Tuesday, January 26, 2010

Humility and the Successful Startup

BusinessWeek Viewpoint August 28, 2009, 12:22PM
Humility and the Successful Startup
Every skill required to form a business should be judged on make-or-buy grounds. If you don't have it, outsource it
By Richard Mammone
Related Items

The ancient dictum "know thyself" written on the wall of the Apollo temple at Delphi is as wise today as it was 2,500 years ago. It is extremely relevant if you want to launch a successful business. You must take a full accounting of your strengths and weaknesses before you get started. This takes a great deal of honesty and humility, but it is the only path to success.
If you or another founder possess a deep knowledge of a specific industry or technology then you should try to come up with your own idea for a startup. There are a number of software tools such as Thought Office that can help you organize the results of your brainstorming sessions. If your strengths lie more in a business discipline such as marketing, operations, finance, or logistics, then your company should focus on these strengths and you should look elsewhere for the big idea. Every skill set required to form a startup should be subjected to a make-or-buy decision process. In other words, if you don't have it, outsource it. Let me just stop here for a moment and mention that outsourcing is the strategic entrepreneur's solution to most problems. There are too many moving parts in a business to have deep expertise in every area; it's not practical for you to hold on to tasks like marketing if you are an engineer—or product testing if you are a marketing guru.
Knowing yourself in a startup context is really about knowing what you can't do and having the self-confidence to hire or partner with others who complement your skills. Often entrepreneurs get caught in the early onset of what Harvard Business School Professor Noam Wasserman calls "founder's dilemma", where the founder doesn't want to let go of certain aspects of the business idea for fear of not being in control. But when timing is more important than who does what, holding out for the chance to muddle through by trial-and-error will simply throw you off course and increase your chances of giving up in frustration.
getting to failure asap
Because business ventures normally have a shelf life and financial limitations, entrepreneurs cannot afford to hit too many delays and roadblocks along the way. I often start projects only to discover that someone else can do it cheaper, faster, and better than I can. You will get to market faster if you outsource the steps that do not fall within your team's skill set. Just as importantly, you will also get to failure quicker, which means you can move on to your next potentially great idea.
This is the easiest time in history to start a well-conceived company from scratch with a minimum of financial investment. The leverage available today is due to a new generation of knowledge-management tools, many of which are available online, that can help entrepreneurs maximize the intangible assets side of their balance sheet, such as knowledge, goodwill, know-how, and intellectual capital.
The first step of the startup process is to find your big idea. If your startup management team wants to outsource this step, there are plenty of good places on the Web to search for patented ideas that can be licensed. For example, you can search through all of the inventions that are available for licensing that have been discovered in most U.S. federal laboratories, many corporate R&D departments, and even university tech transfer and entrepreneurship centers. If there are no existing patents that will give you what you are looking for, then you can post a request for a world-class expert to invent what it is you want for a given price on sites such as InnoCentive, NineSigma, Yourencore, and yet2.com Once you have a license or an option to license for a desired technology that has been produced by one of these sources, you are one step closer to marketing your new product.
dell knew his deficits
This streamlined strategy is also important to have on the business end of any idea, where a studious operations expert may have a more efficient way of doing something. For example, when Michael Dell founded Dell Computers (DELL), it wasn't the computers that were new and different; his innovation was cutting out the middleman and selling directly to consumers. Hewlett-Packard () and Compaq could have done the same thing, but they were too tied to the brick and mortar distribution network to compete with him in the beginning. That was the crux of Dell's success. He knew his limitations and brought on individuals to help him reach his goal: building customized computers for consumers.
I don't like to have hundreds of people reporting to me after I've started a successful company. Where I find the most excitement in business is in the early stages of development, what I like to call the "from-lab-to-acquisition phase." As an engineer, deep down my passion is tinkering with parts, comparing various outcomes or solutions, and trying to figure out if the contraption I just made can actually make money. Nearly 93 percent of all patents filed never result in significant financial revenue for the inventor, which makes my successful companies more valuable to me on a personal level. Nevertheless, I know that my joy starts to fade when a mid-cap company steps in to take the technology to the next level. I'm just not cut out for that part of the product life cycle. I know that about myself, and for the sake of the invention, that's my exit. My strengths are no longer an asset at this point.
When I want to leave, I can always find well-qualified MBA graduates who thrive on taking technology that is proven and bringing it to the mass market. Just as I'm in my element in my lab working on a new venture, these men and women are in their element sitting in their corner offices with their power suits on, brokering deals. To improve your startup's chances of success, you need to know who you are; where you enjoy spending your time, and when to bow out. If you know those things, you are ready to try to turn a business idea into a business.
Mammone, Ph.D., is a Rutgers University professor with a joint appointment in the Business School and the School of Engineering, as well as the Rutgers University associate vice-president of corporate liaison and executive director of the BEST Institute

