The dictionary says friction is ‘a force resisting the motion of surfaces in contact’, but I think there is another type of friction – the friction between capital and great ideas. I think this latter kind of friction is key to economic growth and it’s about to undergo significant transformations.
In 1720, if you were bright and ambitious (and free), the only legal way to make money was to either to have rich parents or to spend a life toiling away – and if you were lucky you just might be able to provide for your family. The situation was so bleak that even Ben Franklin, about the brightest those times had to offer, found his best choice was to run away from home and apprenticeship. Fast forward 200 years, friction drops a little with the aid of low tax rates and democracy, and the industrial revolution takes ahold.
In the 1990′s we saw the second drop – an even larger decrease in friction aided by the internet and a rich ecosystem of venture capital – that democratized entrepreneurship. No longer was a life of toil required first – and the world changed so much that a kid named Michael in his dorm room, revolutionized how computers were made and capital found its way to his door step – or students like Larry and Sergey changed how knowledge is indexed and shared. Now, these guys toiled plenty – but there was much less toil finding capital or customers – they toiled perfecting their business models. Ben Franklin would have loved this world.
I predict over the next year we will see the 3rd, and largest drop, in the friction between capital and good ideas. What are the first signs?
The adoption of ‘Open Innovation’ and the liquidity in the patent market.
Who would have thought, 10 years ago, that companies would spend million to look externally for ideas? When we founded yet2.com 10 years ago, most thought companies would never look externally for ideas and technology. Patents being bought and sold? Are you crazy? We got this response more than once. I dont want to claim to be a genius here, Google was founded about the same time and let’s just say, they are modestly more successful. But liquidity in ideas – is happening – patents and technologies are being traded, and over the next 10 years we will see a rich economic boom as a result. You heard it here first.
What will happen?
1) Technologists will get rich, a few will get really rich. Michael Dell, Larry and Sergey, and all of the others, still had to build companies around their ideas. They needed 2 skill sets; the idea and the ability to form a company around it. How many inventors don’t have the 2nd skill set? Lots. How many great ideas/technologies are out there – that we could all benefit from? Lots. I know, because yet2.com sees these every day as we connect companies with TechNeeds with inventors.
2) Companies that embrace Open Innovation will get rich. I think most large companies are still only 1% effective at OI. What happens when they get to 10%? Economic growth. 85% of the Fortune 500 are already experimenting with OI. When they start to perfect their models over the next few years, this will drive #1.
3) VC’s are watching these activities closely, A few big examples of #1, will drive investment into pure play technology development. This, of course, is already happening. Which is why yet2.com has started venture investing.
4) Consumers will benefit from this friction reduction, getting better products at a lower price (with less harm to the environment) – but there will also be fewer steps and less time spent. Think for a moment how much friction there is in scheduling a meeting? A lot less than there was, but we’re on 50% there. How much friction is involved in planning a trip? Sending a birthday present?
Ironically, Ben Franklin invented the ‘free library’ but it took 2 centuries of friction reduction for Larry and Sergey to make money at it. Old Ben would have loved this. Where else is there a lot of friction?
A version of this article was first posted on Ben’s blog, bendupont.yet2.com