those that have embraced something that resonates with residents of the city. I think if you’re Erie, Pennsylvania or Buffalo, New York or Milwaukee, Wisconsin, you do need to embrace what makes your city different, special, and unique. The question then becomes, “How can we encourage people to build businesses and build livelihoods on top of that?”

IDH: Do you see a sweet spot for a scale of industry that helps a city take off?

Baird: I don’t think it’s going to be one big company that will save America’s declining cities. Amazon has just announced they are going to build a second headquarters somewhere outside Seattle. And that’s great. It’s going to be amazing for the city where it goes there. But it’s probably going to go to a city like Washington D.C., where I live, that’s already doing pretty well.

It’s not going to be one big company that turns around a declining city. It’s probably going to be the small and the medium sized companies – the ones with organic growth. City and state governments should invest less in expensive pie-in-the-sky economic development schemes like stadiums and server farms, and invest more in startups.

IDH: Besides geography, what are some other blind spots around the way we invest?

Baird: The way we invest in new ideas is a structure that’s borrowed from nineteenth century whaling and really hasn’t changed. We have fundamentally one-size-fits-all structures for how we invest in entrepreneurship or innovation, which prevents us from actually questioning first principles.

I think there is a vision gap in how we invest. There is a premise of “If we’re going to invest in entrepreneurship or innovation, we need four different ideas to employ 1,000 people.” Everyone wants to go for the whales; to go big or go home. That is probably not the right fit or the right size.

We worked in Virginia Beach, where the economy is very interesting. It used to be big in the defense industry and employed a bunch of people. As the defense budget has changed, many people are getting laid off. There are a lot of veterans and a lot of people that are out of work. The economy is going in one direction. One of the leaders of the entrepreneurial ecosystem there actually says, “If we want to get to 4,000 new jobs, it’s probably more likely that we’ll have 1,000 new companies that employ four people, as opposed to four companies that employ 1,000 people.” There are a lot of interesting veteran-run small businesses. There is a big tourism industry. There is huge fishing and agriculture. I could go on and on. It’s almost like a design problem.

IDH: How does small-scale ecosystem diversification play out a specific industry?

Baird: More people work in the craft brewing industry today than work in the coal mining. That is because about 15 years ago 96% of the beer in the country was sold by two companies, SAB Miller Coors and AB InBev. Today, 85% of the beer is still sold by those two companies. But just 11% change in competition and concentration of the market has created 80,000 new jobs which is more people than work in coal mines. It’s created much better beer. Do you like beer?

IDH: Yes.

Baird: You’re probably much happier with what you have than you did 15 years ago. That’s because of the rise of craft beer and small beer producers.

In general in the American economy, more people work for big companies today than have at any point in the last 40 years. And that’s because markets are driving towards concentration and consolidation in big companies following the belief that there’s economies of scale and more efficiency, resulting in lower prices for consumers. But if you say, “Let’s actually design to be better for the producer”, you get better results. The beer industry has done that. You have more diversity of goods and services. You have more jobs. You have more people competing and ultimately, if you like beer, you would say it’s much better to be in 2017 than it was in 2000.

At a meta-level, we haven’t challenged the basic assumption that economies of scale, efficiency and maximizing for the Dow Jones are actually bad for both consumers and people who work for companies. And if we were to say, “Let’s optimize for competition and market. Let’s optimize for more producers producing more things.” We might get a much better and different framework.

IDH: How can we educate people about entrepreneurship?

Baird: There is actually a lot of very good material available right now. I think the biggest blind spot is building a pipeline where people who have the potential to be great entrepreneurs are identified and supported.

In the book I tell the story of my grandfather, who is a hall of fame basketball coach. And he basically invented the modern-day recruiting industrial complex. When he took over Duke University’s basketball program, they were a terrible team at a small liberal arts school. He was the first coach to use video. He recruited nationally, from Montana all the way to inner-city Philadelphia, at a time when other Southern coaches didn’t recruit black players. He went on the premise that there are great people that are good at basketball that no one’s paying attention to. And he made the hall of fame primarily because of his innovations in recruiting.

Today we spend billions of dollars finding 12 year olds who have NBA potential. If you’re a 12 year old that can make the NBA, it’s very, very likely that the head coach at Duke University knows who you are. For entrepreneurship the pipeline is incredibly limited. Imagine if we spent a fraction of that money finding 12 year olds who are naturally talented entrepreneurs and building a support system around them. What if we build a recruiting industrial complex around the builders of the future?

IDH: This book speaks to several different audiences – entrepreneurs, investors, designers – but every citizen is a stakeholder in the economy. How do we teach people to look at capitalism in a new way?

Baird: I think the real question is, “Who is capitalism for?” This is the first generation where people have defined themselves primarily by what they can do. “I wear X thing. I drive Y car.” If you look even a generation ago, people defined themselves by what they produced. “I am a steel worker.” Or, “I am a teacher.” Or, “I am a doctor.” If you look even further back, people’s last names were their occupation: Smith, Cooper, Baker, etc. People’s identity were what they made.

An efficient economy is where everybody is producing something and everybody finds an identity in that. That’s what we should be designing for. Instead, we have an economy defined by “How do we get the lowest price and the highest profit margin for everything that we do?” No wonder we have massive, massive problems, because capitalism has shifted from being for all the people who participate in the system to being for a very small group people who own the majority of the system and are extracting as much as they can.

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