We know the Venture Capitalists look for returns of 1000% on their investments. We also know that Corporate innovation (as reflected by the S&P 500) enjoys a long term median return rate of about 9-10%

It follows to reason that all of the innovation that could return somewhere between 10% and 1000% goes largely un-capitalized. This does not mean that the innovation does not exist – it only means that it is invisible to any existing financial system, it is accounted as “intangible” – or worse, it shows up as a liability.

Parents caring for children, Children caring for elderly parents, Mentors educating proteges, groups of people organizing, sharing knowledge, and growing families – all increase the net productivity of society. Legions of people creating options and opportunities for themselves and each other in communities, social media, and extended networks – all increase the value stored in communities.   Billions of people-hours inventing better ways to do the things that they do, compensating for the shortcomings of governments and corporations – all of this innovation falls into the range between 10% and 1000% ROI, yet, remains invisible and un-capitalized.

Social media as a whole is growing at well over 200% per year where every single interaction creates incremental multiples of social value – otherwise people would not do it (to say that people are irrational is to say that markets are irrational).  Where is all that value going?  Meanwhile, in the current Global financial debt crisis, institutions that hold huge amounts of cash are scouring the globe for pockets of low-risk productivity as sanctuary from volatile financial markets.

Now, suppose that an innovation bond were to come along which produces a risk adjusted return of, say, 15%. This means that human productivity is being reliably increased somewhere in a community by only 15% per year. If this were the case across a broad sector of inter-related communities where productivity were denominated in a fungible currency, investors would seek refuge in the Innovation Bond.  If the Innovation Bond returned say, 20% or more – all the money in the world may drop the debt based currency in favor of the innovation based currency by seeking refuge in innovation bonds.  Yes, I said it – “all the money in the world”.  Now, get over it.

Proceeds would be distributed to organized communities whose knowledge inventory is formatted like a financial instrument in the form of entrepreneurship. Proceeds would go to communities where the probability of success is known long before the bets are made in the form of Cheap Venture Capital. Proceeds would go to communities where productivity is defined by an un-corruptible algorithm through decreased volatility coefficients. Proceeds would go to communities where assets are valued accurately by true supply and true demand.  Proceeds would go to less developed communities with the highest social arbitrage potential rather than those with the most powerful marketers and lobbyists.  Most importantly, money would go to corporations that adopt the innovation economy. The stronger the institutions of Social Capital become, the greater the value of an innovation bond.  New production of goods and services would reflect these social priorities in the True Value Game.

In effect, Social Priorities will drive Wall Street priorities instead of Wall Street priorities driving Social Priorities – that is Social Capitalism

In the future, there will be only one sustainable investment left – people, communities, and their natural willingness and ability to be productive with their time. The rest is history.

***

Material based on video series here

]]> http://www.ingenesist.com/general-info/social-capitalism-and-the-innovation-bond.html/feed 1 http://www.ingenesist.com/general-info/building-a-better-entrepreneur-google-10100.html http://www.ingenesist.com/general-info/building-a-better-entrepreneur-google-10100.html#comments Mon, 28 Sep 2009 05:34:41 +0000 Dan Robles http://www.ingenesist.com/?p=1727

Several articles have come out refuting the death of MySpace as researchers try to make sense of the continued persistence of what many people consider last-year’s news. Here is an interesting article by Misiek Piskorski from Harvard Business Review answering the question “Where are all those My Space Users”?

“Both traditional and social media have declared MySpace dead. Even a brief scan of articles reveals that media mavens “don’t know anybody who uses MySpace anymore,” which reportedly is not a huge loss as the site “is ridden by spammers” and “its atrocious HTML, bLiNgY graphics, and horrific backgrounds” are offensive. Many of you reading this post probably do not know anyone who uses the site either.

Yet MySpace is the 11th most visited site in the world, with unique 60 to 70 million U.S. visitors every month. Even though the site is not growing, it is a far cry from “dead” if you ask me.”

But wait!

Notice how the “Media Centers” Los Angeles, Chicago, New York are in Facebook territory.  Also note how the technology power centers; Silicon Valley, Seattle, and Boston are also in the Facebook territory.  Academics from Harvard, Yale, Stanford are taken by surprise in Facebookville.  The great financial centers; Wall Street, LA, SF and Chicago are all Facebook.  Maybe the prognosis for the future of social media is skewed by the proximity to major media, academic, and financial centers. Centralized power is the antithesis of social media, Right?

