Research orgs are typically subsidiary to their their money factories. Innovation orgs need a money factory. Bell Labs was subsidiary to AT&T, PARC to Xerox, DARPA to the DoD and Congress, academic labs to grant givers, etc. This relationship generates so many of the incentives that run counter to producing high-quality and eventually-impactful research. A lot of the specific friction^1 can be traced back to mismatched Buxton Indexs - research just has a longer timescale than the natural beats of elected officials, quarterly earnings, or fundraising rounds from LPs.
What if you invert this relationship? (TRIZ Methods #1) - instead of the revenue generating entity (money factory) being the ‘parent’ org, instead the R+D org becomes the parent.
What does the distinction between a parent and a child/subsidiary organization mean? Ultimately it’s about power - whose priorities take precedence? In the most extreme sense, if there is a choice between an action that will destroy one organization or another, which gets priority? It’s uncomfortable to talk about inter-organizational power in the same way that it’s uncomfortable to talk about reaper functions (Reaper functions beat culture decks.) This power usually takes the form of contracts if the children are external to the parent and budgets if they are internal. To some extent it’s just about which organization came first. If a parent organization could survive before its child came along, it’s a clear proof point that it can survive without the child.^2
It’s tempting to say “ah yes! It will solve the problems!” but that is magical thinking. Inverting the relationship won’t remove the Buxton Index mismatch, it will just change which direction exerts power. That relationship will create a different set of constraints on what happens and what can exist. The inversion is rare enough that there aren’t many case studies but one could imagine projects never shipping because of perfectionist thinking or a hesitance to kill projects that aren’t going anywhere.
It feels slightly nonsensical to not have the main profit-generating entity as the parent organization because otherwise, where does operating capital come from before the money factories are created? Let’s call this the ‘bootstrapping problem.’ The challenge becomes finding a transient source of money that simultaneously puts few enough constraints on the organization that it can do the work to create cash-generating children while at the same time not warping its incentives towards generating cash-children as soon as possible at all costs.
There are examples of organizations that have pulled off the inversion with varying degrees of success. Organizations like Flagship Pioneering, Idealab, Ink and Switch, TandemLaunch are all both the ‘parent organization’ and the ‘innovation organization’ while the companies that they spin out are ‘the money factories.’ If you squint, Howard Hughes Medical Institute (HHMI) also fits this pattern - its funding comes from its foundation, which is the subsidiary organization. HHMI is especially noteworthy because unlike the others, its survival isn’t contingent on spinning out companies, which is a double-edged sword. On the one hand companies are a powerful technology dispersion mechanism Dispersion can happen in three ways - selling technology directly, opening technology, building an organization around it but on the other hand, There is a significant class of innovations that would create drastically less value for the world if their value had been captured by their creators.
How did each of these organizations address the bootstrapping problem? Flagship Pioneering, Idealab, TandemLaunch and their ilk - “researchy startup studios” - are explicitly out to create high-growth, venture-backable startups. This goal allows them to bootstrap with for-profit investment capital. It also incentivizes them towards projects that can become high growth startups on a short timescale. Ink and Switch has bootstrapped with a combination of sources - investment, ‘friendly investment’^3, and consulting with companies on the implementation of different areas of their research. Howard Hughes Medical Institute (HHMI) kind of cheated by starting already sitting on top of a massive endowment. The upshot is that there isn’t a well-worn path for an innovation organization to get to a point where its operating capital can consistently come from subsidiary organizations if it wants to work on things that might not want to become high-growth startups. Charting different possible approaches to the bootstrapping problem is the focus of How does money work in PARPA?.
^1: Things like how R&D orgs are always on the side of an org chart - The lab is always separated from the mothership, Rewards in a big company operate on one timescale and R&D happens on another timescale, Startups need to conform to investor timescales, Startups need specific growth curves etc.
^2: Though of course circumstances could have changed to make this no longer true
^3: ‘Friendly investment’ is what I would call investment from non-professional investors that is some superposition of philanthropy and investment. That is, unlike professional investors who implicitly or explicitly want to see a certain level of growth on a clear timeline, friendly investment is more like an option - if the asset becomes worth something, awesome but if not disappointing but 🤷♂️. Of course, friendly investment always runs the risk of becoming unfriendly at any time - the classic example is entrepreneurs who get their first startup money from friends and family who have no experience with startup investing. A lot of angel investing could be considered ‘friendly investing.’