7 lessons learned from $5 million in open innovation prizes

Prize competitions have long been used to accelerate innovation. In the 18th century, Britain offered a significant prize purse for advancements in seafaring navigation, and Napoleon’s investment in a competition led to innovation in food preservation. More recently, DARPA’s Grand Challenge ignited a decade of progress in autonomous vehicle technology.

Challenges are considered a branch of “open innovation,” an idea that has been around for decades but became more popular after the University of California’s Henry Chesbrough published a book on the topic in 2003. Chesbrough describes open innovation as “a paradigm that assumes that firms can and should use external ideas as well as internal ideas, and internal and external paths to market, as the firms look to advance their technology.”

Big tech has embraced open innovation — mostly through hackathons, sprint-like events that last a day or a weekend. The first documented hackathon was in 1999, and Facebook has promoted “epic, all night” hackathons as a key element of its company’s culture.

But where hackathons are valued for the ability to stimulate early thinking and prototypes, open innovation challenges can accelerate the rate at which a concept becomes a viable — and even market-ready — offering. Unfolding over months or even years, this approach often narrows the pool of participants over time in what is commonly referred to as a multi-stage or “down-select” process. For example, Boeing is sponsoring a challenge offering $2 million for building “the world’s first personal flying device.” In the public sector, the U.S. Department of Energy is awarding $5 million to teams whose innovations expand solar electricity access to all Americans.

Over the past six years, Luminary Labs has designed and developed 17 large-scale prize competitions on behalf of our clients, awarding more than $5 million in non-dilutive capital to teams that aim to solve some of society’s most complex problems. In the past year alone, we have designed and produced challenges focused on improving the lives of people living with diabetes through Amazon’s voice technology, developing augmented and virtual reality applications to prepare students for the jobs of the future, and launching ResearchKit studies to understand mood and its social determinants.

Prize winners from these challenges have a reputation for achieving even greater success. The solvers who enter competitions — from fledgling startups to academic research teams — view challenges as springboards for raising money, filing patents, attracting customers, recruiting talent, and gaining attention. Furthermore, our early research suggests that the finalists and winners of challenges we produced have raised nearly $100 million in venture funding. (We’ll share more details from our conversations with solvers in early 2018.)

As this approach to open innovation matures and more organizations seek to develop an open innovation competency, we’ve heard more executives ask: what makes a good challenge? The short answer: Successful prize competitions must be designed for your desired outcome.

Here’s what we’ve learned from awarding the first $5 million in open innovation prizes:

1. It’s a long game.

Clients get more out of open innovation when they reject a “one and done” mentality, opting instead to build an open innovation competency, socialize best practices across the broader organization, and determine the best moments to push the innovation envelope. Open innovation is most effective when it’s valued over the long term as a strategic intake valve to identify solutions of varying degrees of complexity.

2. Start with problem statement definition.

If a company isn’t in agreement on the problem to be solved, its challenge won’t be successful. That also requires a clear understanding of which piece of the problem can be addressed through an open innovation mechanism. When it comes to prize competitions, a problem can be too broad, making it difficult to obtain actionable results. A problem can also be too narrow, limiting innovation with prescriptive approaches. An ideal problem sits somewhere in the middle, where it has the opportunity to stimulate and expand a tangible market. Once a problem is clearly defined, there are more questions to ask: Is this problem “prizeable?” Are solvers motivated to participate? Are the incentives sufficient?

3. Know what would constitute a “big win.”

Many of our clients are tasked with balancing near-term expectations while navigating what it will take for the organization to thrive in the long term. Rather than meeting in the middle, we ask what would constitute a “big win.” This is a refreshing conversation that sets competing priorities aside to consider the common end goal. When in doubt, return to the most simple of all frameworks: objective, strategy, tactics — in that order.

4. Invest in challenge design.

The market is flooded with platforms that aim to democratize challenges — and better access to tools is great. But in the absence of challenge design, a competition run on the best platform will fail. Thoughtful challenge design ensures that highly interrelated elements — including the call to action, criteria, timeline, terms and conditions, intellectual property stance, prize award amounts and structure, submission form, jury selection, and judging rubrics — support the overarching goal and desired outcomes.

5. Understand what it takes to close the gap between concept and viability.

(Hint: it’s more than money.) Our challenge practice was born out of an existing strategy client’s need to quickly identify viable solutions that could be commercialized in the near term. In response, we developed a multi-stage challenge methodology that shepherds the strongest solutions through an iterative process, ultimately closing the gap between the concept and real world viability. Solvers often tell us this “virtual accelerator” period — which includes education and exercises in empathy-building, subject matter knowledge, rapid prototyping, and business modeling — is of more value to their teams than prize money.

6. Hug the lawyers — as early as possible.

We are known for our work with regulated industries and federal agencies — sectors not typically associated with open innovation. Faced with unique constraints, we encourage clients to engage counsel early in the process. We often bring legal teams in as early as challenge design. More often than not, counsel’s active participation in challenge design workshops helps shape the approach, giving companies a chance to push the innovation envelope while mitigating risk. This means that any organization — even in the most highly regulated industries — can openly innovate.

7. Really, really good marketing is essential.

A key selling point for challenge platforms is the size of their database. Some even monetize “communities.” But if the promise of open innovation is to identify solutions that sit at the fringes of the ecosystem, solver outreach must extend beyond known solvers and reach those who play in analogous spaces. This bespoke approach to challenge outreach requires early identification of solver archetypes, their motivations, and preferred methods of communication. The additional effort is worth it; we’ve found that focusing on expanding the network can dramatically increase the quality of submissions.

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