Looking for Disassociation.

Here at The Ingenesist Project we have long been looking for a disassociation between main stream media and social media.  MySpace may be the social experiment that indicates a deeper and most promising trend.  Is it a requirement that a social media analyst be located in Silicon Valley? Do celebrity endorsements really mean anything tangible?  Does editorialized news always provide what people need?

MySpace Demographics:

The resulting sample is representative of the MySpace population. 53% of users identify themselves as women. Of all users below the age of 50, half are 21 years old or younger, and 30% are between the ages of 22 and 30.  Everyone knows that Kids don’t Tweet and late adopters to Social Media are also later-in-lifers.   The population of the world is finite, so when will Facebook level off as Twitter has?

Looking for reversal:

Next, we are looking for a reversal where Social Media drives s0-called traditional media – not the other way around. Can a blogger in Arizona drive the great branding strategies of the future?  Can a Webinar from Montana introduce the next age of enlightenment?  Can Nashville become the next great Venture Capital hub? Can a community of children in Florida band together to sustain the next great social movement.  Will democracy, voting, and public opinion be driven by youth culture? Will corporate innovation respond to social priorities rather than Wall Street Priorities?

Ideas whose times are coming:

There are many examples of the above miracles of social media, however, a disassociation and reversal with traditional media will be an event of flip-floponomics of great significance – a watershed moment in the history of the next economic paradigm.  Traditional media, understandably, may inadvertently be assigning a premature death to many great ideas yet to come.

You are the algorithm.

Google is an information company. Their corporate charter is to organize the World’s information.  Their limitation is that Google cannot organize knowledge because knowledge exists only within the consciousness of a person.   Instead, busy little Google spiders scour the Internet looking for high rates of change of information and they use that as a proxy for “knowledge”.

An economy is crawled

Google Spiders favor blogs because of the high frequency of updates, postings, tags, comments and keywords in comparison to static websites.  The logic goes as follows; if there is a lot of activity, something must be happening.  As a result, an entire industry has grown around the blogging and Search Engine Optimization business; listings are counted, raw data are analyzed, comments provide feedback loops.  Most notably, money is exchanged.

B-school tells us that that ROI can only be calculated from long term future projections, not short-term-recent-past spider activity.  If this “economy” cannot be projected through ROI, then how exactly is it projected?

Dynamic, like life itself

People are figuring out that the rate of change of information is the best indicator of value as well as the best way to create value. The last mile of social media is the next frontier of value creation as people will emulate ‘Google Spiders’ and scour their community for changing information, new ideas, improved information, and feedback loops to organize, categorize, and distribute.  This action will ultimately play out in new corporations built upon perfect dynamic information markets rather than third party selective information markets.  Exit Boston Globe, enter Twitter.

Organize this:

The key to unraveling the Innovation economy will be in refining, restructuring and organizing the profound relatedness between information, knowledge, and innovation.

Information is facts and data – this is the medium of exchange or “the currency”.  The rate at which the facts and the data change is a proxy for new knowledge being created somewhere and somehow. After all, if there is activity, something must be happening.   All of the things that people do with the results creates even more new knowledge – this is innovation.  Innovation creates new information. New currency is created because new information is created.  Knowledge expands.

There is something in it; otherwise people would not do it

We are seeing the tip of the iceberg; social media is the new engine of the innovation economy.  Where information becomes more perfect, markets become more efficient.  Where markets are more efficient, knowledge becomes more tangible.  Where knowledge is more tangible, innovation is more predictable.  Where innovation is more predictable, the innovation risk disappears.  The lower the risk, the cheaper and more abundant the venture capital.

People increasingly use social media to improve information, everywhere, any way that they can dream of.  They increasingly act locally and share globally to create opportunities for themselves and their communities.  People and their behavior is the algorithm of the innovation economy; monetize that. Google did.

The objective of this series is to contain what we know about social networks within the construct of the financial system.  The intention is for knowledge to behave, and thereby trade like a financial instrument.  In prior articles, we discovered the currency, the inventory, the institutions, and the entrepreneurs of the next economic paradigm.  This module will construct the business plan:

A business plan is the blue print for the construction of enterprise.

