tag:blogger.com,1999:blog-28866520898137939772024-03-06T12:02:59.307-08:00Engineering EntrepreneurshipOne academic’s look at the life cycle of technology-based startups — from the standpoint of practice, teaching and research.Joel Westhttp://www.blogger.com/profile/03837038327488766775noreply@blogger.comBlogger108125tag:blogger.com,1999:blog-2886652089813793977.post-20030352370975498632019-07-26T08:29:00.002-07:002019-07-26T08:29:41.946-07:00When tech entrepreneurs attack science(Cross posted from the <a href="https://biobiz.blogspot.com/2019/07/when-tech-entrepreneurs-attack-science.html">Bio Business blog</a>)<br />
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One of the most remarkable trends in science-based entrepreneurship is the recent explosion of fake meat companies.<br />
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I saw my first fake meat company in 2015 at the graduation event for the <a href="https://biobiz.blogspot.com/2015/06/accelerating-life-science-startups.html" target="_blank">first class of startups</a> at the IndieBio accelerator in San Francisco, doing egg whites. Now leading companies like Impossible Foods and Beyond Meat have landed their fake hamburger in <a href="https://earther.gizmodo.com/fast-food-companies-are-getting-into-fake-meat-and-the-1834428763" target="_blank">fast food chains.</a><br />
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At breakfast yesterday with my boss’s boss, he remarked that some of the burgers are actually quite good, and we agreed that (someday) it has the potential to be a trillion dollar business. This seems to be one of the rare examples where the outrageous predictions by tech entrepreneurs of creating a huge new market might actually be true.<br />
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<h4>Adoption Paths</h4>The initial pioneers may grab decent exit values, and the long-term future of replacing meat seems compelling. California alone spends 6 trillion liters of water a year on alfalfa alone (feed for cattle and horses), not counting other states, and the water for pig slop and chicken feed. Meanwhile, cow farts play <a href="https://www.forbes.com/sites/samlemonick/2017/09/29/scientists-underestimated-how-bad-cow-farts-are/" target="_blank">a non-neglgible role</a> in increasing greenhouse gasses. And there is also a sizable niche of the populace that either refused to eat meat, or even wants to deny others the right to do so.<br />
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It’s not clear when it will become a trillion dollar market: as I showed in <a href="http://dx.doi.org/10.1007/s10961-012-9291-6" target="_blank">my 2014 paper</a> in the <i>Journal of Technology Transfer,</i> California firms created the solar industry but flamed out because they got into the market 20-30 years too early. Competing with commodity electrons is a tough adoption curve: very few people voluntarily choose to pay 50% or 100% more than market prices for a commodity, although Germany and California show that politicians can force their voters to do so and (mostly) get away with it.<br />
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What I didn’t realize until I thought it through is that meat has an easier adoption curve, with a wide range of niche markets that can be sustained at premium prices. You have affluent people who don’t eat meat — or, even better, recently gave up meat — as well as environmentally conscious customers who would like to avoid meat. You have people who are willing to give it a try, out of curiosity. And — as the burger joints have demonstrated — the B2B customer (distribution) is willing to try a niche product to raise average selling prices.<br />
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Thus, as the product gets better and the prices get lower, these firms can establish and grow their beachhead in the food market, carving off ever-larger segments of the market. Funded by Sand Hill Road and led by ambitious entrepreneurs, some will hold off for Facebook-style IPOs, but many of the weaker players will be bought up by ADM, ConAgra, Hormel and the like — providing bottomless capital to spur innovation and adoption. (The entry barriers are low enough that Tyson Foods is launching <a href="https://www.bloomberg.com/news/articles/2019-06-13/tyson-s-answer-to-fake-meat-craze-is-a-half-pea-half-beef-burger" target="_blank">its own product</a> directly, rather than by acquisition).<br />
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<h4>We Need Science</h4>However, to fully displace meat, there are major technical challenges to be overcome, both in quality and cost. I supervised a student project to research synthetic organs — a more demanding applications — but still getting the texture right will require both science (new insights) and engineering (new applications) to create a quality product at a competitive price.<br />
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Thus, I was struck by the decision of one fake meat company <a href="https://inhabitat.com/24-year-old-entrepreneur-to-launch-plant-based-superprotein-products-by-vote/" target="_blank">to attack GMOs</a> to win market share. Yes, the CEO is a 24-year-old recent Berkeley grad who’s never worked in a company. Yes, <a href="https://inhabitat.com/24-year-old-entrepreneur-to-launch-plant-based-superprotein-products-by-vote/" target="_blank">her bachelor’s degrees</a> are in toxicology and environmental studies rather than molecular biology or chemical engineering. But the company does have one PhD (food science) in <a href="https://primeroots.com/about-us/" target="_blank">its leadership,</a> so they presumably are doing actual science.<br />
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It reminds me (and not in a good way) of the various surveys that showed the gap between what the public thinks and what scientists (writ large) think about GMOs, including <a href="https://www.aaas.org/news/pew-surveys-us-public-has-high-opinion-science-differs-scientists-key-issues" target="_blank">a 2015 survey</a> that said 37% of the public thought GMOs are safe vs. 88% of scientists.<br />
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More troubling is that the certainty of these opinions seems inversely proportional to actual knowledge. As the <i>NY Times</i> <a href="https://www.nytimes.com/2019/07/22/upshot/health-facts-importance-persuasion.html" target="_blank">wrote on Monday:</a><br />
<blockquote class="tr_bq"><blockquote class="tr_bq">In a paper published early this year in Nature Human Behavior, scientists asked 500 Americans what they thought about foods that contained genetically modified organisms.</blockquote><blockquote class="tr_bq">The vast majority, more than 90 percent, opposed their use. This belief is in conflict with the consensus of scientists. Almost 90 percent of them believe G.M.O.s are safe — and can be of great benefit.</blockquote><blockquote class="tr_bq">The second finding of the study was more eye-opening. Those who were most opposed to genetically modified foods believed they were the most knowledgeable about this issue, yet scored the lowest on actual tests of scientific knowledge.</blockquote><blockquote class="tr_bq">In other words, those with the least understanding of science had the most science-opposed views, but thought they knew the most. Lest anyone think this is only an American phenomenon, the study was also conducted in France and Germany, with similar results.</blockquote></blockquote>So I get that trust in authority has been declining since the 1970s. I get that we have many people who don’t understand — or have the time to personally verify — scientific research. And, as Orwell predicted (and Goebbels proved), people are easily persuaded to believe lies if they are repeated often enough in the mass media.<br />
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Still, why would companies that depend on scientists to create their products help promote such lies? Isn’t the benefit of saving the planet enough, without having to rely on junk science for the purpose of virtue signaling? And if companies that depend on science attack science, what are the implications for K-12 and university science indication, science policy and the idea of using facts — rather than emotion - as the basis for making science policy?Joel Westhttp://www.blogger.com/profile/03837038327488766775noreply@blogger.com0tag:blogger.com,1999:blog-2886652089813793977.post-3110641909320473732019-02-23T21:00:00.000-08:002019-03-01T10:29:43.963-08:00Channelling Bill Shockley<i>Cross posted <a href="https://openitstrategies.blogspot.com/2019/02/channelling-bill-shockley.html">from </a>Open IT Strategies</i><br />
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Techstars (an incubator company) and various aerospace companies have announced plans to launch a space incubator in LA. As TechCrunch <a href="https://techcrunch.com/2019/02/12/techstars-and-starburst-aerospace-are-launching-a-space-industry-accelerator-in-los-angeles/" target="_blank">reported</a>:<br />
<blockquote class="tr_bq"><blockquote class="tr_bq">Already a major hub for the space and aerospace startup industry, with companies like SpaceX, Relativity Space, Virgin Orbit, Rocket Lab, Phase Four, and others calling Los Angeles home, the new accelerator will provide another booster for LA’s growing startup scene.</blockquote><blockquote class="tr_bq">The new aerospace program, called the Techstars Starburst Space Accelerator, will be managed by longtime Techstars managing director, Matt Kozlov, who previously helmed Techstars’ efforts at its health-focused accelerator done in partnership with Cedars Sinai.</blockquote></blockquote>LA was the country’s major aerospace hub from <a href="https://www.tandfonline.com/doi/abs/10.2307/143478" target="_blank">the 1930s until the end of the Cold War.</a> But with the end of the space race, the downsizing of missile and military aircraft procurement — and the death of Douglas Aircraft and Lockheed’s commercial aircraft division — jobs were cut drastically and others moved to cheaper parts of the country.<br />
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The anchor of the <a href="https://www.theatlantic.com/technology/archive/2018/05/los-angeles-americas-future-spaceport/560420/" target="_blank">new LA space hub</a> is SpaceX, which <a href="https://www.dailybreeze.com/2012/10/29/spacex-makes-deal-to-keep-headquarters-in-hawthorne-through-2022/" target="_blank">moved to Hawthorne in 2008.</a> It had been the headquarters of <a href="https://en.wikipedia.org/wiki/Northrop_Corporation" target="_blank">the firm founded by Jack Northrup in 1937,</a> where it built the B-35, F-89 and F-5 military aircraft. (Its B-2 bomber was built at a secret factory in nearby Pico Rivera).<br />
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SpaceX is such a tough place to work that it has <a href="https://www.ocregister.com/2019/01/23/companies-gaming-glassdoor-reviews-to-look-better-investigation-finds/" target="_blank">encouraged its employees</a> to game the Glassdoor employer rating system. Despite this, 1/3 of the <a href="https://www.glassdoor.com/Reviews/SpaceX-Reviews-E40371.htm" target="_blank">1,109 SpaceX reviews</a> complain about long hours, as with the review that said “There are times I work very long hours including a few times working 60 straight hours”. Last month, SpaceX — celebrating record success in 2018 — rewarded its loyal workforce <a href="https://www.bloomberg.com/news/articles/2019-01-13/spacex-layoffs-include-577-positions-at-california-headquarters" target="_blank">with a 10% layoff.</a><br />
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Elon Musk has often imagined himself the next Steve Jobs, although Steve Jobs didn’t think so. Musk <a href="https://www.bloomberg.com/opinion/articles/2018-10-06/tesla-s-elon-musk-must-grow-up-like-apple-s-steve-jobs-did" target="_blank">clearly needs to grow up</a> and at 47 is well past the age when Jobs did so. Jobs was certainly grown up by 1998 (age 43) when his youngest child was born and he took the reins of Apple once again. Jobs also made his money in the commercial marketplace rather than <a href="https://www.foxbusiness.com/features/why-elon-musk-is-no-steve-jobs" target="_blank">manipulating </a>investors and government procurement.<br />
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Instead, I think Musk is the next <a href="https://en.wikipedia.org/wiki/William_Shockley" target="_blank">Bill Shockley.</a> Shockley is known for inventing the field effect and bipolar junction transistors, which won him a share of the Nobel Prize. Late in life, he was known for saying <a href="https://en.wikipedia.org/wiki/William_Shockley#Political_views" target="_blank">controversial things</a> about political and social issues.<br />
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However, (given his Bell Labs colleagues probably would have invented the transistor without him) perhaps his greatest contribution to mankind was creating Silicon Valley. In 1956, he founded Shockley Semiconductor in Mountain View, California.<br />
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He was such an asshole as a boss that the next year eight of his leading employees (the <a href="https://en.wikipedia.org/w/index.php?title=Traitorous_eight&oldid=56091662" target="_blank">“Tratorous Eight”</a>) quit Shockley to form Fairchild Semiconductor — the first of thousands of spinoff companies to be formed in the Bay Area. The eight included Gordon Moore and Robert Noyce — cofounders of Intel — and Eugene Kleiner, cofounder of <a href="https://en.wikipedia.org/wiki/Kleiner_Perkins" target="_blank">Kleiner Perkins.</a><br />
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So between his winning personality, stressful working conditions and past/future layoffs, Musk will be making thousands of skilled ex-SpaceX employees available to the LA aerospace labor market. As with Shockley, perhaps Musk’s greatest contribution will be attracting bright engineers to the region, who later take those skills to help get other startup companies off the ground.Joel Westhttp://www.blogger.com/profile/03837038327488766775noreply@blogger.com0tag:blogger.com,1999:blog-2886652089813793977.post-92083186346449599702016-12-19T22:40:00.000-08:002016-12-19T22:40:17.941-08:00Founders do it betterSuccessors to successful founders rarely do as well, according to two Bain consultants who’ve studied the topic.<br />
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The headline <a href="http://www.wsj.com/articles/the-company-founders-special-sauce-1482098580?mod=e2two" target="_blank">in Monday’s WSJ</a> made it clear:<br />
<blockquote><span style="font-size:larger;"><b>The Company Founder’s Special Sauce</b></span><br />
<i>No one leads a firm as effectively as the person who started it.</i><br />
By CHRIS ZOOK and JAMES ALLEN<br />
Dec. 18, 2016 5:03 p.m. ET<br />
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‘The Founder,” a new film starring Michael Keaton, tells the story of McDonald’s Corporation founder Ray Kroc as he turns a few small restaurants into a ubiquitous international chain. It’s a tale of founder-driven corporate growth—something that has become too rare today. This breed of entrepreneurial spirit makes for a good story, but it’s also crucial for the economy.<br />
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<a href="http://www.bain.com/publications/articles/founders-mentality-barriers-and-pathways-to-sustainable-growth.aspx">Research </a>we published in July finds that of all newly registered businesses in the U.S., only about one in 500 will reach a size of at least $100 million in revenue. A mere one in 17,000 will attain $500 million in revenue and sustain a decade of profitable growth. Despite their rarity, these successful firms are a bedrock of the U.S. economy.<br />
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<a href="https://hbr.org/2016/03/founder-led-companies-outperform-the-rest-heres-why">A study</a> out earlier this year from Bain & Company, where we work, shows that over the past 15 years founder-led companies delivered shareholder returns that are three times higher than those of other S&P 500 companies.<br />
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Such performance can sometimes continue long after a founder leaves. We analyzed examples of sustained success at 7,500 companies in 43 countries, visiting many in person, to determine what made them stand out. Great founders imbue their companies with three measurable traits that make up what we dubbed “the founder’s mentality.”</blockquote>Those three traits: insurgency (i.e. disruptive innovation), obsessive focus on customers, and permeating the vision of the founder throughout the entire organization.<br />
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I have not had a chance to read their research, but it rings true. I did my dissertation on Apple, <a href="http://blog.openitstrategies.com/2011/08/end-of-jobs-ii-era.html">once led</a> by <a href="http://blog.openitstrategies.com/2011/10/steve-jobs-1955-2011.html">Steve Jobs</a> — perhaps the most unique founder of the 20th century; in America, only Henry Ford, Tom Watson Sr., Hewlett & Packard and maybe Howard Hughes come close.<br />
