It Works

It Works!

I received a call from a college senior who, with some friends, is planning to start an internet business when he graduates next year. Not a cause for celebration, or even unusual. What makes this conversation noteworthy are the answers to my questions.

This budding entrepreneur was looking for advice on the business model, help with writing the business plan and presentation, and sources of funding available in Northeast Ohio. This crew is representative of the community's definition of the target of the new entrepreneur. They are in just the right life-stage to take the risk of starting a business: no baggage such as a mortgage and family with many mouths to feed; already in the mode of living like a college student (i.e. Ramen for dinner, limited wardrobe, no sleep) because well, they are college students; no credit rating to damage (probably no credit available); and finally, fewer distractions from others in their network like aged parents, problem kids, that brother-in-law, and so on. They heard about the entrepreneurial support resources available in Northeast Ohio and sought them out. This in and of itself is very encouraging, and could be the end of the discussion, but it is not.

What really gets me amped is that the support groups he talked with all shared a similar message and all are following through with face-to-face meetings and real actions, not feeding them confusing, disparate and mis-leading information or empty promises of help.

I always ask a prospective entrepreneur who they have talked to up to that point. In this case, he had spoken with representatives from GLIDE, JumpStart, and TechLift. The company isn't ready for JumpStart's process. Yet, after evaluating their story, JumpStart made referrals to other groups in a better position to help a pre-company, company. The entrepreneur has meetings scheduled with TechLift's appropriate Entrepreneur-in-Residence and with GLIDE. The entrepreneur was able to relay the advice to date was consistent between each source and he had what he believes to be a clear course of action, which he didn't have when he started. There wasn't the usual story of confusion, frustration, wasted time, effort and in many cases money that is a prefix to most of the conversations I have with entrepreneurs.

We, the organizations dedicated to the support and nurturing of the people that are helping to build the new Northeast Ohio economy, are talking. We are sharing stories, identifying the best sources of help, creating and building the processes and methods that can shorten the learning curve and make the connections to get the ideas to commercialization and into the market faster, and in some cases getting them to failure quicker. This is great news! We should celebrate with a tall cold RooBrew. (More on that later)

The missing link

Whether we’re referring to evolution or ecosystems or experiments, most in the science community have come to understand that things don’t simply happen: they result. Changes in climate cause adaptation in animals or the addition of a catalyst to an experimental system results in a faster reaction. Yet, when it comes to technology transfer, to actually commercializing the patented products in which we have invested years of research and millions of dollars, we are too often content to wait for an industry opportunity to present itself. We assume, despite myriad evidence to the contrary, that tech transfer happens, rather than results.

In a 2007 paper on “University Licensing,” Georgia Tech University’s Marie Thursby and Emory University’s Jerry Thursby concluded that the recent growth in licensing creates a misleading picture, ignoring vast variations in licensing success among universities, scientific fields and technologies. Many universities do not make money on technology transfer, the authors asserted, explaining that the bottom 25 percent of universities reporting to the Association of University Technology Managers bring in less than $360,000 per year in licensing, while spending as much as $213,000 on legal fees alone.

According to the National Science Board’s Science & Engineering Indicators, within the United States:

• Universities account for about 75 percent of basic research, but complete only a fractional percentage of development
• Industry is responsible for about 90 percent technology development
• Universities derive 63 percent of their research budgets from government and only 5 percent from industry
• Overall, industry funds 62 percent of research compared to government’s 30 percent

Universities expect that licensing deals and successful commercial products will simply happen if they conduct careful and useful research. However, the widening gulf between universities and industry, which has resulted from mutual misunderstanding more than federal patent laws, can only hamper the transfer of technology from university labs.

To achieve the result of successful tech transfer, universities need to address industry needs, set up professional points of contact to carefully market their technologies and be a partner, rather than an adversary, in industry research. Universities also must work to combat misunderstandings about their ability to develop technology for industry and get creative in guaranteeing reasonable license rates for those that sponsor research.

If universities and industry become catalysts for moving technology from the lab to the marketplace, both will benefit by combining the power of universities to conduct efficient cutting-edge research as part of their educational missions and the strength of industry to access consumers and introduce functional products.

Patents and prosperity

I recently attended the Association of University Technology Managers (AUTM) Central Region Meeting in Cleveland and was particularly struck by an early panel on guiding faculty entrepreneurs to resources and success.