Like the construction of any tangible asset, an inventory of parts is assembled in strategic proportions.  The ability to accomplish this gives the enterprise a strategic and competitive advantage in a market.

Business failures are knowledge failures

Most enterprises will emphasize design, or service, or performance or price in their proprietary secret sauce of market success.  The question becomes, what quantities and qualities of strategic components allow the new enterprise to create a positive economic outcome.

Most business failure are due to knowledge deficits such as the inexperienced management team, a poor assessment of market conditions, under estimating the amount of money needed, under estimating a competitor, loss of a key employee, or the poor understanding of the technology, etc.  These are knowledge problems not financial problems.

Prediction is the quality of knowledge:

To solve the knowledge problems is to decrease the risk of innovating and increase the predictability of innovations. To decrease the risk will decrease the cost, and increase the availability, of venture capital.  To increase the predictability would increase entrepreneurial activity.

The Unit Business Plan:

The business plan of the innovation economy is very simple; it starts with the single transaction between two people.  The lender provides information and the borrower combines the information with their existing knowledge to create more knowledge.  This single transaction has a value of 1 unit of currency and we call it a unit business transaction:

The Parallel Circuit:

Now we will assemble these single transactions in many combinations.  When we combine two unit transactions in a parallel circuit.  This represents a brain storming session between two people.

The Percentile Search Engine matches the person with the most worthy knowledge supply to a person with the most worthy knowledge demand. The transaction is a simple conversation and the outcome is a prototype process, system, method, or iteration.

The Series Circuit:

The next transaction type is modeled as two unit business transactions occurring in a series circuit.  This represents a product development cycle.

Each cycle of these transactions is an improvement to the business objective. Each time the transaction occurs there is a net increase of new knowledge and therefore an increase in value.  New options are created.  The conversation stops when the product is ready for the market, cancellation, or next physical iteration.

The transaction is recorded as an event between two known persons of known knowledge inventories.  The transaction is stored in the intellect of the participants and becomes their property in the form of a knowledge asset represented by the things they create with their knowledge.

The Social Network:

Now if we combine the parallel transaction with the series transaction we have what now looks like a network.  In practice, we know that strong networks of people freely exchanging ideas make organizations better, smarter, and more efficient.  Networks are where knowledge and community wisdom is stored. A network is fault tolerant, if one person leaves, the network survives. For a relatively small input into a network, we can produce a large output of new knowledge – we have a learning organization.

However, in society, these interactions are largely accidental; people meet at Church, Starbucks, and Social Events or by word of mouth. Other times, these interactions are concentrated inside a single community of very similar people such as a technical conference, group meeting, or lunch buddies and are often not well diversified.  More recently, interaction is self selecting through social media devices such as Twitter, Linkedin, Craigslist, Biznik, and Meetup, etc.

What if the social interactions could be made less random and more intentional?

Suppose interactions be designed with a specific purpose by the entrepreneur as a means toward producing a unique outcome. The Innovation Bank will combine people of complementary knowledge assets in a calculated manner in order to arrive at specific business approaches and applications.

What if Innovation could be made less random and more intentional?

The Multiplier Effect:

A special case business plan is called the Multiplier Effect. In effect, building a network of applications from a network of knowledge assets.

Suppose that a company owns composite material technology for use on aircraft.  Since the company specializes in airplanes, they have no intention of pursuing other applications such as recreational equipment, energy production, or health care products.

The Innovation Bank:

Suppose that the company could deposit this asset in a bank and collect interest.  The Search Engine can scan the business landscape to find persons or organizations with a worthy knowledge deficit in the area of your technology. The originator holds the option to see what those other companies invent and hold the right to use their new ideas in an aircraft application. 

Contracts manage those options.  Those contracts are social contracts and they can be traded.  They are a form of currency – or stored value.

In the event of a cyclic downturn, instead of “laying off” knowledge assets, people can work in tangential industries where they will continue developing – literally putting “Knowledge in the Bank” – to be called back to their original company when market conditions improve.  A mobile knowledge asset increases in value and continually becomes smarter and more productive over time. This is not socialism, this is not capitalism, this is Ingenesism - from the root word: Ingenuity.

