Elliott Parker, CEO of High Alpha Innovation in Indianapolis

On the very first episode of the DIALed IN webcast, Allan Gray welcomes Elliott Parker, CEO of High Alpha Innovation.

Allan Gray: Welcome to the very first DIALed IN webcast, I'm Allan Gray, executive director of DIAL Ventures, a startup studio dedicated to advancing the food and ag system through digital innovation. Today, I've got Elliott Parker with me, our key partner from High Alpha Innovation in Indianapolis. We’ve got an opportunity to visit with him a little bit about the concept of startup studios, why we need them and what that means for us in the ag-tech space.

So, I'm looking forward to the opportunity to really dig in with Elliott a little bit.

So, Elliott, tell me a little bit about High Alpha Innovation. What is it? How did it come about?

Elliott Parker: Allan, thanks for having me as the first guest, I am really excited about this and look forward to seeing this podcast develop. So, High Alpha Innovation is a venture builder. We co-create what we call advantaged startups to solve compelling problems. Co-create means we build startups with universities, corporations and world-class entrepreneurs.

These startups are embedded with some type of advantage that enables them to succeed in the market to get to bigger outcomes faster than they would otherwise, and fix compelling problems. We're looking for really important problems that we can solve.

We're looking for really big problems, really big opportunities and there are a lot of those in the agri-food system.

Allan Gray: Fantastic. So, Elliott, tell me a little bit about Elliot Parker. What's your path? How did you end up in this space?

Elliott Parker: Yeah, well, passion for entrepreneurship is where it starts. And also, a passion for innovation and seeing organizations like corporations and universities get better at addressing some of the big problems that face humanity. It's what we do at High Alpha Innovation. The merger of those two things. My background is in corporate innovation, corporate venture capital and startups. Tech transfer is where I began my career a long, long time ago.

I spent many years working at the consulting firm founded by Clayton Christensen, who is the Harvard Business School professor who came up with the theory of disruptive innovation and taught the world about this idea of the innovator's dilemma. This is the challenge companies face. They'll do everything right, but ultimately still fail because of the way that innovation works. They leave themselves open to disruption. The solution to that dilemma is to go build new ventures apart from the core. And that's what we do at High Alpha Innovation. We take the playbook we developed at High Alpha Venture Studio, launched eight years ago in Indianapolis, and we make that playbook accessible to partners, corporations and universities, so that we can go build more startups than we could on our own.

We believe the world needs more entrepreneurs and for more of them to succeed. So, we're on a mission to do that. And along the way, solve some really big problems.

Allan Gray: So, this idea of when you were working with Clayton Christensen, I find fascinating by the way, I'm a bit of a disciple, although I didn't get to work with him directly like you did. I'm a bit jealous. I read probably everything he ever wrote, in this space, about disruptive innovation.

I think it was about 2019, I watched you make a presentation, it might have been in 2020, if I recall correctly. But you talked about this concept of peak centralization. And really got into this idea of the work that Clayton Christensen did, the work at Innosight, and it was something about this idea that corporations want to be innovative but struggle. Maybe I’m mischaracterizing that, but can you tell me more about this idea of peak centralization and what that looks like?

Elliott Parker: Yeah, here’s where we will test the mettle of the audience by going deep into a topic you and I both find really interesting. But we are in a moment when a shift is going on. A shift is underway in the way the world works; in the way that people collaborate to solve important problems. This shift is driven in large part by advances in technology and access to communication. And I'll explain more about that in a minute. But if you look across the last few hundred years of the history of corporations, one of the greatest inventions in the history of mankind was this idea of a limited liability corporation, the idea that you can get people together and out of thin air, create promises, essentially, in terms of how we're going to act together, set up a system of incentives that will lead people to do amazing things like build the laptops that we're using to talk to each other on right now. Corporations are an incredible invention, and it didn't have to happen. It's kind of a miracle that it did. But if you look at the history over the last few hundred years, how corporations evolved over time and corporations realized that they succeed by bringing resources and assets. Back in the early 20th century, Ronald Coase won a Nobel Prize for explaining why corporations exist. And what he said was corporations exist to bring assets and resources in to manage transactions and to manage those transactions at a lower cost than they could if they were acting out in the open market. That lower cost is profit inside a corporation. Now, what happens when the world changes and those costs of transactions can actually be done for less of a cost outside the corporation than it could previously?