Robert Schmidt, founder and president of Cleveland Medical Devices Inc. and Orbital Research Inc., spoke in strong support of the intrinsic need for university support of small businesses as logical partners in the technology commercialization and wealth creation process. Schmidt stated that it is hard to get large multinational corporations to take technology directly from universities, a sentiment echoed by many in the university community. He also spoke of the strength of universities and small businesses as a team, saying that 38 percent of scientists are in small businesses and 19 percent are at universities.

Through the SBIR program, small businesses receive about 4.3 percent of federal research funding. With the help of this funding, smaller companies produce 5 times more patents per employee than large corporations and 20 times more than universities. While it is important to note that small companies can employ a higher concentration of researchers, because they often lack sales or support staffs and do not have additional responsibilities, such as education, in their core missions, the ability of small businesses to quickly develop patentable technology makes them an incredible asset to their surrounding communities. This fact becomes especially relevant when one considers the importance of patents to the wealth of communities.

Studying data from 1939 to 2004, Paul Bauer, Mark Schweitzer and Scott Shane cataloged eight measurable determinants of per capita income growth in the 48 contiguous U.S. states, including tax burdens, public infrastructure, business failure rates, climate and knowledge stocks. They found that “knowledge stocks,” in particular the number of patents per capita, overwhelmingly held the strongest correlation with income growth, even outpacing levels of educational attainment. At the time, Ohio fell squarely in the middle of the pack at 25th overall with an above average patent portfolio and existing industry structure.

Support of entrepreneurs, whether they come from inside our universities’ ranks or outside in the greater community, is a crucial way universities can advance their region and state. Schmidt’s advocacy sheds light on this fact, but he is certainly not the only individual putting forth the importance of engagement from university researchers.

Read more about Bauer, Schweitzer and Shane's research on "knowledge stocks."

Science + inspiration = ?

Efforts to recruit more students to science, technology, engineering and mathematics (now referred to as the STEM disciplines) might lead teachers to change the equation for educating young people. Though they work in fields dominated by theories, proofs and methods, practitioners are increasingly advocating for a heavy dose of inspiration.

In a June 1 New York Times op-ed piece called “Put a Little Science in Your Life,”
Columbia physics professor Brain Greene laments that most science classes focus on mastery of skills without offering students the motivation of an overarching story, a method akin to forcing music students to endlessly practice scales before they are allowed to even listen to a great symphony. “We rob science education of life when we focus solely on results and seek to train students to solve problems and recite facts without a commensurate emphasis on transporting them out beyond the stars,” Greene writes.

A similar article in the June 16 issue of Newsweek, titled “Lessons in Life (Science),” recounts the experiences of City University of New York biology professor Sally G. Hoskins, who switched her perspective to teach a required course for non-majors. “I’ve tried to look at biology as an outsider, as someone who experiences my field only on TV, where female scientists apparently spend a lot of time blow drying their hair and shopping for push-up bras between blood-sample-scraping expeditions,” Hoskins writes.

She then recounts how she uses stories on development of the polio vaccine to teach students the necessity of animal testing and how she shows videos on seahorses simply because classes find them interesting. Rather than trying to teach students only the basics of scientific laws and principles, Hoskins would “be happy if (students) leave with the idea that, just like music and art, science is a creative process.”

According to Hoskins, Greene and others, more unites science and liberal arts than divides them. Science and art offer new paradigms through which students can view the world. Both have long, rich histories that can stand in the way of their relevance to the present. They take practice and study that may dissuade students from taking interest, while inspiring others to diligent study.

Even with exceptional teachers offering constant encouragement, not all students will show a strong aptitude for science and math, nor will all students fall in love with quantum physics or advanced calculus. Not every student appreciates Bach, Chaucer or Caravaggio, but access to these masterpieces engages many through a method few science courses attempt. Curious students will always seek to understand and aspire to add to the canon of brilliant work that comes before them. Learning one’s place in history, both through historical study and through an understanding of unfolding developments is far less discouraging than some instructors would believe.

Just an indication

Ohio is a great place to find doctors and engineers, but struggles to support entrepreneurs and the growth of high tech industries, according to a report the Milken Institute issued yesterday. The 2008 State Technology and Science Index compiles 77 indicators ranking a state’s ability to leverage regional resources, an effort the institute claims is “one of the most comprehensive examinations of state technology and science assets ever compiled.”

Naturally, I was dismayed to see Ohio falling toward the bottom of the list, ranking 36 with an index score of 45.25, presumably out of a perfect 100. Ohio was far below Massachusetts, Maryland and Colorado, which all had scores above 75. However, even more troubling than the current ranking is the fall from grace it indicates. In 2002, Ohio ranked 27th on Milken’s index and in 2004, the state was 24th.