Market Efficiencies:

With an innovation Bank, a company can reduce their Research and Development costs and create additional revenue in a tangential innovation market.  Millions of people are being layed off work from corporations – billions upon billions of dollars of innovation potential is being squandered.  With reduced cost and risk of innovation, The new American corporations will specialize in inventing, networking, and applying new ideas as their primary revenue source.

There is no shortage of money in the world but there is plenty of risk. Most business failures are due to knowledge deficits such as the inexperienced management team, a poor assessment of market conditions, underestimating the amount of money needed, underestimating a competitor, loss of a key employee, poor understanding of the technology, etc. These are knowledge problems not financial problems, yet they can sink the most promising companies.

To solve the knowledge problems is to decrease the risk of innovating. To decrease the risk of innovating will decrease the cost of venture capital. Decreased cost of money to innovate will induce innovation economics.

With a computer enabled knowledge inventory in the correct format and a Percentile Search Engine that returns probabilities on strategic combination of assets, the business plan of the innovation economy becomes very simple; The Innovation Bank does one thing very well over and over again – it matches correct knowledge surplus with the correct knowledge deficit at any point in time for any strategic reason. This process is then repeated over and over in infinite different combination.

The first business structure is made up from two single knowledge transactions arranged in parallel – like a parallel circuit. This arrangement represents a brainstorming session between two or more people.

The Percentile Search Engine matches the person with the knowledge supply to a person with the knowledge demand. The transaction can be as simple as a conversation, sketch on a napkin, or white board flow chart. Each time the cycle goes around the new ideas of one person ignites a new ideas in the other person. Each time the transaction occurs, there is a net increase of new knowledge. The conclusion is usually some tangible action, system, or method. The conversation stops when no new knowledge can be created in either person – or when people just get tired (rate of change approaches zero).

The entrepreneur is very interested in the outcome of these conversations and uses the Percentile Search Engine to select, regulate, modify, adjust, analyze, and record the transactions. The Percentile Search Engine is used again to select diverse participants for the parallel business structure with the intention of producing a specific outcome.

The second business structure is made up from two single knowledge transactions arranged in series – like a series circuit. This arrangement represents the product development cycle.

Again, the Percentile Search Engine matches the person with the knowledge supply to a person with the knowledge demand. The transaction is a simple conversation and the outcome is a prototype process, system, or method. Each step in the series is an improvement to the method. Each time the transaction occurs, there is a net increase of new knowledge. The conclusion is the development of the system, business plan, or method. The conversation stops when the product is ready for another iteration or the market. The Percentile Search Engine is used again to select diverse participants to continue the series business structure with the intention of producing a specific outcome.

The entrepreneur is very interested in the outcome of these iterations and uses the Percentile Search Engine to select, regulate, modify, adjust, analyze, and record the transactions.

Now if we mix the parallel and series circuits, we form what looks like a neural network of parallel and series networks. Now, we are squarely in the regime of “designer” Social Networks. Participants are paid in micro-royalties instead of wages. By definition, a relatively small input produces a very large output – if it can be captured.  This will be the source of wealth creation from the new corporations of the Innovation Economy.

We determined in an earlier chapter that information, knowledge and innovation are related as mathematical derivatives.  The accounting system will identify innovation by measuring the rate of change of knowledge transfer within a social network.  Any number of current methods, systems, or innovation consultants can deal with this.  Similarly, in order to identify high rates of change of knowledge in a social network, the accounting system will measure high rates of change of information.  This too is quite simple using common systems, methods, consultants and tools.  No new infrastructure is required with the exception of the knowledge inventory, percentile search engine, and innovation bank.

The entrepreneur can now do what they do best; identify assets operating at low productivity and reallocate them to areas of high productivity by running them through an innovation system.  Remember, most businesses fail due to knowledge deficits.  To reduce or eliminate these risks will make the fact or innovation predictable and therefore negotiable.

The year is 2020, no burning cities, no mass hysteria, no bread lines; the economy is on an exponential growth curve.  The financial crisis of 2008 ended in an anticlimactic sort of way.  Sure, lots of hedge fund bankers were unemployed for a while and many companies once deemed titans of industry have disappeared, but nobody seemed to notice much.

