Technological innovation is what pushes us forward—and it’s what makes some of us rich beyond our wildest dreams. As a consumer, tech innovation is fascinating because it’s what grants us access to the latest devices and software products. As an entrepreneur, innovation or the lack thereof will make or break your tech company; if you can create a new product that truly changes the landscape in some key way, you could make a fortune and build a legacy for yourself. As an investor, learning to sniff out the businesses and areas with the highest potential for tech innovation could help you win big on your long-term plays.

Of course, for technological innovation to occur, the conditions have to be just right. So what are the conditions that give rise to innovation?

A Healthy Economy

First, you need to have a relatively healthy economy in place. This isn’t to say that innovation can’t happen during an economic downturn, but it’s much more likely to occur. Good economic conditions mean that more people have time resources, and the confidence to start their own businesses. Investors are more willing to take risks, and people are more willing to spend money on new technologies. In harsh economic conditions, money is much tighter, and entrepreneurs and inventors have a harder time getting the things they need to continue pushing forward.

Minimal Regulations

It also helps for an environment to have minimal regulations to contend with. Laws and regulations can be a good thing; for example, strict regulations in the medical field prevent consumers from having their information shared unnecessarily, and prevent novel solutions from entering the market too soon.

However, excessive regulations can also make it difficult to innovate. For example, let’s say that in order for a new solution to enter the market, it needs to be tested over the course of two years, and needs to be tested by thousands of people. Suddenly, the costs of development are much, much higher, and the earliest you can start generating revenue is much further away; entrepreneurs see this, and consider going after much lower-hanging fruit.

This is why we often see more tech innovation in areas with looser regulations. For example, early in the development of self-driving cars, Arizona offered practically unlimited reign of its streets for autonomous vehicle testing. Many companies flocked to the state to develop their self-driving vehicles there.

Strong Leadership

For a company to innovate new technology, it needs to have strong leadership. A good leader will serve many functions, including:

• Establishing a vision. Good leaders are capable of setting the tone for the organization, and creating a high-level vision for everyone to follow.
• Setting priorities and directing the workforce. Similarly, leaders will be capable of directing the workforce with the right priorities and assignments. This will prevent wasted time, and ensure the right projects get the most attention.
• Motivating the team. Tech innovations come from teams who are excited and enthusiastic about their work. A strong leader will provide the team with energy and motivation, so they can continue doing their best work.
• Pushing the limits. Leaders also know how to push their teams to get the best possible results; they might set more aggressive deadlines and/or push for tricky-to-develop features to get the best possible finished product.
• Refining the output. Finally, strong leaders will treat the finished product with a scrutinizing eye, ensuring the best possible quality and returning to the drawing board if it doesn’t meet expectations.