My earlier posts on the Forks in the Road (plus Making Research Make a Difference and Addendum) talked about the different paths that valuable ideas can take out of universities and established companies. However, as important as understanding the paths is understanding which is best for your idea.
A range of paths lead out of university labs and big companies. Inside companies, it runs from creating a new business unit around their idea; creating a new product or service within an existing business unit; patenting and licensing the idea to another company; leaving to form a wholly new company; and letting go and moving on (I talk about these options in more detail in Addendum to Forks).
Within universities, the options are similar: starting a new venture; patenting and licensing the technology to a corporation; partnering with corporate R&D (to develop the ideas further); pursuing the ideas as applied research on your own; and, again, letting go and moving on (see Forks in the Road).
But while there are many paths to market, figuring out which path to take for a given idea is critical.
Consider Simon. Simon always wanted to start his own business. When I met him, he read all the right blogs; he knew the language of startups and venture capital; he even dressed the part. Wanting to be at the forefront of the new green entrepreneurial revolution, Simon had developed a whirligig that reduced the energy costs of industrial processing equipment. To install this product, however, customers had to let Simon mess with their equipment (voiding the warranties and confounding existing maintenance arrangements). While the performance data looked great in the lab, he could never get a customer to let him put one in a real operating plant.
After eighteen months of living on Top Ramen and calling on customers, the small “investment” from his uncle ran out and he had to give up, finding a job and vowing to pick up where he left off just as soon as he paid off his credit cards. He never did.
On the other hand, consider Simone (yes, I’m hiding their names). Simone is a professor who developed a truly novel process for isolating and synthesizing molecules known to reduce inflammation. She also ran a lab, funding over a dozen doctoral students, and was in the middle of three major research projects. She saw the potential of this innovation and filed a record of invention with her university’s technology transfer office, expecting them to patent the idea and find a corporate partner who would bring it to market. In the meantime, she went back to working on her research projects.
The tech transfer office filed a provisional patent and posted a brief and obtuse description on their website (which nobody visits anyway). Lacking a good understanding of her field, the companies working in it, and the value of her solution, they were incapable of finding and sharing this idea with the right people at the right pharmaceutical companies. For lack of industry interest, they decided not to spend the $25,000 it would have cost to file the formal patent application. Four years later, another university announced they had just licensed to a major pharmaceutical company their forthcoming patents on a similar technology.
What happened? Both Simon and Simone chose wrong path. For Simon, the wrong idea for his chosen path; for Simone, the wrong path for her idea. The best path depends on the potential variants of your idea. In other words, the idea chooses the path.
What is it about the idea?
There are plenty of great ideas out there. Ideas are opportunities—new combinations of problems and solutions. Most often, these ideas show up as solutions and we have to figure out problems that makes them valuable. The cellphone, overnight delivery, even the internet, for example, were all ideas that solved problems we didn’t even know we had.
Not all are destined to change the world, let alone see the light of day. More to the point here, though, the nature of each idea determines which is the best path it should take. Some are better suited to new ventures; others to established companies; yet others to the company suggestion box.
Looking at the entrepreneurial leap, one of our first challenges is sorting out the nature and potential of the idea: is it a feature, is it a product (or line of products), or is it the foundation of an entirely new business?
Some people, like Simone, dream of staying in their lab or garage, inventing ideas that others embrace and move forward. In Simone’s case, her idea was revolutionary but required her to get out of the lab to find the right company, sell them on the science, and teach them how to use it. Others, like Simon, dream of starting and running their own company. But if they start with idea that are ‘features’ rather than the foundations of a new business, the companies will face a long and rocky road.
Which bucket an idea falls into drives which path to take in developing it. Pick the wrong path for your idea (or the wrong idea for your chosen path) and your leap will become a stumble. So what follows is a first crack at characterizing ideas—bear with me and let me know what I’m missing.
Is it a feature?
Most of our experiences are with existing products and services, so most of our initial ideas take the form of improving those same products and services. Some of these ideas have the potential to be more than just features—they can become competing products, for example, or turned into businesses of their own. But most often, “feature” ideas are just that.
Entrepreneurs often try to build a business around a feature—hoping to be able to entice customers away from their existing products or practices for a short detour. For example, a recent venture, Snipshot.com, was launched as an online application for editing images. The challenge: image editing is closely integrated, as a feature and as a consumer experience, with other activities like image capture, storage, and sharing. Building a company based on prying customers away from their existing solutions is an extremely tough road. Moreover, many of the valuable online interface tricks they developed were not patentable, and hence were easy to integrate into other existing offerings.
The big question is whether the idea is (1) enough of an improvement that more customers would want the product it improves, or would pay more to use that product, and (2) defensible enough (e.g., either patentable or in other ways protected from imitation) that you could sell the rights to that idea, or sell the components, to someone who is already making that product. If yes to both, then the possibility exists to pursue a licensing arrangement or become a supplier to a business who is already making that product. If not, then the better option might be to consult with one of the existing companies, and get paid to help them develop and implement this improvement.
Is it a product?
Sometimes the idea represents a stand-alone product—perhaps doing what other products already do, but (ideally) better. For example, a plan for an electric car. A variant on this type of idea is an entire line of products, but the same challenges hold.
Tesla created a beautiful sports car for a very small segment of the market willing to pay a premium for a high-performance electric vehicle. Their core idea, however, is to build and sell a lot of cars, and that requires going after the mass market. Unfortunately, before they will get to market, Nissan, Chevrolet and Honda will have all introduced their own electric cars—with the advantage of already developed networks of suppliers, manufacturing plants, distribution, retail sellers, and service departments.
Starting a product company can work, particularly in consumer markets where the up-front capital costs to get started aren’t too much. If you have a new brand of potato chip, chocolate bar, or other branded good, for example, this is often the only way to get your idea into the market. Big companies are often incapable of building small brands into a big ones, preferring to buy them when they get to a certain size (the threshold for food brands, for example, is around $50 million—at that point, the national distribution of a large company won’t crush them, and the sales force won’t ignore them).
Is it a venture?
In other words, does the idea create an opportunity for a business that will grow beyond the impact and lifetime of the initial application: whether an improved feature or product or even line of products. Does the idea, for example, create a new market or open up old markets to an entirely new family of solutions?
Salesforce.com started out as a way to provide “customer relationship management” solutions to clients. This idea could have been a feature—a new way to run the same programs, store the same information, and manage massive enterprise-wide databases “in the cloud” rather than on individual company’s own computer systems. Or it could have been another product that companies like Oracle or SAP added to their offerings to existing customers.
But the idea of creating, maintaining, and managing corporations critical applications offsite and in the cloud was in its infancy and was clearly going to evolve in dramatically different ways than these existing products and providers were organized to exploit. Pushing this idea down the path of adoption by an existing product line or company would have constrained its ability to evolve and grow—and so the best path for it was as a new venture.
The challenge for anyone with the urge to make the entrepreneurial leap is how to quickly and cheaply determine whether their idea has, in its DNA, the ability to be more than just a feature or a product. Can it serve as the foundation of a wholly new business? If not, then the best way forward will not be the classic startup (no matter how many blogs you read).
The third aspect of choosing the right path, in addition to the paths available and the idea, is your own personality. This will be the topic of a next post.