Government debt has been eliminated and Wall Street has become the steward of what has become an Innovation Economy rising from the ashes of debt economics.  The transition, in fact, was surprisingly smooth.  Social Networks figured out a way to make knowledge tangible outside the construct of Wall Street, the central banks, and the traditional corporations.

When the dollar started to fall, people began trading a different currency called the rallod.  The rallod was backed by future productivity resulting from innovation rather than future productivity supporting debt.  The vicious cycle of debt economics was reversed just in time.  When the dollar finally crashed, it pegged to the rallod and the economy began to grow again with an astonishing, yet peaceful, transfer of wealth and power to self-regulating communities, society is general.  It’s still hard to believe what happened.

Today the engines of economic growth are millions of hot new start-ups that exist in the form of “Communities of Practice” related to specific technology areas rather than the old corporation model.  They automatically cluster around a technology and spin off other start-ups at an incredible rate in a strange nesting arrangement called the “tangential innovation” market.  Most innovation is open sourced because the “Patent” (and protectionism in general) is no longer the center of the innovation finance universe, rather, the “secret sauce” of social, creative, and intellectual capital is the most valuable player today.

About 10 years ago, something resembling the human genome project mapped all knowledge in the form of social, creative, and intellectual capital that exists in society to a very high granularity.  A programming language was invented to represent knowledge assets like packets of code that are processed by a community algorithm (The CV/resume is a bar joke now). Thanks to a visionary government, 1st amendment protections were built into this inventory with anonymity laws.

Part of Google was democratized in a public takeover and spun off to design an open source percentile search engine to help entrepreneurs build unique collections of knowledge assets and predict the probability that various combinations of these assets could successfully execute a business plan.  These unique combinations then induce hyper-innovation around a technology and the resulting innovations get spun off to be reabsorbed by different and diverse communities of practice in continuous iterations forming a virtuous vortex of new systems, methods, and solutions.  Sketched out, these arrangements looked like electrical circuits.  Wealth creation is intense.

Instead of having jobs, many people in a geographic area are pinged by a Percentile search engine which calculates the likelihood that their interaction together will increase the probability of successful execution of a business plan when combined with other knowledge assets.  Instead of earning wages, people are paid with micro-royalties specified by contracts on capital asset sub-sections. These micro-royalties add up to substantial residual income enjoying a multiplier effect as their work continues downstream. The government funds social security through it’s own innovation ventures. Service workers such as police, teachers, fire fighters, nurses, local merchants, etc., are key beneficiaries because of their impact on the community is directly associated with productivity.

Many of the senior knowledge workers have determined that they can earn more money by taking an equity position in their students, and the students of their student – such pyramids are in fact sustainable and generate astonishing returns.  Mentors have entered the landscape in vast numbers and apprenticeships have become abundant.  The income potential for the “creating creators” boggles the imagination.   Again, a virtuous circle has formed between the mentor and the student. In aggregate, wisdom is being retained, refined, and transferred efficiently throughout social networks.  Universities have begun doing the same forgoing tuition in exchange for an equity position in students.

University “degrees” have disappeared in favor of unique combinations of knowledge assets that are continually SEO’d for best Percentile Search Engine Placement.  People do not compete directly, rather, they compete with the Percentile Search Engine in the local market place – although virtual work is becoming popular again.  As owners of their knowledge assets, the entrepreneurial spirit is ubiquitous.  No individual has either a monopoly or an identical knowledge set as anyone else.  Everyone has perfect information about the knowledge assets in a market.  People are pinged for different reasons at different times for different rates depending on supply and demand.  Continuous education is a social event in itself often mistaken for recreation!

Since the knowledge inventory has mapped all knowledge and the Percentile Search Engine calculated probabilities and scenarios, the Innovation bank formed to make most worthy and optimal matches between knowledge surplus and knowledge deficit in a community.  Since the probability of innovation success has become predictable, innovation risk is now diversified away.  Innovation insurance products abound. With near-zero innovation risk the cost of venture capital has approached 5-7 % instead of 500-2000% of less than a decade ago.  Banks now issue innovation bonds on the public market to finance innovation in society.  For an investment of such high return and such little risk, participation is near universal.  This created another virtuous circle; the more innovation that occurs, the more money is created.  The more money that is created, the more innovation occurs.

