Trailblazers and Roadblocks

Some of the most promising young companies in Kansas City owe their success—and their existence—to innovators who acted on their vision. But does the region have enough innovation? And how can we get more of it?

Last fall, the nation witnessed a presidential election featuring these two views on innovation: The challenger called it key to economic growth and job creation, increasingly important to American competitiveness in the global economy; the incumbent declared that America’s economic growth and competitiveness depended on its people’s capacity to innovate.

The electorate resoundingly agreed; 98.27 percent voted for one of those views.

If it’s a given that innovation is good, and good everywhere, a metropolitan area that wants to be known for both its entrepreneurship and innovation needs to position itself to stand out relative to competitor and peer cities. And on that score, innovators and academics generally agree: More can be done in Kansas City. The question is, what? And how? And what’s getting in the way of more innovation, the kind that will produce the long-term job growth we’re looking for?

Before we can address those questions, innovators say, it’s important to understand that not all innovation is the same. Some involves taking an existing product or service and making a tweak or two to drive change.

“The most innovative people know about a lot of things, because a lot of innovation is borrowing concepts from other fields,” says Nick Franano, president and CEO of Novita Therapeutics, which develops new drugs and medical devices. An example: New technologies to drill for oil. “You can take that new concept and apply it to making a medical device, make the connection in how to solve a problem with blockage in a blood vessel,” he said.

More profound is the innovation that leads to radical breakthroughs, disrupts existing legacy businesses, and supports Joseph Schumpeter’s  theory of creative destruction.

“Some innovation is motivated by pain,” says John Norton, associate director of the UMKC Institute for Entrepreneurship and Innovation. “You have a thing you want to achieve, and something hurting you or stopping you from doing that.” Other innovation is motivated by vision—and that, Norton says, is demonstrably a skill that can be taught. “It’s not a question anymore; we know things we can do to allow people to be more creative,” he said. “It’s not a matter of if, but how.”

Franano isn’t so sure. He thinks innovation may be closer to a finite commodity. “I’m a big believer in those programs best suited to help people, who by their very nature are innovative, develop the other skills they need to be productive,” he said, “but I think it’s less efficient to take a person out of the MBA program and say we’re going to make you more innovative. I don’t think that works very well.”

Where academia can support innovation, he said, is by taking people who are inclined to innovate, and helping them develop other skills they need to be productive. “A lot of innovative people have ended up living unproductive lives because they never found the right environment to express and commercialize it,” he said.

Reggie Chandra, whose Rhythm Engineering is shaking up the world of traffic signalization with a computerized system of controls to decrease congestion and travel times, says the support given to innovators is a huge factor. “I find that very few people are visionaries,” he said, and because of that, creating environments and systems that leverage innovative talents is key.

At MedTrak Services, a fast-growth pharmaceutical-benefit management company, CEO Larkin O’Keefe takes a balanced view of the role innovation can play. “When I look at entrepreneurs and companies that have grown, it’s come from guys who have a good idea, are willing to take a chance on it, then make
it a great idea,” he said. “I don’t see a lot of radical ideas turning into great ideas and companies.”

The organizational structure, though, is essential to hone that great idea into a good one, O’Keefe said. “Taking the good ideas and improving upon them, having the wherewithal and the infrastructure to complement the ideas. If you can do that, it’s all about ‘How do we take this to the market?’ Because ultimately, a lot of great ideas never come about because they don’t have the sales/marketing savvy.”

That’s unfortunate, he said, “but when it comes right down to it, a company succeeding is all about revenue. You need a good product, you need to get a good sales force, and if you have those things, you have a good chance of being successful.”

Chandra also noted the need for an organizational safety net.

“It’s not the fact that you’re an innovator; you need other skills,” Chandra said. “Lots of people have ideas, but beyond the discipline of having an idea, you then need to break it down, find out what it takes to make it work and execute it. But there are two things in any business: innovation and marketing. The marketing takes the innovation and communicates the message that creates the perceived value. You can innovate all you want, but if there’s
no execution and marketing, you’re not getting anywhere.”

Ryan Weber, president of KC Next—The Technology Council of Greater Kansas City, noted that entrepreneurship itself may take many forms—someone opening a grocery store or a buying a rental property can be one. True innovation is something else. “Disruptives—those are the ones we want to focus on, the new wave of companies that employ thousands of people,” he said.

