The Diffusion of Innovation

Stanford Business, Fall 2022: The ingredients needed to create an innovative ecosystem

October 24, 2022

Practically every region aspires to develop an entrepreneurial ecosystem, and many look to Stanford and Silicon Valley for inspiration. Yet the model has been hard to replicate.

Indeed, the geography of innovation is strikingly concentrated. Within the United States, just five metropolitan areas — San Francisco, New York, Boston, Los Angeles, and Seattle — account for nearly 40% of patents and over 80% of venture capital investment. Globally, true innovation hubs have been even rarer.

What does this teach us about the recipe for an innovative ecosystem? The answer is important because innovation is fundamental to economic development, growth, and prosperity. The challenge is that many ingredients are needed: talented people, innovative ideas, risk-taking investors, and crucially, the intangible know-how to bring these things together. In today’s world, where ideas and capital are mobile and talent is global, the last ingredient is arguably the hardest to replicate.

For those of us following global innovation, however, there is a sense that the world is changing. There was a time when the U.S. was 95% of venture capital; today, the rest of the world has grown to equal size. Whether it is Bangalore or Beijing, Singapore or São Paulo, new tech clusters are assembling the ingredients for innovation. What I find remarkable is how often Stanford GSB alumni, having absorbed the ethos and expertise of our campus, are at the center of these changes — in many cases, using technology to provide critical services like banking, shopping, education, and healthcare. Moreover, the chains of innovation they have generated are remarkable, and echo the linkages that characterized the early days of Silicon Valley.

To highlight just one example: Marcos Galperin, Hernan Kazah, and Stelleo Tolda founded Mercado Libre after graduating from the GSB in 1999. Today, it is the largest e-commerce platform in Latin America. With Nicolas Szekasy, MBA ’91, Kazah went on to found Kaszek Ventures to focus on investments in early-stage companies in Latin America. One of those investments was in Brazil-based Nubank, co-founded by David Vélez, MBA ’12. Nubank is now the world’s largest independent digital bank, serving tens of millions of customers, including many who were previously unbanked.

Similar stories and patterns can be found across Asia and Africa. In Indonesia, GSB alumni have founded companies offering financial services, online education, and e-commerce. In Kenya’s “Silicon Savannah,” Mauricio Caio, MBA ’86, and Andreata Muforo, MBA ’99, run TLcom Capital, a VC firm focused on startups that generate both value and jobs. Mukesh Ambani, a member of the MBA class of 1982, established Reliance Jio in 2016. It has provided low-cost internet access to over 400 million people and created the potential for the rapid growth of digital services across India.

The exchange of ideas between the GSB and the world is a two-way interaction. In this issue, we commemorate the 25th anniversary of the Global Management Immersion Experience, which has enabled more than 1,500 MBA students to do internships in 92 countries. Students bring their skills and energy and come back with a clearer sense of the challenges in building companies around the world. Our faculty gain some of that same perspective teaching in Africa and India in the Stanford Seed Transformation Program for entrepreneurial leaders. This January, I will travel to Singapore with a delegation from Stanford for the Stanford Asia Economic Forum to discuss issues around innovation and sustainable development with alumni and friends.

I first became interested in the process of economic development in the mid-1990s, when I spent a summer in Nepal helping my wife, Amy, who was in medical school, set up a community health program. While discussions of economic development often focus on institutions and politics, the great success stories are often the result of unleashing entrepreneurial dynamism. It’s exciting and gratifying to see the GSB as the source of some of that energy — and to envision the impact our graduates will have in the coming decades across the United States and the world. This is an opportunity for business leaders: to spark innovation to improve lives everywhere.

This letter from the dean was published in Stanford Business magazine in October 2022.

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