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Jobs was driven to make “insanely great” products, to the point of being a tyrant (slightly more human after he had kids). Since his death five years ago, they’ve had <a href="http://blog.openitstrategies.com/2014/03/apple-can-replace-steve-jobs-but-it.html">mediocre leadership</a> and nothing they have done has come close (something us shareholders must lament).<br />
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One caveat: while I lionize great founders — and aspire to be a good founder once again — there is an important confound. Firms have their best people, best ideas, greatest disruption and greatest impact during their initial growth phases; a second round of growth and disruption (as in the Jobs II era, 1997-2011) is virtually unheard of. Big companies don’t grow as much as small ones, nor is the CEO (of any stripe) able to have the same impact. (And unlike Jobs, most tech founders have their greatest impact in this initial period, not running the stable successful mature company).<br />
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Still, nothing I’ve seen this year does as good a job summarizing the great debt society owes to those who roll the dice, take great chances and endure years of high-stress intensity to create a new company. The decline in <a href="http://engent.blogspot.com.es/2014/06/drag-on-startups-is-drag-on-economy.html">US startups</a> is troubling not only for economic growth, but for the lost opportunities for employees, customers and complementors as well.Joel Westhttp://www.blogger.com/profile/03837038327488766775noreply@blogger.com0tag:blogger.com,1999:blog-2886652089813793977.post-60330196625258001832016-10-05T10:48:00.004-07:002016-10-05T10:48:53.025-07:00Hire the best — and let them go<div class="tr_bq">
When I had my software company, in a typical year half of our employees were software testers, for which we hired local college students or occasionally high school students. We mostly got students who grew up nearby, and were attending the local junior college (three miles away) or the CSU or UC a half hour down the road.</div>
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The expectation was that this was a temporary job while they were in school. We hired a few college seniors, and a few didn’t work out, but most stayed 3-4 years. We taught them everything they needed to know about both running routine tests and isolating bugs so they could be reproduced by the programmer when it came time to fix it. (I’d like to say I created these processes, but they were created by our former director of product development and QA manager — who both sadly died well before their time).<br />
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Most of our business was with HP. When we went to visit their local office for a testing meeting, I was surprised to see how they used a completely different approach. There, QA was a career that you could do after a four year degree and stay with for many years. Because the best college graduates wanted to be programmers, the testers were (for the most part) those interested in computers but not talented enough to be programmers. (Our QA manager had years of experience, but his lack of even an A.A. meant he’d never be hired by HP).<br />
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For pretty much all of our student employees, this was the best computer-related job they could get in our local area without a degree. We got brighter employees without prior experience who didn’t stay very long, but we got the benefit of their aptitude and good work habits while we had them. Later on, I realized how fortunate we’d been to have them, as they went on to work at HP, IBM, Microsoft and other tech companies. <a href="https://www.linkedin.com/in/bryanstarbuck" target="_blank">One</a> has started two companies and has mentored other entrepreneurs. The one student programmer we hired is now <a href="http://db.lcs.mit.edu/madden/" target="_blank">a full professor of computer science</a> at MIT.<br />
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I was reminded of this when reading a <i>Wall Street Journal</i> <a href="http://www.wsj.com/articles/why-the-best-leaders-want-their-superstar-employees-to-leave-1475460841" target="_blank">column</a> today by <a href="https://en.wikipedia.org/wiki/Sydney_Finkelstein" target="_blank">Sydney Finkelstein</a>, a Dartmouth leadership professor. I know him from his great book on leadership that (in part) chronicled the leadership failures that <a href="http://blog.openitstrategies.com/2011/10/death-of-once-great-motorola.html" target="_blank">brought Motorola crashing to earth</a> in his book <i><a href="http://amzn.to/2dsijyD" target="_blank">Why Smart Executives Fail.</a></i><br />
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The column has a provocative title and opening:<br />
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<b><span style="font-size: large;">Why the Best Leaders Want Their Superstar Employees to Leave</span></b><br />
By Sydney Finkelstein<br />
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Should bosses try to hold on to their star performers?<br />
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For most of corporate America, the question might seem like nonsense. Star performers are seen as so valuable that managers should pull out all the stops to keep them—or else see their companies take a big hit in productivity.<br />
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Yet some of the best managers not only allow their top performers to leave, but actively encourage it.</blockquote>
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He talks about his study of leading execs across 18 industries for his new book, <i><a href="http://amzn.to/2dSI4nF" target="_blank">Superbosses: How Exceptional Leaders Master the Flow of Talent.</a></i> While I might quibble with a point here or there (notably the idea of Larry Ellison as one of “the world’s greatest bosses”), the data are compelling. For example, a sidebar to the article says that at one point, 20 of the 32 NFL coaches either trained with Bill Walsh or someone trained by him.<br />
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This is the part of the article that really resonated with my experience:<br />
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The stories of these bosses reveal a crucial shared belief: You’re better off having the best people for a short time than average people forever.<br />
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The bosses were uncompromising when it came to recruiting. They didn’t want average; they wanted mind-blowing. They searched high and low for unusually talented individuals, often experimenting with nontraditional hires (and tolerating higher levels of churn when some of these hires didn’t work out).<br />
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But once unusually talented people were inside the organizations, the bosses accepted that some would leave. Top employees, the bosses realized, were almost always on a rapid growth trajectory. They were ultra-ambitious, perpetually angling for the next big opportunity, and it stood to reason that at least some of them would eventually need to leave the company to keep their careers moving ahead.</blockquote>
Even at our little software company, we were fortunate to have some truly exceptional teenagers and 20-somethings just starting their careers. This lesson is a reminder that — even if I’m no superbosss — for my next startup we should keep a policy of hiring the most talented people we can find, even if we have to train them from scratch or can’t hope to keep them for more than a few years.<br />
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Joel Westhttp://www.blogger.com/profile/03837038327488766775noreply@blogger.com0tag:blogger.com,1999:blog-2886652089813793977.post-62648960382390173082015-09-06T21:06:00.001-07:002015-09-06T21:28:08.664-07:00Corporate Entrepreneurship: OxymoronFrom Dilbert, <a href="http://dilbert.com/strip/2015-08-30" rel="nofollow" target="_blank">August 30, 2015:</a><br />
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I’ve always thought “corporate entrepreneurship” is an oxymoron, and this nicely captures some of the reasons why.<br />
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The OED <a href="http://www.oed.com/view/Entry/62991?redirectedFrom=entrepreneurship#eid5512432" target="_blank">defines an entrepreneur</a> as<br />
<blockquote class="tr_bq">
c. <i>Polit. Econ. </i>One who undertakes an enterprise; one who owns and manages a business; a person who takes the risk of profit or loss.</blockquote>
with entrepreneurship defined as what the entrepreneur does.<br />
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Some scholars want to define the term as <a href="http://www.jstor.org/stable/258448" target="_blank">only a subset of this</a> (those that produce high-growth startups). Others want it to be a superset — anyone who innovates and creates new value — including corporate “entrepreneurs” — even though they don’t “own” or “take the risk of … loss.”<br />
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The closest that large company employees come to being entrepreneurs — with all the risks and rewards — are when they form spinoff (or spinout) companies. Some of these spinoff companies — like the Xerox spinoffs <a href="https://scholar.google.com/scholar?hl=en&q=chesbrough+xerox+spinoff&btnG=&as_sdt=1%2C5&as_sdtp=" target="_blank">studied by Henry Chesbrough</a> — start with technology, people, some investment but no products or customers; the founders of these companies are truly entrepreneurs, just ones with an inside track for funding. Other spinoff companies — like Agilent from HP or Avago from Agilent — began life with thousands of customers and millions (if not billions of revenues) — and are larger and more bureaucratic than many decade-old companies; it would be a travesty to call “entrepreneur” someone handed such a business portfolio.<br />
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A third example often labelled “corporate entrepreneurship” are those that explore possibilities for new business units that will remain in the company. These examples seem to be best described by the portmanteau of “<a href="https://scholar.google.com/scholar?hl=en&q=intrapreneurship&btnG=&as_sdt=1%2C5&as_sdtp=" target="_blank">intrapreneurship</a>” — we want our employees to be entrepreneurial, but they will remain inside the company and contribute its growth and success.<br />
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I have participated in various corporate new venture/new value/new line of business activities, both in industry and academia. I’m also head of my second startup, and I can tell you that the risk, the effort, the lack of support (including bureaucracy) and (hopefully) the potential reward make it completely different than an internal new venture.<br />
<br />
So “entrepreneur” is not a synonym for “innovator” or “business model innovator” or the equivalent. That’s why my business card — and that of a <a href="https://www.google.com/search?num=100&safe=active&q=%22professor+of+innovation+and+entrepreneurship%22+site%3A.edu&oq=%22professor+of+innovation+and+entrepreneurship%22+site%3A.edu" target="_blank">few other faculty</a> — says “Professor of Innovation <b><i>and</i></b> Entrepreneurship.”Joel Westhttp://www.blogger.com/profile/03837038327488766775noreply@blogger.com0tag:blogger.com,1999:blog-2886652089813793977.post-86741913175591764402015-06-15T00:02:00.000-07:002015-06-15T08:13:47.330-07:00Incubating, accelerating and funding life science startupsOn Thursday I visited the <a href="http://sf.indie.bio/">SF Indie Bio</a> Demo Day. The San Francisco life science accelerator was graduating <a href="http://biobiz.blogspot.com/2015/06/accelerating-life-science-startups.html">its first class of 12 early-stage startups.</a><br />
<br />
Indie Bio was launched and funded by <a href="http://www.sosventures.com/">SOSVentures</a>, a $200m seed fund based in Cork, Ireland. Its launch was seen as a reaction to the decision of Y Combinator to take on 5 biotech firms last summer, although Indie Bio founders insisted that <a href="http://techcrunch.com/2014/10/22/sosventures-takes-on-y-combinator-with-a-pure-biotech-accelerator/">their plans predated Y Combinator’s interests.</a><br />
<br />
<strong>Y Combinator</strong><br />
The Mountain View-based Y Combinator is widely considered to have invented the accelerator format — or at least to have perfected it with its 2005 launch in Silicon Valley. Its <a href="http://www.ycombinator.com/about">model</a> includes:<br />
<ul>
<li>Cohort admission process (two cohorts per year)</li>
<li>Incubator-style office space combined with seed-stage equity funding</li>
<li>Mentoring services to help firms refine their product and strategy</li>
<li>Mandatory on-site participation of the CEO during the intensive 3-month process</li>
<li>At the end of the incubation period, a hype-filled “Demo Day” graduation ceremony that both brands and publicizes companies being kicked out of the nest</li>
</ul>
Most of its 800+ alumni have been software or software-enabled companies that fit its original focus. Its best known graduates are online services companies such as Dropbox, Airbnb, Reddit and Weebly.<br />
<br />
While Y Combinator has been a great success — in terms of publicity, investments and picking (and perhaps helping†) winners, there have been questions about whether the model could be used for companies with longer development cycles. There are also obvious economies of scale and scope if each cohort has overlapping technology orientations.<br />
<br />
Y Combinator had some successes in hardware — and now a handful of recent life science graduates — but IMHO the generalizability remains an open question.<br />
<br />
† There is a longstanding debate in higher ed whether schools such as Stanford and the Ivies mold their students into successes, or merely pick students who are bound to succeed no matter what. There are obvious parallels to angels, VCs and incubators<br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgkspi82ZzkWLCHFoiwmQagL0DwZ3BmUrzBoUzaNoE7H94rafOGDzoGu9nb25eqBKQw2Y4AXEicDaXQUWvwuIP9ijGqD9YghxtHfKDDtG8wToiY5bzhfawYg2mB2-VdvaC73LHYN63V2bZC/s1600/indieBioLogo55h.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="70" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgkspi82ZzkWLCHFoiwmQagL0DwZ3BmUrzBoUzaNoE7H94rafOGDzoGu9nb25eqBKQw2Y4AXEicDaXQUWvwuIP9ijGqD9YghxtHfKDDtG8wToiY5bzhfawYg2mB2-VdvaC73LHYN63V2bZC/s400/indieBioLogo55h.png" width="400" /></a></div>
<br />
<strong>Indie Bio</strong><br />
As a <a href="http://www.palomar.com/About/History.html">former</a> software entrepreneur who has spent the past four years teaching business at a <a href="http://www.joelwest.org/KGI/">biotech graduate school</a>, I was eager to see how the Silicon Valley formula would be adapted for starting life science companies. On average, life science startups are different — with <a href="http://engent.blogspot.com/2013/05/some-tech-startups-are-more-high-tech.html">greater technical uncertainty, </a>capital costs, development costs and time to market.<br />
<br />
SF Indie Bio has adapted the accelerator format of Y Combinator: in some cases, the language and terms are almost identical. However, a crucial difference is the need for wet labs; healthcare IT companies can be incubated at a software incubator, but therapeutics, device and most diagnostic companies cannot. Designing and staffing a wet lab isn't cheap, and every life science incubator faces the challenges of which equipment is needed and how to cover it.<br />
<br />
Another advantage for Indie Bio is an (<a href="http://www.forbes.com/sites/anthonykosner/2015/02/20/indiebio-will-accelerate-synthetic-biology-to-tech-startup-speed/">acclaimed</a>) life science-specific incubator team. Ryan Bethencourt and Ron Shigeta earlier started the Berkeley Biolabs, while Arvind Gupta is a venture partner with the parent venture fund. At this week’s Demo Day, there were clearly synergies between <a href="https://web.archive.org/web/20150614163124/http://sf.indie.bio/companies-2/">the companies in the first cohort, </a>particularly for the tools companies that had ready-made customers while those customers saved capital as free beta sites.<br />
<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjxmmNjNiFe_nAGylQ9dwDUHHlZwxLELgeLJSKKm3xfIV51gjWwvd3pa64mcboxmj-fcSxVtWEll4vO1nXZ02UHgZDBe9w26EX9ZLW6-Z4kgDzX2-ojLqX0cxbMNp6_3XlzhTjqeFiTzpuV/s1600/IMG_1812-cropped.jpeg" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" height="191" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjxmmNjNiFe_nAGylQ9dwDUHHlZwxLELgeLJSKKm3xfIV51gjWwvd3pa64mcboxmj-fcSxVtWEll4vO1nXZ02UHgZDBe9w26EX9ZLW6-Z4kgDzX2-ojLqX0cxbMNp6_3XlzhTjqeFiTzpuV/s400/IMG_1812-cropped.jpeg" width="400" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;"><i>Ron Shigeta, Ryan Bethencourt and Arvind Gupta at Thursday’s rollout</i></td></tr>