That's where the world we're in right now. In many cases, those transactions are access to knowledge expertise, the buying and selling of different parts or services that was done cheaply inside a corporation before can now be done less expensively out in the open market. And as a result, we're in a moment where we're kind of questioning, well, why do corporations exist now? And we should be thinking about new forms of corporations.

Anyway, I think we're at a point where we saw this kind of drive to centralization of power happening inside the walls of corporations. The peak may have been the 1950s. As for me, it's the mental models. AT&T and Bell Labs, who had over a million people working at AT&T before it was broken out to Bell Labs. You had just one of the most outstanding examples of corporate innovation ever. They could bring in the world's foremost experts in a technology area and do things like invent vacuum tubes and modern computing electronics. We're unlikely to see anything like that happen inside a big corporation ever again, because, again, technology has improved. Specifically, computing power, which enables more people to access information, to act as experts, to access expertise, to do things that previously they couldn't have done very easily on their own.

Similarly, communication enables more sharing of ideas, more sharing of the technology, building blocks of a faster pace. We can talk to anyone in the world for free any time we want. That's never happened before in the history of humanity. And those changes empower individuals and small teams more than ever before, in my view. And so, corporations are now at a point where they have got to find new ways to engage in this world where innovation is going to happen a lot faster than it used to.

Allan Gray: Maybe I'm not exactly 100% with you in the sense that I think the corporation may be going the way of the horse and buggy. I'm not sure about that, but it might potentially. But I will say my work for all of my career is in business strategy, really working mostly with incumbents and thinking about how we develop strategy concepts that often lead to success in the company also have a tendency to lead to an inability to innovate in the disruptive space that you're talking about.

Right. And in fact, I think Clayton Christensen wrote about this, that one of the challenges is that as a company, as a corporation grows and becomes more successful, collects those resources as you suggested, it develops processes, and it begins to codify its value systems. Once it does that, the idea that I might need to innovate in some way that might break that value system or completely change the processes needed, or maybe even require a different set of resources, suddenly means the things that made the corporation successful, also make it so that it can't really innovate in those ways. I don't think that's to say that corporations can't be innovative. They are and they do create new stuff. But Clay would have called it sustaining innovation – trying to be really good at things mostly like product development line extensions, because they utilize the resources, the processes, the values that have been put in place that allow them to be successful. Those things don't get shifted or disrupted. Sorry to use the word disrupt, but they don't get disrupted by sustaining innovations. It's these things you're talking about where technology really sort of changes the rules of the game. That can often be difficult for a corporation.

Are we on the same page?

Elliott Parker: Yeah, that's right. Corporations aren't going away and thank goodness for that. Actually, there are only certain problems that I think corporations, the people who collaborate inside of corporations, can address. Startups are limited in what they can do. Corporations are powerful tools for solving important problems. But what I am saying is that it's going to be harder. It's going to become increasingly difficult for corporations to endure. We're seeing the lifespans of companies shrink over the last few decades. And those numbers are going to go down.

Some of my former colleagues did some research to look at the lifespan of your average company on the S&P 500 to find that 60, 70 years ago when a company was put on the S&P 500, it would typically stay there for 60 years. And if I'm remembering the numbers right in the last decade, that's dropped to 20 years and the trend is going further down where we should expect that over the course of 15 years, you might see half the S&P 500 swapped out because they're not able to stay ahead of the pace of innovation. They're not able to innovate faster in the market. It's harder to innovate than it once was for these large organizations. And you explain exactly why organizations are very good at sustaining large corporations. Most of the things that we see and enjoy that make the world the way they are, is sustaining innovations. There is a place for that. It's a really important part of what corporation is do.

