By Dr. Neil Fromer, Executive Director of the Resnick Sustainability Institute, Caltech’s endowed program for energy and sustainability, and Stephanie C. Yanchinski, Executive Director of First Look West (FLoW), which works closely with the California Institute of Technology on supporting the emergence of technology companies from Caltech.
Why is it harder to start a cleantech company? Are we losing game-changing university innovations and our future energy leaders because the start-up barriers are just too high?
The usual model for university spin-outs relies on a “learn as you go” approach to business creation. However, even for this vibrant pool of creative thinkers, the challenges in cleantech are too formidable for this approach. Hard technologies require capital investments often 10 – 100 x more than other start-ups for establishing a patent portfolio, completing technology validation and building a working prototype. Developing a viable business model is a complicated matter when dealing with markets that may be futuristic and unknown. Becoming an entrepreneur in any field takes patience, persistence and just plain luck. Given that the climate for early investment in these technologies is still weak, there is a danger that many potentially brilliant entrepreneurs get discouraged and their powerful technologies languish in an academic backroom.
First Look West (FLoW), a cleantech business plan competition covering the Western Region of the United States, and run by the Resnick Sustainability Institute at Caltech, has seen that the odds can be shortened by paying attention to the three core “C’s” that prevent technology innovators from becoming entrepreneurs. These are culture, connections and cash. Managing the three C’s effectively addresses the problem fundamental to starting any business: understanding and mitigating risk –risk to potential partners and investors and as important, risk to the first time entrepreneur.
As part of the Department of Energy’s National Clean Energy Business Plan Competition, FLoW worked with over 200 student teams from 30+ universities and 16 states across the country. From analyzing FLoW’s successes (and lessons learned) we have identified important gaps in tackling the three C’s that stop lab bench scientists and engineers from turning into entrepreneurial business leaders.
FLoW’s Lessons Learned:
So who working in the lab today can and should become an entrepreneur? FLoW’s answer is almost anybody, but the way of thinking honed in the university lab has to be turned around 180 degrees in order to succeed as an entrepreneur.
- Scientists and Engineers launching companies need to master unrecognized cultural hurdles to starting a business within the academic institutional setting. Scientists and engineers are often not exposed to business concepts during their academic program. Even when they are exposed to the concepts, it is usually through case studies or even abstract businesses, rather than directly connected to their applications and technologies. Working within an academic environment presents other challenges, from pressures to balance delivering top quality research with moving applications forward commercially to hurdles for students that want to explore alternate paths within the university setting. The answer to create more joint engineering business programs with the flexibility to allow the student time aside to learn about their business and to grow it.
- Defining the marketplace and the customer is core to launching the business, and precedes perfecting the business plan. However, there is a vital unfilled gap in entrepreneurial training for this group. Educational programs modelled on the “lean” concept of iterating the business model from hundreds of customer interviews (developed for software spinouts) is only partially successful for cleantech, and must be adapted for this group. For innovations based on truly game changing technology, the market may be futuristic and unclear, and the potential customers difficult to identify. Often graduate students busy with their academic demands don’t have time to participate in Lean Launchpad-style educational programs, and would rather learn by building their business.
- Mentoring must begin earlier than with other entrepreneurs, and be tailored to this group’s needs. Studies by the Ewing Marion Kauffman Foundation for entrepreneurship show that entrepreneurs learn best from other entrepreneurs, both their peers in similar industries and stages of growth, as well as experienced entrepreneurs who can serve as mentors. This is particularly true in the tech industry. Technology entrepreneurs need to think beyond the theoretical transformative potential of their innovation and narrow the possibilities down to the first commercial product that customers will buy. Working with seasoned business mentors from the outset, who understand their particular technology and have a business record in understanding the markets and value chain, or can advise on scale up and manufacturing, can speed up the process. Engineers tend to trust mentors who can “speak the same language”, so ideally, advisors should also have an engineering background and been successful entrepreneurial engineers who “walked the talk.”
- Funding for building prototypes for customer testing is essential through government support, corporate partnerships and/or incubator relationships. Universities often permit the further development of research towards commercial applications but this is discretionary and may only go so far as the initial lab-scale prototype. Cleantech’s large capital investment means investors are typically not interested in companies with pre-commercial technologies. As a result, the academic entrepreneur will need to be aggressive in finding government grants from the Federal SBIR/STTR programs, and state bodies such as the California Energy Commission, that can help them move out of academia. Although they aren’t common, a diligent search will find new accelerator programs such as the Hawaii Energy Excelerator that offer small amounts and product development support. Also large companies seeking novel technologies, such as Microsoft, may run internal accelerator programs for selected small companies developing products of strategic interest to the company.
- Forming early links to local incubators/accelerator programs is a strategic imperative and currently doesn’t readily happen. When the student venture leaves the university, finding facilities and a business home often is difficult. Many incubators are not suited for accommodating technology companies with specialized equipment needs and limited cash to spend on rent. This is particularly true for cleantech ventures. From time to time, corporations with their own R&D facilities can accommodate an emerging venture where a co-development agreement means they will be working closely together. This often requires delicate business partnering negotiations, new to the first time entrepreneur. Finding the right accelerator or incubator will receive a boost through a new DOE Initiative, the Clean Technology Accelerator Program (CleanTAP), led by the Electric Power Research Institute (EPRI), and the National Renewable Energy Laboratory (NREL). CleanTAP will coordinate clean energy-focused business incubators nationwide and provide robust online and technical resources to support the innovation and entrepreneurship community.
FLoW’s expanded educational program (FLoW 2.0) is one solution that addresses these gaps and works to ensure technologists receive the support they need to either get their ventures started or accelerate them forward. From this group of technology innovators will come the business leaders of tomorrow.