</tbody></table>
As with other Bay Area incubators and accelerators, the Indie Bio location means that tenant companies are close to a wide range of potential investors.<br />
<br />
The companies in the first round received $100K of cash and in kind funding in exchange for an 8% equity stake. The next round of firms will get this, <a href="https://web.archive.org/web/20150614163834/http://sf.indie.bio/faq/">and also</a> the option of a $150K of cash in exchange for a convertible note.<br />
<br />
<strong>Seizing a Place in the Value Chain</strong><br />
After visiting Indie Bio — and talking to its founders and entrepreneurs — I got a better sense of where an accelerator would fit in the entrepreneurial value chain of a life science company. (Other life science incubator/accelerators seem to have been launched in <a href="http://elsalifescience.com/">Berlin,</a> <a href="http://www.houstontech.org/life-sciences/">Houston,</a> <a href="http://www.shizim.com/accelerator">Israel,</a> and <a href="http://www.genesysventure.com/">Winnipeg.</a>)<br />
<br />
As the name suggests, an accelerator can make a big difference in accelerated a firm's growth. However, it covers only one brief phase of a longer process of development.<br />
<br />
Indie Bio focuses on the steps of the <a href="http://theleanstartup.com/principles">lean startup</a> process where entrepreneurs develop the minimum viable product and decide whether to proceed or pivot. However, before firms are ready to join an accelerate they will need to develop their science. This could be at a university, at a biohacker space (such as <a href="http://biocurious.org/">BioCurious</a>), or a local life science incubator such as <a href="http://qb3.org/startups/incubators">QB3</a> or J&J's <a href="http://jlabs.jnjinnovation.com/locations/Bay-Area">JLabs</a> — or the <a href="http://berkeleybiolabs.com/about-us/">Berkeley BioLabs</a> cofounded by Bethencourt and Shigeta.<br />
<br />
At the same time, once they leave the accelerator they will need a home. If the company is small (< 5 employees), it might still fit in an incubator. If they hire multiple employees, they're too big for either an incubator or accelerator and will need an actual office. Either way — as earlier in their development cycle — they will need a shared wet lab rather than just (as with a software or healthcare IT company) access to cloud servers.<br />
<br />
Bethencourt and Shigeta are aware of this imperative. They’re working to identify an affiliate or partner facility that the Indie Bio companies can graduate into.Joel Westhttp://www.blogger.com/profile/03837038327488766775noreply@blogger.com0tag:blogger.com,1999:blog-2886652089813793977.post-28235326710783485342015-06-03T10:01:00.001-07:002015-06-03T10:01:46.262-07:00Replaying the "Greater Fool" theory 15 years laterFrom the “Heard on the Street” section of <a href="http://on.wsj.com/1ET9A8z">this morning’s </a><em><a href="http://on.wsj.com/1ET9A8z">Wall Street Journal:</a></em><br />
<blockquote>
<strong><span style="font-size: large;">Testing Silicon Valley’s Greater-Fool Strategy</span>
</strong><em>Lofty valuations for venture-backed companies like Uber and Snapchat depend on the stock-market off-ramp staying open</em><br />
By JUSTIN LAHART<br />
…<br />
There are 65 venture-capital backed companies in the U.S. valued at $1 billion or more, by The Wall Street Journal and Dow Jones VentureSource’s latest count. That is more than half again as many of these so-called unicorns as a year ago.<br />
<br />
Even by the standards of rapidly growing companies aiming to go public, they are hardly cheap. Uber tops the list with a valuation of $41.2 billion, and that looks like it is heading higher. … In second, at $16 billion, is Snapchat, which has only recently begun generating revenue. …<br />
<br />
Overall, private valuations are about as high now as during the dot-com bubble, according to research firm Sand Hill Econometrics. One reason valuations are so lofty: In an era when generating outsize returns has been extremely difficult, big investors who previously would have tended to take a position in a company on its IPO are instead jumping into late private-funding rounds.<br />
…<br />
[T]he list of tech companies with deep pockets and a desire for acquisitions is pretty short, and the fit needs to be right. So for most big venture-backed companies an IPO is a likelier exit. But the public market’s ability to absorb those companies may be limited.<br />
<br />
Sand Hill estimates the total value of U.S. venture-backed companies came to about $750 billion at the end of 2014. That is equal to 2.5% of the total market capitalization of U.S. public companies, according to Federal Reserve data. The only other time venture-backed companies were valued that highly relative to the stock market was in the second quarter of 2000, when the dot-com bubble began to rapidly deflate.<br />
<br />
Indeed, one pin in that bubble was the flow of shares of speculative companies into the market. Until late 1999, the availability of dot-com shares was limited, with many held off the market by insiders subject to lockup agreements.<br />
<br />
From November 1999 to April 2000, though, the amount of unlocked shares rose to $270 billion from $70 billion, as economists Eli Ofek and Matthew Richardson documented [in <a href="http://dx.doi.org/10.1111/1540-6261.00560" target="_blank">their 2003 <i>Journal of Finance</i> article</a>]. This increased the float in dot-com companies to the point there weren’t enough investors willing to pay up for them.</blockquote>
This is interesting on two levels. First, the Web 2.0 stock bubble is now shaping up to burst like the one 15 years later. A crash in valuations will be bad for entrepreneurs seeking funding in the next 3-5 years. As my business plan students (at both <a href="http://www.joelwest.org/KGI/">KGI</a> and <a href="http://www.joelwest.org/UCI/">UCI</a>) could explain, potential exit valuations influence (if not determine) the valuation for even the earliest seed stage or Series A round.<br />
<br />
However, this time the question is whether the bubble will burst before or after the companies go public. The VCs and investment bankers — as well as the founder and employees of these overvalued companies — would clearly prefer to IPO in hopes of finding a “greater fool.” The buyers of these frothy shares would be betting that they’re not the fool, but instead they can sell to one.<br />
<br />
The “greater fool” theory is not new. While Wikipedia (that fount of all truth and wisdom) is not much help, Investopedia helpfully <a href="http://www.investopedia.com/terms/g/greaterfooltheory.asp">provides a definition</a> for that term:<br />
<blockquote>
<span style="font-size: large;"><strong>Greater Fool Theory<br />
</strong></span><br />
<strong>DEFINITION OF 'GREATER FOOL THEORY'<br />
</strong>A theory that states it is possible to make money by buying securities, whether overvalued or not, and later selling them at a profit because there will always be someone (a bigger or greater fool) who is willing to pay the higher price.<br />
<br />
<strong>INVESTOPEDIA EXPLAINS 'GREATER FOOL THEORY'<br />
</strong>When acting in accordance with the greater fool theory, an investor buys questionable securities without any regard to their quality, but with the hope of quickly selling them off to another investor (the greater fool), who might also be hoping to flip them quickly. Unfortunately, speculative bubbles always burst eventually, leading to a rapid depreciation in share price due to the selloff.</blockquote>
As an entrepreneur, I always had trouble with this approach by other entrepreneurs — and even more so, by the financial professionals who prepare these stock offerings. I realize the stakes are high for the founders and investors holding this illiquid shares — particularly at the tail end of a surge in valuations — but doesn’t excuse succumbing to the corrupting influence of this pressure. <i>Caveat emptor</i> doesn’t isn’t enough to excuse offering shares with no financial basis for their valuation other than market mania.Joel Westhttp://www.blogger.com/profile/03837038327488766775noreply@blogger.com0tag:blogger.com,1999:blog-2886652089813793977.post-72026300538643843822015-02-03T20:45:00.001-08:002015-02-04T13:13:31.784-08:00The incentives for entrepreneurial risk<i>Cross-posted from the <a href="http://biobiz.blogspot.com/2015/02/no-incentives-no-innovation.html">Bio Business blog</a></i><br />
<br />
I have been teaching innovation management for <a href="http://blog.openitstrategies.com/2008/01/dessert-topping-and-floor-wax.html">more than 15 years</a> at three different schools. In most cases, I kick off the course with a discussion of the incentives for innovation, a topic of particular interest to Berkeley economists such as David Teece and <a href="http://blog.openinnovation.net/2014/02/suzanne-scotchmer-1950-2014.html">the late Suzanne Scotchmer.</a><br />
<br />
<a href="http://www.amazon.com/Innovation-Incentives-Suzanne-Scotchmer/dp/0262693437?ie=UTF8&tag=openinnovatio-20&link_code=bil&camp=213689&creative=392969" imageanchor="1" style="clear: right; float: right; margin-bottom: 1em; margin-left: 1em;" target="_blank"><img alt="Innovation and Incentives" src="http://ws.amazon.com/widgets/q?MarketPlace=US&ServiceVersion=20070822&ID=AsinImage&WS=1&Format=_SL160_&ASIN=0262693437&tag=openinnovatio-20" /></a><img alt="" border="0" src="http://www.assoc-amazon.com/e/ir?t=openinnovatio-20&l=bil&camp=213689&creative=392969&o=1&a=0262693437" height="1" style="border: none !important; margin: 0px !important; padding: 0px !important;" width="1" />The fundamental idea is that innovation is risky in many ways: the innovator doesn't know if the technology will work (technological uncertainty), whether the market will value it (market uncertainty) or whether the innovator will be able to hold off imitators and other competitors long enough to make a profit (appropriability and ompetitive uncertainty).<br />
<br />
As with any other gamble — whether investing early-stage companies or lottery tickets — the innovation winners have to pay above-normal returns to cover the partial or total losses from the losers. <a href="http://engent.blogspot.com/2009/01/tech-startups-are-always-experiment.html">Business is an experiment, </a>and if you don’t compensate for the risk, then <a href="http://engent.blogspot.com/2013/06/risk-taking-and-risk-aversion.html">entrepreneurs</a>, managers and investors will avoid risk. (We can debate the magnitude or the approach to providing incentives — as Scotchmer and <a href="http://blog.openitstrategies.com/2010/09/when-anti-troll-is-anti-innovation.html">others</a> have done—without denying the inexorable need for such incentives).<br />
<br />
Of course, outsiders only see the winners of the lottery or the IPO jackpots. They don’t see the dry wells, the failed companies or the other investments that fail to pan out. So the big success of blockbuster drugs attracts attention (and populist attacks) from those who don’t factor in the cost of failures. In many cases, this is due to economic ignorance — innovation costs or economics more generally — and in some cases this ignorance is willful.<br />
<br />
<em>Forbes</em> columnist (and former Pfizer R&D head) John LaMattina attacks such ignorance in his <a href="http://www.forbes.com/sites/johnlamattina/2015/02/03/new-york-times-op-eds-misleading-regarding-the-biopharmaceutical-industry/">February 3 column</a> “New York Times Op-Eds Misleading Regarding The Biopharmaceutical Industry.” The column is balanced and thoughtful, allowing for the basis of most of the criticisms while decrying the economic ignorance (willful or otherwise) beyond the criticism.<br />
<br />
In the category of willful ignorance has to be that of economics Nobel Laureate Joseph Stiglitz, a “frequent” critic of the pharma industry (and, IMHO, capitalism more broadly). Let me briefly except LaMattina’s comments on <a href="http://www.nytimes.com/2015/01/31/opinion/dont-trade-away-our-health.html">the Stiglitz op-ed:</a><br />
<blockquote>
1) “In generics friendly India, for example, Gilead Sciences, which makes an effective hepatitis C drug, recently announced that it would sell the drug for a little more than 1% of the $84,000 it charges here.” – Actually, “generics friendly India” really means that <strong>India has its own rules when it comes to intellectual property (IP) and often refuses to recognize legitimate IP positions. </strong><br />
…<br />
2) “Overly restrictive intellectual property rights actually slow new discoveries by making it more difficult for scientists to build on the research of others and by choking off the exchange of ideas that is critical to innovation.” – This is a stunning misrepresentation of the R&D process in the biopharmaceutical industry.<strong> For any investment to be made in R&D, be it the 3 person start-up company or a Big Pharma, the promise of a financial return must exist.</strong> An absolute requirement for these investments is having sufficient IP to justify that a project, if successful, will provide such a financial return.<br />
…<br />
3) “As it is, most of the important innovations come out of our universities and research centers, like the NIH, funded by governments and foundations”. – As I have said in the past, <strong>these contributions are very important in the search for new medicines</strong>. But Stiglitz, like many other critics, is either ignorant of the amount of R&D carried out by the biopharmaceutical industry or chooses to minimize that<strong> the industry’s applied research is what converts nascent ideas and discoveries to the breakthrough medicines</strong> that are continually generated by the industry. </blockquote>
I would be naturally sympathetic to LaMattina’s criticisms due to my free market bias, which stems both from my <a href="http://www.palomar.com/About/History.html">first experience as an entrepreneur</a>, what I’ve learned studying technological innovation for <a href="http://www.joelwest.org/Research">the past 20 years</a>, and of course what I’ve also learned teaching students how to run innovation-related businesses.<br />
<br />
However, his three criticisms have particular salience now that I’ve co-founded a new (pharmaceutical) startup that is a spinoff of my <a href="http://www.joelwest.org/KGI/About.html">current employer.</a> It is (as he says) a 3-person startup, bootstrap funded for now, trying to bring a breakthrough therapy to market.<br />
<br />
My two co-founders and I are working nights and weekends — alongside our regular jobs — to raise funds, validate the science, and try to get something approved by the FDA. We wouldn’t be working so hard (#2) unless there was some possibility of a big return at the end: hypothetically, if we’re each putting $10,000 worth of effort into it each year, then if we have a 10% chance of success then we’d each want a $100k+/p.a. return (actually more given due known entrepreneurial optimism biases).<br />
<br />
Of course, we wouldn’t have started down this path without IP. We have to talk to the government, CROs, CMOs, potential investors, industry execs and others to make our idea feasible. We are a tiny company with no full-time employees and minuscule resources: almost anyone we talk to is better equipped to bring this to market than we do. All we have is an idea, a vision and the (patent pending) IP that we hope will allow us an exclusive to bring this to market (if we can overcome all the uncertainties).<br />
<br />
Finally, we have thought long and hard about commercialization. Even if every NIH or other government grant goes our way, we’ll have certain regulatory, manufacturing, distribution and (yes) IP costs that won’t be covered by government grants. These costs are far beyond what we can bear personally, so unless the potential returns are attractive enough, we won’t get the equity investment necessary to bring this therapy to market.<br />
<br />
The Stiglitz ignorance (or misrepresentation) is depressing but utterly commonplace, particularly among economic populists. But sometimes these populists can see the light.<br />
<br />
In the 1970s, there was no more outspoken populist among national political figures than George McGovern (1922-2012), the South Dakota senator and 1972 Democratic presidential nominee. After retiring from the senate, he opened a hotel in Connecticut and found out firsthand how little politicians know about business risks.<br />
<br />
As McGovern wrote in a June 1, 1992 <em>Wall Street Journal </em>op-ed (quoted in <a href="http://www.forbes.com/sites/bruceupbin/2011/06/14/how-to-create-jobs-by-george-mcgovern/">a 2011 Forbes article</a>):<br />
<blockquote>
In retrospect, I wish I had known more about the hazards and difficulties of such a business, especially during a recession of the kind that hit New England just as I was acquiring the inn’s 43-year leasehold. I also wish that during the years I was in public office, I had had this firsthand experience about the difficulties business people face every day. That knowledge would have made me a better U.S. senator and a more understanding presidential contender.<br />
