Innovation
Difference Engine: Pilgrim's progress
The Economist, Jul 30th 2012, 7:25 by N.V. | LOS ANGELES
Anyone who has tried a hand
at starting a high-tech business
—seeking to turn a clever research idea
into something customers will pay good money for
—quickly learns that everything taught
in business school is next to useless.
The mistake is to think of start-ups
as just smaller versions
of established businesses.
They are nothing of the sort.
Existing enterprises,
even so-called SMEs
(small-to-medium establishments),
usually have no shortage
of marketing and financial data.
Their success depends
on how well they execute
their data-driven plans.
Start-ups, by contrast,
are faith-based organisations
that survive on passion and belief
—with nothing to go on
but a bunch of hunches.
To them, a business plan
and a five-year forecast
are largely irrelevant.
As those who have done it will attest,
no start-up’s business plan survives
contact with the first customer.
The pilgrimage from garage
to marketplace is a chaotic journey
fraught with false starts, dead ends,
redesigns, changes of heart,
moments of elation punctuated
by sloughs of despair.
The path frequently
doubles back on itself,
disappears in thickets of regulation,
gets stumped by internal
doubts and disagreements.
No surprise that,
for every new venture
that manages to turn an invention
into a profitable innovation,
hundreds of others fall by the wayside.
Even then, only three out of 20
of those successful enough to attract
angel or venture-capital investors
make it beyond five years.
The rest go bust, get sold
or simply fade away.
There ought to be a better way
of turning all that effort
and passion into lasting value.
Serial entrepreneur Steve Blank thinks there is.
Mr Blank has spent
the past 34 years in Silicon Valley,
getting no fewer than
eight start-ups off the ground.
Over the past dozen years or so,
he has also taught entrepreneurship
at Stanford University,
University of California at Berkeley
and Columbia University.
Lately, his Lean LaunchPad course
at Stanford has been the model
for an intriguing pilot programme
called Innovation Corps
(or I-Corps for short)
which seeks to turn
the traditional Silicon Valley
start-up model on its head,
and thereby reduce
the woeful failure rate of new ventures.
With funding from the
National Science Foundation (NSF)
as well as the Kauffman Foundation
of Kansas City and
the Deshpande Foundation of India,
Mr Blank has designed I-Corps
as a way of converting
the most promising science
and engineering projects
in American universities into start-ups.
The I-Corps teams, selected from
science and engineering applicants
who are current or former NSF grantees,
comprise just a principal investigator
(usually a tenured professor),
a younger entrepreneurial lead
(undergraduate, graduate
or post-doctoral student)
and an experienced entrepreneur
or venture capitalist as a mentor.
Each of the 100 or so teams
has received a $50,000
to cover a crash course
on how to avoid the pitfalls
common to all new ventures.
What distinguishes an I-Corps start-up
from a typical university spin-out
is the way it forces researchers
to stop fixating on the technology
they have developed.
New ventures, they are taught,
are all about finding customers,
what distribution channels to adopt,
how to price the product,
who to partner with, and more.
From day one, the mantra is
“get out of the lab”.
Participating academics
have to make countless cold calls
to potential customers
—something few research scientists
and engineers have ever done
in their professional lives
and most initially find awkward.
The I-Corps programme
is based on the premise
that all new ventures
are little more than
a series of untested hypotheses
—in other words, optimistic guesses
about market size, customer needs,
product pricing and sales channels.
With so many unknowns,
the programme teaches participants
to treat their start-up as if it were
a typical research project,
amenable to the same iterative process
of hypothesis testing and experimentation.
As the architect of the I-Corps programme,
Mr Blank’s blueprint draws
on two complementary techniques
—“business-model design”
and “customer-development process”.
The first uses a technique
pioneered by the authors
Alexander Osterwalder and Yves Pigneur
in their book “Business Model Generation”.
This provides a handy graphical template
(called a "canvas") that helps
fledgling start-up teams
envisage their most likely customers.
With the canvas' nine separate blocks
covering such things as resources,
value propositions, customer relations,
cost structure and revenue streams,
it captures the complete essence
of a business plan.
By filling in the individual blocks,
the hopeful entrepreneurs are forced
into the sort of business brainstorming
many are unfamiliar with.
Customer-development process, meanwhile,
provides a real-world way of testing
the business plan's various hypotheses,
as written in the canvas' nine blocks.
The testing is done
by getting potential customers,
suppliers, partners and channel operators
to challenge the assumptions.
If invalidated, the I-Corps team
has to pivot, and revise the entry
in that particular block of the canvas.
The process is repeated until all reiterations,
in all nine blocks, are finally exhausted
and the business plan emerges
robust enough to be realistic.
The I-Corps curriculum emphasises
that failures which force participants
to pivot and change their assumptions
are an integral part of the learning process.
That can mean rethinking the market,
changing the price, even altering the product itself.
During the eight-week programme,
I-Corps teams repaint
their business-model canvases
literally dozens of times.
The average team confronts
100 or more potential customers
while honing its business plan
and tweaking its product.
Recently, the I-Corps programme
at Stanford celebrated
its first year of coaching.
Altogether, around 100 academic teams
have completed the course.
Some have gone on to receive
Small Business Innovation Research grants
from the NSF to develop their ideas further.
Others have chosen to license their technology.
Still others have attracted private investment.
Looking back, the organisers reckon success
comes easier when the mature researcher
and student work together as a team,
sharing responsibilities.
Projects fail when the principal investigator
behaves as a boss, and the student merely a gopher.
Teams that make the most progress
are those with a clear idea
about where the technology derived
from their academic research
could be most usefully deployed.
The NSF organisers are so pleased
with the I-Corps’ first year at Stanford
that they have now added two further nodes
—one at Georgia Institute of Technology
and the other at the University of Michigan.
They are also soliciting proposals
from other universities
wishing to join the programme.
The number of teams selected
for the coming year will double to 200 or so.
In the past, universities
have had a mixed record
of transferring technology
developed in their labs
to the marketplace.
The Bayh-Dole Act of 1980,
along with subsequent amendments,
spurred academic institutions
to exploit their inventions and discoveries.
Assigning ownership of the intellectual property
from the funding agency to the institutions
and researchers doing the actual work
gave academics a powerful incentive
to exploit their findings.
To help matters, a number of universities
established technology-transfer offices on campus,
with professional staff to identify business partners,
negotiate licences, and even assist academics
in launching their own start-ups.
The process, it was assumed,
would create a fat new revenue stream
for the university.
That has proved not to be the case.
Licensing revenues
have rarely exceeded the costs involved.
A number of tech-transfer offices
have since closed.
Lacking prototype development facilities,
the technology they offered tended to be
too immature for commercial exploitation.
It is too early to say whether the I-Corps
way of breeding entrepreneurs
will prove more successful
than the technology-transfer approach.
The test will be how many
new-style academic ventures
make it beyond five years.
It is not as though the money will be wasted.
In fact, having already been funded by taxpayers,
the NSF research involved would have zero return
if it were simply left on the shelf.
Given that I-Corps participants
have been coached by experienced entrepreneurs
and encouraged to focus their technology
on customer needs, they should at least
have a better than Silicon Valley’s three out of 20
chance of hitting the jackpot.
For that, America, along with its new breed
of academic entrepreneurs, can thank
Mr Blank's painstaking pilgrimage.
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