University Innovations and Business Ecosystems (Bridging the Chasm Between Invention and Commercialization Part 4)

Technology Innovation Management Review, August 2015

This is the fourth and final post in the series on bridging the Valley of Death – the chasm between university-generated innovations and real-world products/services.  Prior posts have focused on incentives, skills development, and university technology transfer practices. In this post, we explore how connecting to a thriving business ecosystem can enhance research commercialization success.

What is a business ecosystem, anyway?

 In biology, an ecosystem is a community of living organisms in conjunction with the nonliving components of their environment (things like air, water and mineral soil), interacting as a system.  Applying the term to businesses recognizes the interconnectedness of ventures with their surroundings. Business ecosystems can be defined in terms of geography, or industry, or activity (e.g. entrepreneurship), or some combination of the three. For instance, the Twin Cities are known as a strong ecosystem for medical device startups (geography-industry-activity).   Strategy as Ecology, a seminal article in the March 2004 Harvard Business Review defines a business ecosystem as “loose networks—of suppliers, distributors, outsourcing firms, makers of related products or services, technology providers, and a host of other organizations—affect, and are affected by, the creation and delivery of a company’s own offerings.”  

 

The big question is what defines an ecosystem that nurtures entrepreneurship, especially for new ventures that become “gazelles” (high-growth companies, which generate high employment and wealth).  A startup ecosystem contains the following components.  The trick is to get them to play well together.

Daniel Isenberg of the Babson Entrepreneurship Ecosystem Project  has argued that communities can start an entrepreneurial revolution with 9 policies and practices that involve government-private sector partnerships to break down barriers and shape the ecosystem around local conditions (i.e., build on strengths).  The Kauffman Foundation sponsors a lot of research on entrepreneurship and entrepreneurial ecosystems, but even they are still are at stage of proposing regional measures.  In fact, published rankings tend to be highly subjective and unscientific.

Still generally, speaking, having a great world-class research university is a great place to start.  In a recent Kauffmann Foundation posting, Paul Graham, the cofounder of Y Combinator, was quoted saying that “there are no technology hubs without first rate universities…if you want to make a Silicon Valley, you not only need a university, but one of the top handful in the world.”  Probably the two most famous university centers of startup ecosystems are MIT and Stanford.  MIT’s ecosystem of multiple entrepreneurial programs has been credited with generating ventures that created hundreds of billions of dollars in revenue and hundreds of thousands of jobs. Stanford is the intellectual hub of Silicon Valley, spawning graduates who founded a wide range of companies, including Hewlett Packard, Google, Tesla and Instagram, to name just a few. 

Where does the Twin Cities region stand?  Sometimes, we come up high on entrepreneurship rankings and other times low, but goes to show how subjective they can be.  So, following are a couple of facts and several hypotheses about what generates innovation and entrepreneurship at the regional, national and international levels.

 

Fact #1:  The Twin Cities has a highly educated workforce, which is one element that comes up again and again in those suspect rankings (e.g. Minnesota as top-rated state for business) and education is associated with high-potential startups. 

Fact #2: Also, the University of Minnesota is a highly productive land grant research university in the heart of the metropolitan area. The following statistics imply our bounty of basic research discoveries and commercializable innovations, and – just as important – the highly skilled talent being developed. 

• Total Research Expenditures -- 8^th (rank among public research universities)
• Federal Research Expenditures -- 9th
• Doctoral Degrees Awarded -- 10th
•  Post-doctoral Appointees -- 11^th

Hypotheses:  Several years ago, my colleague John Stavig and entrepreneur Scott Litman wrote an article proposing several strategies to promote entrepreneurship in Minnesota, including:

• Create an end-to-end ecosystem that inspires, educates and supports entrepreneurs
• Create a framework that incents formation and job creation
• Provide experiential entrepreneurship education at the University of Minnesota
• Keep entrepreneurs in Minnesota
• Celebrate our successes

Many of their proposals have come to pass and/or grown, such as the Minnesota Angel Tax Credit program and the MIN-Corps Lean LaunchPad educational programs.  We also have been blessed with strong industry associations (e.g. Medical Alley), more angel investing groups (e.g. Gopher Angels, Sofia Fund, Twin Cities Angels), a very dynamic meet-up group (Minne*), and multiple incubators/accelerators (e.g. Treehouse Health, The Seed Partners, University Enterprise Labs).

