Ecosystems up and moving

Bailetti.JPGWe need a system of starting and growing companies that has speed, low cost, and is flexible and immediately global in nature.

By James Bowen
From SCAN's Print Edition

Several years ago Carleton professor Tony Bailetti, pondering the value of serial entrepreneurs to Ottawa, asked himself, “How can we best help these regional treasures and thereby benefit the city?” Today, Dr. Bailetti is the linchpin of one of the region’s largest open ecosystems focused on creating wealth.
Opened in 2006 with assistance from the Ontario government, the Talent First Network (TFN) is composed of more than twenty initiatives headquartered at Dr. Bailetti’s Carleton lair. While the ecosystem holds some interest for public policy wonks and academics, including students of entrepreneurship, TFN, accessible to one and all, primarily attracts those concerned with making money.
TFN assists students and others trying to start a business by bringing them together with experienced entrepreneurs, and helping them grow technologies and develop business models. A main objective is to accumulate knowledge and define opportunities in order to exploit societal shifts brought about by tech innovation.

Dr. Bailleti, architect of TFN and a champion of ecosystems in general, has no uncertainties about the ecosystem’s collective approach to business.

“Innovation is distributed globally. Harnessing innovation distributed globally requires cash, talent, partnerships, and approaches and tools that scale up in size. To scale, successful companies use an ecosystem approach.”
Before the ecosystem, other approaches were tried with mixed results.

“In the early days we had technology transfer offices. Their focus was to move research in line with what business wanted,” remembers Dr. Bailetti. “They actively sought partnerships with private industry and measured themselves on the number of patents generated and licensed. But they were largely ineffective, given the investment required.

“Both university and government tech offices used ‘push’ strategies, developing technology for export or transferring it to someone else while hoping for the best. Push strategies hurt SMBs. They simply didn’t have the cash and relationships required to help them at the global stage. The ecosystem approach provides a pull strategy. Buyers and intermediaries work with companies to commercialize since day one.”

Technology transfer offices often produced more confusion and false starts than the commercial success and private investment they had set out to cultivate. Focus and returns improved some with the advent of clusters, but even with all their outward signs of success – especially evident in the years preceding the great bubble rupture – clusters provided little guidance for the entrepreneur and investor, both of whom learned that following cluster lead in order to find a hot technology was often a dead end.

“Pick a winning domain and invest in it, that was the idea,” recalls Dr. Bailetti. [Clusters] tend to be inflexible and fail to uncover growth niche markets since they have little customer involvement. It’s a combination of technology trends and market trends that win the day and this means the customer has to be involved.”

While commercializing technology resulting from research or other innovation-driven processes is hardly new, going about it successfully has always required the ability to recognize trends early enough to catch them.

“The chance to exploit an opportunity diminishes over time,” Dr. Bailetti asserts. “With some skill we can recognize an opportunity and, once we see it, we need time to act on the opportunity before it’s too late. Anything we can do to reduce reaction time benefits the entrepreneur. This is the key idea – acting earlier results in more value created – which in today’s rapidly changing world means we need a system of starting and growing companies that has speed, low cost, and is flexible and immediately global in nature.”

The preferred model for doing this today is the ecosystem.

Ecosystems are all about creating a shared vision within a tech community, and then making products using the underlying capabilities of that community. This communal approach minimizes risk for individual ecosystem members while providing global reach. Then value is created globally and appropriated locally.

In an ecosystem, a small local company can quickly become world-class as it draws on relationships and inter-dependencies within the ecosystem. From open source software to biotech medical devices to telephony hardware, innovation and collaboration span national boundaries.

A high-functioning ecosystem is not so much concerned with innovation at a lower cost or outsourcing non-core capabilities or procuring commodities. Rather, it’s all about using the best talent in the world to share risk, reduce time, create bold innovations and, most importantly, increase revenue.

“Ecosystems are designed to recognize opportunities and react quickly to them. [At TFN] we want to align investment with globally distributed innovation, find mutually supportive roles for the members in the ecosystem, and move towards a shared vision,” says Dr. Bailetti. “We want to orchestrate innovation around the world and leverage local strengths to create and appropriate value.