I struggle to believe in the real world accuracy of a 77-point indicator that varies vastly in its placement of states over just a four-year period. I’m not sure that even science and technology move quickly enough to necessitate biannual measurement. That said, I was intrigued to see what Ohio’s rankings could illustrate about economic development.

The 77 indicators were broken into five major categories, including R&D input and size of science and technology workforce, areas in which Ohio ranked about average, and human capital investment, risk capital and entrepreneurial infrastructure, and technology concentration and dynamism, categories where Ohio lagged behind others.

A few indicators of interest:

• In terms of workforce, Ohio was among the top ten nationwide in percentage of its workers engaged as computer and information scientists, engineers, and physicists and among the top 20 in percentage of biochemists, biophysicists and medical scientists (a good sign for Northeast Ohio’s biomedical corridor).
• In the R&D input section, the state excelled in number of SBIR and STTR awards received and in R&D expenditures on biomedical science and engineering.
• Ohio’s education excellence was rewarded with high marks in number of doctoral engineering students per capita, state spending on student aid, average ACT scores, and percentage of science and engineering Ph.D.s among people ages 25-34.
• Unfortunately, Ohio’s entrepreneurship support components did not receive such favorable rankings. Ohio was among the bottom 20 states in SBIC funds disbursed, venture capital investment as a percentage of gross state product and total venture capital investment growth.
• Ohio ranked 49th in both number of startups per 100,000 people and average yearly growth of high tech industries.

Hopefully, the report will be seen as constructive analysis and effective benchmarking, leading to an impressive change in the next two years. Let’s shoot for top 10 in 2010.

Filling the pipes

Economic development professionals call it the "innovation pipeline”, investment professionals “deal flow,” a constantly moving source of growing companies commercializing good ideas to keep regional economies on the cutting-edge of technology. While the theory is that ideas stream easily from their sources to commercial success, the reality is the majority of start-up companies don’t ever make it to market. Northeast Ohio's pipeline is no different.

Perhaps, it is the availability of financial support in the very beginning of the business development continuum that is the primary cause of this phenomenon. In the early stages where banks cannot loan money without security and revenues are slim, Northeast Ohio entrepreneurs too often find themselves in a funding crisis with support almost impossible to come by.

As an example, the Lorain County Community College Foundation's Innovation Fund, which offers financial support to early stage companies, has received 684 inquiries and 58 formal applications since they started in October of last year. With its current levels of state and individual support, the Fund was able to award grants to 10 companies, or about 17 percent of its applicants and 1.5 percent of inquiring companies.

Similarly, the Akron Regional Change Angels (ARCHAngels) Network estimates more than 2,000 companies have made inquiries in its first 2-1/2 years. The ARCHAngels Deal Flow Committee reviewed 205 business plans and viewed 82 presentations to select the 41 companies that presented before potential investors. Although the majority of ARCHAngels presenters, 22 of the 30 that responded to a recent survey, received some funding following their presentation, as many as 45 percent have remained unfunded.

Public reports point to a serious lack of angel, venture capital and foundation funding for early stage companies, even though many of the funding organizations, the state included, list in their target investment “pre-seed” and “seed” companies. In today's environment, entrepreneurs must struggle through a funnel-like process that funds a very small number of ideas so well vetted that success is all but inevitable. The greatest tragedy is that Northeast Ohio misses out on some great opportunities that could keep the innovation pipeline moving.

Best bets for startup success

You’re absolutely convinced you want to start your own business. You can’t be talked out of it. You have an endless supply of money to develop your product and provide working capital and you are about to embark on the single most difficult thing project will ever tackle. Now that you’ve decided, how do you avoid being among of the 80 percent of startups that fail?

A recently posted Business Week article offered ten tips for would-be entrepreneurs. With the help of The Illusions of Entrepreneurship author Scott Shane, “A Better Way to Start a Business” outlined some odds-increasing strategies for new venture creation, paraphrased below.

• Pick an industry with a high rate of success, even if this moves you outside of the industry in which you traditionally worked.
• Evaluate several ideas and pick the best. Don’t be among the 42 percent of business founders Shane says decide to start a company before they develop a product idea.
• Be a team player. Don’t try to start your business alone.
• Sell to other businesses, a process far easier than the multi-million dollar undertaking to break into consumer markets.
• Start your marketing efforts early to line up buyers and get feedback from customers while developing your first product.
• Focus on a single product and market. You’ll wear yourself out trying to sell every invention you’ve ever had to every customer who might ever buy.

Read the full list with Shane’s comments at BusinessWeek.com.