Where to find a Multimillion-Dollar Business Idea

Viewpoint July 24, 2009, 12:38PM EST text size: TT
Where to Find a Multimillion-Dollar Business Idea
A breakthrough business idea often comes from outside. The successful entrepreneur is one who finds it, refines it, and makes a business plan
By Richard Mammone
Small Business
I can tell you this with great certainty: You will not stumble upon a multimillion-dollar business idea while brainstorming at your local coffee shop during your lunch break.
At least that's the case if you are like most of today's aspiring entrepreneurs who have been working countless hours for their employers, with little time for lunch, let alone for brainstorming. And even if you do have time on your hands because you've been laid off, you're probably still spinning your wheels. Spending hours concocting ideas doesn't mean they are viable. One cardinal rule of entrepreneurship many newbies fail to grasp is that you don't need to generate the idea yourself.
A successful entrepreneur must be a reductionist. She needs to identify her key talents and outsource everything else whenever possible. She must find a way to use the limited set of resources available to her to find the idea, refine it, and then form a viable business plan. That's what I've done multiple times in starting my own businesses based on technology discovered in academia. Today, I sit in both the Rutgers University Office of Technology Transfer and a new center called the Business, Engineering, Science & Technology Institute for Entrepreneurship & Innovation, which is designed to make the technology transition process easier for fellow entrepreneurs by helping to translate university technologies into real world commercial products.
University Gold Mines
Universities are a rich source of ideas. They spend years improving the principles that underlie many of the products and services currently on the market today. They also come up with new ideas that can create entirely new industries in the future. Universities spend nearly $50 billion every year in federal and state funds, corporate and privately sponsored research contracts, and other financial sources solely on university research projects, according to a 2007 survey by the Association of University Technology Managers. The Bayh-Dole Act, passed in 1980, encourages universities to patent and license new technologies to generate additional revenues for the university and also for the greater good of society by disseminating new useful products and services. Research powerhouses such as Columbia, Stanford, Massachusetts Institute of Technology, Harvard, Carnegie Mellon, and Rutgers have been able to take the revenue generated from licenses and royalties and plow it back into further research and innovation to create even more ideas for entrepreneurs to capitalize.
When aspiring entrepreneurs come into my office, I always tell them that university faculty turn money into knowledge via their research projects, but more entrepreneurs are needed to turn the knowledge into money by forming startups. Entrepreneurs can find this knowledge at their local university. There are thousands of patents available for businesses to license, ranging from life sciences to energy to software—you just need to know where to find them.
Of course it's not as easy as walking into a professor's office, picking out what you want from the menu, and then launching a market-ready product. Universities have received mixed reviews on assisting entrepreneurs with commercializing innovation since the Bayh-Dole act. Several observers have noted areas that could stand improvement to help universities better support the commercialization process. One common complaint is that the research is usually too early-stage for a commercially viable product or service, and more analysis is needed to start to shape a business plan.
Communication Breakdowns
Back in the day, technology transfer offices, sometimes called offices of technology commercialization (or offices of development or offices of licensing), were set up to assist faculty in getting patents and licensing their intellectual property. These offices are also responsible for acting as social networks to help connect investors and entrepreneurs with university professors and IP to form startups. But there have been problems figuring out how to express academic jargon in a way that was meaningful to entrepreneurs and others in the business world.
To break this language barrier, over the past few years academics have been launching new and improved practices for entrepreneurship centers and TTOs. Newer entrepreneurship centers such as Stanford's Center for Entrepreneurial Studies, MIT's Entrepreneurship Center, and Rutgers' BEST Institute were designed to help entrepreneurs work better in conjunction with academics. These centers offer resources and business experts, sometimes in exchange for a small equity stake in the venture, to assist both academics and entrepreneurs in transforming rough patent ideas into ideas that can be commercialized in the market.
My advice to aspiring entrepreneurs is to make a list of your friendly neighborhood university entrepreneurship centers or TTOs to find your next great idea. Before you visit them, look yourself in the mirror and psych yourself up. Don't be intimidated by the brainiac who came up with the idea. There's a reason he or she wants to meet with you. As you start to negotiate and plan your startup feel secure in knowing that academics are usually not looking to run the show; they're usually happy to serve as chief technology officers or chief science officers, so they can continue to search for new ideas in their labs and expand on their original findings.
At this point, you're probably wondering about financing. The entrepreneurship centers can also help you make connections with individual angel investors or angel investor groups or small venture capital firms that invest in the specific area you're assessing. The Small Business Administration can also be a source of funding with both Small Business Innovative Research and Small Business Technology Transfer programs. And the university entrepreneurship centers also have a range of educational resources that are particularly useful to aspiring entrepreneurs as well as more sophisticated business owners.
And how much will all of this cost you? Universities often impose license fees, royalties on sales of products or services, annual royalties, and/or milestone payments, which are often seen by entrepreneurs as deal-killers. Remember that universities have already taken the risk in inventing the product, so they obviously want some kind of payout. The good news is they are typically open to taking equity in your new venture. That means if you play your cards right, you can walk out of your meeting with a new technology and a business idea all for equity in something you did not invent yourself.
Mammone, Ph.D., is a Rutgers University professor with a joint appointment in the Business School and the School of Engineering, as well as the Rutgers University associate vice-president of corporate liaison and executive director of the BEST Institute.