Even the poorest areas of the planet are getting into the action because, by definition, parts of an economy with the highest potential for technological change are the same places that return the highest dividends in an innovation economy.  Arbitrage opportunities between master and oppressor have disappeared worldwide.

Like a neural network, the economic system of tangible knowledge is self-correcting, fault tolerant, and self-regulating.  Governments across the globe tried to stop the social network driven innovation economy – but they eventually gave up.  It was like water; it flowed between the cracks and simply eroded the barriers. China learned to show it’s sense of humor exporting some of the funniest jokes ever conceived.

Oil production has been replaced by superconducting wind turbines, global temperatures have stabilized, all cars are electric or “water leakers” (as the hydro’s are affectionately known), many diseases have been cured, and the list goes on.  It is hard to believe this happened in only 12 years.  Then again, the Internet had only been widely used 12 years prior to 2008.  Did I mention, we’re finally sending a multinational expedition to Mars…

Innovation clusters are all the rage in regional economic development circles.  Actually, they are “industrial clusters” because several companies in similar industries collocate in the same geographical area.  The industrial cluster then attracts supporting industry and often causes the migration of educated and motivated people to the prospect of jobs.  I suspect the ‘innovation’ moniker comes from the notion that newer industries locate near centers of venture capital, like planets forming from the dust of the cosmos.

There are, however, a few drawbacks to industry clusters; they are vulnerable to stagnation, silos, and external shocks.  As companies become organized and technologies mature, patents and trade secrets take hold.  As they ‘go public’, SEC regulation effectively places a gag order on everyone and sharing slows while stagnation sets in. Soon after, dozens of nimble companies consolidate into a single giant to achieve economies of scale.  Finally, silos form under the weight of multiple layers of management.  Then, something somewhere happens to shock the cluster; the end of the cold war leveled the So Cal aerospace cluster. 9/11 busted the Seattle Aerospace cluster.  The dot.com bomb stunted Seattle, Silicon Valley, and Route 128.  Hurricanes hit the petroleum cluster, stem cell and genetic engineering legislation stalled biotechnology, and corruption continues to shock financial institutions.   At the end of the cycle, companies divest, people defect and a new planet starts to form someplace else.

While occasional cleansing, in a Schumpeterian sense, is good for industries, the extreme volatility takes a horrendous toll on that invisible turbine of the economic engine – social fabric.  Families, friendships, professional networks are strained or collapse and those who dedicate their life to a career path – the pure innovator themselves – can be left marginalized by obsolescence.

The Calculus of Innovation Economics does not oppose industrial clusters; however, it does favor something called “technology clusters” in a business structure called the “tangential innovation” market.  For example; composite materials technology is very useful in many applications like aircraft, medical devices, transportation, recreation, and even musical instruments.   The airplane company has no intention of building cellos and the automobile company has no intention of building snow boards.  As non-competing industries, they can readily share technology and people.  The system is naturally diversified and inoculated against stagnation, shocks and silos; if one industry encounters hardship, people and capacity can shift easily to another industry preserving knowledge and expanding social networking benefit while the damaged industry heals or dies off.  Corporations may not like this idea, but social networks should.

The science of Innovation Economics goes a step further by modeling the business structure of tangential innovation markets as an integrated financial system.  Suppose and Originator Company has a promising new composite technology idea but is unable to meet the ROI requirements of their stockholders. Today, such innovation would be shelved.  In an innovation economy, tangential markets are factored into the business case.  The Percentile Search Engine can determine what other industries would be most worthy borrowers of your technology, if developed.  The Innovation Bank can estimate the return on investment that can be expected through the tangential market as if it were another customer.  The additional revenue projection would allow the originator to meet the ROI requirement prior to committing development funds.  Intellectual Property can be managed with contracts enforced through social network vetting.  The originator can hold an option to see further development conducted by tangential users effectively multiplying their R&D reach and further adding to the expected return.

Then something magical will happen. At some point, the value of the tangential innovation market would exceed the value of the origination market.  The originator will begin to specialize in pure innovation as a primary product and airplane applications as the secondary product.  As all industries in the technology cluster begin sharing technology among each other, R&D costs and risks are effectively spread across industries. As risk is diversified away, the cost of venture capital approaches single digit rates.

