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10. 
Attracting new expertise and cross-disciplinary solutions.
True breakthroughs often come from outside the normal field of experts. Strongly designed challenges lift a problem to high
visibility, attracting nontraditional innovators and driving interdisciplinary collaboration among unlikely partners.

11. 
Driving regulatory reform.
On some occasions, a powerful incentive prize can also drive governmental change, helping to clarify regulatory issues relevant to the competition. The publicity surrounding a prize coupled with a large number of entrants can provide the political pressure needed to foster change. In the case of the Ansari XPRIZE, the competition drove the US Federal Aviation Administration (FAA) to adopt regulations that permitted human space flight in commercial reusable space vehicles.

12. 
Inspiration, hope, and intelligent risk taking.
Ultimately, challenges are about fostering innovation and creating hope in fields that are stuck in ruts. If nontraditional teams take intelligent risks in fields dominated by risk-averse incumbents, true breakthroughs are far more likely. Remember, the day before something is truly a breakthrough, it's a crazy idea.

Prizes are not panaceas. Many challenges are too complicated to be prizable and others require teams to raise too much money to compete. In my experience, prizes make the most sense in the following circumstances:

1. 
You have a clear understanding of your target, but not the method to get there.
In the case of the Ansari XPRIZE, I knew I wanted a spaceship that could get consumers repeatedly a hundred kilometers into space. I didn't know (or care) what type of propulsion system, landing system, or materials the vehicle would use.

2. 
You have a large enough crowd of innovators to tap into.
You want innovators from everywhere. Restricting entrance into
a competition to smaller talent pools produces lesser results. The Wendy Schmidt Oil Cleanup XCHALLENGE attracted 350 teams from around the globe. Had we restricted the challenge only to students at a single university, we would never have achieved our desired goals.

3. 
A small team is capable of solving the challenge.
The ideal competition can be solved by a reasonably small team. In the case of the DARPA Grand Challenge for autonomous cars, it was a team of graduate students from Stanford. In the case of the Ansari XPRIZE, it was a group of thirty engineers from Scaled Composites. Projects requiring a team much larger will likely run into fund-raising and management challenges.

4. 
You are flexible on timeline, types of solutions, and who might win.
When using an incentive prize solution, you give up a certain amount of control in exchange for getting unexpected, potentially breakthrough results from nontraditional players. If you specify challenge parameters too narrowly—such as which technologies must be used or where the innovators should come from—you lower your chances of getting the results you seek.

5. 
You are flexible on who owns the intellectual property at the end.
We'll discuss intellectual property (IP) in greater length below, but in the case of most XPRIZEs, the IP is retained by the winning team, and the prize sponsor backing the competition is doing so for the purpose of publicity or to bring real change to the world. This is not necessarily the case for HeroX challenges, where the IP can be owned at the end by the challenge sponsor.

As I've studied prizes, I've identified three principal motivators that attract teams to compete. Understanding these principles can help you fine-tune your competition to maximize participation.

1. 
Significance/recognition.
There's a lot of latent talent that wants the chance to prove itself to the world. Prizes, especially those high in MTP and visibility, offer the winning team the chance for rapid fame.

2. 
Money.
While many teams don't compete only for the money, sometimes the cash can be a real motivator. Such was the case for Dr. Paul MacCready, who designed and built the Gossamer Condor, a human-powered vehicle that flew a figure eight between two markers half a mile apart. MacCready pursued the challenge to win the £50,000 Kremer prize and pay off a personal debt.
²³

3. 
Frustration.
In many cases, such as with the Wendy Schmidt Oil Cleanup competition, the competing teams are deeply frustrated by the status quo and want to solve the problem. Thus competition gives them a target to shoot toward, and a way to focus their frustration.

As you design your own incentive competition or HeroX challenge, there are fifteen important parameters to consider.

1. 
Simple, measurable, and objective rules.
When creating a challenge, strive for rules that are straightforward, measurable, and objective, with a finish line that makes the winning of the prize obvious to everyone. In the case of the Orteig Prize, the rules were “fly nonstop between New York and Paris.” In the case of the Ansari XPRIZE, the simple version of the rules could be expressed as “Fly the same three-person spaceship to a hundred kilometers in altitude, twice in two weeks.” Of course the detailed rules are far more complex, but good prizes are easy to
explain and understand.

2. 
Define the problem, not the solution.
The prize rules should define a problem to be solved, not a solution to be implemented. For example, the Ansari XPRIZE did not care about launch-vehicle details (propulsion, landing mechanisms, etc.). The only objective was to get three people to 100 kilometers twice in two weeks. As a result, the competition saw over a dozen uniquely different approaches.

3. 
Pick the appropriate structure.
Incentive competitions come in a variety of different structures. Here's a list of a few variants worth considering. Find one that is best for you:

• 
Past the post
. This type of competition offers cash to the first team to achieve the set goal.

• 
Past the post with a deadline
. This is how we structured the Ansari XPRIZE. We offered up $10 million for the first person to fly twice to a hundred kilometers altitude
before
December 31, 2004.

• 
 Bake-off
. This is most similar to the Olympic Games. A bake-off competition takes place on a certain date, where teams compete head-to-head, and the best performance in the competition is awarded the purse.

• 
Bake-off with a minimum performance threshold
. This is how we structured the Wendy Schmidt Oil Cleanup XCHALLENGE. Teams delivered their hardware to the same location and competed head-to-head. The best performing team, above a minimum performance (2,500 gallons per minute of oil cleaned up), won the competition.

