radical Insights.

Weekly Research and Commentary on the Future of Business and Technology.

A (Deeply) Broken Innovation Ecosystem.

Apr 18, 2023

Last weekend, the New York Times published two worthwhile pieces on the fraught dynamics of the tech innovation ecosystem.

The first, by Erin Griffith, is provocatively (optimistically?) titled The End of Faking It in Silicon Valley. It surveys the recent spate of fraud investigations and convictions in the startup world and suggests that with the general scaling back of the sky-high valuations and abundant VC investment that characterized the 2010s, we’re witnessing the aftermath of an era that was especially conducive to a willingness on the part of investors to ignore red flags, suspend disbelief, and generally not look too hard under the hood of the flying robotaxi – if you will. The headlines (and salacious docuseries) typically focus on the misdeeds and scandals of the founders themselves, but this piece takes in a bit of the bigger picture and points, correctly, to the awkwardness of VCs – whose basic raison d’être hinges on being not only earlier but also more shrewd than the rest of us in recognizing spectacular potential – now painting themselves as victims of fraudulent startups fronted by “Machiavellian narcissists.”

The dynamic on display is one of a broken system or rather, a system well designed to produce results that make innovation often feel broken. Many of the incentives and structures of VC have historically selected for a certain type of firm and founder that was also working very hard to make itself look like the type of firm and founder favored by the VC system, and then, once part of the system, the firm would adopt that system’s logic and incentives as its own imperative – much of which boiled down to showing spectacular growth by any means necessary. Ethical or sometimes, not so much.

Disturbingly, the tech innovation ecosystem can feel just as broken on the other end of the spectrum, where some of the most powerful and highly capitalized companies in the world play. The day after Griffith’s piece ran, Ezra Klein argued that many engineers and researchers at the major-player firms in the accelerating AI arms race strongly (…if quietly) believe that development in the field should be regulated, slowed, and perhaps rethought. But those better angels of cautious, ethical innovation are forever running up against the ground truth of the industry: “No one company can slow down to a safe pace without risking irrelevancy.”

Let that one sink in for a minute. In their own way, the big firms may find ethical decision-making and innovation leadership just as disincentivized or systemically compromised as do the startups. Fixing that innovation ecosystem will require courage and humility (both hard things) from its leaders, but as this pair of analyses suggests, it will likely require another thing that might be even harder: effective, thoughtfully designed regulation to align incentives with positive outcomes in the longer term. (via Jeffrey)