Sunday, February 27, 2011

Innovation: Open or Closed Models

As a former Venture Capitalist and founding member of the Toronto Angels, and now running a small strategy firm specializing in innovation and growth models using next generation technologies (collaboration and community based), it is fascinating to watch the shifts in business models and impacts on valuation under traditional IP thinking.

In today's web centric world, where the meaning of proprietary has shifted as many solutions are leveraging open source code in their production processes, the focus has shifted from IP (closed models) to valuation on the reach of their models.

One starts to see the realities of pumping in sums of scarce dollars into IP protection vs just driving the reach as models on the web and their returns depend on pervasiveness.

Our business world still works with old assumptions with non disclosures, non competes, patents and trademarks as protective strategies, disclose as little as possible, and valuation predicated on more closed than open models.

Yet the returns on models on web centric models are higher on more open models than closed. The economic theories are shifting to abundance vs scarcity - what many of my colleagues in complexity science have been saying for some time.

For web social/collaboration and community exchange models - open innovation is the right approach for rapid reach, but for models in bio science, or pharmaceuticals etc, the old models on patent protection still hold true.

What we need to teach CEO's and emerging leadership teams is to understand their business models and then select the right approaches - riding the traditional and more complicated historical ways of valuing companies is broken now and in time abundance will prevail... we just don't all understand this yet.

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