Innovation in Real Places

What if innovation isn't about groundbreaking startups but instead about how communities can thrive through targeted, incremental advancements?

1. The Myth of the Next Silicon Valley

Blindly chasing dreams of becoming another Silicon Valley often leads cities astray. While this model promises prosperity, it rarely delivers. History shows that success stories like Silicon Valley are highly context-dependent, making the model unsuitable for replication.

Atlanta attempted to be a tech hub in the 1980s and 1990s. Though it initially seemed promising, the prosperity was fleeting. Successful startups like MSA and Internet Security Systems were quickly acquired by out-of-state firms. As a result, profits and talent drained away instead of bolstering the local community. The city became a jumping-off point, rather than a permanent tech hub.

This obsession comes with unintended consequences. Chasing flashy startups leads to inequality, where high-paid tech jobs cater to a select few while others are left behind. Housing costs climb, and hopes of long-term economic growth diminish. Communities get a shallow form of prosperity, leaving most residents worse off.

Examples

• Atlanta’s startups struggled to stay rooted in the city, with 40% leaving after receiving venture capital.
• Gentrification in tech-focused regions has led to rising living costs, pushing out local residents.
• Silicon Valley itself is plagued with housing crises and inequality, making it a cautionary tale rather than an ideal.

2. Venture Capital’s Double-Edged Sword

Venture capital (VC) is often seen as the lifeblood of innovation, but it comes with significant downsides. While it funds startups aiming for rapid growth, it also fosters instability and a focus on short-term gains.

VC-backed businesses are often pushed toward strategies that prioritize fast returns, such as IPOs or acquisitions. This means growth is rarely sustainable. Importantly, VC does not prioritize local investment or community betterment. Profits are funneled to investors elsewhere, leaving the communities where startups originated without much benefit.

This model of funding exacerbates inequality, benefiting only a small fraction of a region’s workforce. Furthermore, the fast-paced growth model leads to boom-and-bust cycles, which can destabilize local economies rather than driving enduring development.

Examples

• Silicon Valley startups rely heavily on VC funding, which prioritizes investor returns over local stability.
• Investors often push companies to relocate to larger urban hubs, further draining regional talent.
• Atlanta’s failure to retain startups was partly due to VC lures in other cities.

3. Broader Definitions of Innovation

Innovation isn’t limited to tech gadgets and unicorn startups. At its heart, it’s about making products and services more efficient, useful, or affordable. This expanded definition reveals opportunities that many communities overlook.

Mundane innovations—like improving production efficiency—are often more impactful than flashy breakthroughs. Incremental advances in manufacturing processes or service delivery drive sustained economic growth. These smaller improvements benefit a wider audience and are often more enduring.

By focusing narrowly on tech startups, communities ignore these less glamorous, but highly impactful, forms of innovation. Fixation on revolutionary ideas can overshadow the value of step-by-step progress that boosts industries over time.

Examples

• The rise of efficient car manufacturing in Japan showcased process innovation.
• Modern chip production improved incrementally through Moore's Law, revolutionizing the industry.
• Logistics companies like Amazon revolutionized distribution through small operational improvements.

4. The Decline of Vertical Integration

Traditional manufacturing—with companies handling every step of production under one roof—is fading. Globalization has splintered production into specialized stages, opening the door for new forms of collaboration.

Take Henry Ford’s River Rouge plant as an example. It represented extreme efficiency but eventually became too rigid for a changing global market. In contrast, today’s manufacturing ecosystem relies on regions specializing in specific capabilities, distributing production through global supply chains.

This kind of specialization allows regions to excel in certain stages of production instead of trying to dominate an entire industry outright. Vertical integration’s decline highlights the value of flexible and distributed regional expertise.

Examples

• Ford’s integrated factory model struggled to compete with specialized Asian manufacturers.
• Apple moved its production overseas, abandoning U.S. plants like the one in Sacramento, California.
• China’s Pearl River Delta excels at mass production, showing the benefits of distributed specialization.