…<br />
We intuitively know that to create job opportunities we need entrepreneurs who will risk their capital against an expected payoff. Too often, however, public policy does not consider whether we are choking off those opportunities.</blockquote>
So there is hope for intelligent people who get out of the Ivory Tower (or the Beltway) to try to make a living in the real world. McGovern was a man of modest means — a modern-day Harry Truman — trying to put away money for retirement. Millionaire politicians and academics are unlikely to leave their comfort zones, but there’s still a chance for skeptics to experience this epiphany.Joel Westhttp://www.blogger.com/profile/03837038327488766775noreply@blogger.com0tag:blogger.com,1999:blog-2886652089813793977.post-54986803513610343092014-06-29T14:08:00.001-07:002015-02-03T20:46:35.239-08:00Drag on startups is drag on the economyWe know that entrepreneurs are essential to economic growth in the U.S., but two economists (one of them Nobel) brought this point home <a href="http://online.wsj.com/articles/behind-the-productivity-plunge-fewer-startups-1403737197">last week:</a><br />
<blockquote>
<strong>Behind the Productivity Plunge: Fewer Startups</strong><br />
By Edward C. Prescott and Lee H. Ohanian<br />
<br />
In the first quarter of 2014 … [productivity] declined at a 3.5% annual rate. This is the worst productivity statistic since 1990. And productivity since 2005 has declined by more than 8% relative to its long-run trend. This means that business output is nearly $1 trillion less today than what it would be had productivity continued to grow at its average rate of about 2.5% per year.<br />
<br />
…In our view, an important factor contributing to declining productivity growth is the large decline in the creation of new businesses. The creation rate of new businesses, as well as new plants built by existing firms, was about 30% lower in 2011 … compared with the annual average rate for the 1980s.<br />
…<br />
If history is any indication, many of today's economic heavyweights will ultimately decline as new businesses take their place. Research by the Kaufman Foundation shows that only about half of the 1995 Fortune 500 firms remained on the list in 2010.<br />
<br />
Startups also have declined in high technology. John Haltiwanger of the University of Maryland reports that there are fewer startups in high technology and information-processing since 2000, as well as fewer high-growth startups—annual employment growth of more than 25%—across all sectors. Even more troubling is that the smaller number of high-growth startups is not growing as quickly as in the past.</blockquote>
The authors (economists from Arizona State and UCLA respectively) attribute this to the regulatory drag on small business, both in terms of raising the cost of doing business and specifically the complexity of tax compliance.<br />
<br />
However, another explanation (which <a href="http://engent.blogspot.com/2013/06/risk-taking-and-risk-aversion.html">I blogged last year</a>) was the risk aversion of would-be entrepreneurs. Is that due to regulation? Due to a belief that the system is rigged? To the challenges of starting a company in an economy that never fully recovered from the Great Recession? Or — more simply — a loss of optimism by entrepreneurs that they can financially recover if their venture is unsuccessful. <br />
<br />
I don’t have an answer, but this is just further evidence that making the US economy more startup-friendly is essential the country’s economic and political future.Joel Westhttp://www.blogger.com/profile/03837038327488766775noreply@blogger.com0tag:blogger.com,1999:blog-2886652089813793977.post-3461656256649611122014-06-07T02:04:00.001-07:002014-06-07T02:21:00.230-07:00Entrepreneurial opportunities from 3D printingThis week has been my week for 3D printing in Europe. I gave <a href="http://www.slideshare.net/joelwest/30-years-of">a talk</a> on the industry’s history <a href="http://blog.openinnovation.net/2014/06/research-in-3d-printing-innovation.html">at a workshop</a> in Germany on the business of 3D printing on Tuesday, and listened to a number of other academics talk about their own research. On Thursday, I visited Materialise, a (soon to be public) 3D printing service bureau in Belgium. On Friday, I interviewed one of the founders of Ultimaker, a Dutch startup and a leading maker of consumer 3D printers.<br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhk1uEuP_7RqSXu03vMCWnTPhQgtkyVIHMv6mlSqFMQCgmQ7titwlGohyphenhypheniILyXz8KDtmeF6hqQjbUxCqNNa3bSaCGZQl4QdDd6sCrJ-6eFU9Whcb9Usqsop9MPbBpCKwQq8Tluez2jVE8uZ/s1600/IMG_0828.JPG" imageanchor="1" style="clear: right; float: right; margin-bottom: 1em; margin-left: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhk1uEuP_7RqSXu03vMCWnTPhQgtkyVIHMv6mlSqFMQCgmQ7titwlGohyphenhypheniILyXz8KDtmeF6hqQjbUxCqNNa3bSaCGZQl4QdDd6sCrJ-6eFU9Whcb9Usqsop9MPbBpCKwQq8Tluez2jVE8uZ/s1600/IMG_0828.JPG" height="240" width="320" /></a></div>
In my talk, I said the flurry of consumer 3D printing startups since 2005 can be attributed to<span style="font-family: sans-serif;"><br />
</span><br />
<ul>
<li>The <a href="http://makerfaire.com/maker-movement/">“maker” movement,</a> which began with <em>Make</em> magazine in 2005</li>
<li>Open design communities (as that term is <a href="http://scholar.google.com/scholar?hl=en&q=%22open+design%22+raasch&btnG=&as_sdt=1%2C5&as_sdtp=">defined by Christina Raasch</a>), notably the RepRap project; and</li>
<li>The 2006 expiration of a key 3D printing patent.</li>
</ul>
The first created both a market and a pool of potential entrepreneurs, while the latter two reduced the entry barriers for those entrepreneurs. Together, this brought dozens of new entrants into making 3D printers in the past decade.<br />
<br />
From my interviews (including the two this week), it is clear that 3D printing has had a transformative impact on the entrepreneurial careers of engineers and other technical entrepreneurs. When they learn about 3D printing, they drop everything and try to figure out how to make a career out of working in the industry — usually by making a better mousetrap. (Obviously not everyone who learns of 3D printing does this — but the entrepreneurs are the ones who do so.)<br />
<br />
This reminds me a lot of my earlier research on mobile apps and open source software, what I witnessed in internet services (Web 1.0) and the PC revolution, and what I read about the airplane and the automobile. An exciting, high-growth technology attracts hundreds of entrepreneurs, many with more technical than business acumen. The lucky ones ride the growth rocket to make multimillion dollar companies, while others crash and burn.<br />
<br />
If (as we all expect) there are scale economies, then the excess entry by firms will bring a dramatic shakeout. In another 10 years, there will be 5-10 major personal 3D printer makers — some of which will have been bought by the existing industrial makers (as Stratasys did with Makerbot) or other companies (HP, IBM, GE, etc.)<br />
<br />
On the other hand, many of these companies will survive (or profitably exit) by migrating to niches within the product category, or upstream or downstream (or laterally) to other parts of the value network.<br />
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For example, the co-host of our workshop, Frank Piller, showed a plastic model mini-me that was scanned, hand-edited, and then printed in color. At €995 per model, it’s not a high-volume growth business, but it is a way to build resources and capabilities to pursue other opportunities.<br />
<br />
This is an exciting time for these entrepreneurs, and for those (like me) studying such entrepreneurs. It will be also an exciting time for engineers to join the industry, just as it was 20 years ago for Internet services or 30+ years ago for personal computing.Joel Westhttp://www.blogger.com/profile/03837038327488766775noreply@blogger.com0tag:blogger.com,1999:blog-2886652089813793977.post-11203724206553717862014-05-23T22:38:00.001-07:002015-06-14T18:07:08.911-07:00New models of biotech entrepreneurshipThursday night, the Oxbridge Biotech Roundtable concluded its 2014 <a href="http://oxbridgebiotech.com/onestart">Onestart</a> Americas $150k business plan competition. Several dozen contestants, mentors, and one LA-area biotech entrepreneurship professor travelled to the City Club in downtown San Francisco to hear the 10 finalists offer elevator pitches, and then see the money awarded to one of the teams.<br />
<br />
Following the <a href="http://www.oxbridgebiotech.com/onestart-americas/semifinalists12-13/">initial (2013) competition in London,</a> the American competition began with December's submission of pre-proposals by 150 teams. <a href="http://www.oxbridgebiotech.com/onestart-americas/2014-american-semi-finalists/">35 of these teams</a> (including one led by <a href="http://www.kgi.edu/news-and-events/news-stories/2014/new-anthrax-therapy-propels-kgi%E2%80%99s-klondike-therapeutics-team-to-semi-finals-of-obr-competition.html">current KGI MBS students</a>) travelled to a February bootcamp at Stanford for additional training and mentoring, before the 10 finalists were announced in April. One of the 10 finalists, Excell Biosciences, was cofounded by <a href="https://www.linkedin.com/profile/view?id=1447160" target="_blank">a KGI alumnus</a>.<br />
<br />
As in the two previous Onestart Europe competitions, the contestants were required to be aged 35 or younger. As in Europe, the US competition was co-sponsored by <a href="http://www.srone.com/">SR One,</a> the corporate investing arm of GlaxoSmithKline.<br />
<br />
The 10 US finalists reflected an interesting mix of geographies and industry segments. From the leading U.S. biotech clusters, only three teams were from the Bay Area, one from Boston and none from San Diego. The competition also included two teams from Toronto, one from Vancouver and one each from Los Angeles, Denver and New York.<br />
<br />
The mix of products was broadly representative of life science startup companies<br />
<ul>
<li>3 therapeutics</li>
<li>3 devices</li>
<li>1 diagnostic</li>
<li>1 healthcare IT (consumer app)</li>
<li>2 process innovations, for manufacturing and for drug delivery</li>
</ul>
Most of the startups were in some phase of bootstrap funding, and the judges commiserated with the particular difficulty that therapeutic companies face in raising the tens (or hundreds) of millions necessary to come to market.<br />
<br />
Have judged, organized and mentored business plan competitions for years, I was struck by several aspects of the OBR finalists compare to typical (college-based) business plan competitions.<br />
<ul>
<li>Of course, a lll of the plans were about technology. That’s true for <a href="http://biobiz.blogspot.com/2014/05/the-next-wave-of-life-science-startups.html">our KGI competition</a> but not for the typical b-school competition.</li>
<li>Second was the depth of the entrepreneurs’ understanding of their technology. Again, at many (not all) b-school competitions, the entrepreneurs are smart individuals who BS their way through a partly thought out concept. On Thursday, the winning entry — <a href="https://twitter.com/ResiliencePharm">Resilience Pharmaceuticals</a>— reflected six years of work, including the <a href="http://library.mit.edu/item/002167263">2013 MIT PhD dissertation</a> by cofounder Retsina Meyer.</li>
<li>The judges remarked on the depth of the teams (and that, like VCs, ultimately they had to bet on the teams as much as the ideas). The audience only saw one team member make a presentation, but some teams had five or more official members listed in the program. At least four teams were headed by polished PhDs. Apparently the winning team has attracted Boston veterans to join their team, beyond the founders.</li>
<li>Finally, some firms had won equity investment prior to the finals. The winner has attracted a commitment from <a href="http://investing.businessweek.com/research/stocks/private/snapshot.asp?privcapId=34362820">Third Rock Ventures</a>, a <a href="http://www.technologyreview.com/featuredstory/524546/biotechs-top-vcs/">leading</a> biotech VC.</li>
</ul>
Representing SR One, partner <a href="http://www.srone.com/TeamDetail.aspx?id=7&office=London,%20UK">Matthew Foy </a>said that the $150K prize “is not the point of Onestart — it was just the carrot to get people’s attention”. They seem to have succeeded in doing so. Overall, in its second year (and third competition), the Onestart sponsors seem to have moved closer to their goal of creating actual entrepreneurs and startups. <br />
<br />
It will take a few months to see how many of these 10 companies will actually launch and — more importantly — how many can succeed in bringing a product to market. Still, in terms of the structure of the program (and the nature of the competitors), the sponsors seem to have already done better than all but a handful of school-based competitions.Joel Westhttp://www.blogger.com/profile/03837038327488766775noreply@blogger.com0tag:blogger.com,1999:blog-2886652089813793977.post-79614320165892310912014-02-26T06:23:00.001-08:002014-02-26T09:44:31.557-08:00If Facebook kills entrepreneurship, what’s next?The $19b that Facebook paid to buy WhatsApp is <a href="http://online.wsj.com/news/articles/SB10001424052702303636404579395571496851750">shaking up Silicon Valley,</a> as other Internet startups try to figure out how they can get their own inflated multiple.<br />
<br />
But for the rest of the world of tech entrepreneurship — such as life sciences — it could further starve the flow of investment capital they need to get off the ground.<br />
<br />
Entrepreneurship guru Steve Blank <a href="https://twitter.com/sgblank/status/438111314205229056">tweeted</a> Monday<br />
<blockquote>steve blank @sgblank Feb 24<br />
Why Facebook is killing Silicon Valley <a href="http://steveblank.com/2012/05/21/why-facebook-is-killing-silicon-valley/">http://steveblank.com/2012/05/21/why-facebook-is-killing-silicon-valley/</a> … more relevant today</blockquote>The earlier article talked about his work teaching entrepreneurship for science-based startups:<br />
<blockquote>The irony is that as good as some of these nascent startups are in material science, sensors, robotics, medical devices, life sciences, etc., more and more frequently VCs whose firms would have looked at these deals or invested in these sectors, are now only interested in whether it runs on a smart phone or tablet. And who can blame them.<br />
<br />
<strong>Facebook and Social Media</strong><br />
Facebook has adroitly capitalized on market forces on a scale never seen in the history of commerce. For the first time, startups can today think about a Total Available Market in the billions of users (smart phones, tablets, PC’s, etc.) and aim for hundreds of millions of customers. Second, social needs previously done face-to-face, (friends, entertainment, communication, dating, gambling, etc.) are now moving to a computing device. And those customers may be using their devices/apps continuously. This intersection of a customer base of billions of people with applications that are used/needed 24/7 never existed before.<br />
<br />
The potential revenue and profits from these users (or advertisers who want to reach them) and the speed of scale of the winning companies can be breathtaking. The Facebook IPO has reinforced the new calculus for investors. In the past, if you were a great VC, you could make $100 million on an investment in 5-7 years. Today, social media startups can return 100’s of millions or even billions in less than 3 years. …<br />
<br />
If investors have a choice of investing in a blockbuster cancer drug that will pay them nothing for fifteen years or a social media application that can go big in a few years, which do you think they’re going to pick? If you’re a VC firm, you’re phasing out your life science division. As investors funding clean tech watch the Chinese dump cheap solar cells in the U.S. and put U.S. startups out of business, do you think they’re going to continue to fund solar? And as Clean Tech VC’s have painfully learned, trying to scale Clean Tech past demonstration plants to industrial scale takes capital and time past the resources of venture capital. A new car company? It takes at least a decade and needs at least a billion dollars. Compared to IOS/Android apps, all that other stuff is hard and the returns take forever.</blockquote>Two years ago — ironically a few weeks before Blank’s blog posting — I started writing my own posting along these same lines. What I wrote (but never posted):<br />
<blockquote><strong>Did software ruin entrepreneurship?</strong><br />
On Friday, I sat between two entrepreneurs at an office party for my old job. One of the entrepreneurs is in clean tech (hardware) while the other is in IT (software). One is in his 30s and one is in his 50s.<br />
<br />