Then, another magical thing will happen. As the mixing of people and ideas accelerates, the definition of corporate boundaries will become more fluid.  Ownership will exist in the form of contracts among entrepreneurs now defined by social networks, options, and derivatives in a diverse innovation enterprise.

The knowledge inventory will house the assets rather than office cubicles.  The ‘secret sauce’ of knowledge asset allocation becomes more tangible, safer, flexible, and liquid than any patent could ever be.  Innovation will always be proportional to the rate of change of knowledge that the more diverse assets yields. The Percentile Search Engine will match surplus “secret sauce” to deficits of “secret sauce” much better than multiple layers of management in the past. The Innovation Bank will account for all transactions, obligations, and participation and distribute dividends (rather than hourly wages) to the owners of knowledge assets.  The system will regulate itself through social vetting rather than supporting a cumbersome HR department.

New ideas will get developed in the technology cluster where they would never have been able to meet ROI in the industrial cluster.  The innovation economy induces a multiplier effect on innovation by reducing risk, eliminating barriers to sharing ideas, and lowering the cost of capital.

While the boom bust cycle of Industrial Clusters has brought us a great distance in economic development, technology clusters in an Innovation Economy supported by social networks may turn out to be vastly more efficient at economic growth without the vulnerabilities of industry clusters.

Now, the machine readable resume is complete using numbers, symbols, and probabilities; we can quantify and qualify knowledge in the exact same format as a financial instrument. Now the knowledge looks like money. This individual is obviously a:

{20:95%,12:80%};[302+330]70%:(607+17)80%+[500/519]90%

Specialist in Social Interaction, communities of practice, and economics at the 70th percentile related to educational research at the 80th percentile. They have Background in applied mathematic and physics at the 90th percentile. They are a trained ethicist at the 75th percentile. English is 90th percentile and Spanish is 60th percentile.

Each person’s resume can now be combined to represent the collective intelligence of a team. This is not unlike an investment portfolio, baseball team, or insurance policies. This expression carries all of the information that an entrepreneur needs in order to estimate the probability that the team can execute a business plan.

The inventory can be used in many ways such as finding supply and demand in a certain geographic area, securing business loans or venture capital, buying insurance, or place a financial value on the venture. As the organization learns, the new knowledge is retained in the equation through weighted averages – like the secret sauce of success – and can be used again in another venture. If one person leaves the project, they can be simulated by others.

Later, we will see how an uncountable number of applications and new-to-the-world businesses may emerge.

The fun is just beginning…..

We have set up a new game for entrepreneurs to play called Innovation Economics. We have defined a currency and an inventory where knowledge is visible outside the construct of the corporation – and resident in social networks. We have also described a way for entrepreneurs to visualize the knowledge asset and the supply and the demand for knowledge assets. We have given them a tool for matching assets for profit. We have described how social networks will keep the game fair. We have outlined the structure of new business plans; the brain storming session, product development cycle, the neural network, and the multiplier effect. Future businesses will be built upon combination of these four structures and whatever else entrepreneurs can dream up.

We have described all of the pieces needed to form a new economy. Now we need to connect with the financial markets so that knowledge is readily convertible to other currencies.

For review;

With the financial bank, the entrepreneur assumes that they have the knowledge to execute a business plan and then they look for the money. The risk is that the entrepreneur does not in fact have enough knowledge.

With the Innovation Bank, we assume that we have the money, and we go to the bank to search for the knowledge. The risk is not having enough money to purchase sufficient expertise.

With both banks acting together – the risks cancel each other out and the innovation economy tends toward a ‘risk free’ cycle; the more knowledge you can assemble, the more money you can borrow. The more money you can assemble, the more knowledge you can assemble.

Now we have a virtuous circle. The more knowledge you have, the more money you can borrow; and the more money you have, the more knowledge you can borrow.

There is no shortage of money circling the globe – only a shortage of risk free places to put the money. The innovation economy is an environment of very high return for a very low risk and will attract a great deal of money to fund innovation enterprise.

Earlier we demonstrated that money represents human productivity. It follows that the places that have the greatest potential for increasing human productivity can create the greatest amount of wealth. Therefore, poor areas and marginalized economies with under utilized knowledge inventories or the injection of specific knowledge inventories, become the highest ROI centers in a risk-free system; a condition the explicitly favors the wealth equalization rather than wealth disparity.