4. 
Addressing market failures.
Incentive competitions are often needed to jump-start a stuck industry and demonstrate a new market. Prizes should address problems where a market failure prevents solutions. Here are a few examples of common types of market failures:

• People believe a problem is not solvable. There is institutional
and public misperception.

• There is a stigma that prevents people from even attempting to solve the problem.

• Entrenched players or unions prevent fair competition or transformation of the industry or technology.

• Capital is not flowing into an important problem area.

• Regulatory structures prevent the innovation from materializing.

5. 
The proper balance of audacity and achievability.
The prize needs to be audacious enough that it is inspirational (i.e., has an MTP), but not so difficult that it can't be achieved. When I originally announced that the goal of the Ansari XPRIZE was a suborbital flight to a hundred kilometers, many criticized the competition, arguing the target should be private flight into Earth orbit. Had the latter been the objective, it's unlikely that the competition would have been won (energy-wise, orbit is fifty times harder than a suborbital hop to a hundred kilometers). In other words, suborbital flight was sufficiently audacious and achievable—we didn't need to go further to change the paradigm.

6. 
Purse size.
Purses come in all sizes. A typical XPRIZE purse runs from $2 million to $30 million, while the average HeroX challenge ranges from $10,000 to $1 million. The size of the purse depends on a number of variables: an understanding of the incentive needed to encourage action, the value of the back-end marketplace, the minimum amount needed to attempt the feat (i.e., a purse might be sized according to the minimum expected that a team might spend), the perceived importance of the problem, and the sponsors' desire for branding (the “biggest ever”). Teams are typically willing to invest more than the amount of the purse if the competition has a back-end business model that allows them to recoup their investment. In the case of higher-end prizes, the large prize purse (for example, $10 million) is used to break through the media clutter, raise the visibility of a problem, and attract nontraditional players.

7. 
Persistent media exposure over time for prize competition.
The best-designed challenges have a competition structure that produces ongoing media. This consistent attention attracts funders, builds community, and helps produce the desired change in mindset. In the case of the Ansari XPRIZE, the competition required a pair of flights over two weeks. Teams got far more exposure than would have been the case if the competition simply required one flight on a single day. The best prize designs keep the conversation alive from start to finish.

8. 
A telegenic and captivating finish.
Competitions with telegenic finishes—that is, a finish that is extremely visually compelling—will help drive media attention, which, in turn, drives teams to spend more time and money in their attempts to win (everyone wants to be famous). Such a finish also drives media impressions, which educate the public about the change created.

9. 
Multiple purses and bonuses.
Using multiple purses (e.g., second and third place) and “bonus” purses can increase the number of teams competing and the variety of approaches pursued. Secondary purses can keep teams engaged even if there is a strong front runner, and keep teams competing after first place has been awarded. It can also lengthen the time of the competition, thereby increasing its ability to achieve paradigm change.

10. 
Launching above the line of super-credibility.
The initial announcement of your challenge should be highly visible and super-credible. The launch should drive maximum media exposure, both publicizing the prize and its sponsors and ensuring that the competition is taken seriously from the start. Properly done, a super-credible launch changes the public's perception of the challenge from “Can it be done?” to “When will it happen and who will win?” At the launch event, it is important to have the participation of gold-plated endorsers (who share their reputational equity) and a number of teams ready to compete.

11. 
Global participation/open to all.
The best incentive competitions are global in nature. In seeking the broadest range of qualified teams—independent of age, education, and experience—you maximize the opportunity for breakthrough results. In other words, don't try to anticipate where solutions will come from. In the case of the Longitude Prize, the British Admiralty was so certain that determining longitude would come from looking at the stars, they filled the committee charged with picking the winner with astronomers. As a result, John Harrison, a watchmaker, was denied the purse for nearly a decade.

12. 
Prize timelines and deadlines.
The prize timeline is a function of the competition's degree of difficulty. Smaller HeroX challenges might be awarded in six months to a year, while larger-end $10 million XPRIZEs are designed to be won in a three- to eight-year time frame. Couple an appropriate timeline with a deadline, and you'll get increased action. The Ansari XPRIZE, launched in May of 1996, took eight years, and was won less than three months before the December 31, 2004, deadline.

13. 
Ownership of intellectual property (IP) and media rights.
In a typical XPRIZE, the teams retain IP and the XPF retains media rights. Other prize designs may require that the IP be made available to the public or that a portion of the IP is owned by or licensed to the prize sponsor. If the prize sponsor gets the IP in exchange for the prize purse, then it's a commercial prize. If the IP is retained by the team or put into open domain, then the prize is considered philanthropic and the prize purse is typically tax deductible. In general, there are four variants worth considering:

• 
Philanthropic.
Winner retains IP.

• 
Philanthropic.
IP is put into open domain.

• 
Commercial.
IP is owned by the prize sponsor.

• 
Commercial.
IP is licensed (or shared) by the prize sponsor.

14. 
Incorporation of a back-end business model into the prize design.
The ideal competition is designed so that there is a back-end business opportunity for teams to exploit once the prize is won. For example, the Ansari XPRIZE required a three-person spaceship rather than a one-person ship. This opened the possibility of space tourism, allowing for a commercial business model that made it easier for teams to raise funding and was one of the main reasons they were willing to spend far more money than the purse in their attempts to win. When a team wins, the resulting publicity drives capital investment, deployment of the technology, market acceptance, and a new industry that produces a long-term solution to the market failure initially targeted by the competition.