University Startups and Spin-Offs: Guide for Entrepreneurs in Academia (2015)
Part II. Strategies for Universities
Chapter 19. Platform Thinking for Startup Success
The first part of this book explored what individual startups can do to improve their chances in the market: how they can communicate more effectively with outside partners, and how they can organize their business model and financial model around easy-to-understand principles with which they can engage others and kick-start synergies. So far, support from the university only includes providing a framework for startups with its existing infrastructure and occasional assistance such as hiring a startup coach.
There are also universities that want to take a more active role in entrepreneurship. They feel the technology they develop should have a bigger impact on people’s lives, or they may be falling short on their key performance indicators (KPIs). They organize startup workshops with entrepreneurs and consultants, improve interaction with government agencies for technology transfer, and support their startups when applying for grants. They may even have a dedicated startup program with a financial matching scheme, where startup teams put money into their endeavors that someone else matches. These efforts are commendable. But there remains room for improvement, and by that I mean other things than adding more of the same. We need a mind shift to foster entrepreneurship from a fundamentally different angle at universities. This chapter explores what that could look like.
The strategies outlined so far in this book are bottom-up. They originate directly with startups, and the entrepreneurs do most of the work, plugging in to the university platform only occasionally. Currently, this is the way startups become successful. It is rarely the ones that play by the rules and run the length of the grant track that spin off into the market as self-sustaining entities. Rather, it is the mavericks that make the real impact.
Author Josh Lerner points out the link between innovation and growth. Innovation and new firms are strongly correlated, but public intervention to boost venture capital and innovation is largely ineffective.1 This is a thorny issue. For a startup to succeed in the current system, it has to avoid taking part in public entrepreneurship initiatives. This may sound harsh, but it is frequently true. Few of the launch strategies discussed in this book are included in current support programs for startups. This does not have to be the case: universities could adapt to the new reality of lean models and guide their startups much earlier along that course. This part of the book addresses universities that want to apply more leverage of their existing platform to boost their startup initiatives.
Building Startup Platforms
Universities are platforms. Many diverse fields and opinions come together under one roof and mingle with each other in interdisciplinary research. An active exchange of ideas takes place between students and scientists of distinct faculties. Largely supported by the public sector, universities also interact with the government and its agencies, and even with intergovernmental organizations such as the World Bank and the Asian Development Bank. Occasionally, the business community sponsors events or holds job fairs at universities. Banks may finance research projects through university foundations. Many different stakeholders exchange ideas and energy with universities daily, creating vast potential resources that are sitting there, unused.
Platform thinking is an innovative approach to maximize these resources. Author Sangeet Paul Choudary contrasts this practice with two other paradigms that he calls the stuff approach and the optimization approach.2 The stuff approach is the current practice of trying to solve a problem by doing more of the same. In the context of supporting university startups, this means more grants, more workshops, more business-plan competitions, and more technology licensing office (TLO) staff. You may already suspect that this will create some jobs and increase the available budgets, but fail to deliver the results for startups that you are after in this book. Slightly better is the optimization approach, which adds algorithms to the equation. After collecting all available information, you match it with the needs of specific startup entrepreneurs. This avoids pushing them into a one-size-fits-all format, but addresses them individually with the contacts and information they need at a given time. This is an improvement, but it neglects the potential synergy effects that lie dormant at universities.
Enter platform thinking. It goes one step further beyond just collecting and matching the available assets: it creates more by tapping into synergies. When you apply leverage to all the activities and interactions of which universities are a part, a startup ecosystem emerges and grows, powered by network effects. Figures 1-1 and 1-2 in Chapter I show what the ideal university ecosystem and the startup launch pad in look like. On a strong platform, the whole is greater than the sum of its parts. This sounds intriguing, but how can you apply platform thinking at your university? This chapter examines some ideas and examples.
