“The protection of intellectual property is a cornerstone in a balanced ecosystem of incentives and investments. Don’t kill a vibrant ecosystem.”
We have all played the lottery at least once, haven’t we? Even though we know that the odds are grossly against us. Rationally, no one should gamble. Imagine you meet someone who in fact did win the lottery, and he has advice for you. “Do like I did, sell your house, quit your job, and play the lottery every day. It paid off: look at me, I won!” Who would ever follow that foolish advice? We all know the dude just got lucky! And luck is not a business model.
Survival Bias: Examples
And yet even rational people fall into the trap of so-called survival bias (or survivorship bias) in unexpected circumstances. So, what is survival bias? Let us look at one example of survival bias that occurred during World War II. Researchers from the Center for Naval Analysis had conducted a study of aircrafts that had returned from missions. The below shows the data the study had looked at, with red dots indicating where returning planes had been hit and damaged.
The study had suggested that armor be added to the wings. Statistician Abraham Wald, after analyzing the data, suggested exactly the opposite: that armor be added to aircrafts in areas that showed less damage. The Center for Naval Analysis, Wald noted, did not take into consideration those aircrafts that did not return from missions. The holes in the returning aircrafts were areas where a bomber could take damage and still return safely.
Survival bias is fundamentally the result of failing to recognize that correlation and causation are two very different statistical concepts. Survival bias is the logical fallacy that occurs when the selection process of a trial favors certain individuals or things that made it past a certain selection process and ignores those who did not, and who are generally less visible.
Other examples of survival bias? “They don’t make cars like they used to” (although there were plenty of bad cars in the past, remember the car that used to explode when rear-ended?); “If I can do it, anybody can do it!” (said an entrepreneur with a passion for mountaineering who climbed the Matterhorn. Well, I have bad joints, I can’t and won’t do it!); “When cats fall from a balcony, they have a better chance to survive when they fall from a greater height!” (the data for this conclusion was drawn from the observation that cats that were brought to the vet had greater injuries if they had fallen from 1-6 stories, compared to cats who had fallen from higher than six stories. One explanation given was that whenever cats fall from a greater height, they have enough time to spread their legs and use their body as some kind of parachute. Sounds amazing, but unfortunately the sad reality is that cats who fall from higher than six stories are rarely taken to the vet, because they did not survive).
Survival Bias in the Tech World
Survival bias permeates today’s tech world, especially the Silicon Valley, in the celebration of failure as a sine qua non for success, almost as a virtue, a badge of honor. Praise, acclaim and visibility are given to companies that were started in a garage and are now multi-million-dollar public corporations. As if starting from a garage is some sort of a predictor of future success. Unfortunately, we often forget about the many more companies that started from a garage and are still in a garage, or do not exist anymore. The celebration of those “who made it” and how they made it (often praising their multiple failures) does not take into account those who failed and did not make it.
What is wrong with this ode to failure? There’s nothing wrong per se. Learning from one own’s mistakes is a crucial component of any critical strategic thinking. We all know that any development and learning activity inevitably goes through setbacks and mistakes.
But what is failure, and what is success? What defines failure and, by contrast, what can be taken as an example of success?
For those who do not remember the tale of the company General Magic, there was a movie out a few months ago. General Magic envisioned the smartphone back in the 1990s. It had a remarkable vision, but it was ahead of its time. Despite a stellar team (many employees were former Apple during Steve Jobs’ first tenure), good funding (the company went through a so-called concept IPO, the first of its kind, essentially an IPO of a company with neither sales nor revenue), and respectable commercial partners, General Magic, through a combination of lack of execution, bad timing and fierce competition, among others, by Apple, the company was liquidated in 2004.
Did General Magic fail? If you were a shareholder, absolutely, it failed spectacularly! But did it really fail?
Two summers ago, when we could still travel, I visited Sicily, where my mom is originally from. During that trip my wife and I visited an olive grove, where two olive trees more than 2000 years old are housed and still bear fruit. Those trees were there when the Ancient Greeks were building temples and cities in Sicily.
