There is a strong survivor bias in studies of innovation and entrepreneurship–both in the academic literature and in the stories of practicing professionals. We tend to study the winners, the companies that made it out of the garage and onto NASDAQ. They’re easier to find. Even the losers we study tend to have survived long enough to be noticed, which by itself makes them more successful than most new ventures.

When you’re business is investing in new ventures–in picking winners–there is some value in studying how you’ve done that well. There is likely more value in studying what you did wrong. Bessemer Venture Partners has a pretty unique site describing the companies that they did not invest in: they call it their Anti-Portfolio. Every VC firm has such a history–few would acknowledge them publicly.

In perhaps one of the finest lessons in how design (especially experience design) stands against operational efficiencies, Howard Schultz, Chairman of Starbucks, spoke out against the many, small, entirely rational operating decisions that combined to create a single, subtle, yet incredibly powerful undermining of the “Starbucks” experience.

In a memo entitled “The Commoditization of the Starbucks Experience,” Schultz describes how these many decisions have led Starbucks away from its roots and even from its guiding principles today. What a terrific note Schultz has written–something that should be required reading for every MBA in the country (and every design student as well, for what challenges they will face in corporations):

Over the past ten years, in order to achieve the growth, development, and scale necessary to go from less than 1,000 stores to 13,000 stores and beyond, we have had to make a series of decisions that, in retrospect, have lead to the watering down of the Starbucks experience, and, what some might call the commoditization of our brand.

Many of these decisions were probably right at the time, and on their own merit would not have created the dilution of the experience; but in this case, the sum is much greater and, unfortunately, much more damaging than the individual pieces. For example, when we went to automatic espresso machines, we solved a major problem in terms of speed of service and efficiency. At the same time, we overlooked the fact that we would remove much of the romance and theatre that was in play with the use of the La Marzocca machines. This specific decision became even more damaging when the height of the machines, which are now in thousands of stores, blocked the visual sight line the customer previously had to watch the drink being made, and for the intimate experience with the barista. This, coupled with the need for fresh roasted coffee in every North America city and every international market, moved us toward the decision and the need for flavor locked packaging. Again, the right decision at the right time, and once again I believe we overlooked the cause and the affect of flavor lock in our stores. We achieved fresh roasted bagged coffee, but at what cost? The loss of aroma — perhaps the most powerful non-verbal signal we had in our stores; the loss of our people scooping fresh coffee from the bins and grinding it fresh in front of the customer, and once again stripping the store of tradition and our heritage? Then we moved to store design. Clearly we have had to streamline store design to gain efficiencies of scale and to make sure we had the ROI on sales to investment ratios that would satisfy the financial side of our business. However, one of the results has been stores that no longer have the soul of the past and reflect a chain of stores vs. the warm feeling of a neighborhood store. Some people even call our stores sterile, cookie cutter, no longer reflecting the passion our partners feel about our coffee. In fact, I am not sure people today even know we are roasting coffee. You certainly can’t get the message from being in our stores. The merchandise, more art than science, is far removed from being the merchant that I believe we can be and certainly at a minimum should support the foundation of our coffee heritage. Some stores don’t have coffee grinders, French presses from Bodum, or even coffee filters.

Schultz has a point. Perhaps even more than he mentions. For while the Starbucks experience has lessened, many small coffee shops have been able to reap the spillover benefits of Starbuck’s scale and success. The market for premium coffee drinks is made: the majority of Americans now know what a latte is–many even know what a half-caf-no-fat-no-foam-latte is. And there is an increasing infrastructure supporting small and micro-roasters that enable even small, intimate, and local coffee shops to roast their own beans. Personally, I hold half my meetings at our best local cafe, Mishka’s, because the owner roasts his own coffee in the roaster set smack-dab in the middle of the store (and because I used to swim with him).

In concluding his memo, Schultz does not shrink from his portion of the blame for what has happened at Starbucks. That’s impressive. And I look forward to seeing the outcome of this memo. But I’m doubtful they can right this ship. When it comes to experience design, it can be an enticing (and worthy) goal for large service organizations but ultimately a dangerous one. Real experiences depend heavily on connecting with real people–both their employees and their customers–and the sheer scale of Starbucks makes it almost impossible to manage this connection efficiently without sucking the soul from it. And the aggregation of many small efficiency gains can be hard to pass up when you’re a large corporation.