The hardware guy was talking about his challenges raising funds. One VC told him (I'm paraphrasing): “I gave Instagram $5 million and got back $200 million. Why should I give you money?” [after their $1 billion acquisition by Facebook].</blockquote>The remainder of my (incipient) argument was that software promises abnormally low cap short returns, and the amount of money needed to fund a software company is getting smaller by the week, as VC Mark Suster <a href="http://www.pehub.com/110112/mark-suster-understanding-the-changes-in-the-software-venture-capital-industries/">wrote</a> back in 2011.<br />
<br />
How will this play out? I see at least four possibilities:<br />
<ol><li>During the dot-bomb (dot-con) era we had too much money chasing too few good ideas, and what resulted was what economists call excess entry. Eventually the bubble burst — and it could again.</li>
<li>Another possibility is that these other ideas don’t get funded. There are business models that made sense in the 1890s or 1950s that no longer make sense — such as ones that are labor intensive or based on craft work — and new businesses here don’t get launched.</li>
<li>Blank points to the genius philosopher-king model — where a really rich guy (it’s almost always a guy) puts his money where is mouth is (again, almost always a big mouth). In a previous century it was Howard Hughes or Richard Branson, while today Blank points to <a href="http://money.cnn.com/gallery/leadership/2013/11/21/business-person-year.fortune/index.html">Elon Musk.</a></li>
<li>The final possibility is that politicians play kingmaker, not with their own money but with Other People’s Money, i.e. yours and mine. (They will be egged on by a incantations of “market failure” of a few economists.) While this may make sense for public goods such as public health, we saw how such large scale private intervention <a href="http://cleantechbiz.blogspot.com/2011/09/putting-eggs-in-wrong-basket.html">worked with firms like Solyndra.</a></li>
</ol>Of course, these are not mutually exclusive. Musk depends on public subsidies to support the business models of Tesla and SolarCity, although — unlike Fisker and Solyndra — he’s at least offering something people want to buy. SpaceX depends on public procurement, but I believe his announced plans that this is just a bootstrap to get the business off the group (so to speak).<br />
<br />
Is there a happy ending? Like Blank, I think the Facebook effect is going to get worse before it gets better.Joel Westhttp://www.blogger.com/profile/03837038327488766775noreply@blogger.com0tag:blogger.com,1999:blog-2886652089813793977.post-87068453139156377042013-11-14T17:57:00.001-08:002013-11-14T18:04:48.604-08:00A bird in the hand...The morning paper <a href="http://blogs.wsj.com/digits/2013/11/13/snapchat-spurned-3-billion-acquisition-offer-from-facebook/?mod=trending_now_1">reported</a> that Snapchat CEO Evan Spiegel turned down an (all cash) purchase offer from Facebook for approximately $3 billion.<br />
<br />
My Snapchat-addicted teenager was relieved, saying "that means we're probably not going to get ads". (I had to break it to her that ads are inevitable, no matter who owns the company).<br />
<br />
There is an interesting comparison to other pre-revenue startups<br />
<ul>
<li>Snapchat, two years old, refused $3 billion offer from Facebook</li>
<li>Instagram, two years old, $1 billion purchase in 2012 by Facebook</li>
<li>YouTube, 18 months old, $1.65 billion purchase in 2006 by Google</li>
<li>Pinterest, valued at <a href="http://techcrunch.com/2013/10/23/confirmed-pinterest-raises-225-million/">$3.8 billion</a> in last month’s VC round</li>
<li>WhatsApp turned down <a href="http://bgr.com/2013/04/08/google-whatsapp-acquisition-rumor-421762/" target="_blank">$1 billion</a> from Google in April, and one analyst Wednesday <a href="http://finance.yahoo.com/news/exhilway-private-equity-estimates-whatsapp-130300090.html">estimated</a> its value at $11 billion (based on Twitter’s <a href="http://finance.yahoo.com/q?s=TWTR" target="_blank">$24b market cap</a> after last week’s IPO)</li>
</ul>
Obviously, these are exceptional exit opportunities, but still there are lessons for other firms considering the timing of their exit.<br />
<br />
The <em>New York Times</em> <a href="http://dealbook.nytimes.com/2013/11/14/a-sign-of-desperation-in-facebooks-snapchat-offer/?_r=0">suggests</a> that its offer for Snapchat suggests desperation by Facebook:<br />
<blockquote>
Facebook’s Snapchat bid shows triple the desperation. The social network paid $1 billion for no-revenue Instagram a little over a year ago. Now, it’s said to be dangling as much as $3 billion to lure a mobile app that sends self-destructing digital images. Facebook’s apparently escalating need to buy off marauders at its moat suggests its defenses may be scalable.<br />
<br />
Coming just months before its initial public offering, Facebook had obvious reasons to buy Instagram. Consumers were spending more time on mobile devices, instead of desktop computers. This was listed as a “risk factor” in its prospectus for its initial public offering as the social network still hadn’t figured out how to make money on mobile advertising. More important, it faced the risk that users might migrate to a rival optimized for smartphone usage.<br />
…<br />
<br />
Snapchat has similarly astounding growth. In September, its users were sending 350 million photos a day, up from 200 million in June. …<br />
<br />
Still, there’s a disquieting element about a company spending billions for a simple application it could almost certainly have replicated for next to nothing. Facebook’s acknowledgment that teenagers are using its service less on a daily basis may signify the social network is losing its edge among the ranks of new technology adapters. That it is also now willing to shell out $3 billion to snuff out a rival in its infancy brings with it a whiff of desperation.</blockquote>
Writing on Sunday, Blogger Ben Evans <a href="http://ben-evans.com/benedictevans/2013/11/10/instagram-and-youtube">asked</a> where Facebook should draw the line:<br />
<blockquote>
Is FB going to buy Whatsapp, Snapchat, Line, Kakao and the next ten that emerge as well? Sure, some of those will disappear, but it doesn't look like FB will crush the competitors the way it did on the desktop. On mobile, FB will be just one of many.</blockquote>
From the standpoint of the entrepreneurs, <em>Business Insider </em><a href="http://www.slate.com/blogs/business_insider/2013/11/14/facebook_s_1_billion_instagram_buy_did_kevin_systrom_sell_too_soon.html">reports</a> on those claiming that Instagram sold too early and too cheap:<br />
<blockquote>
Now, 18 months later, industry people are starting to believe that [CEO Kevin] Systrom was wrong to accept that deal. They believe that if Instagram had stayed an independent company, it could be worth between $5 billion and $15 billion today.<br />
<br />
This morning, activist investor Eric Jackson tweeted: "Systrom has to be feeling like he totally missed this wave. Instagram likely worth $15B today minimum." Jackson told us he came up with that valuation figure by looking at Instagram's total active users, about 150 million, and Twitter's, around 236 million. Assuming that Instagram's user base is more U.S.-weighted, and therefore more valuable, he figures Instagram's market cap as an independent company would be at least half of Twitter's $30 billion.</blockquote>
To me, this is the question of the value of a bird in the hand. Instagram’s continuing success is not guaranteed. Like any stock, the value could go down, not up. (NB: Digg, MySpace, AOL). Since they’re pre-revenue (let alone having positive cash flow), no one has any idea what these companies will be worth.<br />
<br />
It seems unlikely that Spiegel (or Systrom) will have another comparable exit opportunity. If (as Wikipedia says) Systrom owned 40% of Instagram, 40% of $5b-1b is $1.6b (pretax) left on the table. For the founders, it’s the difference between never having to work again, and having enough pocket cash to change the world, whether by buying/selling companies or <a href="http://www.gatesfoundation.org/What-We-Do/Global-Health/Malaria">eradicating malaria.</a><br />
<br />
Mark Zuckerberg refused <a href="http://www.washingtonpost.com/blogs/innovations/wp/2013/11/14/snapchats-23-year-old-ceo-was-smart-to-turn-down-a-3-billion-offer/">a Yahoo purchase offer</a> and delayed his IPO, and now is #20 on the list of US billionaires with <a href="http://w.forbes.com/profile/mark-zuckerberg/">a worth of $19 billion</a>, the richest American under 40 years old. Timing is everything: Zuckerberg is worth far more than the widow of Steve Jobs, who accomplished far more over a longer period (but IPO’d early and sold his Apple founder’s shares in the 1980s).<br />
<br />
Key employees with stock options will be similarly conflicted. With another 5x rise in valuation, some may never work again. On the other hand, some have enough money to buy a house (even in Los Angeles) today, and they won’t if the company never concludes a successful exit. The more sophisticated realize they, too, may not have another opportunity: a childhood friend had stock options from seven Silicon Valley companies, and none ever produced a sizable ($100K+) return.<br />
<br />
The existence of a Chinese VC valuing Snapchat at $4b is giving Spiegel a concrete reason to turn down the Facebook offer. Still, new capital is not liquidity. Also, as Tech Crunch <a href="http://techcrunch.com/2013/10/23/confirmed-pinterest-raises-225-million/">notes for Pinterest, </a>the ever-increasing valuation may make it impossible late investors to profit from acquisition — making the exit IPO or nothing.<br />
<br />
So does turning down a $3 billion exit mean a $10 or $15 billion one? Or a $500 million one? Spiegel isn’t panicking, but instead is leaving all his chip on the roulette wheel for one more spin.Joel Westhttp://www.blogger.com/profile/03837038327488766775noreply@blogger.com0tag:blogger.com,1999:blog-2886652089813793977.post-6522344765204020352013-10-26T18:25:00.001-07:002013-10-26T18:36:51.606-07:00Buy, don't start a companyIn doing research for my first (journal) article on 3D printing, I found an interesting article that suggests young entrepreneurs should consider buying a small growth business rather than start one from scratch.<br />
<br />
The <a href="http://www.forbes.com/sites/georgeanders/2013/10/09/stanfords-b-school-sensation-plot-a-takeover-in-two-weeks-2/">story</a> (from the October 28 dead tree edition of <em>Forbes</em>) is about Stanford alumnus Rob Cherun and a course he took that changed his career goals from McKinsey consultant to one-man LBO artist:<br />
<blockquote>
Cherun’s inspiration was a little-known but increasingly popular course at Stanford called <a href="http://explorecourses.stanford.edu/search?view=catalog&filter-coursestatus-Active=on&page=0&catalog=&q=STRAMGT+543%3A+Entrepreneurial+Acquisition&collapse=">“Strategy 543: Entrepreneurial Acquisition.”</a> This second-year elective is a fast-paced, two-week primer on how to become a one-person version of KKR or Blackstone Group, carrying out your own tiny takeover and installing yourself as chief executive officer. …<br />
<br />
Every year second-year Stanford students like Cherun stampede into S-543 to learn the essentials of raising money, finding an acquisition target and closing the deal. Instructors Peter Kelly and David Dodson–two longtime entrepreneurs and investors themselves–take only 40 students per session, and that doesn’t come close to satisfying demand. Months before this autumn’s class began, every slot was claimed, and another 26 students hovered on the waiting list. Frustrated aspirants will get a second shot in the spring, thanks to a new scheduling expansion.</blockquote>
Columnist George Anders cites <a href="http://www.gsb.stanford.edu/sites/default/files/documents/SearchFund%202011E446.pdf" target="_blank">a study of “search funds”</a> that concluded that the occasional home run (100:1 return) produces a pretax IRR of 34%, even allowing for a 50% failure rate.<br />
<br />
In Cherun’s case, money was the easy part: after four Stanford instructors ponied up, Cherun and a partner raised more than $500k for their search and a promises of equity funding for an actual deal.<br />
<br />
The entrepreneurs bought 90% of a Canadian company that monitors construction sites for thefts. The 35-year-old founder remained as a minority partner and got to spend more time with his wife and kids without having to travel across the country. The new owners have doubled revenues to $10m (loonies?) annually.<br />
<br />
However, these Stanford students face a sizable opportunity cost. In almost the same issue, <i>Forbes</i> proclaimed Stanford the <a href="http://www.forbes.com/business-schools/">“best” US business school,</a> based on the difference between pre-MBA salary ($80k) and post-MBA ($221k) salaries that (<a href="http://www.forbes.com/sites/kurtbadenhausen/2013/10/09/the-best-business-schools-behind-the-numbers/">net of tuition and lost wages</a>) left them on average $100k richer after five years. The generous salaries for the elite graduates of the Stanford class of 2008 were aided by<a href="http://www.forbes.com/sites/kurtbadenhausen/2013/10/09/stanford-tops-2013-list-of-americas-best-business-schools/"> placements at Apple, Google and the top consulting firms</a> (Bain, BCG, McKinsey); these were 5 of the 6 employers <a href="http://universumglobal.com/ideal-employer-rankings/student-surveys/usa/mba/">most preferred by MBA students</a> (#4 on the list is Amazon). <br />
<br />
Three other schools (Chicago, Harvard, Wharton) also had $200k post-graduation salaries. My undergrad school, MIT, ranked 12th -- just ahead of UCLA, Berkeley and Virginia; my grad school, UCI, ranked #62 (up from #69 in the last ranking).<br />
<br />
It takes great confidence to walk away from the certain cash to run a small company. (Stanford students are nothing if not confident.) The risk is probably lower if (as in Cherun’s case) the company has a track record and (as recommended by Stanford) can be bought for 6x EBITDA.<br />
<br />
Except for the last point, this looks like a win-win, providing a liquidity opportunity for entrepreneurs who can’t take the company to the next level. Still, having a residual equity stake (and a meaningful management role) makes it a lot more attractive for founders who might have trouble letting go of their baby.<br />
<br />Joel Westhttp://www.blogger.com/profile/03837038327488766775noreply@blogger.com0tag:blogger.com,1999:blog-2886652089813793977.post-58236088821844753832013-08-24T09:42:00.001-07:002013-08-24T09:42:41.645-07:00Cleantech entrepreneurs thinking big<i>Cross-posted <a href="http://cleantechbiz.blogspot.com/2013/08/potential-payoffs-from-ubiquitous-bipv.html">from Cleantech Business</a></i><br />
<br />
As an MIT alum interested in clean energy, I subscribe to the free semiannual magazine <em><a href="http://mitei.mit.edu/publications/energy-futures-magazine">Energy Futures.</a></em> <br />
<br />
The purpose of the magazine is to tout MIT advances in energy technology, but since MIT (with the <a href="http://mitei.mit.edu">MIT Energy Initiative</a>) is one of the world's cutting-edge energy research labs, I find that it is often a provocative look into a possible future that may or may not* come to fruition. (*The technology may not work, it may not scale, it may not be cost effective, something better may come out, etc. — such are the risks of technology entrepreneurship).<br />
<br />
In the spring issue, <a href="http://mitei.mit.edu/news/transparent-solar-cells">one article</a> describes the work of Prof. Vladimir Bulović, recent PhD grad Miles Barr and ex-postdoc Richard Lunt to create transparent solar cells. The cells absorb energy in the UV and near-infrared, but only about 30% of the visible light. This would allow the PV cells to become just another layer on a building’s windows, and could also use the window class to protect the (currently fragile) layers from the elements.<br />
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<a href="http://mitei.mit.edu/system/files/20130617-transparent-solar-cells-4.jpg"><img src="http://mitei.mit.edu/system/files/20130617-transparent-solar-cells-4.jpg" height="557" width="350" border="1" align="middle" hspace="4" vspace="4" alt="[Spectral response]" title="[Spectral response]" /></a><br />
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Right now, the efficiency is only 2%, but are hoping to get the efficiency up to 10-12%.<br />
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As with any BIPV (Building Integrated Photovoltaic), integrating the PV into windows would eliminate most of the installation cost; it would also mean that the PV is not an obstacle in use of the existing roof, interfere with drainage, need to cope with snow accumulation, etc.<br />
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The big win seems to be for large commercial buildings. The article claims that a 5% efficient PV cell could generate 25% of a building’s electricity. Absorbing near IR would reduce cooling in the summer (but increase heating in the window). With such a cost-benefit, the builder of a new commercial building would invest in such efficiencies (even ignoring the <a href="http://www.usgbc.org/leed">LEED</a> bragging rights) while a consumer might worry about increasing the price of a house $20-50k (and would also tend to have more shading problems). If every new skyscraper had such BIPV, it would both generate a lot of energy and also be a big market.<br />
