What makes places like Silicon Valley tick? Can we replicate that magic in other places? How do you foster innovation in your own networks? The Rainforest is a groundbreaking new book from two of the world’s leading experts at the intersection of venture capital and global development. Victor W. Hwang and Greg Horowitt propose a radical new theory to explain the nature of innovation ecosystems -- human networks that generate extraordinary creativity and economic output. They argue that free market thinking fails to consider the impact of human nature on the innovation process. This ambitious work challenges basic assumptions that economists have held for over a century. Kirkus Revews: "insightful, forward-thinking..." "provocative..." "Hwang and Horowitt write with authority and wit, carefully backing up their theory with substantive examples. Readers get the feeling that the authors have unveiled a very big, important concept, one that could serve as the basis for intentionally, methodically developing other “rainforests” similar to Silicon Valley." Read a preview at: www.therainforestbook.com

1. A new book by Victor W. Hwang and Greg Horowitt

2. Meet the Gauches…

3. 1994 Professors Susan and John Gauch at the University of
Kansas received a $15,000 grant to build a meta-
search technology. They called it Jayhawk Search.

4. 1995 A spectacular success. 300,000 users per month.
Moved to dedicated server. Launched company
called ProFusion.
1996 1,000,000 users per month.
1997 PC Magazine named Meta-Search Engine of
the Year
1998 Company attempted to grow. Entered
into strategic partnerships. Recruited
business management.
1999 Eventual failure.

5. By the time it was done, the Gauches
earned a grand total of about $100,000.

6. What are the lessons
of the Anti-Google?

7. Neoclassical economists say… “Meh.”
Individual stories are no big deal. The macro-system
works when self-interested rational actors compete.
Eugene Fama &
Efficient Market
Theory

8. Cluster theorists say… “Natch.”
It’s all easy to explain. Micro-level enterprises only
thrive when pools of talent are concentrated
geographically.
Michael Porter &
Cluster Theory

9. But there is a huge disconnect
between theory and reality.

10. The neoclassical model does not
account for the serious difficulties faced
by the Gauches based in Kansas…
Massive lack of access to customers,
talent, capital, markets, managers, etc.

11. Yet the traditional Silicon Valley “cluster” model…

12. …does not resemble real-world startups today either.

13. An exhaustive study of 1,604 companies…
“The results indicate that firm innovation in
urban Norway is mainly driven by global
pipelines, rather than local interaction. … Local
and even national interaction seems to be
irrelevant for innovation.”
Rune Dahl Fitjar and Andrés Rodríguez-Pose, “When local interaction does not
suffice: Sources of firm innovation in urban Norway”, February 2011

14. So what’s going on?!

15. The world needs a new
paradigm that is both
descriptive and prescriptive.
Billions of lives, hundreds of
billions of dollars at stake.

16. The Development of Economic Thought?
“…the understanding that principles that
underlie biological systems are the same
principles that underlie all living systems.”
James Kenneth Galbraith

17. Can we now weave together a tapestry of
inter-disciplinary ideas to create a new
Frederick
“bottom-up” economic model? Jackson
Turner
Ade W. Edwards
Mabogunje Deming Robert
Sapolsky
Annalee
Saxenian Danah Boyd
Hernando
Sean
de Soto fMRI imaging
Gourley
James Ronald Coase
Fowler “Design Thinking”
E.O. Wilson (Rolf Faste, et al) Ilya Prigogine
Richard
Francis Thaler
Fukuyama

18. A different approach to innovation growth…
Plantation Rainforest

19. While plants are harvested most
efficiently on farms,
weeds sprout best in Rainforests.

20. For a new species For a new startup
temperature, humidity, capital, entrepreneurs,
precipitation, sunlight, laws/norms, ideas/inventions,
soil/nutrients, other flora/fauna talent, markets

21. A radical shift in perspective.
Neoclassical economics has dominated our thinking
on systems for over 100 years.

22. The real world.
Not gears, but human beings.
Landlord
Land Engineer
Labor
Output
Capital
Investor
Technology?
Scientist