The Government Visit
Instead of addressing each stakeholder independently and catering to their individual agendas, universities can turn on network effects to help their startups. When a government agency visits, what does the university usually do? It rolls out the red carpet for the officials, who visit a certain lab where a professor makes a presentation about the research of his team on technology X. There may then be a lunch or Q&A about that technology with students and researchers. Photographers take some pictures. Perhaps there is even a TV crew. There may be a public commitment to funding this or that research in the future, and another commitment to working together on a certain challenge. Then the delegation leaves. The university is delighted that the government has shown some interest, but students and researchers hardly engaged the delegation at all. The visitors had a great field trip and are already looking forward to a similar excursion to another university next week.
I suspect that universities are often insecure when the government wishes to visit. This is the proverbial rich uncle who pays the bills, so they need to be on their best behavior. They breathe a sigh of relief when the visit is over, and the last thing on their mind is engaging the government more deeply regarding their platform. This is where a mind shift has to occur.
Let’s say a university has five startups. The team working on technology X is the furthest advanced, but the other four are also promising. How about having all the startups hold short presentations for the delegation? You may object that the government agency expressly wanted to see technology X. Sure, that’s what they said they wanted, because they were unaware of the other four startups. Why not take matters into your own hands and set a new agenda for the delegation? Show them something unexpected—something out of the box. Framing the visit as a demonstration of your startup track.
Governments love startups because they create jobs. Whenever someone takes that initiative in job creation, it looks good for the government to be part of it. The delegation will seldom get all the technical details in the presentation about technology X, nor will they take much interest in them. But they will definitely understand when you say that technology X could potentially provide 100 jobs in the next 2 years. Benefits trump features. If you have 5 startups, that may be 500 jobs in the next 2 years. Don’t you think it would be possible to engage the government to a greater extent with the prospect of 500 additional high-profile jobs created by your startups?
Now suppose these startups address problems in environmental sustainability. Doesn’t the government have to reach certain targets, perhaps related to Millennium Development Goals (MDGs)?3 Let’s say some of your startups are already leading joint-venture discussions with large multinationals. How about asking the delegation about public tenders for which these joint ventures could put in offers?
There are many other ways to engage the government in this particular example, but I will stop here. It is about switching from a passive stance to an active role where you engage external stakeholders and ask them to assist you. Media coverage of the visit will now be different. Instead of reporting the same old story of government officials visiting a research lab, it will tell about your university potentially providing 500 new jobs with startups that address problems in environmental sustainability. That’s free advertising, and it provides leverage for your startups to reach out to the private sector with a tailwind.
For this to be possible, your startups need to move up a gear or two. Teams need to be more to the point and use the 10/20/30 structure discussed in Chapter 10 for their presentations. They need to rehearse their pitches and presentations so they fit into 10 minutes. Somebody from the university must ensure that startups are up to speed and will not embarrass themselves or the university when it matters.
The logistics of such an event will be more challenging than the run-of-the-mill reception. You need to keep an eye on many more moving parts. You should provide press kits for each startup. Staff and startup founders must be sharp and presentable. As always, there is no quick fix to jump to the next level, but the effect of channeling attention away from single research projects onto your startup platform will be powerful in the long run.
The Industry Visit
Visits from small and medium enterprises (SMEs) and multinational corporations are another great opportunity for startup initiatives. As we have seen, links to these companies may exist, but they are often rather uninspired. The knowledge transfer from the university to industry takes place through the technology transfer or licensing office (TTO or TLO), which makes patented technology available for licensees. Alternatively, a company may sponsor a research project and extract intellectual property this way. In both cases, knowledge flows out of the university into the private sector. Learning more about commercializing technology had little mindshare for universities in the past, but this should change when their goal is to build platforms for their startups.
Turning on knowledge transfer in the opposite direction can help university startups gain valuable insight and firsthand experience in how the market works. Joint ventures with industry partners are therefore desirable for startups. I mean real partnerships between established companies and startups, with the goal of launching products right in the market trenches. Few students and researchers are born managers, so joint ventures can provide scale to their operations in manufacturing and management.