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To exploit the opportunity, the three men formed a company called <a href="http://www.ubiquitous-energy.com">Ubiquitous Energy</a>, where Barr is president and CTO, and the other two are on the scientific advisory board. They have a $1m in seed funding and $375k in SBIR funding <a href="http://www.ubiquitous-energy.com/news.html">so far.</a><br />
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Like any tech startup, it’s a gamble — but this seems one with a big payout if they can solve all the challenges.Joel Westhttp://www.blogger.com/profile/03837038327488766775noreply@blogger.com0tag:blogger.com,1999:blog-2886652089813793977.post-56958602089009039292013-06-08T08:39:00.000-07:002013-06-11T19:19:50.659-07:00Risk-taking and risk aversionThe cover of the <em>Wall Street Journal</em>† Monday <a href="http://online.wsj.com/article/SB10001424127887324031404578481162903760052.html#printMode?KEYWORDS=risk+averse">proclaimed</a>:<br />
<blockquote>
<strong>Risk-Averse Culture Infects U.S. Workers, Entrepreneurs</strong><br />
By Ben Casselman<br />
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Three long-running trends suggest the U.S. economy has turned soft on risk: Companies add jobs more slowly, even in good times. Investors put less money into new ventures. And, more broadly, Americans start fewer businesses and are less inclined to change jobs or move for new opportunities.</blockquote>
The VC story isn’t quite as compelling as promised. Some of the story is already known — that VCs keep hoping for another Internet bubble that won’t return (but spawned excess entry). At least one measure — share of VC for seed capital — the trend isn’t monotonic, but shows peaks and valleys. <br />
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The concentration of VC in Silicon Valley can be read two ways: VC only wants Silicon Valley entrepreneurs, or entrepreneurs know they should move to Silicon Valley to get funding. And as everyone knows, the companies that VCs fund are only a small fraction of the nation’s startups.<br />
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And while Casselman reported new specifics, we know that the last four years has been a jobless “recovery.” Citing the work of Maryland economist <a href="http://econweb.umd.edu/~haltiwan/">John Haltiwanger,</a> he wrote:<br />
<blockquote>
In the eight recessions from the end of World War II through the end of the 1980s, it took the U.S. a little more than 20 months, on average, for employment to return to its pre recession peak. But after the relatively shallow recession of the early 1990s, it took 32 months for payrolls to rebound fully.<br />
<br />
After the even milder recession of 2001, it took four years. Today, nearly four years after the end of the last recession, employment has yet to reach its pre crisis peak. </blockquote>
No, what was really troubling is what the story said about America’s entrepreneurial culture. This is what made America successful over the past 150 years, and the envy of the world. (It is also why, as some have argued, the country needs <a href="http://archive.spacefrontier.org/History/">a new frontier</a> to keep entrepreneurial processes alive).<br />
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Instead, Americans are changing cities often, changing jobs less often, and working more for big companies than for small companies. Even family businesses are not being passed down, as the children of entrepreneurs opt for the safety and comfort of corporate jobs.<br />
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As a natural consequence of this cultural shift, young companies account for a declining share of both the population of companies and national employment. This is terrible for the country, because we know (especially <a href="http://blog.openitstrategies.com/2010/11/killing-startups-killing-economy.html">from Prof. Haltiwanger’s research</a>) that young companies account for <em>all</em> the net job creation in this country. These little companies are finding it harder to compete against <a href="http://engent.blogspot.com/2013/01/zipcar-it-hard-to-create-stand-alone.html" target="_blank">established incumbents.</a><br />
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I wish I had an answer. The country has become <a href="http://www.amazon.com/gp/product/1594205450/ref=as_li_ss_tl?ie=UTF8&camp=1789&creative=390957&creativeASIN=1594205450&linkCode=as2&tag=openinnovatio-20">more regulated and bureaucratic, </a>and it’s taking a toll on entrepreneurial intentions. Thirty years ago, we had an effort to reset the country’s attitude towards risk taking and free markets, but the tide has been inexorably coming in ever since.<br />
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<em>† It’s to the Journal’s credit that they devoted so much space to the topic. Twenty years from now, we’ll hold this out as an example of why newspapers were once a good thing and tragic that they all died.</em>Joel Westhttp://www.blogger.com/profile/03837038327488766775noreply@blogger.com0tag:blogger.com,1999:blog-2886652089813793977.post-9056587025369957422013-05-22T13:51:00.004-07:002013-05-22T13:51:46.101-07:00Research on startup teams and startup successAt the ACAC lunch today, <a href="https://engineering.stanford.edu/profile/kme">Kathy Eisenhardt</a> summarized her decades of research on tech startups. For an academic conference (the <a href="http://robinson.gsu.edu/acac/">Atlanta Competitive Advantage Conference</a>), Prof. Eisenhardt literally needs no introduction: as host Bill Bogner of Georgia State said, “Kathy Eisenhardt needs no introduction: if she does, you didn't pass comps.” (Academics would know <a href="http://scholar.google.com/scholar?hl=en&q=kathleen+eisenhardt">her paper</a> that has 20,000+ cites, while tech entrepreneurs might know her as co-director of <a href="http://stvp.stanford.edu">Stanford Technology Ventures Program</a> or <a href="http://ecorner.stanford.edu/author/kathleen_m_eisenhardt">her many STVP videos</a>).<br />
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Eisenhardt's focus was on the importance of a startup’s management (<a href="http://scholar.google.com/scholar?hl=en&q=%22top+management+team%22">“Top Management Team”</a> in strategy jargon) in determining the success of a small or young firm in a highly uncertain environment. She identified three factors that explained that success<br />
<ol><li>Optimal management team</li><li>Optimal strategic decision process</li><li>Matching strategy and structure (at “the edge of chaos”)</li></ol><strong>1. Management Team<br />
</strong><br />
We know that successful teams need to be larger, diverse and have prior work experience together (and thus trust). However, there is an interaction effect between the team and the sort of opportunities they pursue. As scholars who study tech startups will tell you, firms tend to be veterans of an industry who start firms in that same industry that they know.<br />
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<a href="http://www.jstor.org/stable/2393315">Her 1990 paper</a> with Kaye Schoonhoven showed that the best firm growth came where a top team caught a great opportunity. A great opportunity was a market that’s at the takeoff phase of a growth market: at least $20 million of industry revenue and 20+% annual growth. In California-speak, Eisenhardt said this is a great surfer catching a great wave.<br />
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In specific domains, she cited the recent research of Anne Fuller and Frank Rothaermel on <a href="http://dx.doi.org/10.1002/sej.1140">star faculty entrepreneurs</a> as well as various papers by Sonali Shah on <a href="http://scholar.google.com/scholar?q=sonali+shah+user+entrepreneurs">user entrepreneurs.</a> As she noted, Chuck Eesley of Stanford (an MIT alum) who <a href="http://dx.doi.org/10.1002/sej.1141">estimated</a> when experience is more valuable than talent, based on a survey of entrepreneurs from among the 100,000+ MIT alumni.<br />
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<strong>2. Strategic Decision-Making<br />
</strong><br />
Her <a href="http://www.jstor.org/stable/256434">old studies on TMT</a> decision making showed that for fast choices in highly uncertain environments, managers need more information and more alternatives, as well as a decision process that is midway from managerial fiat and (a hopeless search for) total consensus. She also noted later work of researchers who examined <a href="http://scholar.google.com/scholar?q=organizational+improvisation">improvisation</a> and <a href="http://scholar.google.com/scholar?q=entrepreneurial+bricolag">bricolage</a>.<br />
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Her former student, <a href="http://scholar.google.com/citations?user=LJtE3tcAAAAJ">Sam Garg,</a> has studied how CEOs manage their boards. The best CEOs constrain the interactions with the board and don’t give up their power over leading the company, using it to make decisions (not generate ideas), by using a divide and conquer strategy.<br />
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<strong>3. Strategy and Structure<br />
</strong><br />
Summarizing <a href="http://scholar.google.com/scholar?hl=en&q=bingham+eisenhardt">her research with Chris Bingham</a> of UNC, she noted that young firms were most successful when they could use their experience to generate heuristics. Experience was valuable when it created “simple rules” that firms could apply over and over again: such rules were both quicker and often better in solving problems in conditions of high heterogeneity and high uncertainty.<br />
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Eisenhardt noted that firms (like parents “raising your teenager”) face a dilemma between too much and too little structure. In a simulation with Bingham and Jason Davis, they found that in a highly unpredictable or turbulent market, too little structure is more dangerous than too much. (This also sounds like raising a teenager).<br />
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Finally, in cases of high ambiguity (e.g. nascent markets), success is more determined by luck than skill. Therefore, skillful managers want to reshape the market to fit their skills — rather than leave the outcome to dumb luck.<br />
Joel Westhttp://www.blogger.com/profile/03837038327488766775noreply@blogger.com0tag:blogger.com,1999:blog-2886652089813793977.post-60023326044284904862013-05-08T14:57:00.001-07:002014-06-07T02:07:35.815-07:00The multi-dimensional 3D printing revolutionAt @KeckGrad today, our graduate students are doing their year-end <a href="http://www.kgi.edu/TMP">project presentations.</a> In watching the presentation by mechanical engineering students gave me insight into how 3D printing is going to change entrepreneurship.<br />
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There are at least three different dimensions of how 3D printing is creating entrepreneurial opportunities. In each case, there are parallels between personal computers almost 40 years ago — and smartphones today — and how they gradually displaced mainframe computers. This is <a href="http://blog.openitstrategies.com/2008/08/clay-chronicles-decade-of-disruption.html">a classic Clay Christensen “disruptive innovation”.</a><br />
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Some of the emphasis on the impact of 3D printing has focused on the 3D printing companies. In fact, Scott Shane published <a href="http://dx.doi.org/10.1287/orsc.11.4.448.14602">a 2000 research paper</a> on how a variety of companies licensed the original 3D printing technology from MIT. This has been the subject of news has also been on some of the larger and more successful 3D printer manufacturers, whether public companies such as <a href="http://seekingalpha.com/article/1332761-stratasys-continues-to-benefit-from-the-3d-printing-boom?source=google_news">Stratasys or 3D Systems</a> or startups such as <a href="http://allthingsd.com/20130423/shapeways-raises-30m-for-3d-printing-led-by-andreessen-horowitzs-chris-dixon/?KEYWORDS=3d+printing">Shapeways</a>.<br />
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A second opportunity — the one that captures the attention of the popular press — is the print-on-demand business.This nicely fits the mass customization vision of Silicon Valley marketing guru Regis McKenna and German innovation scholar Frank Piller. An example of this is <a href="https://www.layerbylayer.com/">Layer By Layer</a> (<a href="https://twitter.com/LayerByLayer3D">@LayerByLayer3D</a>) a company formed by Harvey Mudd students who are graduating next week, who proposed to custom-print iPhone cases. <br />
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An advantage of the 3D printing model is easier customization and lower setup costs. However, for now it’s slower and more expensive per unit, and has limitations in product reliability.<br />
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However, at the KGI presentation today, I saw a third category of opportunity. This seems like a much broader and more immediate application of 3D printing: changing the process of industrial design. <br />
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Among our <a href="http://www.kgi.edu/TMP">Team Masters Projects,</a> a team of KGI and Harvey Mudd students spent the academic year to create a mechanism for evenly coating seeds. As in previous projects, they used SolidWorks to design the mechanical components, and had some bent or machined metal components.<br />
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However, it became obvious to the team that the default prototype fabrication approach is the 3D printer. The students created two seed picking components that could be sized and shaped to fit whatever requirements they had. Once they had the design, they set the printer going and hard their part ready in the morning.<br />
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This reminds me of my first computer experience (pre-PC), when computing job turn-arounds took 10 minutes to several hours. To improve on batch computing, we eventually obtained timesharing — quick but expensive — and then desktop personal computing and handheld computing. Over time, as computing became quicker and cheaper, it allowed computing to permeate and enable every aspect of engineering, science, business and government.<br />
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So if 3D printing becomes cheap, ubiquitous and quick, what will that do to physical design? The marginal cost may not become as low as software products, but it will certainly close the gap and thus converge the innovation processes between physical and intangible goods.Joel Westhttp://www.blogger.com/profile/03837038327488766775noreply@blogger.com0tag:blogger.com,1999:blog-2886652089813793977.post-15750611629660641272013-05-03T22:53:00.001-07:002013-05-22T03:03:22.166-07:00Some tech startups are more high-tech than othersIn the business press, academic teaching and research, there’s often a discussion of the unique characteristics of <a href="https://www.google.com/search?q=tech+startups">“tech startups”,</a> <a href="http://scholar.google.com/scholar?q=technology+entrepreneurship">“technology entrepreneurship”</a> and “<a href="http://scholar.google.com/scholar?hl=en&q=technology-based+firms">technology-based firms</a>.” Such startups are the focus of this blog.<br />
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Often the distinction between high- and low-tech startups is measured by the proportion of technical employees — such as fraction of R&D employees or fraction of R&D spending (i.e. R&D intensity). <br />
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Still, tech startups are not homogeneous. Some of the distinctions that have been draw are science- vs. engineering-based startups, or industry-specific startups like IT, cleantech, or biotech.<br />
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This week I attended two business plan competitions here in Claremont: <a href="http://www.kgi.edu/news-and-events/feature-stories/2013/kgi%E2%80%99s-2013-business-plan-competition-markets-the-next-generation-of-life-saving-medical-technologies.html">Wednesday’s business plan competition</a> at the Keck Graduate Institute (which I organized) and today’s <a href="http://www.cgu.edu/kravis">Kravis Competition</a> across all the Claremont Colleges.<br />
<br />