23. And real human beings are separated
… by geography, culture, language, social networks, and
lack of trust.

24. This happens across entire systems.
Across an entire system

25. The Secret of Innovation Ecosystems
Rainforests thrive because of culture
that overcomes social system
Across an entire barriers and
fosters a special style of collaboration
between people…

26. The Innovation
Ecosystem Ideas
Opportunity
Talent Capital

27. It’s not just creative destruction.
Far more important—and harder—
is creative reassembly.

28. Like a fractal equation in nature…
Across an entire system

29. …what is the micro cultural pattern that
generates macro phenomena in places
like Silicon Valley?

30. The culture of the American frontier
required strangers to trust fast, or die…

31. Rules of the Rainforest
Rule #1: Break rules and dream.
Rule #2: Open doors and listen.
Rule #3: Trust and be trusted.
Rule #4: Experiment and iterate together.
Rule #5: Seek fairness, not advantage.
Rule #6: Err, fail, and persist.
Rule #7: Pay it forward.

32. How do humans change behavior?
Across an entire system

33. Tools to Build Rainforests
Tool #1: Learn by Doing
Tool #2: Enhance Diversity
Tool #3: Celebrate Role Models and Peer Interaction
Tool #4: Build Tribes of Trust
Tool #5: Create Social Feedback Loops
Tool #6: Make Social Contracts Explicit

34. • are the entrepreneurs?
•Who has the reputation, resources and •Who are the service providers? •What is the regulatory environment for
commitment to lead new initiatives? •Who are the inventors? innovation?
•Who will champion new initiatives within •Who are the capital providers? •What legal/bureaucratic barriers stand in
their own organizations? •Who are the support organizations? the way of entrepreneurship?
•How can leaders and champions be more •What is the role of government? •What widespread social norms surround
inclusive? •Who are the other key participants in the innovation ecosystems? the innovation ecosystem?
•What are people already doing to stimulate •Where, when and how do stakeholders
•What resources are available to aspiring innovation/entrepreneurship?
•Who are the local entrepreneurs that have
interact? built successful companies?
entrepreneurs (knowledge, mentorship, •How are these people collaborating with •How do ideas, talent and capital come
cloud hosting, etc.)? each other?
•Who are the local entrepreneurs that
together?
•What sources of capital are there in the •What activities drive participation in the •What are the lines of communication
haven’t yet been successful and what can
marketplace? we learn from their failures?
community? between partners?
•How does this capital flow and interact with •What events create ‘buzz’ and generate •What regions have similar attributes and
growing businesses?
•How do members of the community resources?
interest? collaborate with each other?
•What is the volume and quality of talent in •What organizations have shared
the labor pool?
•How does the community engage external visions/values?
or global partners? •Are there other regions with successful
•What are the main sources of innovative •How does the community encourage recruit
ideas/discoveries/inventions? innovation ecosystems that we could learn
new constituents?
•What resources are available to service and •How do young people get involved?
from or emulate?
support organizations that interact with
entrepreneurs (workforce training, etc.)?
•What forums exist that allow the breakdown
of social and professional hierarchies?
•Where do people come from?
•What is the density and quality of service providers (law, IP, consulting, real estate, etc.)? •What are their value systems?
•What boundary spanning organizations exist? •What are their motivations (money, reputation, lifestyle, self expression, etc.)?
•What is the local level of serial entrepreneurship? •What are the ‘amenities of place’?
•What is the density and quality of physical infrastructure (airports, internet connections, etc.)? •How do we create and maintain a sense of urgency?
•What are the core sectors of the local economy? •What kind of innovative social networks exist already?
•What are the strongest regional comparative advantages? •How do people deal with uncertainty, risk or randomness?
•How is failure perceived?
•Do people build for perfection or iteration?

35. The Power of Two People
Across an entire system
Multiplied Millions of Times

36. A “Davos for doers” who are discovering
how to build Rainforests…
www.innosummit.com

37. Across an entire system
www.therainforestbook.com