As Director of the Center for Entrepreneurship at UC Davis, I work with a number of faculty and students who are interested in seeing their research move from the lab into the market. To do so often requires pitching investors on their ideas. The challenge is that these are two very different worlds–with very different values, frameworks, and language. Not an insurmountable challenge, but usually enough to derail the initial meeting.
With this in mind, here are a few quick tips to help prevent some of the more common mistakes that academics make when pitching their ideas to investors.

1. It’s about the business, not the science. Until they know it’s a good business, they’ll give you the benefit of the doubt on the science. That means, for the 15-20 minutes you have their attention, your first priority is probably convincing them you’re working on a clear and valued solution to an equally clear customer (and market). In most cases, the market and customer are already well-defined and your research is improving on a common product or process: a better malaria drug, or more efficient light bulb. Here the priority is convincing them your solution is better than what’s out there. In addition to showing that your research is valuable and valued, talking about the business potential is a strong signal that you understand a care about bringing your ideas all the way to the market, they are investing in you as much as the research.

1b. Most investors have science advisors of one kind or another, and you may or may not be talking to them. Find out in advance if you will–and if so, then you can delve more deeply into the science behind the solution. Even then, be sure to show you understand the business aspects as well.

2. Know your solution. Can you state, in 30 seconds or less and in a language my grandmother would understand, the problem you are solving and how you’re solving it? It’s called the elevator pitch, and most entrepreneurs can give you theirs at the drop of a hat. Most elevator pitches include the customer, the problem, and the solution. For more information, try looking here or at http://yourelevatorpitch.com/

3. Know your competition. What’s the dominant solution? What’s the best currently available? What else is under development? How is yours better? Nothing shouts “Ivory Tower” like someone who doesn’t know (or particularly care) about what other solutions are coming out and how theirs matches up.

4. Know your audience. What kind of investors are you talking to: angel investors, venture capitalists, equity investors? Do they prefer investing in very early stage companies (seed money for launching a company), early rounds of an established start-up, or later rounds? Are they general-purpose investors (increasingly rare) or do they prefer to invest in particular markets/sciences (like information technology, healthcare, green technology)?

5. Know your own objectives. Are you trying to raise money? Are you trying to interest them in licensing the technology? Are you doing this because your dean or chairperson asked you to? Be explicit with your objectives (to yourself at least) and open and close your presentation appropriately. One valuable objective is to learn as much as you can about the market potential of your research. In this case, be up front about it–don’t make up a customer or market if you don’t already know. Find out your audience’s expertise and set yourself up at the beginning of your talk by saying “I’m not sure how my research can best be brought to the [investor’s preferred] market and so I’ll talk a little about the technology and then I would like to have a conversation about how you think we might take this forward.”

and as an added bonus track:

6. Ask questions. What are they interested in hearing about? Investors are as often looking for talented people as new ventures, and you may be able to help them by providing your scientific opinion on what’s happening in research that might soon affect markets. Similarly, you might have a doctoral student or post-doc that could work for them or one of their portfolio companies. Finally, you might know colleagues who are working in areas that they have invested in. How can you help connect them to other people, ideas, resources? What goes around comes around, and the more you can help them connect, the more they will help you.

Have been busy lately developing a new program aimed at bringing business skills to scientists working in green technology: the Green Technology Entrepreneurship Academy.

For the last few years we have been running a set of business development programs that bring doctoral students (and post-docs) from science and engineering over to the business school where they learn how to think and act like entrepreneurs, and how to work with MBAS to turn their research ideas into potential (and real) businesses (Business Development Programs).

We’ve been having a blast doing this–it is essentially a mash-up combining business coursework with a design studio model for prototyping potential new ventures. Students learn how to talk to customers, explore alternative business models, model the finances, learn from these “prototypes” and then cycle through again until they have generated a business they have confidence can work. More on this later.

For now, am happy to see there is a sea change underway–particularly in green/sustainable technologies–around the role of the academic scientist.

