Why Mobility is the Key to Innovation

And why it's not a good sign if all of a company's leaders have been there for awhile

Why are some places so innovative, while other places that are equally wealthy and well educated less innovative? Research suggests that the #1 factor is MOBILITY. Mobility is the movement of capital, people, and ideas, specifically:

• Capital: When a company has a big exit, do big shareholders by and large re-invest into new ideas/companies, or retire?

• People: Do employees stay at a company for life, or do the best talent opportunistically move from company to company? On average, how old / tenured is the group of decisionmakers at the top of an organization?

• Ideas: Do the best ideas win, spreading like contagion, or is the past the best indication of what this year will look like?

I’ve been thinking about this a lot recently as I’ve reflected on what an incredible moment it is for the San Francisco ecosystem today. Based on research from Itxaso del-Palacio and Jerome Engel from the University of California Berkeley, it is MOBILITY that enables innovation.

This make sense theoretically, but what's the mechanism?

Mobility cultivates a growth mindset.

If you’re not familiar, a growth mindset is a way of thinking about the world that you can develop the skills and insights through hard work and effort to respond to challenges and setbacks.

When the best people move around from company to company, they prove that talent is transferable across company contexts and markets, and shows the path for others within a given company to rise to the occasion as well. When different philosophies and processes confront one another, the competition generally creates superior outcomes.

This resonates with me:

1. I’ve seen that companies with incredible potential based on their assets and market position may fall short when there is not enough mobility. This happens when growth is low so there are few new people hired into the organization and most existing employees have been there for awhile, or when there’s an explicit choice to only promote from within and not hire external leaders (to select roles). That said, this stasis can be overcome with new, vibrant leadership when the leader demonstrates and enables a growth mindset across the company.

2. One of the best strategies for early-stage investing is to back the highest performers who are leaving the best-in-class companies of the day to start their own companies. They have seen what great performance looks like and — because they’re building their career at a company with great prospects — if they’re choosing to leave, they must be that confident about the future potential of a phenomenal outcome. These entrepreneurs who are stepping out into the unknown by definition believe that they their hard work and insight can overcome the inherent inertia against new ideas and companies, i.e. their growth mindset is at the core of the entrepreneur’s journey.

3. For growth-stage companies, I’ve seen that the best companies enable both performance and innovation by having a blend of high tenure employees to compound expertise and culture, as well as enough growth that there are sufficient new employees to drive innovation. When growth is stagnant, those employees that stay may not have good enough prospects elsewhere so they stay, further flattening a company’s growth curve. When there is growth and tenured and new employees mix, the best organizations reward the highest performing and highest GROWTH employees with leadership positions, re-affirming the growth mindset and driving a culture of innovation within the company.

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Thanks to Itxaso del-Palacio for inspiring this deep-dive! You can read more about her original research here: journals.sagepub.com/doi/10.1525/cmr.20…