Careers, Research, and Entrepreneurship : It's a Competitive World

Chapter 19

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It’s a Competitive World out There: Factors for STEM Venture Success Judith C. Giordan* VP and Managing Directorecos ecosVC, Amherst, Massachusetts 01002, United States *E-mail: [email protected].

From necessity for supporting a family and community – as in Africa and Latin America - to developing new industries for large-scale economic growth and jobs - as in the US - the key drivers for venture development take on many faces. According to the GEDI Index, the US is the top country for entrepreneurs, especially women, yet other data show the large gaps between female and male entrepreneurial funding rates – across all categories – also in the US! For the American Chemical Society, of importance to our members and to us as a Society, are the factors that foster STEM innovators and innovation that underpin job creation and economic development, especially where chemistry plays the pivotal role. In this article, the author explores different factors for STEM venture success including the implications for STEM researchers who wish to become innovators or entrepreneurs, regardless of gender; the role of universities; and the role that existing corporations do and could play in fostering and commercializing market-inspired research especially in the all-important exit for new STEM ventures.

The Myth of Start Ups and Economic Growth Whether dealing with the desire for growth in United States or globally, a main motivation for starting businesses is our need for economic development and creating jobs (1). As chemists, we want to and have successfully used this economic driver as a basis for translating our discoveries into market solutions to © 2016 American Chemical Society Cheng et al.; Chemistry without Borders: Careers, Research, and Entrepreneurship ACS Symposium Series; American Chemical Society: Washington, DC, 2016.


solve global challenges, and in the process have built one of the largest engines for economic growth, jobs and progress – the global chemical enterprise. Yet, as hiring in the chemical enterprise slows and startups proliferate, is the argument for entrepreneurship and start-ups as key drivers for economic growth and jobs worth exploring?. According to Scott Shane, the answer is no. Government incentives for startups do not work and concepts for creating entrepreneurship do not function very well (2). Are startups engines for growth? In the United States, the correlation across industries between start-up rates and failure rates is a whopping 0.77 out of one. Shane attributes this low success rate to various factors including the government disproportionately stimulating more people to start new companies in industries with lower barriers to entry which are often more competitive thereby leading to higher rates of failure. Shane contends the average entrepreneur, who often selects what s/he perceives to be the easiest industry to break into without appropriate market data, reinforces this higher failure rates. The key, therefore, when considering the path to entrepreneurship, is to decide why you want to be an entrepreneur, what it is that motivates you to start a company, does the market care about what you are proposing to offer and can this build jobs? The profile for start-ups in the United States might be no. In the United States an average startup is capitalized with roughly $25,000 of the founder’s personal savings. These start-ups tend to operate in retail or personal services, are homebased businesses, and aspire to generate around $100,000 in revenue in a five-year period (3). Therefore, these new businesses do not constitute a large portion of jobs in the United States. According to the Marion Ewing Kauffman Foundation (4), newly formed companies were responsible for roughly 3% of all U.S. jobs in 2005 decreasing by 2008 to approximately 2%. In either case, this places the United States towards the middle of the bottom of the Organization of Economic Co-operation and Development (OECD) rankings. An additional issue with assessing employment in the start-up sector is redundancies that may not explicitly be taken into account. For example, if a start-up employing four people goes under after three days of being open, but these four individuals go on to be employed elsewhere, they will be counted twice, because while eight jobs have been filled in actuality only four people have found employment. Yet despite these statistics, stories of wildly successful start-ups embodied in the lore of ventures such as internet search giant Google or the biotechnology firm Genentech are common and fuel dreams of great success. So, surely, these companies must have contributed to economic growth? Yes, they did. But these are not typical growth companies and their founders are not typical entrepreneurs! What are the types of entrepreneurs that make all the “big things” happen, and do we really need them? YES! So-called “High-Impact Entrepreneurs” are the individuals who launch and lead companies with above-average impact in terms of job creation, wealth creation, and the development of entrepreneurial role models. Yet creating them and their mega successes is elusive. So how can we create greater success rates than we have even if not all entrepreneurs and startups become the next Google? 164 Cheng et al.; Chemistry without Borders: Careers, Research, and Entrepreneurship ACS Symposium Series; American Chemical Society: Washington, DC, 2016.


Technology Commercialization, Startups, and Economic Development While there are no clear cut answers for creating high-impact entrepreneurs, creating an impact and realizing the broad based economic and societal impact chemists want to provide with science based startup requires an evolved mindset for 21st century chemist. It requires us all to embrace a new role – that of an innovator. Someone who a) is grounded in the science, b) has the skills to define market requirements and to translate them into actionable and deliverable innovations - scientific results which address defined market needs - and c) is able to effectively communicate. Economic development from technology startups requires scientists to know how markets are structured and how value is built – not simply assuming to have a great idea and believing someone must want to buy it. To ensure success at this evolved role for scientists and startups, universities and companies need to evolve their roles, as well. Universities need to enable and reward researchers to gain the skills to conduct market-informed basic research. While researchers in companies gain these skills, universities can better prepare students for these roles during the undergraduate and graduate education process. Further, universities would also do well to differentiate clearly between innovation and invention and how they wish to utilize, reward and recognize each. Patents should be submitted only to support the invention’s potential for providing market value. Therefore, in academe as in business, research aligned with market requirements and patent portfolios and aligned with business need should be the rule rather than using patenting only as a metric for promotion or tenure. This means universities need ecosystems capable of producing market analysis. Even if the universities are already doing it, the technology transfer office cannot do it alone, so it is up to the scientists to assist in conducting valid market analysis, thereby ensuring that nothing of the innovation gets lost in translation. Furthermore, conducting the market analysis in parallel with research can act as yet another means for informing basic research. This parallel market analysis and basic research enables more rapid and cost effective research towards innovation translation and societal impact. In order for the startup ecosystem to thrive in the chemical enterprise, companies must commit themselves to actively participating. Actions can include aiding in providing market data, investing in startups and evolving more robust mechanisms for acquiring startups as part of strategies for R&D and growth. Data from A.T. Kearney showed that over the period 1999-2011 pharmaceutical companies nearly doubled internal R&D at the same time startups doubled in number, yet the number of successful products did not follow suit (5). Therefore companies might do well to focus on their competencies in applied research, manufacturing and commercialization and support the basic research and proof-of-concept from a startup. The chemical industry may face even greater challenges for new products and innovation in an era of corporate consolidation. This could bode well for corporate investments in startups as a more cost effective way to increase growth and broaden product pipelines.