Assume the following scenario: technology X has attracted interest from a multinational industry giant. The company would like to see the lab and the technology and may potentially sponsor further development or license the technology for the company’s own manufacturing processes. The research team happily obliges and shows the industry representatives around the lab. They present their work and speak about what they have done so far and the many problems they still need to solve. They compare their technology with others already on the market and announce that theirs will be greatly superior when it is ready for commercial application in five to ten years. They also mention that they will need additional funding soon to move forward, on the order of hundreds of thousands of dollars. The team lead, Professor A, gives a presentation that spans 200 PowerPoint slides, skipping most of them with the remark that one hour is not enough time. In the Q&A session that follows, the industry reps ask again about the team’s funding needs. Professor A reiterates that the number he mentioned is the minimum funding they need, and, of course, housing costs, cost-of-living adjustments, and business class flights are not part of this budget. In addition, he will need to hire several additional PhDs and postdocs, which will take at least six months, if he can find the right candidates.
Put yourself in the shoes of the multinational company. Is this team attractive for a joint venture? Unless their technology is a blockbuster, probably not. But this is how such interactions are carried out every day. It’s how universities work and think. Most large companies know this, because many already sponsor university research projects. However, if a SME visits a university lab, it can be taken by surprise when it learns how cumbersome such a collaboration turns to be. SMEs get the impression that university joint ventures are for big companies only, which can absorb inefficiency through sheer scale.
When working in partnership with industry, universities usually take a passive stance. They answer requests the best they can, by showing visitors what they asked to see. Then they overwhelm companies with information and details about internal politics, which makes them rather unattractive as equal partners. Better is a leveraged approach. If a research team has founded a startup, they should develop themselves to the point that they can use the synergies of a joint venture partner to achieve specific milestones in their product development. When startups meet with established companies, they can address those companies directly for specific feedback to improve their understanding of the market and ways to interact with it. Such a startup brings more to a joint venture than just technology. It is more attractive to partners, who see ways to engage with university startups in a different light. Of course, not every presentation will result in a joint venture. But over time, the university can step out of the position of supplier of inexpensive R&D. University startups can present themselves as equal joint venture partners and channel know-how about business and the market to the university.
Let’s get back to the earlier example and see how the interaction between the startup and the company could have unfolded differently. Assume the team around technology X has decided to launch a startup with their intellectual property. They have incorporated a company and tested a few theories about the value of potential products in the marketplace. One product is promising, and they intend to launch it first. They have a lean canvas for several markets as well as a financial model, which they improve when new information surfaces. They also know what they want from different actors: feedback about their product and assumptions, sponsoring of materials to build more prototypes, distribution channels, and funding of a precise amount to scale up production. A multinational industry giant has read a journal article about technology X. The company would like to visit the lab and see the technology and may potentially sponsor further development. The company would also like to talk about licensing the technology for its own manufacturing processes.
Instead of going through the motions of the standard dog-and-pony show, the startup uses this opportunity to collect direct industry feedback about their intended first product. Not only do they turn the visit into a testing session, but they also engage the potential industry partner with actionable next steps. Team lead Professor A has stripped down his PowerPoint presentation. He presents the startup in the 10/20/30 format, leaving enough energy and time for the Q&A session, which he actively guides toward questions that benefit the startup in MVP testing. Some comments from the corporate visitors are new to the team. They ask follow-up questions and come up with additional ideas for MVPs on the spot. This resourceful method of approaching R&D intrigues the company. The startup team also seems advanced in creating a marketable product, not just further data about technology X. The subject of money never comes up. Companies know that good things have their price; when they really need something, the cost is often unimportant.
Let’s say the Q&A has ended. Fresh insights about MVPs and the market have emerged. The startup has added several items to its to-do list, which they are anxious to test. Because the industry representatives have experience in product development, Professor A asks if his team could conduct some testing at the company’s lab using its expertise and specialized equipment. The company would like to discuss this internally and promises to be in touch by the end of the week to see whether this is possible. The startup has established a connection to the company from a position of strength, not from a position where the company has all the money and power and the university is begging for funds, hat in hand. If the startup can get access to the company’s equipment and personnel to test the MVP in a realistic environment, they will build a stronger bridge to the market and begin to absorb pragmatic know-how right then and there.
