Who (And Where) Are Today’s Innovators?
European Straits #242
Here’s a fourth instalment in my innovation series inspired by Peter Zeihan. This week, my focus is on the connection between age and innovation, and where innovators can be found as a consequence. Next week, I will shift the discussion to macroeconomics and explore how the increase in interest rates affects venture capital and startups in general.
1/ In a video discussing the future of innovation, geopolitical strategist Peter Zeihan suggests that one contributing factor to innovation’s decline is a shrinking demographic. Specifically, there is a decreasing population of individuals aged 20-30, whom Zeihan believes are more inclined toward innovation.
Today, I would like to explore this argument more deeply. Is it accurate to claim that young adults have a stronger inclination for innovation? If this is indeed supported by statistical evidence, what factors contribute to this phenomenon? Is it solely a result of their youth, or do other attributes and opportunities play a significant role? Finally, could our observations be influenced by specific generations experiencing their 20s and 30s during periods of heightened economic opportunities for innovation?
2/ I've received assistance from my wife, Laetitia Vitaud, with whom I recently engaged in a conversation about this exact topic. She was inspired to take the lead and dedicate an issue of her own newsletter addressing whether older people are less innovative. If you take the time to read it (and I suggest you do), you'll find age and its impact on innovation are often misunderstood. More precisely, it's important to differentiate between age effect, cohort effect, and historical period effect:
Age Effect: This is about how a person's age influences their characteristics and behaviors. For instance, many young adults are often found in university settings, which can foster an innovative mindset in some instances. But as people get older, their priorities change, like having young children in their 30s, then taking care of aging parents: all this affects their availability.
Cohort Effect: This relates to how the historical and cultural context during a specific generation's upbringing impacts their shared experiences, values, and behaviors. For example, those born during economic hardship, such as the Great Depression generation, may have different attitudes toward money than those born during prosperous times.
Historical Period Effect: This concerns the influence of major events or societal changes during a particular time period on individuals of all ages. Such events shape attitudes, behaviors, and experiences across age groups. For instance, the introduction of smartphones had a significant impact on communication and technology usage across all age groups.
Understanding these distinctions is crucial for studying and interpreting age-related phenomena, including the age at which one is the most prone to innovate.
3/ Let's provide historical context to the discussion. Zeihan’s statement brings to mind the image of a young (male) entrepreneur revolutionizing technology in their garage. Yet this image, popularized by figures like Bill Gates, Larry Page, Sergey Brin, and Mark Zuckerberg, is a relatively recent phenomenon.
My 2018 book Hedge: A Greater Safety Net for the Entrepreneurial Age features an illustration by the talented Marguerite Deneuville depicting the changing profiles of innovators over time. In summary, distinct eras emerged over the past decades: the era of solitary tinkering in the 19th century, followed by inventors trading knowledge with financiers in the market, then the shift of innovation to corporate labs.
Government intervention then became prominent during wartime when technology was crucial, followed by yet another transition as young, optimistic technologists formed teams and created groundbreaking inventions in metaphorical garages, supported by a new breed of investors known as venture capitalists. More recently, innovation has been driven by large tech companies harnessing the power of their billions of users (described as the “multitude” on the graph) to accelerate progress.
In the two most recent periods, it's obvious why innovation appears to be primarily led by youthful individuals. Indeed, it mostly involves young entrepreneurs securing venture capital to grow their startups, and the typically youthful and highly skilled engineers employed by large tech companies.
Alternatively, during the age of corporate research labs, and to a lesser extent, state-sponsored innovation, older and more experienced scientists were the dominant force. This was largely due to the absence of a venture capital industry, which left innovators with no alternative if they wished to pursue innovation. Joining large organizations was often their only viable option as these organizations were the sole providers of the essential resources then required for innovation.
Read more here: From Lone Inventors to Corporate Labs to the Entrepreneurial Age (co-written with Annabelle Bignon, April 2016).
4/ Indeed, there exists a distribution of innovation roles among individuals and companies across different time periods. To illustrate this concept, let's revisit the late Clayton Christensen's distinction between the various categories of innovation:
Efficiency innovation typically occurs in the following context: when the market reaches a saturation point, companies can only expand their market share by taking it from competitors. This, in turn, drives innovation efforts aimed at reducing costs and enhancing operational efficiency, as pioneered by Japanese carmakers in the 1970s with regards to mass production. Such endeavors usually demand experienced individuals capable of delivering tangible, incremental improvements within tight timeframes and under short-term pressures.
Sustaining innovation revolves around enhancing products and introducing new features to retain demanding customers and justify premium pricing. Companies like Apple exemplify this approach, continuously enhancing their iPhone models with added features, improved battery life, and enhanced audio performance. In such instances, similar to efficiency innovation, the expertise of engineers who thoroughly understand the product and its inner workings is crucial, and this clearly doesn't favor young people. Yet another version of an age effect!
