There’s no time for trial and error

How do we go about finding quick solutions to the pressing questions in our societies?

On December 12, 2015, a tumultuous applause erupted at the exhibition park in the French community of Le Bourget, near Paris. The world’s political decision makers patted each other on the back and the Paris Climate Agreement was adopted at the UN Climate Conference. This agreement was created with the intention of replacing the expired Kyoto Protocol. The central tenet of the agreement maintains a worldwide effort to contain global warming to below 2°C and, if possible, to limit a rise in temperature to below 1.5°C.

We won’t achieve these goals by only making minor adjustments here and there. Newcomers to a market like start-ups or the small-scale innovations driven by corporate labs also won’t have much success. To tackle the pressing social challenges we face, we need radical innovations that evolve out of the status quo. New digital business models need to emerge that have the same clout and power as corporations.

The Mercator Institute on Global Commons and Climate Change has calculated a CO2 budget based on the Paris Climate Agreement. Researchers agree that climate change will become unstoppable if the temperature rises above 2°C. The CO2 budget measures the amount of carbon dioxide we can still emit before we inevitably exceed this number.

Those CO2 emissions aren’t the balance on a kind of global current account that can easily be overdrawn. Instead, our CO2 budget is melting away much like the pack ice in the Arctic Ocean. The CO2 limit is intended to last us for generations to come. But at current consumption rates, it will be used up in just under 25 years and five months. It would be impossible to still meet the Paris climate targets.

Yet climate change is by no means the only problem that we’re facing. According to the Federal Statistical Office, the number of people in employment in Germany will shrink by four to six million by 2035. Our society is getting older and age-related illnesses are on the increase. At the same time, fewer and fewer people are paying into the insurance system. The expected increase in the number of patients will push our healthcare system to its limits.

As a result, social and healthcare insurance contributions will increase noticeably. The association of private health insurance companies calculates that individual amounts may increase from 3 over 4 to 8% in 2040. And that’s before we even touch upon the numerous problems with our pension system. Sadly, the picture is just as bleak in other countries.

To make myself clear, these examples are not intended to make people lose hope or fill them with doom and gloom. Instead, we urgently need to acknowledge that the clock is ticking. We need innovative solutions and we need them now.

We have to rethink innovation

We have to fundamentally rethink innovation to go beyond lab experiments and implement new solutions in the marketplace with real customers and rapid scaling.

Why? Our old systems aren’t equipped to handle the size and speed of these ever-evolving challenges. According to Atomico’s State of European Tech report, about two-thirds of academics, researchers and journalists believe that tech entrepreneurs will contribute more to solving social challenges in the coming years than European governments. Yet, the innovative power of start-ups has its limits. They cannot be our only big bet.

When it comes to solving social challenges such as climate change or upgrading the healthcare system, we can’t take our cues from a business model known for building eCommerce platforms, internet shops, payment systems, and revolutionising logistics. The problems we face are systemic. This means that various areas of our society – government institutions, businesses, users, researchers – must work together to implement suitable solutions quickly and on a large scale.

Start-ups on their own repeatedly encounter resistance. Whether it’s Uber or AirBnB, every start-up has struggled with growth structures. All too often, legislators have reined them in and forced them to consult the views of tenants, city planners, taxi businesses, public transport or anyone else who wants to have a say in how these businesses operate.

Additionally, the biggest challenges we face are emerging from complex, highly-regulated and science-based areas – such as climate and health. Insurance companies, regulations around clinical trials, hospitals – all of these are difficult areas to fundamentally change overnight.  If you want to make progress in these areas, you need to be persuasive, networks of people and, above all, a lot of know-how.

Do corporations stand in the way of major innovations?

Are corporations still a suitable breeding ground for innovations? With their vast network and resources, corporations have assets that smaller companies will find hard to replicate. But huge corporations often lack the expertise to plan, build and scale digital business models at lightning speed. They also need to adapt. Setting up a lab or accelerator and creating a fund to support a few start-ups over a period of 12 weeks is no longer enough. The output achieved by these start-ups simply doesn’t justify the effort and input.

The innovation labs or accelerators are simply not made for radical change on a grand scale. By definition, innovation labs are intended for the development of innovative prototypes and their testing on the market. They are not designed for the massive scaling of new digital business units. The same applies to accelerators. They support founders with the implementation of ideas, product development and first steps on the market. It is not their goal to drive start-ups from zero to one hundred within seconds. Hardly any successful or experienced founders join an accelerator program, because they no longer need any coaching in the start-up process, and they don’t want to give up any shares to the program. But these are exactly the founders we need for ground-breaking social innovations.

We need hybrid companies 

But how do we place both an entrepreneurial mindset and corporate power structures at the same table? The answer is: hybrid ventures that redefine the cooperation between tech entrepreneurs and corporations. Innovation becomes a board-level problem and is no longer just the result of a post-it session by the business development team. Innovation needs to trickle through an enterprise from the top down.

To ensure that innovation is implemented throughout the company, experienced founders who have proven their mastery with solving challenges in a short period of time are brought on board. If we succeed in shaping companies in such a way that corporations do not see innovation as a nice gimmick and Europe’s top entrepreneurs can adapt their unconventional approaches to corporate structures, then we will collectively get the best of both worlds and solutions to our biggest challenges might soon seem far less utopian.

How does it work?

The goal of hybrid companies is to build new digital business models and ideas under the umbrella of a new innovation unit. This corporate unit acts independently to the core business and drives the company’s future investments. The Entrepreneurial Growth Board is the interface between the group and the innovation unit. This is where the leaders and decision-makers from the group level meet tech entrepreneurs and the heads of the new ventures. They decide together on the strategic ventures of the group’s innovation unit and the entrepreneurs they bring in to help. The aim of this new corporate structure is to give tech entrepreneurs and groups a say and provide new incentives.

Hybrid companies combine the mindset and the agility of the entrepreneurs with the power of the corporations, free from the shackles of a service provider existence. Together, they offer innovative ideas for the structural and entrepreneurial basis to flourish quickly and on a large scale. We need this: We have already wasted too much time and the clock is ticking. Only immediate innovation can provide the answers to the most pressing questions of our society. Let’s forget about the dated trial-and-error approach and, instead, create real and lasting change.

Commentary by Felix Staeritz. Here’s what you’ve missed?
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