Instead of waiting for companies to knock on their door, universities should also actively seek contact. SMEs are in many regards interesting joint venture partners, perhaps much more so than industry leaders and giant corporations. A small company can benefit hugely from university R&D. Large corporations already have multinational R&D operations, and the thrill of setting one up wore off long ago. Universities and their startup teams should seek more contact with SMEs. They should figure out where they can provide the most value and bring their intellectual property to market in partnerships.
For this to be effective, they need to streamline the operations of their startups. An entrepreneurial mindset must replace that of being a government employee with all expenses paid. Startups need to become skillful at presentations. Endlessly droning on about features must make way for concise information about tangible benefits. Presentations must include real, tested products that could launch in the market. The basic assumptions about the startup’s financial structure and business model should be clear so they can lead an informed discussion, as I addressed in Chapter 8. If startups use this information, they are ready to engage companies with attractive value propositions. It is now up to universities to enable more conversations with businesses and industry, in order to build better channels for a two-way knowledge exchange.
The Investor Visit
Large banks and financial institutions visit universities occasionally. In my native Switzerland, the banking sector generously funds universities by sponsoring certain infrastructure such as new auditoriums. The American university system is dependent on endowments, into which wealthy alumni gift small fortunes. It is natural that sponsors want to showcase their donations to clients or influential friends. To do this, they ask to set up an event at the university’s facilities, which may last a few hours to a day, often comprising a speech from the managing director of the university or a visit to a state-of-the-art research lab. However, universities often have a mixed opinion about such events.
Let’s see how an investor visit may unfold in the following fictitious example. A bank has funded an auditorium at a university and would like to conduct a workshop at the shiny new facility for the college-age children of their ultra-high-net-worth clients (UHNWI). The workshop includes a tour of the campus and a Q&A lunch with some students, researchers, and the university’s management team. The workshop should acquaint the affluent offspring with the importance of science and research in today’s society. Because this is the third such visit this year, the university reluctantly agrees but states that this is the last time it will free up the researchers. The researchers themselves have complained about having to give the same presentation repeatedly to mostly uninterested rich kids. The workshop takes place and is somewhat interesting for the visitors, but not for the university, which just goes through the motions. The UHNWI offspring go home and quickly forget about the excursion and the workshop—there are many more exciting things taking place in their lives, such as a rocket launch in the Mojave Desert, which celebrities such as Sir Richard Branson also attend. In a nutshell, the university wasted its time, and the bank feels somewhat unwelcome. Is this a shining beacon of platform leverage? You already know the answer.
Here is an alternative scenario. The university’s five startups have all been involved in MVP testing and are incrementally developing their products. Some venture capitalists have visited, but none have invested, having judged the startups “not ready yet.” The teams have therefore gotten used to making do with little or no funding and bootstrapping their way through the product-testing phase. When the university announces that a bank will bring by wealthy visitors, the startups see this as an opportunity to gather additional feedback and engage the audience with actionable next steps. Knowing that such opportunities are valuable, the university proposes to formulate the UHNWI workshop so it is not about research in today’s society, but about startup entrepreneurship. This will seed the visitors’ minds with entrepreneurial thinking rather than yet another request for trickle-down wealth redistribution. The university asks the bank to pay for a successful entrepreneur turned billionaire to speak at the event as a special guest. This is great for the bank and also for the university, which is putting on quite a show. The event will be fun for university staff, the in-house entrepreneurs, and other visitors, such as the government and selected industry representatives who are invited to the speech.
Instead of holding lengthy academic presentations, the startups stick to the 10/20/30 format. Each of the five makes a short presentation during two morning sessions. After that, the Q&A takes place, and the startups collect feedback about their products—not one by one, but all five together on a panel with the special guest. This cross-pollinates the minds of the teams, helps them understand how others see what they are doing, and gives them ideas for how to approach current challenges from a different angle. The wealthy kids, who live an unusual lifestyle, give different feedback than the test subjects the teams usually interview. Because the MVP testing is still ongoing, some of the visitors volunteer to spend more time with the teams and promise to make themselves available for testing and feedback in the future.