We are all aware of the importance of honeybees – a passion of mine – for the ecosystem. While wind is considered the primary agent in the transfer of olive pollen, honeybees do play a role in cross-pollination, which is known to produce stronger seeds. Hence, like many other trees, those thousands-year-old olive trees would probably not be there if bees went extinct. The average life span of a queen bee is 2 to 5 years, but sometimes they can live up to 7 years. Worker bees only live for five to six weeks during Summer, flying about 8 to 10 miles a day, for a total of almost 400 miles during their lifetime. They live longer in winter – five months or more. Think about it: 2,000 years for an olive tree versus five weeks for worker bees! Do you know who’s failing and who’s succeeding in this ecosystem? Well, we all are!
Going back to the failure of General Magic, weren’t General Magic’s contributions to the tech world significant enough to allow other visionaries to build on top of their technology breakthroughs? Did the Wrights brothers fail because they did not build commercial aviation? Of course not, commercial aviation was born exactly because the Wright brothers did not fail!
Eight years ago, Forbes published an article with the title, “Forget The Long Term: Building Your Startup For A Quick Exit.” As if disruption and success in the tech world could (or even should) happen overnight. The reality is that innovation often takes time, and it requires many actors. What is needed is a balanced ecosystem with the right incentives. In fact, society has recognized this need for a long time.
A little-known fact is that society during the Renaissance was no stranger to the notion of patents. In fact, the first historical reference to a patent system dates to 1474, when the Patent Statute was published in Venice. The Venetian Patent Statue is the oldest statutory patent system in Europe and is considered the earliest codified patent system in the world. Between 1474 and 1788, the Venetian Senate granted about 2000 patents.
It did not stop in Venice. The City-State of Florence in the Renaissance, and the Medici family who ruled the city during the 15th century, were remarkably forward-looking with respect to protection of intellectual discoveries and technology. Filippo Brunelleschi, the genius behind Florence’s Duomo of Santa Maria del Fiore and many other world’s wonders, generated several patented inventions, protecting some remarkable technological advances that were at the basis of his creations. Among others, Brunelleschi for the hoist, and was granted the first modern patent for his invention of a river transport vessel, the Badalone.
As Brunelleschi himself explains in his 1421 patent Il Badalone, a patent is the right to exclude others from practicing an invention in order to protect the inventor’s intellectual work:
Filippo Brunelleschi […] has invented some machine or kind of ship, […] and that he refuses to make such machine available to the public, in order that the fruit of his genius and skill may not be reaped by another without his will and consent.
He also adds another essential point of patent protection, the contract with society whereby in exchange for public disclosure of the idea, society grants the inventor the right to exclude others from practicing such invention (the Republic of Florence granted Brunelleschi a three-year exclusive right for his Badalone invention): “[…] if he [Brunelleschi] enjoyed some prerogative concerning this, he would open up what he is hiding and would disclose it to all”.
Protect the Innovator
Innovation does not exist in the abstract. Innovation exists because humans are inevitably curious. Innovation exists because of the ingenuity of the innovators. Innovators are not foolish gamblers, they take calculated risks, and they do so with the expectation of remuneration or profit. The protection of intellectual property is a cornerstone in a balanced ecosystem of incentives and investments. Don’t kill a vibrant ecosystem. Protect the visionaries, the inventors, the risk-takers.
Protect the value that you or your enterprise creates and be strategic about the protection of what I call intellectual capital. Intellectual capital is broader than IP, and different from the accounting term intangible assets. Intellectual capital is the intangible value of a business, covering its people (human capital), the value relating to its relationships (relational capital), and everything that is left when the employees go home (structural capital), of which intellectual property is but one component.
Build a strategy to protect your intellectual capital as broadly defined. If your supply chain management system is your competitive advantage, figure out the best way to protect it. If you are building a proprietary solution on top of open source, figure out the best way to leverage your added value, and look at the open source licenses you are using very carefully to avoid dilution of that value you are creating. If your patent portfolio is your strategic asset, be wary of any activity or association that could impact the value of your portfolio. Because the crude reality that all entrepreneurs have to face is this: the likelihood of success is very low, and the prospect of failure is real. The intellectual capital that you build and protect could outlast your venture and prove to be a viable and profitable long-term exit strategy.
Lastly, don’t be fooled by stereotypical and biased definitions of success and innovation. Find your edge and your path. And more importantly, don’t take innovation for granted. Protect the innovator!
Note: This article is adapted from previously published LinkedIn posts by the author, namely: “Don’t you know that Rome wasn’t built in a day” and “Filippo Brunelleschi, the Medici, the Silicon Valley and Intellectual Property”