But some key data suggest that innovation isn’t broadly practiced, Franano said. “When you look at the number of new patents issued, a relatively small number of people make the majority of the inventions,” he said. “Right now, when you look at human capital, innovation is concentrated.”

Some environments can foster innovation, some companies can create it, but to get more innovation, it may be necessary to hire more innovative people. Which presents challenges of its own, Franano noted. “In a larger organization, inno-vative people, from a personality standpoint, are often difficult—we all know that—because they’re unreasonable, by definition. An innovative person says, ‘Here is a thing that does not exist which should exist,’ but in all of human history, it hasn’t yet existed, so it’s unreasonable to say that something not ever conceived of, by however many billion people, is something that’s needed.”

That’s why, he said, so many innovators are working in small companies, where more informal organization structures allow them to do what they do best, without rocking corporate organizational boats.

So how do we get more innovation? Step One, experts say, is removing barriers to it, for surely there is more innovative capacity now under-used.

“Companies can facilitate innovative thinking,” said Norton, “you just need to recognize that there are limits on how far afield you can look for solutions to problems.” It wouldn’t help for someone at Sprint to produce a breakthrough concept for transportation, he said, because that’s not part of Sprint’s business model. Within existing companies, though, there are ways to extract more innovation.

“We can show you all the ways you can be creative, and the ways you can stop people from being creative,” Norton said. “Sometimes we get so focused as managers that we don’t realize we’re doing some things that aren’t in our best interests. We stop people from being creative when they want to. A lot depends on what organizations do to interfere with that process.”

“It’s been my experience in some places that people demand creativity and pound the desk to get it, then slap the daylights out of people who bring radical ideas,” he said. “It doesn’t take too many times, when you see Johnson get punched in nose, before not only Johnson quits bringing ideas, but so will anybody who looks at Johnson’s nose. I know people who do that and are aware of that fact, and when I ask them why they don’t stop, all they can say is, ‘I can’t help myself.’”

The life of an innovator, Franano said, is not an easy one; it tends to be lonely and full of rejection, especially in larger corporations. That factor can be compounded by Kansas City’s reputation for being more conservative than counterparts on the coasts when it comes to novel suggestions. “Generally speaking, it’s much easier in California to find people with open minds toward completely novel ideas,” he said. “In the Midwest, it’s a little harder.”

The flip side of that is that we have resources like the Kauffman Foundation, programs focused innovation not just at UMKC, but at KU, K-State, MU and private universities—and the remnants of a frontier mentality that took a just-do-it approach to life.

Weber, of KC Next, said Midwestern modesty is also a barrier; organizations often celebrate their staff achievements and ideas in-house, but don’t extoll that to the broader business community. “I think more people in the Kansas City community can learn from people who have been innovators and been successful,” he said.

One other asset Kansas City has going for it is the mother-ship phenomenon, Weber said. Former employees from large companies have taken concepts into development on their own, having learned the lessons of successful product development and promotion. That influence, and the growing numbers of successful entrepreneurs who are mentoring younger executives through the Kauffman Foundation, in university classrooms or with personal relationships, can have a long-lasting impact.

“What has helped me the most is hanging out with other entrepreneurs who are innovative,” Chandra said. “I am inspired by other entrepreneurs who have taken the risk.”

Weber said the influence of successful executives in mentoring roles is a powerful one. “That’s how the ecosystem works,” he said. “Look at Silicon Valley as an illustration of that; here, Sprint is our Apple or Google—Cerner, DST, Hallmark, they all recruit and produce a lot of very talented people who want to go forward and make their dream a reality.

“Now we’re seeing those major corporations working with entrepreneurs to grow the tech community,” he said. “It’s fantastic to see that, because who knows what happens from there?” 

Nick Franano | Novita Therapeutics

Nick Franano and William Whitaker have done the innovation dance before. They co-founded Proteon Therapeutics in 2001, building off of Franano’s earlier work in vasodilation treatments when he was at Johns Hopkins  Hospital. Proteon’s PRT-201, a human protein, became the company’s leading drug candidate for its ability to permanently dilate blood vessels—or, as the company calls it, form a “biological stent.”

