Transcript ENTERPRISE AND BUSINESS DEVELOPMENT

ENGINEERING TRIPOS PART IIB
MODULE 4E7 – ENTERPRISE AND
BUSINESS DEVELOPMENT
2004
Dr E. Garnsey
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ELIZABETH GARNSEY
Centre for Technology Management
Department of Engineering
Institute for Manufacturing
Session 1
Entrepreneurial problem-solving
and technology transfer
4E7 2004
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ELIZABETH GARNSEY
Centre for Technology Management
Department of Engineering
Institute for Manufacturing
Programme - Wednesday afternoons
1. Entrepreneurial problem solving and technology transfer
2. Growing a high tech enterprise
3. Operating in a turbulent environment
4. Business planning and finance
5. Making the most of your coursework
Not a “how to do it” course - see Centre for Entrepreneurial Learning
Here - principles of business development
How to find out and apply knowledge in changing circumstances.
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ELIZABETH GARNSEY
Centre for Technology Management
Department of Engineering
Institute for Manufacturing
Learning from experience
• Direct experience is best way to learn about enterprise.
Learning from experience of others is next best.
Hence case histories.
• Set these in broader context.
Understand influences and outcomes apply this knowledge as conditions change.
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ELIZABETH GARNSEY
Centre for Technology Management
Department of Engineering
Institute for Manufacturing
By the end of the session you will:
• Understand role of entrepreneurs in innovation
• Be familiar with use of case studies to apply and create mental
maps (frameworks for analysis)
• Know why technology transfer from knowledge base occurs
• Identify different business models for spin-out ventures
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ELIZABETH GARNSEY
Centre for Technology Management
Department of Engineering
Institute for Manufacturing
How much time does 4E7 require?
4th year modules are scheduled to take 40 hours
14 x lectures / class activity
Or 4 sessions of 3 hours [3.5 x 50 minute lectures]
+ 6 hours preparation: 2 of these in class (5th session)
+ 20 hours on a report to be completed by end March
See today’s hand out - course outline
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ELIZABETH GARNSEY
Centre for Technology Management
Department of Engineering
Institute for Manufacturing
Workshop Mode
• Model is executive training in companies
– Often all-day workshops
– Interactive
• An hour or two does not allow us to get into unfamiliar
subject matter.
– time for student participation
– time for speaker to share relevant experience.
• A different learning mode from technical modules
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ELIZABETH GARNSEY
Centre for Technology Management
Department of Engineering
Institute for Manufacturing
Today’s Agenda
• 2.00 Introduction
• The puzzle of the entrepreneurial breakthrough
• Creativity and innovation: three case studies
• 3.00 From lab to market: applying knowledge from research
• Business models for spin out
• IP and Incubation
3.30 SoftSound Spins out of CUED - Dr Tony Robinson
4.30 Technology transfer modes
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ELIZABETH GARNSEY
Centre for Technology Management
Department of Engineering
Institute for Manufacturing
By the end of the session you will:
• Understand role of entrepreneurs in innovation
• Be familiar with use of case studies to apply and create mental
maps (frameworks for analysis)
• Know why technology transfer from knowledge base occurs
• Identify different business models for spin-out ventures
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ELIZABETH GARNSEY
Centre for Technology Management
Department of Engineering
Institute for Manufacturing
Part 1. The puzzle: how do entrepreneurial ventures
make technical and business breakthroughs?
SOUTH
CAMBRIDGESHIRE
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ELIZABETH GARNSEY
Intel (integrated circuit)
Apple Computers (PCs)
Genentech (biotech)
Sun (work stations)
Cisco (internet routers)
Netscape ( browser)
Hotmail (free e-mail)
Centre for Technology Management
Department of Engineering
Institute for Manufacturing
Cambridge business breakthroughs include
CAMBRIDGESHIRE
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ELIZABETH GARNSEY
•Aero research: plastic composites
•Acorn Computers: high performance PCs
•Domino: Ink Jet Printing
•ARM: high performance, low power
chip design
•CDT: light emitting polymers
•PlasticLogic:new semiconductor
material
Centre for Technology Management
Department of Engineering
Institute for Manufacturing
Long overlooked - now high profile
• “The ability to turn scientific discoveries into successful
commercial products is vital if businesses are to thrive in
the knowledge driven economy”
• White paper – Our Competitive Future - 1998
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ELIZABETH GARNSEY
Centre for Technology Management
Department of Engineering
Institute for Manufacturing
Is the personality of the entrepreneur the key to
new venture breakthroughs?
