The National Science Foundation Innovation Corps – What America Does Best

We ran the first National Science Foundation Innovation Corps class October to December 2011.

63 scientists and engineers in 21 teams made ~2,000 customer calls in 10 weeks, turning laboratory ideas into formidable startups. 19 of the 21 teams are moving forward in commercializing their technology.

Watching the final presentations it was clear that  the results were way past our initial expectations (comments from mentors as well as pre- and post-class survey data suggested that most of the teams learned more in two months than others had in two years.) So much so that the NSF decided to scale the Innovation Corps program.

In 2012 the NSF will put 150 teams of the best scientists in the U.S. through the Lean Launchpad class.  And to help teach these many teams, the NSF will recruit other universities that have engineering entrepreneurship programs to become part of the Innovation Corps network.

Congress Gets It
In-between the 2011 pilot class and the first NSF class of 2012, I got a call from Congressman Dan Lipinski. He sits on the House committee that oversees the NSF - the Science, Space and Technology committee (a place where his engineering degree and PhD comes in handy.) He had read my blog posts about the NSF Innovation Corps and was interested in how the first class went. He wanted to fly out to Stanford and sit in the Lean LaunchPad class about to start in the engineering school.

While I’ve had visitors in my classes before, having a congressman was a first. He showed up with no press in-tow, no entourage, just a genuine search for understanding of whether this program was a waste of taxpayer money or good for the country.

He asked tough questions about why the government not private capital should be doing this. I explained that the goal of the Innovation Corps was to bridge what the NSF calls the “ditch of death” – the gap between when NSF research funding runs out and when a team is credible enough (with enough customer and market knowledge) to raise private capital or license/partner with existing companies. The goal was not to replace private capital but to help attract it. The amount of money spent on the Innovation Corps would be about 1/4 of one percent of the $7.373 billion NSF budget, but it would leverage the tens of billions basic research dollars already invested. It’s payoff would be disproportionately large for the country. It’s one of the best investments this country can make for keeping the U.S. competitive and creating jobs.

After class the Congressman joined the teaching team at our favorite pizza place for our weekly post-class debrief.

If you like science, technology or entrepreneurship, this guy is the real deal. He gets it.

“Innovation, jobs and entrepreneurship” have become popular buzzwords in an election year. But it was pretty amazing to see a congressman jump on a plane to actually find out if he can help the country do so.  He issued this press release asking Congress to fully fund the Innovation Corps when he came back to Washington.

The National Science Foundation Innovation Corps combines the best of what the U.S. government, American researchers in academia and risk capital can do together. If we’re correct, we can compress the time for commercializing scientific breakthroughs and reduce the early stage risks of these new ventures. This means more jobs, new industries and a permanent edge for innovation in the United States.

———

The 3-person teams consisted of Principal Investigators (PI’s), mostly tenured professors (average age of 45,) whose NSF research the project was based on. The PI’s in turn selected one of their graduate students (average age of 30,) as the entrepreneurial lead. The PI and Entrepreneurial Lead were supported by a mentor (average age of 50,) with industry/startup experience.

This was most definitely not the hoodie and flip-flop crowd.

Part one of the posts on the NSF Innovation Corps is here, part two here. Syllabus for the class is here.  Textbook is here.

Here are some of the final Lessons Learned presentations and team videos:

Akara Solutions: Flexible, Low Cost Cooling Technology for LED Lighting
Principal Investigator: Satish Kandlikar Rochester Institute of Technology

If you can’t see the video above, click here.

If you can’t see the presentation above, click here.

Semiconductor-Based Hydrogen and Hydrocarbon Sensors
Principal Investigator: Lisa Porter Carnegie-Mellon University

If you can’t see the video above, click here.

If you can’t see the presentation above, click here.

Pilot Production Of Large Area Uniform Single-Crystal Graphene Films
Principal Investigator: Alan Johnson University of Pennsylvania

If you can’t see the video above, click here.

If you can’t see the presentation above, click here.

Radiotracer Synthesis Commercialization
Principal Investigator: Stephen DiMagno University of Nebraska-Lincoln

If you can’t see the video above click here.

If you can’t see the presentation above, click here.

Commercialization of an Engineered Pyrolysis Blanket for the Conversion of Forestry Residues to Soil Amendments and Energy Products
Principal Investigator: Daniel Schwartz University of Washington

If you can’t see the video above, click here

If you can’t see the presentation above, click here.

Photocatalysts for water remediation
Principal Investigator: Pelagia Gouma SUNY at Stony Brook

If you can’t see the video above, click here.

If you can’t see the presentation above, click here.

The other teams were equally interesting. Here are links to their Lessons Learned presentations.

IDecideFast – A web-based application for effective decision making for the layperson
Principal Investigator: Ali Abbas University of Illinois at Urbana-Champaign

Silicon Terahertz Electronics
Principal Investigator: Michael Shur  Rensselaer Polytechnic Institute

Standoff detection of explosives using novel signal-amplifying nanocomposite and hand-held UV light
Principal Investigator: Yu Lei University of Connecticut

MEMS-based drug infusion pumps
Principal Investigator: Ellis Meng University of Southern California

TexCone – Laser-Generated Surface Textures for Anti-Icing and Sun-Light-Trapping Applications
Principal Investigator: Mool Gupta University of Virginia

Concentric Technology
Principal Investigator: Walter Besio University of Rhode Island

Hand-Held Tonometer for Transpalpebral Intraocular Pressure Measurement
Principal Investigator:  Eniko Enikov University of Arizona

Artificial Membrane-based Ion Channel Screening
Principal Investigator: Jacob Schmidt University of California-Los Angeles