The event was a resounding success, the bank asks the university to organize further similar events, this time for the parents of the UHNWI children and other institutional clients. When that event takes place, the university’s startups will be well on their way to launching products with joint venture partners and will need funding to scale up operations. It is a match made in heaven, because decision-makers regarding potential funding will be present at that next event. Additional synergies may evolve on the spot. But the story is not over yet.
One of the workshop attendees boards her private aircraft after the event and shuttles off to the Mojave Desert in California to attend a rocket launch. Sir Richard Branson, who is by coincidence the young woman’s godfather, asks her what she has been up to in the last few days. It is then that Sir Richard learns about a biodegradable, rechargeable car battery that is currently being developed by a university startup. As it goes at events like these, just to the left of Sir Richard stands Elon Musk, founder and CEO of Tesla Motors. He overhears the conversation and wants to find out more about that battery. Do you think it could be helpful if Branson and Musk talk about your product? Pure fiction, you may say. This never happens. Yes, it does. I have been at a rocket launch in the Mojave, standing between Sir Richard and Paul Allen, cofounder of Microsoft. The net worth of the 50 or so people at that event was higher than the GDP of a small country. People discuss this and that at such events. Whatever has mindshare with a person at any particular moment has a good chance of being talked about. This may as well be your product. If it is valuable to a billionaire, he may call you then and there. When that phone call comes, startups better be prepared. They may have wondered whether they really need that business model canvas, that financial model, and that one-page proposal—well, this is when those things are needed.
Platform Building Takes Effort
Which of the scenarios discussed here do you think made a bigger impression with the bank and its clients? Which scenario do you think is more supportive for the university and its startups? The answer is clear. The two scenarios are like night and day. However, setting up events like these never happens by accident: it requires a conscious effort from the university and its startups. It is obviously much easier and safer to go through the motions like any other university and to deliver just enough that visiting sponsors are not turned off. Of course, universities are not event agencies, and I am not proposing that they become one. The examples outlined in this chapter cost nothing more than a few good ideas and a mind that is open to turning around the existing situation. To break away from the pack, management and entrepreneurs need to look beyond the obvious recommendations. Once they have begun to leverage the existing activities taking place on a university’s platform, they will uncover synergies that are right in front of their nose.
Like when you are reading a book about mathematics, it is easy to agree with a formula and the result when you see them written down for you. Coming up with both yourself is a whole different thing. It is apparent from these examples that universities can create huge advantages for their startups by taking advantage of existing stakeholders and hidden synergies. But how should universities go about raising the bar to engage in more platform thinking? Looking at a situation from a fresh angle may steer the university in the right direction. An active dialogue about platform thinking may yield ideas from the least expected sources.
In addition to these internal efforts, an outside opinion can once more make a huge impact. Many successful serial entrepreneurs are open to getting involved with universities. Several friends of mine had successful exits from their companies and are in a position where they do not have to work to pay the bills. Their focus is on making a difference in the world and helping entrepreneurs get off the ground. They draw satisfaction from the success stories of startups they have mentored. That does not mean they will work for free for the university, but their engagement will hardly break the bank. The ideas that qualified, motivated mentors can introduce are valuable. Just like startups themselves, universities should take advantage of this readily available resource if they want to have more success stories with their entrepreneurship programs.
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1Josh Lerner, Boulevard of Broken Dreams: Why Public Efforts to Boost Entrepreneurship and Venture Capital Have Failed, and What to Do About It (Princeton: Princeton University Press, 2010).
2Sangeet Paul Choudary, “A Platform-Thinking Approach to Innovation,” Wired (Jaunary 31, 2014), www.wired.com/2014/01/platform-thinking-approach-innovation.
3United Nations, Millennium Development Goals and Beyond 2015, www.un.org/millenniumgoals.