Entrepreneurs have very diverse personalities.
Entrepreneurial role and process have more explanatory
power than personality traits.
People who habitually engage in entrepreneurial processes
and identify themselves as “entrepreneurs” share a certain
- orientation to opportunity
- problem-solving repertoire
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ELIZABETH GARNSEY
Centre for Technology Management
Department of Engineering
Institute for Manufacturing
Innovative behaviour leads to breakthrough
• What is it to be innovative? Why are entrepreneurs innovative?
• Innovation - not an invention, need not be technical
– Early commercial application of invention or idea
– New products, processes, channels, organization, business
models
• Innovations can be incremental or radical
• Innovation does not guarantee diversity
– Many innovations reduce diversity
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ELIZABETH GARNSEY
Centre for Technology Management
Department of Engineering
Institute for Manufacturing
Innovation and diversity
Life forms have 'extraordinary power to diversity, to adapt to
opportunities as they present themselves and to create new
opportunities in the process.' (Suzuki 2000. 124)
Enterprise plays a similar role in economic life.
Some creative process at work?
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ELIZABETH GARNSEY
Centre for Technology Management
Department of Engineering
Institute for Manufacturing
Creativity: cognitive and practical
• Start with vision
• Implement
• Let’s look briefly at ideas
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ELIZABETH GARNSEY
Centre for Technology Management
Department of Engineering
Institute for Manufacturing
A Theory of Creativity
(Koestler 1964)
• We rely on ways of thinking (rules, habits, associative contexts, matrices
of thought) that have proved useful.
• Mind sets are like physical reflexes and skills in that they are applied
unconsciously.
• Matrices of thought and physical reflexes are efficient.
But once assimilated they limit flexibility
• Creativity overcomes inertia and the habitual.
A. Koestler “The Act of Creation Hutchinson, London 1964 - summarised by Rick Mitchell
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ELIZABETH GARNSEY
Centre for Technology Management
Department of Engineering
Institute for Manufacturing
The act of creation
• According to Koestler, the creative act is
fundamentally the bringing a new, previously unassociated, matrix of thought to bear on a topic.
(“bisociation”)
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ELIZABETH GARNSEY
Centre for Technology Management
Department of Engineering
Institute for Manufacturing
Collision of thought paths in two different matrices
Result: breakthrough in art; invention; humour
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ELIZABETH GARNSEY
Centre for Technology Management
Department of Engineering
Institute for Manufacturing
Is humour creative?
• Choose a joke
• Analyse in terms of Koestler’s theory
• Are there two matrices of association that collide
to provide the humour?
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ELIZABETH GARNSEY
Centre for Technology Management
Department of Engineering
Institute for Manufacturing
Usually strong resistance to change
To overcome this, benefits of change must be
>C
where
C = Perceived cost of change
DVP>C
D = dissatisfaction
V = vision
P = plausible plan or process
(M Tushman - summarised by Rick Mitchell)
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ELIZABETH GARNSEY
Centre for Technology Management
Department of Engineering
Institute for Manufacturing
Example: TechnoDoc
Dissatisfaction: poor quality of technical manuals - Opportunity
Vision: great user manuals
Plan (process):
“ I don’t know how to use your equipment, but if you
show me how, I can provide a better guide for your customers than
your programmers can produce.”
Founder of TechnoDoc
Created value for customers and users.
Achieved returns through:
Leverage of very limited resources
Enlistment of others
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ELIZABETH GARNSEY
Centre for Technology Management
Department of Engineering
Institute for Manufacturing
Intellectual progress starts from a problem
(Karl Popper)
• Effective innovation meets an unfilled need (someone’s
problem) for something “different, cheaper, better.”
• Entrepreneurial process as a problem-solving process
– First and second order problem solving
• Entrepreneurs solve first order problems (process problems)
that have to be overcome in order to provide solutions to
others (value creation).
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ELIZABETH GARNSEY
Centre for Technology Management
Department of Engineering
Institute for Manufacturing
Creative Activities
Idea
new activity
resources
returns
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ELIZABETH GARNSEY
Centre for Technology Management
Department of Engineering
value
creation
Institute for Manufacturing
Innovations represent ways to meet unmet needs.