Innovation is a Better Way to Compete

Viewpoint December 29, 2009, 12:35PM
Innovation Is a Better Way to Compete
Don't get bogged down in a price war or a race to imitate a rival's product. Redefine your market instead, says entrepreneur-academic Richard Mammone
By Richard Mammone
Small Business

The nuthatch and brown creeper are different bird species that look a lot alike and eat insects in the same wooded areas in North America. You might think they compete, but they don't. In accordance with a common arrangement in nature that ecologists call the competitive-exclusion principle, the brown creeper starts searching for insects at the bottom of a tree while the nuthatch starts from the top.
Entrepreneurs can learn from this evolutionary process, which unfortunately isn't very common in the business world. Business competitors will normally compete in a death match unless one finds a new market niche or a new process to address the existing market. The best strategy is to invest a modest amount of energy into an innovation, as the nuthatches did in moving to the higher branches. To start the innovation process that could lead to such a breakthrough, entrepreneurs should perform a detailed competitive analysis.
First, entrepreneurs need to make themselves aware of moves large and small that their competitors are making so that they aren't blindsided or materially outmaneuvered. They can do this by collecting information about a competitor's activities, using Google (GOOG) alerts and other services such as social media site monitor Radian6. A recent McKinsey survey shows that most executives conduct this type of ongoing competitor-intelligence analysis using many of the following sources: Web sites, press releases, job ads, Securities & Exchange Commission filings, ads, annual reports, industry market share data, and industry pricing data.
Blindsided, I lost my business
Entrepreneurs should then analyze the intelligence they've gathered and estimate the impact of each potential move on short-term and long-term market share, earnings, and cash flow. They should also look into what steps other industries might be taking. After that, it's time to make a list of possible defensive and offensive responses to each identified threat.
I learned this the hard way. While I was focused only on improving the performance of my voice recognition software, a competitor blindsided me with a large marketing campaign for its product. That competitor now owns the voice recognition company I started—and got it at what I consider a bargain price. I wish I had paid more attention to what my competitor was doing. Had I done so and responded, I am sure my company would have grown further, which would likely have placed a larger valuation on my exit. Unfortunately, these tools were not available back then. Fellow entrepreneurs, make sure that you don't make the same mistake I made. Pay attention to all the market intelligence you can get. Use your competitive intelligence to make good, innovative decisions.
The best type of market growth comes from making the pie larger for everyone, rather than just making your slice larger within the pie. The nuthatches managed to do this by moving up the tree. But that strategy is rare in business. The McKinsey survey also found that most businesses do not innovate to counter a competitor's threat. Instead senior management reacts with a knee-jerk response, moving down the tree and matching a competitor's price change or imitating its new product or feature. Entrepreneurs should aspire to be more like the innovative nuthatch and step up. Gathering market intelligence is the first step.
Richard Mammone, Ph.D., is a Rutgers University professor with a joint appointment in the Business School and the School of Engineering, as well as the Rutgers University associate vice-president of corporate liaison and executive director of the BEST Institute.