<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiUwIY0NUmVBqQzMH_5WqPpPBSf0QZOf6HPpghFkMQMSy1W1hQHoSLfR2GrFBoiA2tDrngYzcXpV22w07dudoIgVGlKzAs7vfH5g9wFhPBNHK70eQ3GrAI_cN0MxQDCUl_9vrZwmav57ctg/s1600/DSC_3023-cropped.jpg" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" height="250" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiUwIY0NUmVBqQzMH_5WqPpPBSf0QZOf6HPpghFkMQMSy1W1hQHoSLfR2GrFBoiA2tDrngYzcXpV22w07dudoIgVGlKzAs7vfH5g9wFhPBNHK70eQ3GrAI_cN0MxQDCUl_9vrZwmav57ctg/s400/DSC_3023-cropped.jpg" width="400" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">Judges at KGI 2013 Business Plan Competition: George Golumbeski, Stephen Eck, Bob Curry. <i>Not shown: Liam Ratcliffe, Paul Grand</i></td></tr>
</tbody></table>
Our KGI business plans (from my ALS 458 class) were all about commercializing patented (or patent-pending) biomedical technologies (therapies, diagnostics, devices) developed by top research institutions such as Caltech, City of Hope, and USC. The Kravis competition included several IT concepts, some low tech businesses, and AccuMab, a cancer diagnostic company from my KGI class.<br />
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In comparing the KGI plans to the other Claremont projects — or those in our textbook — it seems to me that — at least from a financial standpoint — there are three types of companies: high tech, medium tech and no tech.<br />
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What is dramatically different about our students projects was that (with one exception) is that they’re highly capital intensive, requiring $5 to $50 million in outside funding. For example, the winning team — using <a href="http://www.chla.org/site/c.ipINKTOAJsG/b.7970553/k.A420/Grikscheit_Lab__Tissue_Engineering__Intestinal_Regeneration__Stem_Cells.htm">technology from Children’s Hospital Los Angeles</a> to repair Shortened Bowel Syndrome — estimated it needs $20 million in equity and $5 million in government grants to get to market. This project — like many others — is building on millions of dollars of NIH/NSF/foundation grants already received to develop the basic science. There is a certain minimum scale required to get FDA approval and thus generate first revenues.<br />
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<tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjtCkdOwrT1EDBbE2IauZhY3ZooPiCOeDUiYIr4wYhX8lT-KNGMnKi60rxkE1SXlLtu4wbxi25im2V4rwjnbp2dd1Eurg1NrX2LI_VBM2zPCamkrrNhqJRfRVm4SjTtw9pTTba2LJilCRCw/s1600/DSC_3064.JPG" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" height="267" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjtCkdOwrT1EDBbE2IauZhY3ZooPiCOeDUiYIr4wYhX8lT-KNGMnKi60rxkE1SXlLtu4wbxi25im2V4rwjnbp2dd1Eurg1NrX2LI_VBM2zPCamkrrNhqJRfRVm4SjTtw9pTTba2LJilCRCw/s400/DSC_3064.JPG" width="400" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">2013 winning KGI team — Hadi Mirmalek-Sani, Porus Shah, Shrina Shah, Rajesh Pareta — <br />
with Bob Curry, chair, KGI Board of Trustees</td></tr>
</tbody></table>
Think about the story of Mark Zuckerberg, who launched The Facebook <a href="http://en.wikipedia.org/wiki/History_of_Facebook">in early 2004</a> and took its first outside investment (of $500k) later that year. (Yes, they didn’t monetize initially, but still they created a compelling product and reached a million subscribers using the founders’ money). The iPhone app startups were launched for tens of thousands of dollars: Rovio had 40 million Angry Birds users before they took <a href="http://www.rovio.com/en/news/press-releases/63/42m-series-a-investment-in-rovio/">their 2011 Series A investment.</a><br />
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Over the years, entrepreneurship researchers (and practitioners) have demonstrated that any new company or product has highest uncertainty and risk up until first customer sale. So from a practical standpoint, I suggest a new metric: how much R&D spending do you need before launching a product? How big a bet — with what scale of outside investment — does it take until the entrepreneur finds out whether (s)he has a viable business?<br />
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By this measure, the difference is not the % of the money that goes to R&D but the size of the R&D bet that’s needed to test the marketing hypothesis.<br />
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A company that takes 5+ years and $50+ million is fundamentally different from one that can ship a 1.0 (or revenue-generating beta) for less than $1 million. By that standard, after biotech the biggest bets required <a href="http://cleantechbiz.blogspot.com/2011/01/are-vcs-giving-up-on-re-should-they.html">are for renewable energy.</a> You can start dozens (or hundreds) of software companies for one fully mature biotech, biofuels or solar company.Joel Westhttp://www.blogger.com/profile/03837038327488766775noreply@blogger.com0tag:blogger.com,1999:blog-2886652089813793977.post-67138071772109904782013-04-26T07:07:00.001-07:002013-04-26T07:08:58.314-07:00Developing science and engineering majorsLast month I participated in the <a href="http://www.sdsciencefestival.com/">San Diego Festival of Science & Engineering, </a>which touched more than 50,000 K-12 students interested in technical careers. In some ways, it was like a personal homecoming since the key event was the annual <a href="http://www.gsdsef.org/">Greater San Diego Science & Engineering Fair,</a> where I got my start as a pre-teen computer scientist and served for 12 years as a judge.<br />
<br />
The supply of science and engineering college graduates is crucial on multiple levels. These are the students who grow up to be founders of high-tech startups — whether young entrepreneurs before or during college (as in Gates, Zuckerberg, Wozniak) or those that start a company after a few years of industry experience (as I did). You also need the engineers and scientists that work for these startups.<br />
<br />
To follow up on one of the talks, I found an <a href="http://www.careercornerstone.org/science/science.htm">excellent resource </a>for preparing K-12 students for science careers. But sending children to STEM college majors is not enough, as two articles demonstrated. One, in the <em>New York Times,</em> was entitled <a href="http://www.nytimes.com/2011/11/06/education/edlife/why-science-majors-change-their-mind-its-just-so-darn-hard.html?">“Why Science Majors Change Their Minds”</a>. A sequel, <a href="http://www.forbes.com/sites/danreich/2011/11/09/why-engineering-majors-change-their-minds/">“Why Engineering Majors Change Their Minds,”</a> was published at the <em>Forbes </em>website.<br />
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The upshot of these recommendations? Engineering is hard, the grades are lower than for easy majors, and the competition is particularly ruthless at the top school. (Berkeley comes to mind as a place that particularly likes to wash out engineering majors). They also note the deferred gratification: several years of lower division prep followed by the interesting stuff as a junior or senior.<br />
<br />
To address this, Berkeley had my niece take a freshman engineering seminar to give her the big picture of what she was studying. I recall that my favorite (STEM) course freshman year — when I was still intending to be a EE — was taking the sophomore intro circuits class my first semester at MIT from a great teacher who later went on to be <a href="http://www-mtl.mit.edu/~sds/home.html">a IEEE Fellow.</a><br />
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A friend's son is hoping to join a top engineering program in 16 months, and so I’ve been giving his parents suggestions of how to think about picking a college and a career. One is to consider the <a href="http://colleges.usnews.rankingsandreviews.com/best-colleges/rankings/engineering-no-doctorate">top engineering teaching schools,</a> like Harvey Mudd, Cal Poly, Olin or the military academies. (Or, if he goes to a <a href="http://colleges.usnews.rankingsandreviews.com/best-colleges/rankings/engineering-doctorate">top engineering research school,</a> to join a professor’s lab as soon as possible). Other ideas include getting a summer job that involves working alongside engineers. Or, to do as my daughter is doing, attend a summer engineering program for high school students such as <a href="http://cosmos-ucop.ucdavis.edu/">UC’s Cosmos.</a><br />
<br />
Certainly what top students (and would-be entrepreneurs) need is an understanding of the technology and a curiosity to think about what that technology can do. For example, some Harvey Mudd students used their understanding of 3D printing to create a startup that <a href="https://www.layerbylayer.com/">makes custom iPhone cases</a> (that can be self-printed or shipped).<br />
<br />
Still, even with well-laid plans, there are plenty of opportunities to go astray, for the reasons identified by the NYT and Forbes. My friends who succeeded in engineering found a good job out of college (or as a summer job during college) that validated their choice and allowed them to reap the rewards of their long hard work.<br />
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In this era where the “new normal” is 8+% unemployment overall and <a href="http://www.bls.gov/opub/ted/2013/ted_20130405.htm">12+% for recent graduates,</a> it seems more important than ever to find schools that find high demand for their graduates in the marketplace. Yes, some of this is a self-fulfilling prophecy — top schools attract top students who place well — but as a parent (or student) we want the best path to success. It’s great for students to take a direct path into entrepreneurship, but no one’s ROI on college investment should assume that lightning will strike during a four year window.<br />
<br />
Finally, I advise every engineering student to do a business or econ minor (or even double major) — which will pay dividends in companies both big and small. I was blissfully unaware of business as an undergraduate, and had to do remedial education in night school to have a clue as to how to run my company. For business, I would recommend marketing, accounting, finance and general management. For econ, I'd recommend micro, if possible skip macro, and take managerial topics such as industrial/organizational econ, decision theory, law and economics or even econometrics or game theory.Joel Westhttp://www.blogger.com/profile/03837038327488766775noreply@blogger.com0tag:blogger.com,1999:blog-2886652089813793977.post-61544730587120208132013-04-12T11:10:00.000-07:002013-05-03T23:07:34.668-07:00Will high growth bring a failed marriage?Everyone knows being an entrepreneur is stressful, particularly for a high-growth startup. Often entrepreneurs pay a high personal price — whether or not their firm is successful.<br />
<br />
Still, last week I was surprised to read a <em>New York Times</em> blog posting that suggested that the outcome is predetermined. The <a href="http://boss.blogs.nytimes.com/2013/02/27/balance-dont-believe-the-hype/">article</a> was written by a former entrepreneur who runs an <a href="http://oxford-center.com/about-2/">entrepreneurial training program</a> in suburban Atlanta:<br />
<blockquote><strong>Balance? Don’t Believe the Hype</strong><br />
By <a href="http://oxford-center.com/oxford-team/">Cliff Oxford</a><br />
<br />
“How can fast-growth entrepreneurs lead a more balanced life?” is one of those agonizing questions that I am often asked. The good news is that there is a rather simple answer: “You can’t.” Save your money, and don’t waste your time on the books and coaches who want to sell you advice. Here is why.<br />
<br />
Fast growth is a 24/7 proposition. It is not just the hours you put in at work; it’s that it owns your head. You think about work in the shower and on vacation, and you get lost in all of the ideas while you are sitting at dinner. It is exciting and dangerous. Of course, the collateral damage on the big three — family, health, and faith — can be disastrous. <br />
…<br />
Now I work with hundreds of fast-growth entrepreneurs who struggle to find the balance they read about in airplane magazines as they zip off to see the next customer, and I see these tragedies happen over and over. I tell fast-growth entrepreneurs not to get married while they are in fast-growth mode. They always do.<br />
…<br />
I thought I could help entrepreneurs understand that balance is a fantasy — a good fantasy but still fantasy. … I have been told that this is about the same success rate for heroin users in rehab.<br />
…<br />
Here is the deal: Fast growth means all-in, 24/7 for the mission and success of the company. Balance is snake-oil that says it can all be pretty and nice. It can’t. But I think setting boundaries can help. <br />
…<br />
Boundaries are trade-offs, and entrepreneurs are good at negotiating trade-offs. Balance is propaganda that sells well but is a cruel hoax that will continue to write tragedies.</blockquote>The author’s viewpoint seems to be strongly colored by his own divorce and regrets over his loss of time with his (now adult) daughter. I have my own regrets over poor work-life tradeoffs, but (perhaps with more distance) am less inclined to generalize.<br />
<br />
Oxford correctly notes that Bill Gates held off on the marriage and kids thing until he was starting to wind down his Microsoft role. Similarly, I would note that Steve Jobs didn’t get married (or have his last three kids) during his original Jobs I period, but in the NeXT interregnum before the <a href="http://blog.openitstrategies.com/2011/08/end-of-jobs-ii-era.html">Jobs II era.</a> Both Larry Page and Sergey Brin got married in 2007, when Google was nine years old and worth billions.<br />
<br />
Still, there’s a difference between an increased risk and a deterministic outcome. I asked one friend who works with Silicon Valley entrepreneurs, and he strongly disagreed because, as he said, “Have seen people able to do both.”<br />
<br />
Instead, I think it’s the personality of those who become entrepreneurs — not just the single-mindedness, but the insurmountable ego. It’s not just (as Oxford suggest) the single-mindedness of pursuing The Next Big Thing, but also the know-it-all confidence (aka arrogance aka hubris) and need for control that inevitably leak over from business into one’s personal life.<br />
<br />
So the lesson is not one just for entrepreneurs, but a broader lesson for driven, successful people who do need that sort of balance in their life. Perhaps as Oxford suggests, boundaries can provide a way out for those who’ve lost all sense of perspective.Joel Westhttp://www.blogger.com/profile/03837038327488766775noreply@blogger.com0tag:blogger.com,1999:blog-2886652089813793977.post-87454835562549322392013-04-07T23:05:00.001-07:002013-06-14T17:11:21.389-07:00The opportunity cost of entrepreneurial educationA friend tonight <a href="https://twitter.com/professorvc" target="_blank">tweeted</a> a column about why entrepreneurs shouldn’t get MBAs. The <i>Wall Street Journal</i> <a href="http://blogs.wsj.com/accelerators/2013/04/01/vivek-wadhwa-why-i-no-longer-advise-startups-to-hire-m-b-a-s/?mod=e2tw" target="_blank">column</a> last Monday says “I no longer advise startups to hire M.B.A.s and I discourage students who want to become entrepreneurs from doing an M.B.A.” and a <a href="http://www.linkedin.com/today/post/article/20130405131954-8451-look-before-you-leap-into-that-mba?trk=mp-author-card" target="_blank">follow up Friday</a> on LinkedIn makes similar points.<br />
<br />
The author, Vivek Wadhwa, is a former entrepreneur who’s made a point of being an iconoclast on trade, immigration, education and a variety of other topics since taking his first adjunct position in academia at Duke <a href="http://today.duke.edu/2005/08/wadhwa.html" target="_blank">back in 2005.</a> Having seen some strong opinions in areas where I have direct knowledge, I’ve always tended to take his postings with a grain (if not a kilo) of salt.<br />
<br />
The LinkedIn column identifies some important risks for entrepreneurs. The first is the cost ($100+K) of getting an MBA, which tends to push MBA graduates towards corporate rather than entrepreneurial opportunities. (This problem has gotten more severe as state-subsidized MBAs have gone away: a Haas or UCLA MBA that 20 years ago cost $10K in tuition is <a href="http://www.haas.berkeley.edu/finaid/MBA/cost.html" target="_blank">now over $100K</a>). Related to this is the opportunity cost, i.e. two years out of the workforce: if you have the next Facebook, you should be starting it rather than getting a degree.<br />
<br />
Wadhwa also questions the relevance of MBA programs for new and small companies — a point I observed when taking MBA classes (during my PhD) back in 1994-1996. Still, this is a terribly broad brush, given the wide range of programs around the country, and the number of serious entrepreneurship faculty (such as <a href="http://www.hbs.edu/faculty/Pages/profile.aspx?facId=6452" target="_blank">Tom Eisenmann</a>) trying to provide real entrepreneurial insights in the MBA classroom.<br />
<br />
I’d agree with Wadhwa that a good one-year specialized master’s is a reasonable compromise. I don’t know much about his own program at Duke, but certainly could recommend the engineering management programs at <a href="http://funginstitute.berkeley.edu/berkeley-master-engineering" target="_blank">Berkeley</a> or <a href="http://www.stanford.edu/dept/MSandE" target="_blank">Stanford’s</a> highly influential part-time program.<br />