Empowering/disruptive innovation, on the contrary, involves viewing the market from a fresh perspective and harnessing a technological breakthrough to transform how customers are served and how value is created throughout the industry's value chain. Unlike the two prior categories, this often favors younger innovators who possess two distinct qualities that more experienced individuals typically lack: the audacity to experiment with new ideas (unaware of the odds stacked against them), and the freedom that comes with the early stage of their careers, typically devoid of commitments and with relatively little at stake.
5/ An intriguing case, which exemplifies the substantial impact of older individuals on efficiency and sustaining innovation, is Formula 1. In this prestigious motorsport category, made popular by the Netflix series Drive to Survive, engineers work tirelessly from one Grand Prix to another to enhance the performance of the cars, searching for minute adjustments that can lead to shaving a fraction of a second off lap times, securing a better position on the grid, and competing for a spot on the podium. All of this must be accomplished within the constraints of a FIA-imposed cost cap.
The market for F1 teams is not expanding; there are only 20 available slots on the grid, corresponding to exactly 10 teams. And since consistency is the name of the game, disruptive innovation would pose just too many risks. Instead, for each team, the goal is constant, incremental progress in pursuit of efficiency under the cost cap. In such a context, clearly innovation doesn't primarily rely on youth but is rather driven by seasoned, experienced engineers who possess a deep understanding of their craft, are well-versed in the intricacies of the cars, excel in interpreting data, and can effectively incorporate feedback from everyone else on the team, starting with the drivers.
The highly esteemed innovator in F1 currently is 64-year-old engineer Adrian Newey. He began his F1 career in 1986, almost 40 years ago, and later designed championship-winning cars for Williams and McLaren. Subsequently, he was recruited by Red Bull Racing, where he currently serves as the Chief Technical Officer. During his tenure, Red Bull has emerged as a dominant force in F1, with successes in 2010-2013, when driver Sebastian Vettel secured four consecutive world championships, and more recently since 2021, with Max Verstappen as reigning champion.
In the world of F1, just as always with efficiency and sustaining innovation, there's evidently an age effect, but it tends to favor older, more experienced individuals rather than the younger, up-and-coming talents. Hence, my view is that the demographic shifts outlined by Zeihan (less and less young adults) will not exert an influence on the quantity and results of these specific types of innovation.
6/ Conversely, it's clear why the present paradigm shift (from the age of the automobile and mass production to the age of computing and networks) has brought attention to young innovators. As we collectively recognized this shift beginning around 2008, the expectation was that every industry would undergo significant transformations by adopting novel tools and methods enabled by computing and networks. Yet, due to the novelty and the uncertainty surrounding it, we observed mostly young individuals attempting to navigate this new terrain, yielding varied outcomes:
Young Jeff Bezos left a lasting impact by driving empowering innovation in the retail sector.
Young Larry Page and Sergey Brin, followed by young Mark Zuckerberg, achieved success in shaking up the advertising industry.
While young Travis Kalanick experienced initial success, his efforts to disrupt urban transportation through Uber ultimately faltered.
Young Adam Neumann's attempt to disrupt office real estate ended in nearly complete failure.
Young Elizabeth Holmes found herself incarcerated after her misguided endeavors to disrupt the healthcare field.
In this instance, I would assert that both age and generational factors came into play:
Age Effect: With the visible shift unfolding, opportunities were readily available for every age group. However, due to the nature of the innovation in focus, and the related uncertainty, it primarily drew in young individuals as participants.
Generation Effect: As the corporate landscape underwent a profound transformation due to this paradigm shift, young people found themselves without clear career trajectories and were redirected towards pursuits other than submitting their resumes to conventional employers.
7/ Now, when it comes to empowering/disruptive innovation, it's not just any young individual who can become an innovator. Becoming an innovator requires (i) the individual to possess the appropriate skills and/or knowledge, as well as (ii) being situated in a conducive environment.
The first criterion (skills) aligns with Paul Graham's emphasis on “nerds,” a topic I referenced in the edition three weeks ago. Check out Paul’s landmark How to Be Silicon Valley, published in May 2006.
Yet, not all nerds are young; in fact, there are older nerds, like Red Bull Racing's Adrian Newey. And so we need to consider the significance of the second criterion: being in the right environment, typically among fellow nerds in a nurturing setting—an idea that’s present in Paul Graham’s essay:
What nerds like is other nerds. Smart people will go wherever other smart people are.