Locate Near Your competitors

BusinessWeek Viewpoint December 8, 2009, 2:03PM
How to Take Advantage of Business Clusters
Locate your company near its competitors. The benefits are more numerous and attractive than you might think, says entrepreneur-academic Richard Mammone
By Richard Mammone
Small Business

Winemakers know that the best wine starts with grapevines that were planted just close enough together to be forced to compete for nutrients in the soil. Stress causes the plants to put more energy into their reproductive processes, increasing the quantity and quality of the grapes. It turns out that similar businesses located together in what are known as business clusters or industry clusters also demonstrate better results. Numerous studies show that on average, a business located in a cluster has a stronger growth and survival rate than those located outside it.
This is partly because the physical proximity of the companies facilitates exchanges of information and talent among the competing firms. Clusters normally include highly specialized vendors, service providers, investors, analysts, students, university faculty and staff, trade association members, consultants, and other useful specialists. In addition, industry-specific equipment is often more readily available within a cluster.
The benefits aren't just derived from the private sector. Government agencies, both federal and local, tend to offer industry-friendly incentives and regulatory policies to companies that locate in clusters. The government's motivation is not purely altruistic. It has learned that a cluster can help the economic growth of a region by increasing job creation and tax revenues. Indeed, the federal government's 2010 budget supports entrepreneurial ecosystems and regional innovation via direct and indirect investment mechanisms. In addition to these investments, Commerce Secretary Gary Locke on Sept. 24 announced plans to create an Office of Innovation and Entrepreneurship within the Commerce Dept. and launched the National Advisory Council on Innovation and Entrepreneurship. The council will include entrepreneurs, innovators, angel investors, venture capitalists, nonprofit leaders, and others who will identify and recommend solutions to issues critical to the creation and development of ecosystems that will generate new businesses and jobs.
New York State is fostering clusters
The high concentration of knowledge in a single location also encourages entrepreneurs to spin out more new startups than would otherwise be launched. You might say that the fruits produced by the ecosystem are the new startup companies.
You can start your industry cluster search on the Web. For example, the terms "New York City" and "industry cluster" yield a list of the industries common to the New York metropolitan area. Within it, you may be surprised to find such industries as food processing and transportation equipment. Not all clusters are predetermined by legacy industries. You'll also see that New York State is making several attempts to develop new clusters, using economic stimulus funds from the federal government.
That's why I strongly encourage you to investigate your own region to find resources you might not know exist. When I did a similar search for Connecticut, I found that the Connecticut's Economic & Community Development Dept. had a similar resource listing its own incentive programs and business clusters. (Web search isn't perfect; a search of my home state of New Jersey yielded scant results.)
contact universities within clusters
Harvard Business School's Michael Porter and his team have developed a more substantial method of finding clusters in an online database that maps clusters by industry and region. The site offers a useful search option without charge and an increased set of features for a subscription fee. HBS' Institute for Strategy and Competitiveness also offers further cluster-related resources.
If you don't have the means to start or move your business to a cluster, contact a university that is located in the desired cluster. Most universities have entrepreneurship centers or technology transfer offices that will be glad to help you take advantage of some of the local clusters' benefits. They will usually have a deep understanding of your industry and will generally have ideas on how your company can participate in local events and organizations.
Clusters are particularly well-suited for companies that require a workforce with specialized knowledge in areas as diverse as medical devices, food technology, pharmaceuticals, and jewelry manufacturing. The knowledge that your company gains in hiring experienced employees who have participated in successful companies is not the kind of knowledge you can obtain from books or courses. Such deep knowledge helps your company make better decisions and correct faulty ones sooner. This unwritten or tacit knowledge is an asset to your company, albeit an intangible one. It may also add goodwill to your balance sheet in the form of patents and trademarks. So if you would like to benefit from an ecosystem of enlightened self-interest, a cluster might be the best place for your company.
Richard Mammone, Ph.D., is a Rutgers University professor with a joint appointment in the Business School and the School of Engineering, as well as the Rutgers University associate vice-president of corporate liaison and executive director of the BEST Institute.