5. The Four Stages of Innovation

Innovation happens in stages: novelty, design, incremental improvement, and manufacturing. While novelty gets the most attention, the latter stages often deliver the biggest economic impact.

Novelty involves creating new ideas or technologies. It’s the glitzy stage people associate with startups and invention. But this is just the beginning. The true potential of innovation unfolds in later stages like incremental improvements and manufacturing, which bring high impact and long-term growth.

Regions that focus on later stages, such as production expertise or engineering skills, fare better. These stages sustain employment, create tangible products, and often anchor firms to communities.

Examples

• Taiwan develops prototypes for global tech companies, excelling in design and production engineering.
• Germany thrives by gradually improving its engineering processes, especially in automobiles.
• Shenzhen produces millions of devices through advanced, flexible manufacturing systems.

6. Process Over Industry

Communities shouldn’t focus solely on industries; they should target stages of production where they can excel. Specializing in capabilities rather than chasing specific sectors opens paths to growth.

Expertise in areas like assembly or component design can attract global players, not by subsidies but by offering unmatched skills. This approach makes regional economies more resilient and diverse. Workers’ skill sets become the draw, keeping firms invested locally.

Shifting the focus from luring corporate giants to developing specific skills fosters stability and long-term partnerships.

Examples

• Shenzhen’s flexible manufacturing abilities ensure global tech companies rely on them.
• North Carolina leads in biopharma due to its talent in sterile manufacturing processes.
• Austin, Texas, struggled to fulfill Apple’s manufacturing needs due to skill shortages.

7. Incremental Growth Is the Secret Weapon

Big breakthroughs may grab attention, but gradual improvements are where most growth occurs. Communities that embrace this approach—not seeking revolutions but refining processes—unlock significant economic opportunities.

From perfecting car engines to improving supply chains, these small steps add up. They also spread benefits more equitably, touching various sectors and worker groups instead of creating isolated elites.

Over time, this quieter path to innovation brings about lasting change that benefits broader populations.

Examples

• MediaTek's efficient mobile chipsets enabled more affordable smartphones.
• Auto manufacturers incrementally improved safety and fuel economy, benefiting millions.
• The ongoing evolution of fiber-optic cables steadily transforms communication.

8. Local Skills Drive Global Success

Specialized skills create communities that global firms compete to work with. Companies seek out regions with the necessary expertise for their needs rather than just low costs.

Local investment in workforce training pays off. Workers’ knowledge and abilities provide a lasting advantage that subsidies alone cannot replicate. This approach also protects communities from economic disruptions caused by company relocations.

Growing unique skillsets keeps local economies vibrant and ensures firms rely on the region in meaningful ways.

Examples

• Germany’s machine tool industry owes its dominance to world-class engineering skills.
• Biopharma firms consistently turn to North Carolina for sterile manufacturing expertise.
• Shenzhen’s innovation culture thrives on a deep bench of high-skilled workers.

9. Rethinking What Growth Looks Like

Communities typically focus on luring big names or fostering groundbreaking startups, but these strategies limit growth. True prosperity comes from tailoring a region’s focus to its unique strengths.

By identifying capabilities suited to specific innovation stages, communities can anchor sustainable economic ecosystems. This localized approach has far more staying power than mimicking Silicon Valley’s path.

Long-term solutions are rooted in investing in people and upgrading skills over time.

Examples

• Taiwan built a global footprint in prototype development.
• Pearl River Delta revolutionized logistics and manufacturing processes.
• Alto Livenza, Italy, specializes in furniture engineering and design.

Takeaways

1. Stop chasing the Silicon Valley dream. Instead, focus on your region’s unique strengths and where it can add value in the global supply chain.
2. Invest in workforce training and skills specific to one stage of innovation, from prototyping to manufacturing, to secure sustainable growth.
3. Embrace incremental change as a path to prosperity, focusing on continuous improvements that provide long-term benefits for the entire community.