A corporate lab environment often tends to have a high concentration of nerds. In fact, retaining nerds is precisely why some corporations establish separate departments that are more accommodating of the eccentricities of typical nerds, offering a small chance for innovation to thrive internally. Nonetheless, those nerds who choose to remain often do so for the wrong reasons. It's not because their employers provide an environment conducive to innovation, but rather because they value the security of working for a large corporation. Interestingly, these tend to be the older nerds, while the younger, more mobile ones—unburdened by family and mortgages—tend to seek opportunities elsewhere.
And this is why, as also noted by Paul Graham in the essay linked above, there's nothing apparently more conducive to innovation than a prestigious university. Following the logic of nerd mobility outlined above, it becomes clear why this is the case: universities tend to be hubs for nerds, much like corporate research departments. However, they attract nerds who are younger and thus more mobile, making them more inclined to relocate due to their affinity for other nerds.
In essence, young nerds aren't necessarily more innovative because of their age, but rather due to their higher mobility, which allows them the freedom to move to areas where they can connect with fellow nerds. It's still an age-related factor (given that mobility tends to be associated with youth, as I can personally attest), but it's not tied to the biological aspect of age.
A thought-provoking takeaway emerges: by enhancing the mobility of older nerds, it's possible to offset the demographic decline among younger nerds and its negative impact (per Zeihan) on innovation.
8/ Indeed, the key policy insight here is the following: if the population of young adults is indeed declining due to demographic trends in developed economies, then fostering innovation (in all of its forms: efficiency, sustaining, disruptive), requires creating an environment that allows more individuals, not just young ones, to engage in the innovation process.
The conventional approach to innovation policy has often been to build universities and provide subsidies to startups emerging from them, with the assumption that innovation will naturally follow. But this is an extremely lazy approach. As I've previously explained, universities primarily foster innovation because they attract mobile innovators, often due to their age. A new policy dimension could involve exploring ways to enhance the mobility of older innovators or concentrating them in virtual communities, not necessarily in the same physical clusters, but in digital spaces, akin to Balaji S. Srinivasan's concept of “cloud communities” (which dates back to 2013, but has been made more concrete by the rise of remote work).
I, for one, would strongly embrace the idea of moving away from the clichéd notion that universities are the primary breeding grounds for innovation. About that, see my article in Forbes Startups Don't Need Universities As Much As They Used To (published in September 2018):
There are many misunderstandings regarding the place of universities and public research laboratories in the daily practice of innovation. After the Second World War, only public entities held the intellectual resources and the equipment necessary to conduct cutting-edge scientific work—and those were at the heart of that era’s innovation process. But today, the context has changed. The resources needed to innovate are much better distributed, and so innovation has become more ubiquitous. As a result, universities are largely absent from the great waves of innovation of recent years, which are increasingly driven by large tech companies (Google’s self-driving cars, Amazon’s voice assistant) and developer communities (as in the cases of mass computation and cryptocurrencies, among others).
9/ The prospect of using universities as a fertile ground for nurturing innovation may seem appealing. However, delivering on innovation necessitates a significant amount of additional work.
A prime example of this process is the legendary Frederick Terman's transformation of Stanford University into the entrepreneurial powerhouse it is today. It involved much more than just attracting young nerds and waiting for them to innovate. The success of Terman's endeavor was underpinned by extensive social, organizational, and financial engineering—to such an extent that replicating it elsewhere in the world proved to be an insurmountable challenge, even for Terman himself:
I hope this recently unlocked essay will dispel the notion that merely gathering young nerds in one location is sufficient for fostering innovation. As evidenced by Terman's remarkable achievements at Stanford, the process involves much more than that. So, why not consider replicating this approach in settings beyond universities and extending it to demographics beyond the diminishing cohort of young innovators?
10/ In summary, the notion that innovation is synonymous with youth is fundamentally flawed for several reasons:
It primarily holds true for disruptive innovation, but not as much for efficiency or sustaining innovation, both of which are equally significant from an economic growth perspective.
Relying solely on the establishment of a prestigious university and waiting for (young) innovators to appear and deliver is an ineffective approach, as demonstrated by the comprehensive efforts required in the case of Stanford University back when Fred Terman was in charge.
The misconception linking innovation exclusively with youth emerged during the past transition from the age of the automobile and mass production to the age of computing and networks. However, as I have argued, this transformation is now nearing its conclusion, and new avenues of innovation are emerging that value experience, deep process knowledge in specific engineering fields, and state-driven innovation to mitigate uncertainty for innovators.
What are your thoughts on this? Are we prepared to dispel the myths surrounding age and innovation? Does this translate into a well-defined policy roadmap? What should aspiring innovators get an interest in, depending on their age? Moreover, in light of these developments, where and how should investors strategically allocate their resources?
Sign up to European Straits if you don’t want to miss the next issues 🤗
From Paris, France 🇫🇷
Nicolas