The problem is luck runs out at a certain point and those disruptors come up and take out those incumbents. Sustaining innovation is not an enduring strategy in its own organizations. Large corporations also have to figure out how to do those things that are more transformative, that the disruptors are otherwise going to do.

Allan Gray: Well as you said, you and I need to be careful because we can geek out on this topic, but I want to take it back to the concept of the startup, because the interesting thing is, unlike the basic startup world, andrelative to the standard startup studio, innovation has sort of take an approach that says, well, rather than disrupting the corporations, why don't we work with them?

Tell me what it is that you see about them saying, let's work with them and use the startup model as a way to help them with this challenge. How do you see that as opposed to saying, why don't you just go create startups and eliminate the corporations that won't be able to last anyway?

Elliott Parker: Yeah, it's interesting when you look at the world of venture capital and venture-backed startups. When people talk about that activity, it's most often framed as funding these companies that are going to disrupt the incumbents and take them out. And then when you look at what's actually viewed as a successful outcome, most of the time it's acquisition of that startup by one of those incumbents it was designed supposedly to take out.

And so, when we think about how to improve the way that these things work, perhaps there's room, in this space of different approaches, to consider that corporations and startups might partner together from the beginning. That we can actually build startups with those corporate partners in mind, with their problems in mind, with the problems of their customers, with the problems that they encounter in their ecosystem. Not with the idea that we're going to take the big company out at some point, but that it's going to be a natural complement to what they're doing. We plan for that eventual acquisition – that story in mind from the beginning.

And if we do that, we can again endow these startups with some advantage. You mentioned it well a second ago. Large corporations as they scale, they all begin as startups where they were trying to figure out and learn and figure out what worked. And they found something that worked. And then they focused on scaling that and executing it really, really well. And as these large companies grow, their model shifts, their processes and their systems are optimized for execution. They're not optimized for learning anymore. Learning at the margins, sure – sustainable types of innovation. Learning how to do things more efficiently, for example. That's what they do really, really well.

They're optimized for safety, for preserving what's been built, for preserving the status quo. And so, learning, innovating, specifically transformative innovation is by nature a capital inefficient activity because it requires making mistakes. You can't learn if you're not making mistakes. Big corporations are optimized to not make mistakes. Jack Welch famously said, “Variation is evil.” He's talking about big companies and he's wrong.

Now I understand what he meant. We should try to make everything as predictable as we can, and that's a good inclination to a point, then there has to be an acceptable amount of variation, even inside of big corporations, or that corporation is no longer learning. Startups, on the other hand, are incredibly inefficient from a capital perspective. They try all sorts of things to see what works. They're messy. You may look at some startups that you interact with as a customer, perhaps, and think, wow, they've got it all together. They've got it figured out. The reality is, I've never seen a startup that the owner is not in the constant state of panic.

That's how startups work. They're incredibly capital inefficient, and the reason is that they're optimized for learning. They're actually optimized for mistake making so that they can figure out what works. And so, if you can combine all the great things of a big corporation, that knowledge of the market, the access to customers and the ability to do things at scale, with that learning ability of a startup, the ability of the startup to accept mistakes and inefficiency. If you can combine the best of both of those, in theory, everybody's better off. And that's kind of the hypothesis that we're testing at High Alpha Innovation.

Allan Gray: One of the things that you've done is work with individual corporations and try to think about how to help them innovate in ways that a startup can do, that they can’t, I think is brilliant. But you've also gone down a path of working with universities and thinking about this idea of developing startup studios with universities.

What's the driving force behind that concept?