Important technologies meet basic needs.
shelter
nourishment
security
health
knowledge
recreation
trade
transport
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ELIZABETH GARNSEY
communications
Centre for Technology Management
Department of Engineering
Institute for Manufacturing
Case examples of entrepreneurial
problem- solving as creative thought and practice
• Oxford Instruments
• Psion
• Hotmail
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ELIZABETH GARNSEY
Centre for Technology Management
Department of Engineering
Institute for Manufacturing
Case Example
Why was Oxford Instruments good at innovation?
Look for obstacles encountered by founders of Oxford Instruments.
What problem-solving approaches did they use to overcome
these?
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ELIZABETH GARNSEY
Centre for Technology Management
Department of Engineering
Institute for Manufacturing
Problem solving at Oxford Instruments
Market opportunities limited in founder’s expertise
Detects and exploits new opening in his own specialism
Immature supplies of semi-conducting materials
Ox. Instr. develops skills conferring competitive advantage
Semi-conducting materials hard to work with. Competitors fail.
Competitor controlled liquid helium supply.
Take on production of liquid helium. Acquire critical resource.
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ELIZABETH GARNSEY
Centre for Technology Management
Department of Engineering
Institute for Manufacturing
Problem solving at Oxford Instruments
Disorganized management
Key managers leave when pressed to improve
performance and set up competing business
Reorganize and outcompete them.
Company growing too fast to retain creative culture
Segment into a Group of associated companies
Generalizing from this case:
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ELIZABETH GARNSEY
Centre for Technology Management
Department of Engineering
Institute for Manufacturing
Innovativeness involves continual:
Recognition of opportunity (D,V)
Action (P)
Entrepreneurs:
Lack resources
Resist dependence
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ELIZABETH GARNSEY
Centre for Technology Management
Department of Engineering
Institute for Manufacturing
David Potter
•Dissatisfaction of 80s: hardware outpacing
software
•Vision: Improved software and new games
•Process: make money on stock market
Set up new software activity in own company
•Changed direction when competition heated up
• Shifted product to personal organizers
• Market leader
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ELIZABETH GARNSEY
Centre for Technology Management
Department of Engineering
Institute for Manufacturing
Enlist others, economize, combine resources
 Recruited former students to develop software:
 Resource economy - clever and cheap HR
 Partnership with Sinclair to provide software for his computers.
 Enlist others now by offering share in future returns
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ELIZABETH GARNSEY
Centre for Technology Management
Department of Engineering
Institute for Manufacturing
Continual Opportunity Detection
• When competition intensified,
switched to new opportunity.
• New product : Psion Personal Organiser.
• What was the thinking behind product?
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ELIZABETH GARNSEY
Centre for Technology Management
Department of Engineering
Institute for Manufacturing
Own need helped people at Psion see market gap
“Time is most valuable of resources to professionals
Hand held computer can be used to help organize our time.
Other professionals will pay us to address same problem.”
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ELIZABETH GARNSEY
Centre for Technology Management
Department of Engineering
Institute for Manufacturing
Software development (advanced technique)
+ Computer games (play)
= Margins (70-80+%)
25 years ago this involved an unexpected combination of ideas
(“thought paths on two different matrices”)
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ELIZABETH GARNSEY
Centre for Technology Management
Department of Engineering
Institute for Manufacturing
What ideas and processes enabled Bhatia and
Smith to innovate at Hotmail?
Look for obstacles encountered by founders of Hotmail?
What problem-solving approaches did they use to overcome
these?
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ELIZABETH GARNSEY
Centre for Technology Management
Department of Engineering
Institute for Manufacturing
Hotmail Corporation - free e-mail pioneer
Founded by
engineers
The firm was founded early 1996 by two friends,
Sabeer Bhatia and Jack Smith, young engineers who
met as employees of Apple Computer in California.
First product
idea rejected
1995: developed a personal, password protected
database for the Internet called JavaSoft. Their business
idea for Javasoft was rejected by 20 venture capitalists.
Solving their
own problem
In 1995 they had the idea for Hotmail - when they
were prevented from receiving personal e-mails at
work (for sharing their business plan).