Other mechanisms to connect business ecosystems with university innovators:

• The UMN Office for Technology Commercialization Venture Center Business Advisory Group of tech entrepreneurs and executives helping to vet the commercialization potential of University innovations
• MIN-Corps mentors advising students and faculty on their business concepts
• MnDRIVE – Minnesota’s Discovery, Research, and Innovation Economy initiatives for research that results in regional economic growth
• “Ecosystem events” such as Founders Day to showcase program participant ventures and technologies
• The Office of University Economic Development, which helps external partners to connect with the resources, services and expertise at the university and its system campuses
• The Minnesota Cup, the largest state-wide venture competition in the U.S. 

We have many opportunities to deepen and extend all of the above.  More to come!

Don't Ignore Operational Competence

Lean Startup methodology emphasizes not over-doing it during product development. Rather, practitioners are encouraged to iterate multiple Minimum Viable Products, in order to develop successive versions of a product or service that potential customers can react to and co-create.  The "lean" approach makes sense during customer discovery.  But when you start seeking real, PAID customers, then product quality and operational competence matter, a lot.

This blog has used blood-testing firm Theranos for multiple object lessons.  This Silicon Valley-based "unicorn" was at one point last year valued at over $8 billion.  Those postings include

• The Downside of Silicon Valley Swagger: Theranos
• Theranos: How Not To Design a Board of Directors 
• A Trade Secrets Strategy May Protect IP, But Can Harm Business

During the last quarter of 2015, the technology and inherent value of the company were widely questioned as a result of a series of Wall Street Journal articles, beginning with this one.

Another chapter in the Theranos saga began this week with an article in the Wall Street Journal based on leaked information that the Centers for Medicare and Medicaid Services found deficiencies in Theranos' testing operations at its Northern California lab.  Now a CMS letter has been publicly released, summarizing those deficiencies, including one that poses "immediate jeopardy to patient health and safety."

Theranos' response to CMS' finding gives the impression that this is no big deal.  After all, the Northern California lab only processes about 10% of their testing volume.  (Tell that to the 10% of patients whose blood was tested in that that location!)  To its credit, Theranos has finally hired a qualfied lab leader who is a board-certified pathologist to lead this function in Newark, CA, as well as a clinical consultant.

One take away is that startups under-emphasize operational considerations at their peril.  It may be more fun to focus on gee-whiz  technology and  early adopters who tend to be forgiving about quality issues.  After all, detailed operational procedures and quality systems are unglamorous - they only generate headlines when something goes wrong.  But operational competence is a threshold requirement:  when you advance to mainstream, paying customers (especially those whose health depends on you), consistent quality and reliability are fundamental requirements.

Failure is Part of Success

At the end of each semester, participants in our STARTUP course present “lessons learned” about the commercial viability of their innovation ideas as well as what they’ve learned about the process of innovation and entrepreneurship. One lesson that our STEM students in particular have mentioned frequently is the power of failing fast and “being wrong” on the path to success.  “Being wrong” is NOT something most of us find comfortable. For STEM researchers who typically work on technical problems subject to the laws of science and math (i.e., there is only ONE right answer and many wrong alternatives), it can be especially uncomfortable.  

So why does getting comfortable with being wrong help us become more successful entrepreneurs?

This shift in mindset is critical because there are many variables beyond technical feasibility that affect the commercial success of a product or service.  Market risk is often more problematic than technical risk, and the search for a viable business model is the real dilemma faced by entrepreneurs.  Dilemmas, unlike problems rooted in the application of science and math, do not have a single “right” answer.  There typically are multiple options or approaches, each with its own pros and cons.  

Additionally, ALL human beings are subject to implicit biases that develop from our unique life experiences and are completely unconscious to us.  These pervasive and robust biases cause us to see the world as WE are, not as it is.  We naturally make assumptions and jump to conclusions that often are wrong.  As innovators and entrepreneurs, our implicit bias influences our perspectives about what customers really need or want, the true value of our technology, the relative importance of various stakeholders, etc.  While we may have some insight into these non-technical arenas, some if not many of our initial assumptions and beliefs are inevitably wrong since “value” is in the eye of the beholder.  This is not “bad,” it just IS.  And as a result we must manage ourselves and the innovation process accordingly.

Navigating the innovation and entrepreneurship process requires a pseudo scientific method:  we form hypotheses or assumptions about the problem that matters, the customer needs, the market viability, etc. and then systematically test them to either validate or modify our assumptions.  It is inevitable that many of our assumptions will be wrong and we will need to learn and adapt—often many times on the path to success.  The big “aha!” for many of our aspiring STEM innovators is that failure is not the opposite of success, it’s part of success.  The key is to expect many small failures based on the wrong assumptions AND master “learning and adapting” quickly on the path to success.