Elliott Parker: Yeah, universities are an amazing tool, and I think in many ways underutilized actually, in terms of their potential in terms of the impact that they might have on the ecosystem in which they operate. What I mean by that is universities are very good at generating ideas, forming connections. You see a lot of companies coming out of universities. Far too many of those companies fail because that's not what a university historically has been designed to do. I remember having a conversation with a leader at a university once who explained that in the prior decade they launched over 100 startups from a university, which to me sounded incredibly impressive, until he told me how much revenue those startups had earned the prior year in total. And it was why we kind of came to the conclusion together that the university was good at forming an LLC, but is not actually creating viable companies, and that's a shame because there's so much potential. And again, once you get to the point where a company has been formed and launched, that's just the starting line. And often in the way that universities work, it's viewed as the end product and kind of the metric by which we measure success. It's really only the beginning. And so, I think there are ways that we can use the power of the university as a convener, and sourcing ideas, and developing solutions and bringing together industry, capital alumni, and government experts to make sure that when we launch companies that are actually more likely to succeed than they would be if they were being launched out in the wild.

A university is uniquely positioned to go out and address really, really big, meaty, important challenges in a way that no other institution can. The trick is turning all that potential into benefits to those new companies that come out of the process, making sure that those companies are more likely to succeed. And that's where I am super excited about the work that we're doing with universities, and with Purdue in particular.

Allan Gray: Yeah. We're partners here at Purdue University with you at High Alpha Innovation. And that work is really focused on ag-tech and food tech and all along that vertical, if you will. I'm curious, from High Alpha Innovation's perspective, what was attractive about working with Purdue in the ag space?

Elliott Parker: Yeah, the short answer is just massive unsolved problems. And if you think about how we've got a lot of people to feed, is there anything more critical than making sure humanity has the food that it needs over the next several decades? I can't think of a more important quest to make sure that our agri-food system is robust and up to the task.

So, there is a high-level problem out there that we want to make sure we're collectively addressing this really important problem. I think that there's a lot of untapped potential in terms of what technology can do in addressing some of the issues around how we feed people.

You go talk to your average grower and they're almost drowning in technology and all the new things. They're trying experiments. They're running just an amazing amount of innovation. But I think there's a lot more to do. I think there's a lot more opportunity up and down the supply chain. And that's what gets me really excited about the space here in Indiana.

I think we've got this this amazing kind of foundation of ag in terms of everywhere from growers to the big companies that are supporting them up and down the supply chain. And then we've got this amazing tech ecosystem here, too. I think this region is the center of the universe when it comes to ag-tech innovation. We've got all the resources here to be able to do it. So that gets us excited, too.

It's a big problem, a lot of untapped opportunities still, and then number three: we've got all the resources here in the region that we can pull together to do this. And at the heart of that, of course, is Purdue University, which sits at the confluence of industry and the alumni who are involved in these spaces.

Allan Gray: We've been working on putting together the pieces of that puzzle to solve that problem. You've heard me say this: let's fly this airplane while we're building it, which we've been doing a lot of with within DIAL [Ventures]. But maybe without sounding too self-serving, I don't want you to just pat me on the back, but I do think it's also important for our audience to hear, you know, about the benefits of this partnership with DIAL. We've been building our own startups. And so maybe tell the audience a little bit about from your perspective, what it's been like to put that together, and where you see the potential for this partnership with High Alpha Innovation ongoing.

Elliott Parker: Yeah, a startup that builds startups is better than just talking about building the airplane as it's flying. If you're involved in just building a startup, that's one thing. It's hectic enough. Going to build a startup that's going to build more startups and you're going to do all of that at the same time within the context of the university is another layer of complexity. It's not an easy thing. And so, I think we collectively should be proud of the progress to date and Allan in particular, the work that you've done to get things this far, it's pretty amazing. It's not intuitive, or natural to understand that a university might have a role in actively building startups.

For one thing, that's a proposition perhaps not everyone would even agree with, but it starts with that foundational belief that there can be impact through startups and that university can be a good way to see them. I think that with Purdue in particular, what we see with the folks that we interact with is a desire to explore the reaches to which a university can go and the kind of the impact the university can have at its very core.