“We want to invest in the ecosystem itself. The ecosystem gets its strength from risk-sharing, diversity with a common purpose, and size. It becomes self-adjusting and flexible and scalable. This approach supports all stages of growth, not just the startup company,” says Dr. Bailetti.

The Ontario government and Carleton have to date put approximately $2 million into TFN, which is currently trying to raise millions more for a number of initiatives.

Besides TFN, there are several notable ecosystems based in Ottawa, such as that nourished by Ingres, a provider of open source database management software and development products.
Since the Redwood, Calif. company set foot in the capital two years ago, Andrew Ross, director of development and “community activist,” has overseen the growth of the Ingres-based ecosystem. The company’s Ottawa R&D team has two focuses, geospatial application development in association with the Open Source Geospatial Foundation, and application development using the award-winning Ingres CAFÉ framework based on Eclipse.

“Success has to be mutual for the ecosystem to flourish,” says Mr. Ross, “Each organisation needs to see that being part of the system is worthwhile. The trust within the ecosystem reduces the transaction costs and increases productivity. Working together lets you share risks, do things faster and better than you could otherwise.”

While Ingres ecosystem continues to flourish, CAFÉ, which garnered the Product Excellence award at the LinuxWorld Conference & Expo in 2008, is not only a winning example of the Ingres ecosystem but also of Carleton’s TFN ecosystem, where funding, networking and student research for CAFÉ were all found.

Another local ecosystem success story is the Eclipse Foundation. According to Mike Milinkovich, executive director, it is easy to measure Eclipse’s success as an ecosystem because “the foundation has spawned a multi-billion dollar industry centred on its software platform, with over 180 companies in the ecosystem and thousands of products that use it as the development platform. It’s all about productivity and innovation at a rapid speed.”

Mr. Milinkovich’s experience with Eclipse has led him to a four-requirement formula for creating a software ecosystem: the community must have an extensible technology platform, such as Firefox or Linux; it needs an organization that encourages participation in the platform; membership must be inclusive; and all companies involved must be on an equal footing.

It’s a formula that, apparently, isn’t known to him alone.

“Everyone is getting into the game,” says Mr. Milinkovich, “[Even] Microsoft has a thriving ecosystem for their products.

“A (software) ecosystem is different than a traditional “supply-chain” approach to software development, where one company owns the software and everyone else are just suppliers of components,” notes Mr. Milinkovich. “In an ecosystem, the technology needs to have an extensive set of components that can integrate all kinds of additions from developers. The output of an ecosystem is a platform for innovation. We measure an ecosystem by its ability to expand and incorporate new niches and to recover if a participant leaves the ecosystem.” He continues, “The ecosystem needs to be vendor neutral, have a core organization which is trusted to not take the opportunities out of the ecosystem for itself and away from the participants.”

Eli Fathi, serial entrepreneur and CEO of IT and communications business accelerator OrbitIQ, has his own four-ingredient recipe for creating a successful ecosystem. “It needs to help improve entrepreneurial culture, provide a path to the market, continuously promote and improve itself, and disseminate knowledge,” he says, adding, “You need around 300 organizations in [an ecosystem] for it to be healthy.”

He points out that Carleton’s TFN has been successful because it has grown to include companies worldwide.
Some of these are among the corporate elite, such as Nortel and IBM. It would seem these tech powers, with their armies of R&D staff and legions of distributors, would have no need for an external resource like TFN, leading to the question, “What’s in it for them?

Says Mr. Fathi, “Big companies have the market and the ability to take products to market, but they need innovation, and innovation is found at small companies. It’s difficult for big companies to deal with little companies and to find scalable technologies. That’s where ecosystems come in, providing the interface and the scalable innovative technologies.”

Mr. Milinkovich brings the point home, “Smaller and bigger companies can all find a niche in the ecosystem and prosper.”

In the end, a healthy technology ecosystem needs people, people getting out to see what it has to offer, and contributing and taking from it what they can. With this in mind, do as Dr. Bailletti would have you do, using his favourite call to arms: Get engaged!

James Bowen, PhD, PMP, CMC is an Ottawa technology entrepreneur and adjunct professor at uOttawa’s Telfer School of Management. If you have ideas for future market or technology focused articles, send them to jbowen@ces.on.ca

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