<br />
However, I find some of Wadhwa’s advice more than a little contradictory:<br />
<blockquote class="tr_bq">
I believe very much in the value and importance of education and consider the bachelors degree to be a basic requirement for success in business — whether you are working for someone else or starting your own. If you don’t have this, you are at a severe disadvantage because you have too many gaps in your knowledge and you have not had a chance to develop important social and learning skills.<br />
…<br />
My team at Harvard and Duke looked into the backgrounds of tech entrepreneurs found that, on average, MBAs start their companies 13 years after graduating. Subsequent research revealed that what makes entrepreneurs successful is their experience — including previous successes and failures; management teams; and luck. Next on the list are professional networks and education. </blockquote>
Yes, it’s redundant for someone with a good undergraduate business degree to get an MBA — whether trying to be an entrepreneur or not. Those with undergraduate business degrees may be well-suited at starting a franchise or retail firm, or (after many years’ experience) of being the finance or marketing cofounder of a tech startup.<br />
<br />
However, the advice to avoid an MBA is problematic for would-be tech entrepreneurs. How do you get a bachelor’s in business when you’re majoring in engineering or computer science (or molecular biology) at a top school? The normal route — the one I have long advised — is for would-be entrepreneurs to get an undergraduate tech degree and a graduate business degree.<br />
<br />
And just because you got your degree 13 years before you start your company, doesn’t mean it wasn’t valuable. A good degree from a good school admits you into a good firm, good experience, and good professional and social networks. Without some sort of business training, 13 years later an engineer or scientist will still be (“just”) an engineer or scientist.<br />
<br />
I never got a formal business education before starting my company, but I did have a few UCSD Extension courses that helped tremendously. I would have done much, <b>much</b> better if I’d understood VC, entrepreneurial exits and consumer marketing before co-founding a company in a burst of excess (and unjustified) optimism.<br />
<br />
Overall, these columns show the problem with black-and-white, one-size-fits-all advice. On the one hand, getting an MBA has a cost, and sometimes the cost is too high. On the other hand, tech entrepreneurs have almost insurmountable disadvantages if they don’t understand the basics of business — which might be solved by an MBA, a dual major, a business minor, or a well-trusted relative who will look after their interests when they are starting their firm.<br />
<br />
So if the point is to say that entrepreneurs should never get an MBA, that’s clearly an exaggeration to make a point. If the point is to caution would-be entrepreneurs to carefully assess the risk-benefit of an MBA before starting, I’d say Amen! — but that would also apply to anyone getting a graduate degree, whether an <a href="http://hbr.org/2005/05/how-business-schools-lost-their-way/ar/1" target="_blank">MBA,</a> a <a href="http://www.kgi.edu/academic-programs/master-of-bioscience-(mbs).html" target="_blank">Professional Science Masters’</a> or <a href="http://www.technologyreview.com/view/423814/nature-on-the-phd-glut/" target="_blank">a PhD.</a><br />
<br />Joel Westhttp://www.blogger.com/profile/03837038327488766775noreply@blogger.com1tag:blogger.com,1999:blog-2886652089813793977.post-90927885902200543062013-02-15T21:41:00.000-08:002013-02-15T21:56:12.578-08:00The customer is always rightOne of my most vivd memories of our first major software development contract, to support HP’s first color printer for the Macintosh, came with celebratory banquet. We all got little plaques, and mine said: “Keep ’em happy.” (I still have that plaque in my closet.)<br />
<br />
To the customer, this was probably a good thing. However, the slogan (volunteered by a subordinate) reflected a tension in our 18-month-old company — between the marketing slime (me) and the engineers (everyone else) over how far we were willing to bend to keep the customer happy.<br />
<br />
The reality is that for a small, young and underfunded (particularly self-funded) company, revenue is everything: you won’t keep the doors open without it, and it’s only going to come from one place: the customer.<br />
<br />
When we founded the company in 1987, I’d never taken any business classes. However, as the only one who fully understood our financially precarious position (not a good idea), quickly worked to implement the old maxim: the customer is always right. (Admittedly, where possible I would say “you're right, it needs that feature, but that’s not part of this version: let’s put it in the next version that you buy.”)<br />
<br />
If you’re venture funded, you have a different imperative: grow fast or die trying. Sometimes that means getting early customer wins, but in other cases it means building as complete a product as quickly as possible — without regards to initial feedback — to have something that will be best-in-class and pre-empt the inevitable competitors.<br />
<br />
Apparently, if you are a centimillionaire with an ambition and ego that is out of this world, even these rules don’t apply. How else can one explain the quixotic attacks by Tesla CEO and co-founder Elon Musk on the <em>New York Times,</em> who had the nerve (the nerve!) to publish an article last week describing a long-distance test drive <a href="http://cleantechbiz.blogspot.com/2013/02/magnifying-rather-than-quelling-range.html">gone horribly wrong.</a> All week, he has been mounting a jeremiad against the newspaper and its reporter, accusing them of lying, lack of ethics, falsifying and just about everything short of kicking a dog and abusing children.<br />
<br />
Perhaps — as with a political candidate — he’s trying to <a href="http://blog.openitstrategies.com/2013/02/sell-car-not-kool-aid.html">dispel any doubts in his base,</a> rather any attempt to appeal to the average buyer. Still, it seems to be a counterproductive strategy; as Nicholas Thompson, a <em>New Yorker</em> editor <a href="http://www.linkedin.com/today/post/article/20130215030225-7070331-elon-musk-and-how-not-to-handle-a-pr-crisis">wrote</a> today:<br />
<blockquote>
It seems there are a few things we can learn from this:<br />
<ul>
<li>Never escalate a fight about a negative review, unless you're certain to win. The debate has driven a lot of people to Broder's initial review. And there's nothing in that review, or the rest of the debate, that's going to make anyone want a Tesla car.</li>
<li>Twitter is a temptation. Musk's fierce initial response is artful. The first sentence is clipped and sharp. But, even when he first put it out, did he think that "fake" was the perfect word? Or was it just that it's shorter than, say, "flawed"?</li>
<li>If your company has a celebrity CEO, use him carefully. Musk has a lot of power, in part because of his position of social media. But by personalizing this battle, he's done real harm to both his brand's and to Tesla's.</li>
</ul>
</blockquote>
But then Musk has a habit of shooting the messenger, exaggerating and even lying in his attacks on reporters who disagree with him. A VentureBeat reporter <a href="http://venturebeat.com/2010/07/09/tesla-motors-elon-musk-truth">wrote</a> nearly three years ago:<br />
<blockquote>
I don’t believe Musk twists the truth out of malice. Rather, at this point, it may well be out of habit. He’s so used to getting his way that future possibilities just seem like present realities to him. And pragmatically, it’s worked. Whenever Tesla has been in a bind, Musk has spun his way out of trouble.<br />
<br />
It’s a character trait of which elements are found among many successful entrepreneurs: the compelling presentation of an alternate reality in the hopes that so many people will sign on to the vision that it comes true. Apple CEO Steve Jobs, for example, is so masterful at this that people speak of his reality distortion field. But Musk may have taken distortion to extremes.</blockquote>
The old Steve Jobs (Jobs I) was like that: a good friend went to work for Jobs (at NeXT) and told me that everything I’d heard about “reality distortion field” was true.<br />
<br />
However, in the <a href="http://blog.openitstrategies.com/2011/08/end-of-jobs-ii-era.html">Jobs II era, </a>Steve had grown up: it was all about surpassing all customer expectations. After firing (or dressing down) the person responsible for such a fiasco, he would have set his minions to work on fixing it. For the sake of the Tesla employees, let’s hope that (despite the <a href="http://blog.openitstrategies.com/2013/02/bluster-as-substitute-for-execution.html">bluster</a>) that’s what California’s leading car company is doing.<br />
<br />
Meanwhile, for us mere mortals without VC (or personal) millions and a celebrity reputation to save us, there’s only one choice: treat the customer right. Or else. That goes double for reviewers and other opinion leaders to whom our customers turn to for advice.Joel Westhttp://www.blogger.com/profile/03837038327488766775noreply@blogger.com0tag:blogger.com,1999:blog-2886652089813793977.post-27424732586108338822013-01-03T10:34:00.001-08:002013-02-15T21:48:39.660-08:00Zipcar: it's hard to create a stand-alone businessZipcar sold itself Wednesday to Avis for a half a billion dollars. While that's a <a href="http://finance.yahoo.com/q/hp?s=ZIP&a=03&b=14&c=2011&d=00&e=2&f=2013&g=d">hefty premium </a>over final close last week, Dennis Berman of the<em> Wall Street Journal</em> <a href="http://online.wsj.com/article/SB10001424127887323374504578217913010051762.html">notes</a> that it’s only about half of what the company was worth two years ago at its IPO. The company has $55 million in cumulative losses, but was unable to cost-effectively acquire new customers.<br /><br />With its greater scale, scope and buying power, Avis hopes to succeed where Zipcar failed. Avis-Budget-Zipcar will be competing with the two other major rental car conglomerates, <a href="http://en.wikipedia.org/wiki/The_Hertz_Corporation#Hertz_Global_Holdings_Inc">Hertz-Dollar-Thrifty</a> and <a href="http://en.wikipedia.org/wiki/National_Car_Rental">Enterprise-National-Alamo-Vanguard-Tilden</a>.<br /><br />In other words, while Zipcar invented a new business model, it didn’t invent a new industry. It was a failure for public investors and as a stand-alone company. Even <a href="http://online.wsj.com/article/SB10001424127887324374004578217873765388516.html">several of its venture investors</a> — whether seeking a bigger pop or perhaps having some shred of ethics — hung in with the public investors, hoping for a turnaround that never came.<br /><br />I think this is symptomatic of a larger problem, which is the difficulty in creating new stand-alone companies that will last. Facebook (and Amazon and Google) will survive, but will LinkedIn and Twitter and Yahoo?<br /><br />Dan Henninger in the WSJ this morning <a href="http://online.wsj.com/article/SB10001424127887323374504578217791884587674.html">suggests</a> that the hostile business climate of the past four years is contributing to the problem, but my sense is that it’s hurting low margin businesses — ones that have little margin to spare when faced with higher taxes or regulation. I suspect that the high margin home-run companies work whether the top personal and Subchapter S marginal tax rate is 35% of 2012, <a href="http://online.wsj.com/article/SB10001424127887323820104578215400767461788.html">41% in 2013</a> or 54% <a href="http://www.caltax.org/research/calrank.html">now in California</a>). <br /><br />Instead, I think the issue is whether firms can create new industries, like personal computers, networking, e-commerce, Internet services, social media, biotechnology and the like. The PC and Internet services seemed to catch the incumbents sleeping, and the nature of the e-commerce transformation is overwhelming the incumbent industry more quickly than it could have imagined. <br /><br />However, Google is meeting the social media challenge more quickly and vigorously than most incumbents. Meanwhile, the long lead times (and huge risks and capital requirements) of the pharma industry have made it difficult for new biotechnology companies to enter without competing with existing biotech or finding Big Pharma is now demanding a high price for access to its channel.<br /><br />Overall, exit by acquisition rather than IPO is the norm — one more data point that the go-go 1990s were an aberration. Even for companies that do IPO, many of them (like Zipcar) will find their real growth in the bowels of a large, bureaucratic, cash-flow positive enterprise.Joel Westhttp://www.blogger.com/profile/03837038327488766775noreply@blogger.com0tag:blogger.com,1999:blog-2886652089813793977.post-10921074084276880682012-12-29T09:02:00.001-08:002012-12-29T09:06:10.098-08:00When entrepreneurs aren't "the next Apple"Big company exec-turned-Forbest columnist Steve Faktor posted <a href="http://www.forbes.com/sites/stevefaktor/2012/12/28/shut-up-youre-not-apple/">a funny column Friday</a> that says “Shut Up, You’re Not Apple”. <br />
<br />
The introduction is as provocative as the title:<br />
<blockquote>
At first, it was funny to hear insurers, IT firms, and startups with no revenues compare themselves to Apple. Since the iPod launched in 2001, I’ve seen hundreds of presentations that liberally use “<em>learnings</em>” from Apple. 1) The word is <strong><em>LESSONS</em></strong>, not “<em>learnings</em>”, my Hillbilly friend. 2) The comparison feels as fresh as that Michael Jackson impression your spouse has been doing since you started dating. 3) Drenching slides (or products) in an iconic brand’s juices won’t transmit innovation, like some benevolent plague. If that were possible, we’d never stop harvesting and packaging Brangelina extract. It’s time for an intervention. Here’s why brands must find their own voice (and scent)…and keep those synthetic Apple fumes from turning into laughing gas.<br />
<br />
<strong><em>The ‘why you’re not Apple’ checklist:</em></strong><br />
<br />
I know I’m not alone. We’ve all been to the same Apple-laden meetings…er, orchards. How did those comparisons work out? Did that company become the most valuable in the world? Did that product become iconic and emulated by every company in Korea? Or, did it live and die in its sad PowerPoint tomb.<br />
<br />
Using Apple as a model is the business version of ordering jeans after seeing them on Kate Upton. They might not look the same on you. Like Kate, Apple is a unicorn. It defies so many conventions that deconstructing its lessons is silly, unless it’s the last thing between you and a lonely Saturday night at Harvard Business School. To quote my friend and fellow innovator Stephen Shapiro’s book, <em><a href="http://www.amazon.com/gp/product/1591843855/ref=as_li_ss_tl?ie=UTF8&tag=openinnovatio-20&linkCode=as2&camp=1789&creative=390957&creativeASIN=1591843855">Best Practices Are Stupid.</a></em><br />
<br />
It’s not that your company can’t be Apple. It’s that your company <em>absolutely, positively will never be Apple. </em>I’m not discounting your skill or vision. I’m simply acknowledging that Apple’s success is a witch’s brew of leadership, timing, technology, and culture. All those variables can’t be replicated.</blockquote>
He then offers a checklist of factors that it would take to be Apple: a visionary CEO, iconic products, $50b in cash, a million fanboys, and #1 or #2 in most product categories. Yes you can mention Apple in your analysis of the industry landscape, but “as the unicorn in the room.”<br />
<br />
As someone who’s <a href="http://blog.openitstrategies.com/2010/10/john-sculley-refreshingly-honest.html">studied</a> Apple for almost 30 years, the reality is not just that Apple is one in a 100 million companies: it’s that Apple’s run from 2001 (the first iPod) to 2007 (the iPhone) to 2010 (the first iPad) — <strong>will never be repeated in the company’s history. </strong>(Or as Faktor put it, “Even Apple won’t be Apple forever.”)<br />
<br />
I remember when Neil and I started our company in 1987, we wanted to be the next Hewlett-Packard. Instead, we never got more than 15 employees, a few million in revenues and lasted only 17 1/2 years. Wanting (or posing or emulating) doesn’t bring success: satisfying some need better than anyone else — in a way that’s hard to copy — is what bring success.<br />
<br />
When they started in <a href="http://www.history.com/news/great-american-garage-entrepreneurs">a Los Altos garage</a> in 1975, Steve Jobs and Steve Wozniak didn’t imagine they would have a market cap bigger than IBM. Instead, they were just trying to bring a better PC to market than any of the other hobbyist-hackers out there. Customers didn’t flock to the Apple II, Mac, iPod, iPhone or iPad because Apple wanted to change the world, but because they had a product that no one else had.Joel Westhttp://www.blogger.com/profile/03837038327488766775noreply@blogger.com0