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ELIZABETH GARNSEY
Centre for Technology Management
Department of Engineering
Institute for Manufacturing
Young
engineers
1995
Cut down their
resource
requirements
Develop
JavaSoft database
Do not impress
funders
No funds
Develop Hotmail concept / free e-mail on the
Web, advertising revenues
June 1996
Running out of cash
before launch
Collapse of server
Founders prevented
from exchanging
private e-mail at work
Secure minimal funding
$300k
Use viral
marketing
Persuade employees
to work unpaid
Create scaleable
technology
Massive growth
Sale to Microsoft $400m
Dec 1997
Hugo and Garnsey 2002
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ELIZABETH GARNSEY
Centre for Technology Management
Department of Engineering
Institute for Manufacturing
Pressure to solve problems leads
to creation of valuable new
resources
“My method of management is to keep the floodgates open,
and use the flood as a forcing function to get engineering to
do AMAZING things. It worked. In my book, business needs
drive engineering
deliverables.“
Jack Smith, founder of Hotmail,
E-mail message, 29 Oct 2001
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ELIZABETH GARNSEY
Centre for Technology Management
Department of Engineering
Institute for Manufacturing
Database Management software for Web
E-mail service provided free to subscribers (details to advertisers)
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ELIZABETH GARNSEY
Centre for Technology Management
Department of Engineering
Institute for Manufacturing
Generalizing from cases:
Entrepreneurs pursue opportunities before they have the means to
realize them.
(Professor Howard Stevenson, Harvard)
When this entails risk, some entrepreneurs find ways to limit risk.
Our approach shows
they choose to operate within constraints that force them to be
creative and do new things.
Entrepreneurs promote innovation - and also renew diversity.
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ELIZABETH GARNSEY
Centre for Technology Management
Department of Engineering
Institute for Manufacturing
Entrepreneurs match up resources and opportunities
•Resource use:
• Opportunities
Economy
Leverage
Combine
Create
continually
scan and
reassess
•Enlist others,
create network to
open opportunities
& obtain resources
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ELIZABETH GARNSEY
Centre for Technology Management
Department of Engineering
Institute for Manufacturing
Success Bias in our Analysis?
We have seen why entrepreneurial activity is innovative, not that their
innovation necessarily succeeds.
There is a pattern of positive response to obstacles among the successful
But luck plays a large part in success.
Capitalism involves a struggle for survival for vulnerable young firms.
Many - most entrepreneurs - struggle and fail.
Waves of entrepreneurs pursue possibilities for change until finally
breakthroughs are achieved. An evolutionary process.
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ELIZABETH GARNSEY
Centre for Technology Management
Department of Engineering
Institute for Manufacturing
• PART TWO
• Spinning out companies from the science base
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ELIZABETH GARNSEY
Centre for Technology Management
Department of Engineering
Institute for Manufacturing
From research to business activity: convert
knowledge into economic resource
Idea
new activity
resources
returns
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ELIZABETH GARNSEY
Centre for Technology Management
Department of Engineering
value
creation
Institute for Manufacturing
Vehicles for academic-industry transfer
Business
Academe
Private
contract
research,
occasional
consultancy
Patent,
license
Corporate
Research
Partnership
Spin-out Business
•Research & Consultancy
• Development company
• Production company
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ELIZABETH GARNSEY
Centre for Technology Management
Department of Engineering
Institute for Manufacturing
Advantages of starting a business
• Tax concessions
• Limited liability
• Protect ownership through incorporation
• Demonstrate product viability
• Embed learning in organization
• Store resources
• Create a community; create jobs
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ELIZABETH GARNSEY
Centre for Technology Management
Department of Engineering
Institute for Manufacturing
Type of business activity among university spinouts
Activity: sell, produce product, provide service, combination
through:
Contract research, consultancy,
License invention
Development Co.
(e.g. biotech ventures)
Production co.
e.g. BioRobotics
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ELIZABETH GARNSEY
Centre for Technology Management
Department of Engineering
Institute for Manufacturing
Are entrepreneurs’ resources sufficient to realize the
business opportunity?
B
A
Consulting and contract research:
easier to resource, based on current or accessible know-how.
To develop a product based on research knowledge
(in a “development company”)
Have to transform scientific knowledge into economic resource.
