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120 THE PRACTICE OF INNOVATION

III

THE UNIQUE RISKS
Even when it is based on meticulous analysis, endowed with clear
focus, and conscientiously managed, knowledge-based innovation
still suffers from unique risks and, worse, an innate unpredictability.
First, by its very nature, it is turbulent.
The combination of the two characteristics of knowledge-based
innovations—long lead times and convergences—gives knowledge-
based innovations their peculiar rhythm. For a long time, there is
awareness of an innovation about to happen—but it does not happen.
Then suddenly there is a near-explosion, followed by a few short
years of tremendous excitement, tremendous startup activity,
tremendous publicity. Five years later comes a “shakeout,” which
few survive.
In 1856, Werner Siemens in Germany applied the electrical the-
ories Michael Faraday had developed around 1830 (twenty-five
years earlier) to the design of the ancestor of the first electrical
motor, the first dynamo. It caused a worldwide sensation. From
then on, it became certain that there would be an “electrical indus-
try” and that it would be a major one. Dozens of scientists and
inventors went to work. But nothing happened for twenty-two
years. The knowledge was missing: Maxwell’s development of
Faraday’s theories.
After it had become available, Edison invented the light bulb in
1878 and the race was on. Within the next five years all the major
electrical apparatus companies in Europe and America were founded:
Siemens in Germany bought up a small electrical apparatus manu-
facturer, Schuckert. The (German) General Electric Company, AEG, was
formed on the basis of Edison’s work. In the United States there arose
what are now G.E. and Westinghouse; in Switzerland, there was Brown
Boveri; in Sweden, ASEA was founded in 1884. But these few are the
survivors of a hundred such companies—American, British, French,
German, Italian, Spanish, Dutch, Belgian, Swiss, Austrian, Czech,
Hungarian, and so on—all eagerly financed by the investors of their time
and all expecting to be “billion-dollar companies.” It was this upsurge of
the electrical apparatus industry that gave rise to the first great science-
fiction boom and made Jules Verne and H. C. Wells best-selling authors
all over the world. But by 1895—1900, most of these companies