“This all comes down to job growth,” Curt Carlson says, considering the future of the U.S. economy. “Budget cuts and changes to tax policies and regulations are necessary. But whether they lower rates for some people, increase revenue by taxing the rich, or close corporate loopholes, they aren’t remotely enough to offset the deficit we face. The real path to prosperity is growth through innovation and job creation.”
Ah yes, jobs. But who will create those jobs, what types of jobs will they be, and how can entrepreneurs or company executives raise the odds of successfully creating them? Carlson, CEO of SRI International, has some strong views on these questions. I recently caught up with him as part of an outreach to some leading Xconomists and other thinkers about their views on the economy.
“It’s not the mom-and-pop operations, nor the large corporations that create net new jobs in America,” says Carlson. Rather, he says, net job growth comes primarily from new, small- and medium-sized companies whose growth is driven by innovation. Often that means high-tech innovation, but not always. Carlson and others call these fast-moving, innovative new companies “gazelles.” (SRI, founded in 1946, has a long history of high-tech innovation that includes the computer mouse and many other game-changing advances. A few years ago, it also created a gazelle of its own called Siri, which was bought by Apple so that its software agent technology could be incorporated into the iPhone.)
Understanding the pivotal role of new companies, as opposed to small companies more generically, is critical to solving our deficit problem, Carlson says. “New company formation is America’s unique strength. And if there’s confusion about where they [new companies] come from, what kind of companies they are, and how to support them, inevitably you’re going to do some of the wrong things,” he says. (I can’t help but wonder, given last night’s presidential debate, whether either candidate really appreciates the distinction Carlson draws.)
SRI has been studying innovation and entrepreneurship and the processes used by people who have had serial success in creating gazelles. From that study, the organization has developed a model designed to help it be more effective in creating its own new ventures, such as Siri. The model adheres to a number of fundamental principles. In Carlson’s words, here are SRI’s “seven rules” for creating high-growth companies, and therefore jobs:
1. Superb Talent: Assemble the best team, not just a good one. “All success starts with talented, experienced, and highly motivated people—period, full stop.”
2. Important Market: Address a significant customer and market need in a potentially large, global, growing market segment. “Focus on market needs that are important, not on ones that are just interesting.”
3. Killer Product: Create a compelling product with a defensible competitive advantage (e.g., with proprietary intellectual property) that addresses a significant, unmet customer need. “As we say in Silicon Valley, create a real pain killer, not just a nice-to-have vitamin.”
4. Viable Business Model: Develop a business model that will actually make money. “The three magic words for a startup are ‘positive cash flow.’”
5. Iterate, Learn, and Adapt: Keep learning and adapting to the marketplace, be flexible, and apply innovation best practices. Iterate fast and often. “Where you end up is never where you thought you’d land when you started. There are some lessons that only the marketplace can teach you.”
6. Keep It Lean: Minimize bureaucracy and overhead. “When you run out of money you are gone. Conserve resources until you figure out where you want to go.”
7. Complete Ecosystem: Work within a complete innovation ecosystem, which includes talent, venture capital, and customers with supportive government regulations and taxes. “You need all those things. If they don’t exist where you are, go obtain them somewhere else.”
“Most of these rules are known, and some are followed. The key is following them all, all of the time,” Carlson says. Those who do, succeed most often, he says. “People who compromise these rules tend to fail.”