That drew sufficient interest from Swiss-based Novartis AG, which in 2009 took an option to buy Proteon for $550 million if human trials proved successful.

For Whitaker and Franano, the experience with Proteon demonstrated vital distinctions between early and late-stage development of drugs and of medical devices. After Proteon, they formed Novita, with a goal of bridging the two cultures with a single company capable of streamlining the development processes.

Few drugs in research and development reach the stage of securing half-billion-dollar options, but the potential payouts are one reason that Novita can be as innovative with its compensation structure as it is with its products and services. Standard policy is to grant royalties to anyone who comes up with a new invention. “At most places, those rights are assigned to the company in exchange for a salary, but that doesn’t equitably reward the new, novel idea,” Franano said.

“Here, we tell people that if your invention becomes the foundation of a patent, the foundation of a product, we provide a 1 percent royalty. If that’s a $100 million-a-year product with a 10-year cycle, that’s $10 million to that person. That seems entirely reasonable, and it encourages people to be more creative.”

It’s part of an organizational culture that promotes idea generation and sharing, Franano said. More important, it keeps those ideas in-house. “People have innovative ideas, but at a lot of firms, they know that others might think those ideas seem weird,” he said. “That won’t help you get them to disclose their ideas, or they might even try to go do the start-up themselves, so they keep those ideas to themselves. We encourage people to disclose them rather than leave.”

Reggie Chandra | Rhythm Engineering

“Innovation,” says Reggie Chandra, “can happen anywhere. That’s the beauty of the American entrepreneurial system: You have an idea and are passionate about that idea, you create a perceived value for someone else, in exchange for their hard-earned dollar.”

At 8-year-old Rhythm, innovation is about breaking new ground. “As a culture, we always talk about innovation; we don’t do a me-too product,” Chandra says. “Our solution won multiple awards at the national level for performance and being innovative, so innovation is a value we embrace.” That first embrace led to InSync, an adaptive traffic-control system that interfaces with existing signalization systems to improve vehicular flow, decrease congestion and reduce commuting times. Companies that make traditional systems were caught off-guard.

For major players in that industry, Chandra said, “when a city buys their technology, they’re captive—they can only buy from that one vendor. So there’s no reason to innovate. The key to our innovation is that our solution works with any brand and flavor of architecture that’s out there. We are able to go anywhere in the U.S. and say, ‘Hey, we’re compatible.’ ”

To promote that kind of thinking among its staff, Rhythm provides a cash award to the best ideas, Chandra said. “It doesn’t have to be a product; it, can be an idea that optimized our operational effectiveness.”

One such idea was creating a thinking space, a place that eliminates distractions and allows people to focus. Rhythm built it. “We give a cash award every month, so we do more than talk about it,” he said. “Last year, we shared 30 percent of our profits with team members for their contributions, those who take a product or an idea and move it to the next level. It’s the messaging that has to start from the top down, and reinforcing that is really important.”

Larkin O’Keefe | Medtrak Services/Tria Health

Even in companies that strive to innovate, the best ideas sometimes come from the outside. So it’s important to have not just good minds, but good ears. That, says Larkin O’Keefe, is the foundation of the long-term rapid growth at MedTrak Services, a pharmacy-benefit manager.

“As an organization, we have an unparalleled commitment to customer service. To us, this means not only providing exceptional service, but really listening and understanding the challenges that face our clients and their members,” O’Keefe said. “With this type of partnership, combined with our knowledge and expertise in the industry, we have been able to develop products and services that help us grow and stay ahead of our competition.  It is difficult these days with all the changes in health care and more important than ever to stay ahead of the curve.”

Picking up on client needs, in fact, led to a structural innovation with the founding of Tria Health in 2009, an opportunity that arose from MedTrak’s semi-annual off-site strategic planning meetings. “While these meetings can be challenging to make time for, they give us the opportunity to step away from the day-to-day operations and really talk about the things we need to do as an organization strategically to move the company forward,” O’Keefe said. When one meeting turned to the issue of non-adherence—the failure of patients to stick with prescribed medication dosages and timetables—the concept of a spinoff operation surfaced.

That, O’Keefe said, was before the issue of non-adherence was all over the news in 2011. “Tria Health has been a great innovation for us providing our clients not only cost savings, but improved employee health,” he said. “This is just one of the ways that we use innovation to move our company forward.”