It's a lot of fun. And I think over the next decade we'll see that Purdue really takes a lead role and is viewed widely as an example of what a university can do when it comes to having broad impact beyond the teaching and the research, but broad impact in solving real problems in the world, seeing those come to life.

Allan Gray: That's great. You know our vision here is to have impact at scale. And how we can have impact on our food and agricultural industry at scale. It’s impact and scale. And it's both of those two words together that has always been the driving force behind what we're trying to do at DIAL. And our partnership with High Alpha Innovation is how can we really impact this industry, really help it innovate in ways that it struggles to do, particularly around digital stuff, and do that in a way that has real impact at scale.

Our view is to bring the partnership of the industry together with us at Purdue and with High Alpha Innovation to create these startups with our Fellows program, to really have that sort of impact at scale. And I think we're headed down that path now. My view is that we're headed down a really strong path here as we've been building this airplane.

And we've created startup companies already. We have some strong positions already with startup companies coming out. You know, we just started a year ago; 2022 was our first year to start trying to do this stuff. And we've got two companies out and maybe a third one coming out really quickly. I'm always challenging us to say, remember, we're not about creating an LLC, we're actually about creating startups, as you said, that are going to be successful. But we're well on our path and I'm excited about the opportunity there.

The other thing that's a bit unique about our studio is we have this Fellows group that we attract six fellows from the industry every six months. And those industry fellows come in and they work with us in the studio in the development of the ideas that may or may not turn into a studio company. These Fellows are thinking about being entrepreneurs in the startup environment we try to create here. From your perspective, what advice you would give to those folks who are thinking about this?

Elliott Parker: Yeah, it's a great question. It's a fun position to be in for those Fellows. There are times when I envy them and what they're doing, kind of the position of life where the world is their oyster in terms of the spaces they might jump into. I think about these Fellows as the translators. This goes back to the opportunity for DIAL and what DIAL is doing that I think makes it so unique. The opportunity for Purdue and other universities frankly, that are thinking about it this way. Most of the commercialization, the impact that is done at universities is done from an inside-out perspective, where we're going to do research, we're come up with ideas and we get to take those out and see what the world needs. This model is different. It's outside-in. Let's see what industry needs. Let's see what the problems are and let's figure out how we can deploy the resources of the university to go address them. And those Fellows are right at the crux of it. They're the translators. They're the ones who are working to figure out what the world needs, what the industry is saying, what the problems are, and then bringing that back to the university to say, OK, here's some things that we ought to go solve.

And that's a key part of the program that differentiates it from your standard program.

Allan Gray: One of the things that we do in this program is we get these entrepreneurial folks to understand that the critical element is to first fall in love with the problem. Too often I see this: I have a solution. Let me go find a problem for this particular solution. And I think this is the classic sort of startup in the VC world. We're turning that on its head and saying, wait a minute, this is about the industry. It's about the problems they have, the challenges they have. Let's go fall in love with the problem. Then, let's figure out the solution and create a startup company. I really fully buy into that concept and the way we do that, and the way High Alpha Innovation has put together a playbook to help us dig in to figuring out how to fall in love with what that problem is.

But ladies and gentlemen, Elliott Parker, CEO of High Alpha Innovation, has been with us today sharing some insights around what it means to have a startup studio that innovates for the industry. This is a strong partnership that we're creating with High Alpha Innovation and this dialog is just fantastic from my perspective. I couldn't have had a better first guest on.

So, Elliott, thank you for taking time to be with us today. I really enjoyed the conversation and for the audience. Please come back and join us again.

I'm going to have guests on throughout who are guests from the industry talking about startups, talking about ag tech, thinking about food tech. This is what we want to do with this particular webcast – constantly be thinking about the kinds of things that we are doing for the future and where we're going in food and agriculture, and the way that startups may fit into that.