Traditional views of science have held that scientists should be insulated from the demands of modern business and government policy–the better to search for knowledge and truth free from the influences of the market. But the cost of being free from the influences of others is the loss of influence over others. Scientists are increasingly finding they have little influence over increasingly critical areas of policy and technological change. There is, in the academy, an increasing recognition that scientists have an obligation to assume more of a leadership role in business if they want to bring about new and sustainable alternatives to current industrial practices.

The AAAS held its annual meeting last week in San Francisco, with the theme of “Science and Technology for Sustainable Well-Being.” AAAS President John P. Holdren set the tone, and reflected this changing rol, when he said:

Challenges such as poverty, climate change and nuclear proliferation pose unprecedented global risks that require scientists and engineers to join with political and business leaders in a concerted search for solutions

And from the business side, Larry Page (co-founder of Google) added his own two bits:

There are lots of people who specialize in marketing, but as far as I can tell, none of them work for you,” Page told researchers at the annual meeting of the American Association for the Advancement of Science late on Friday.

Page’s comments got to the root of the problem. Scientists “need to think that business and entrepreneurship is a good thing.” By not accepting this concept, scientists can too easily avoid taking on the challenging tasks of pushing their research into the market where it can make a difference. The Green Technology Entrepreneurship Academy is one way of giving science a voice in the public policy debate and in the direction of technological change. By training tomorrow’s scientists to understand business and entrepreneurship, we can ensure that tomorrow’s science can make a difference.

Speaking of Google and their ever-evolving value proposition, I have to shill a new tool that is, I do believe, better than sliced bread: google map for mobile phones

This may be old news for some, but for those who haven’t tried this tool, it’s amazing. As a guy, this means never having to ask for directions again.

Consumer reports came out with a very interesting study recently, The Ethanol Myth, which compared the gas mileage of cars running petroleum-based gasoline versus running on E-85, which is a gas (15%) and ethanol (85%) mixture. The interesting finding had nothing to do with whether ethanol would reduce our nation’s dependence on imported oil, whether it would reduce greenhouse gas emissions, forestall global warming, or help deter terrorists.

Instead, it asked a simple question: is ethanol-based fuel as efficient in existing cars as gasoline. The finding: “you’ll get cleaner emissions but poorer fuel economy … if you can find it”

CR was motivated to do this study because:

The Bush administration has been pushing ethanol as a renewable, homegrown alternative to gasoline. Now, the auto industry is abuzz with the promise of its flexible-fuel vehicles (FFVs), which are designed to run on either gasoline or the blend of 85 percent ethanol and 15 percent gasoline called E85.

So they ran a test using a 2007 Chevy Tahoe FFV (designed for ethanol). They found there are two problems with ethanol.

First, it reduces your gas mileage by about 27%, “from an already low 14 mpg overall to 10 mpg.” Not surprising since a gallon of ethanol has about 70% of the energy of a gallon of gasoline. Now if engines were optimized for ethanol, they could be as efficient as gasoline engines are today. But so might gasoline engines if they were truly optimized for efficiency instead of acceleration and other factors.

Adding to this problem is the considerable debate raging now about exactly how many gallons of gasoline it takes to grow, process, and distribute the ethanol (if Wikipedia is good for anything, it’s for putting the debate on center stage: Ethanol Fuel). Critics claim upwards of 1.5-2 gallons of gas are neeed to produce a gallon of ethanol (in the US, which uses corn).

There is a race to find the processing methods that are more energy efficient, but it will be a happy day when it takes less than one gallon of gas to produce one gallon of ethanol (which, remember, is still the equivalent of 0.7 gallons of gas). But this may require the maturation of cellulosic ethanol production (which uses farm residue rather than traditional product).

Second, they found that, because ethanol is produced and sold in the Midwest, it’s not widely available elsewhere. So maybe the reduced mileage won’t affect many of us, since we’re not going to be able to use E-85.

In any case, the argument for ethanol just got a little muddier. It’s a heck of a lot better when you compare it to the emissions of traditional gasoline. But since it’s the cure du jour for our energy woes, it’s worth kicking the tires–if only to see what needs to happen before we can seriously takes our eyes off of more attainable, if less glamorous, solutions like energy efficiency through improved mileage, better public transportation, smarter commuting.