By Clint Rainey
Google invented Google Maps. Apple gave us the iPod. Microsoft introduced PowerPoint. In each case, these technologies began elsewhere—as an idea generated by a startup that was perfected by a new owner with greater resources.
Corporate America is full of fat piles of cash being dropped to snatch up the next game-changing idea, but a new study suggests we may not have enough appreciation for how asymmetrical the dynamic is: in which tech startups, not corporate R&D labs, create a breakthrough concept that the industry latches on to and takes mainstream.
Published in the Strategic Management Journal, the paper, written by two business professors, Francisco Polidoro Jr. at the University of Texas and Charlotte Jacobs at Louisiana State University, tried to quantify the imbalance by looking at which serves as a better springboard for future innovation—inventions touted by established businesses, or the work of upstart entrepreneurs. The duo’s findings revealed “asymmetries between startups and established firms in the diffusion of the knowledge underlying their inventions, even when they create inventions with similar attributes.”
To do this, they focused on progress for a specific sector that boasts decades worth of tech innovation: solar energy. They rounded up the patent citations filed for photovoltaic cell inventions between 1976 and 2016. When deemed necessary, patent applications will include citations acknowledging that another very similar invention already exists. Polidoro and Jacobs used the number of times solar patents were cited in later years to calculate “whose inventions, startups’ or established firms’, spur more subsequent inventions.”
They write that for their time period, the data set ended up being 773 patents filed by 82 different startups and 5,343 patents filed by 274 established companies, which included 15 major oil and gas players like Chevron and ConocoPhillips. These 15 companies accounted for just 4.7% of the patents during the 40 years in question. Meanwhile, 12.6% came from the startups, and these claimed a disproportionately high 22.3% of future citations.
The authors add that for the first two to three years, the startups collectively—not only those with big breakthroughs—averaged roughly the same number of patent citations as established companies. But from here, big companies get left in the dust: The startups racked up citations much faster, almost doubling bigger companies’ average by year nine.
In order to contextualize their findings, Polidoro and Jacobs employ a pair of business-world concepts: knowledge transfers (economic transactions in which intellectual capital gets shared with business partners or customers) and knowledge spillovers (situations when the ideas get disbursed without compensation). Not only do startups deserve credit for a disproportionate percentage of industry breakthroughs, they say, but also the subsequent flood of innovation built on those inventions is “not driven by knowledge transfer mechanisms but rather by factors associated with knowledge spillovers.” In other words: The true innovators may not receive fair compensation for their work.
The reason why might be any of several obvious explanations, the researchers note: Cool inventions cause eureka moments that people discuss widely; out-there ideas attract more attention (as well as leaks) than mundane corporate R&D; and many startups can’t be litigious enough to deter rivals from building on their exciting new patents.
Furthermore, unlike established companies, startups rarely have the budgets to capitalize on the market value of their innovations. An example from solar energy would be cadmium-telluride, which was developed in the 1950s to replace crystalline silicon semiconductors. Hundreds of inventors have since iterated on that idea, and it was industry heavyweights like Kodak, GE, and Panasonic that made it efficient and scaled it in the 1980s.
Comparing the success of Google Maps versus the Where 2 Technologies app called Expedition, and the proliferation of the iPod versus the IXI, the researchers grant that some startups may accept that the trade-off of a knowledge spillover is that their inventions have higher odds of becoming the dominant industry technology.
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