165 Cheng et al.; Chemistry without Borders: Careers, Research, and Entrepreneurship ACS Symposium Series; American Chemical Society: Washington, DC, 2016.


Key Decisions for Researchers What does this mean for the role of scientists? As scientists, if we want to embrace the role of innovators, and perhaps even as entrepreneurs, we need to acknowledge the process of innovation – providing scientific solutions to market challenges - as an additional role beyond that of curiosity driven research. We must gain skills as the basis for deciding whether or not to accept this extended role, including the ability to determine if there a real market need for our research; determining whether you – or anyone else - has the solution to the market need; and determining the revenue and market potential and whether this is a high growth or a lifestyle business (That $100,000/annum example? That is a lifestyle business.). We must be committed to honestly determining what will be required to get to market, and whether we have a team that can take the innovation to market based on a credible business plan. Further, you need to determine why you are embracing the role of innovator. Is it to demonstrate capability and interest primarily through winning a business plan competition? Business plan competitions are fun, but they are not the end game. The end game is selling product at a price that the market will pay that solves a problem better than anyone else. As chemists, we need to accept that the act of science commercialization is separate from doing science. Science can be very dispassionate—the reaction either worked or not. But how you sell the innovation or position it in the marketplace is a completely human and subjective endeavor. Being an entrepreneur requires you to embrace both of these pieces. You can be trained and gain skills and vocabulary to be an entrepreneur, but whether you personally can do the range of work required to be an entrepreneur, and feel comfortable doing it, is a different story. If you feel that commercializing technology or being an entrepreneur is your calling, go for it! If you would prefer to work within a company and gain phenomenal skills that will make it easier for you to do great things in the future, there should be no regret in this decision versus your own start up. Innovation and commercialization in the context of either big or small companies is important. This is because true innovation comes from knowing market-validated sets of needs, responding to those needs and providing solutions to important challenges – not company size. Ultimately, only you can determine whether the role of an innovator or entrepreneur is something you really want to do and whether this is the right time in your life for that commitment.

Funding You have decided! You’re building a venture. But it takes more than hard work. Where will you find funding? Many academic researchers first think of venture capital. It is a term used so frequently that it has become synonymous with startups. But it is not a wise decision to expect venture capital to be your key or sole path to success. Recent data show that venture dollars are invested more heavily in software with low capital investments than into larger scale product 166 Cheng et al.; Chemistry without Borders: Careers, Research, and Entrepreneurship ACS Symposium Series; American Chemical Society: Washington, DC, 2016.


based ventures. While angel investors are an excellent option, data show angels primarily fund what they know so you will have to find an angel or angel group with expertise in your field. What about corporate funders? As sale to a larger company, not an IPO, is the single largest exit for startups, finding larger companies aligned in your market is key for both potential funding and sale. And there is no time like the present to network with companies in your market! Investment in you may be a cost effective solution to shrinking corporate product pipelines. Conducting more research does not necessarily mean that a corporation will produce more products.

Conclusion What does all of this mean? Commercializing science is not easy, but we as scientists and chemists have a track record of successfully creating products and processes that have changed the world. To build a start up in science means that you need to be good at what you do – excellent in research while embracing a broader role of innovator by acquiring skills to inform your research based on market need and the ability to communicate, negotiate and lead.

References 1. 2.

3. 4. 5.

Glen Entrepreneurship Monitor. http://www.gemconsortium.org/docs/ download/3616 (accessed on July 30, 2015). Shane, S. A. A General Theory of Entrepreneurship: The Individualopportunity Nexus; Edward Elgar Publishing: Northamptom, MA, 2003, and references therein. The Global Entrepreneurship and Development Institute. http://thegedi.org/ research/gedi-index/ (accessed on July 30, 2015). Ewing Marion Kauffman Foundation. http://www.kauffman.org/ (accessed on July 30, 2015). ATKearney. Unleashing Pharma from the R&D Value Chain; www.atkearney.com/paper/-/asset_publisher/dVxv4Hz2h8bS/content/ unleashing-pharma-from-the-r-d-value-chain/10192 (accessed on July 30, 2015).

167 Cheng et al.; Chemistry without Borders: Careers, Research, and Entrepreneurship ACS Symposium Series; American Chemical Society: Washington, DC, 2016.

Careers, Research, and Entrepreneurship : It's a Competitive World

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