Instrumentation and software interesting cases: often have market
applications (solve research problems)
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ELIZABETH GARNSEY
Centre for Technology Management
Department of Engineering
Institute for Manufacturing
Development companies
Development companies are established to create future economic
resources beyond scope of science grants.
Generic technology, further scientific work: costly gestation.
E.g. CDT, Plastic Logic, biotechnology ventures
Need manufacturing partners (provide them services)
and venture capital
Development company can take licensing route
/ eventually could become production company.
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ELIZABETH GARNSEY
Centre for Technology Management
Department of Engineering
Institute for Manufacturing
A
Production Company
B
Setting up a production company: a challenge to
flexibility. Requires committed resources.
Hewlett Packard
Oxford Instruments
Psion
BioRobotics
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ELIZABETH GARNSEY
Centre for Technology Management
Department of Engineering
Institute for Manufacturing
How to protect returns?
•
•
•
•
•
Patent and license technology
Copyright
Design rights
Idea
Trade mark
Trade secrets
new activity
resources
value
creation
Returns?
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ELIZABETH GARNSEY
Centre for Technology Management
Department of Engineering
Institute for Manufacturing
 Patents for inventions - new and improved products and
processes that are capable of industrial application
 Trade marks for brand identity - of goods and services
 Designs for shape and appearance - either functional or
aesthetically pleasing articles or surface decoration, pattern
or ornament
 Copyright for material - literary and artistic material, music,
films, sound recordings and broadcasts, including software
and multimedia
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ELIZABETH GARNSEY
Centre for Technology Management
Source:
www.intellectual-property.gov.uk
Department
of Engineering
The Inventor’s Guide
Institute for Manufacturing
Commercial Returns from Research
Patent and license technology
Invention protected for a period from competitors
who have to pay inventor a license fee to use patent.
Patent Criteria: Novel
Non-obvious to ‘one skilled in the art'
Practical (industrial application)
Excluded under British Patent Act:
Discoveries
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ELIZABETH GARNSEY
Centre for Technology Management
Department of Engineering
Institute for Manufacturing
Other forms of protection
 Trade Secrets
 Pre-registration IP
 Employee Confidentiality
 Consultant/Partner Confidentiality
 Non-Disclosure Agreements
 - Non Disclosure may provide better protection than patents
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ELIZABETH GARNSEY
Centre for Technology Management
Source:
www.intellectual-property.gov.uk
Department
of Engineering
Iandiorio, 1997
Institute for Manufacturing
License fees
Royalties increase with value added*
Early stage innovation
1-3% of sales revenues
Biotech late clinical trials: 15%
New licensing model aims at multiple
licensees for key technology
- e.g. ARM
* “25% licensee’s additional profit”
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ELIZABETH GARNSEY
Anne Miller, TTP
Centre for Technology Management
Department of Engineering
Institute for Manufacturing
Incubation of new ventures
Case: St John’s Innovation Centre
www.stjohns.co.uk
Incubators can help firms overcome liabilities of
newness
Incubators attempt to create favourable spin-out
environment
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ELIZABETH GARNSEY
Centre for Technology Management
Department of Engineering
Institute for Manufacturing
St John’s Innovation Centre
• Founded 1987 by St John’s College
• Aimed at early-stage firms in high-tech
www.stjohns.co.uk
• Turnover £3.5m
• 90,000 sq. ft.
• 50 Tenants - 100 firms have “graduated”
• Failure Rate c. 15% p.a.
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ELIZABETH GARNSEY
Centre for Technology Management
Department of Engineering
Institute for Manufacturing
Features of SJIC
•
Flexible Tenancy
•
Centre Facilities
•
Management Support/Advice
•
Credibility
•
Contact with other firms
•
No equity in tenant firms
•
Centre for other Business Support
– e.g. European Innovation Relay Centre, Enterprise/Business Link
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ELIZABETH GARNSEY
Centre for Technology Management
Department of Engineering
Institute for Manufacturing
Recap
• Enterprise involves the matching of opportunities and resources to
create value
• Advance is through a lead-lag dynamic of new problems forcing new
solutions
• Technologies address user needs - potential business opportunities
• Science base: knowledge converted into economic gain through
– spectrum of activities
• Protect returns through IPR?
• Incubators aim to create favourable spin-out environment
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ELIZABETH GARNSEY
Centre for Technology Management
Department of Engineering
Institute for Manufacturing