Privacy-Preserving Location Based Services
Principal Investigator: Nan Zhang   George Washington University

MySkinTone: A breakthrough technology and product for skin melanin evaluation
Principal Investigator: Michael Silevitch Northeastern University

Mobidemics: Using Mobile Gaming for Healthcare
Principal Investigator: Nilanjan Banerjee University of Arkansas

SmartMenu
Principal Investigator: Elizabeth Mynatt (mynatt@cc.gatech.edu); Georgia Tech Research Corporation

Sweet Sensors – Portable sensors using widely available personal glucose monitor
Principal Investigator: Yi Lu University of Illinois at Urbana-Champaign

SwiftVax – A Green Manufacturing Platform for Faster, Cheaper, and Scalable Vaccine Manufacturing
Principal Investigator: Karen McDonald University of California-Davis

Lessons Learned

  • Yes, entrepreneurship can be taught
  • No, there’s no age limit
  • We now know how to reduce customer and market risk for new ventures
  • The combination of government, researchers in academia and risk capital make a powerful accelerator for technology commercialization
  • There’s at least one congressman who understands it

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The National Science Foundation Innovation Corps – Class 2: The Business Model Canvas

The Lean LaunchPad class for the National Science Foundation Innovation Corps is a new model of teaching startup entrepreneurship. This post is part two. Part one is here. Syllabus here.

The 21 NSF teams had been out of the classroom for just 15 hours as they filed back in with their business model canvas presentations.  Their assignment appeared (to them) to be deceptively simple:

  • Write down their initial hypotheses for the 9 components of their company’s business model (who are the customers? what’s the product? what distribution channel? etc.)
  • Come up with ways to test each of the 9 business model canvas hypotheses
    • Decide what constitutes a pass/fail signal for the test. At what point would you say that your hypotheses wasn’t even close to correct?
  • Consider if their business worth pursuing? (Give us an estimate of market size)
  • Start their team’s blog/wiki/journal to record their progress during for the class 

Teaching logistics
Each week every team presented a 5-minute summary of what they had done and what they learned that week. As each team presented, the teaching team would ask questions and give suggestions (at times direct, blunt and pointed) for things the students missed or might want to consider next week.

While the last sentence is short, it’s one of the key elements that made the class effective. Between the three of us on the teaching team there was 75 years of entrepreneurial experience. (The 2 VC’s between them probably have seen 1000′s of presentations.) While there’s no guarantee our comments were correct or we had any unique insight, we did have enough data for pattern recognition.

The instructors sat in the back of the room and used a shared Google spreadsheet for grading. We graded the teams on a scale of 1-10 and each of us left detailed comments the other teaching team members could share and comment on. Week after week it gave us a pretty detailed record of the progress and trajectory of each team.

(As great as the presentations may be, sitting through 21 of them in a row were exhausting. After this first cohort, the NSF will be putting 25 teams at a time in a class. We intend to break the group into three parallel presentation sections.)

All teams kept a blog – almost like a diary – to record everything they did outside the building. This let the teaching team keep tabs on their progress and offer advice in-between class sessions.

Getting the teams to blog required constant “encouragement,” but it was invaluable. First, as we had a window into each teams engagement with customers, it eliminated most of the surprises when they came into class to present. Second, the blog helped us see if they were gaining insight from their customer discovery. Insight is what enables entrepreneurs to iterate and pivot their business model. The goal wasn’t just to talk to lots of people – the goal was to learn from them. Finally, their blogs gave us and them a permanent record of who they talked to. Over time this contextual contact list will be turned into a shared contact database for all future NSF teams.

The 21 Teams Present
The first team up was Arka Lighting. We liked these guys, but for a while no one on the teaching team could figure out what their core technology was. We knew they wanted to make LED lights that had better performance because they would dissipate less heat.  Finally when we understood that their core technology was heat pipes, it wasn’t clear why that made them a better LED supplier.  Were they selling to end users? OEMs? Manufacturers? We suggested that perhaps they had jumped to too many assumptions.

If you can’t see the slide deck above, click here

Next up was SenSeveresolid-state hydrogen and hydrocarbon sensors for use in severe environments.  They were going to start with the $81M Chlorine market where they already had a partner. It seemed like a tiny business. Did they just want to become a licenser of technology? Were their other severe environments that their sensors fit into? Did customers just want the sensors or a more complete sensing solution?

If you can’t see the slide deck above, click here

Graphene Frontiers was next. Graphene is incredibly cool. It’s touted as the new “wonder material” and its inventors won the 2010 Nobel Prize in Physics. The team wanted to make wafer-scale Graphene films. And do it at ambient pressure. But their proposed products seemed like research lab selling other research labs low volume products. It seemed liked technology in search of a business. Reading the Graphene Frontiers blog for the first week, we realized that in a burst of enthusiasm they set up a Google AdWords campaign to drive traffic to their site!

If you can’t see the slide deck above, click here

Ground Flour Pharma was going to take Fluorine-18 and make a new generation of fluorodeoxyglucose (FDG) radiotracers for Positron emission tomography scanners. But it wasn’t clear who benefits enough to make this a business. If they need FDA trials is it worth the money needed for approval? Is this just a technology license or is it a company?

If you can’t see the slide deck above, click here

C6 Systems had a great set of photos with things on fire in the woods. It seemed like they were going to burn downed trees to do what? Make charcoal? It looked like fun but is this a hobby or a scalable business? Is their any patentable Intellectual Property? What was their Value Chain? Their blog showed a good head-start on talking to customers.

If you can’t see the slide deck above, click here

Photocatalyst made nanogrids that became miniaturized self-supported mats, similar to fishing nets, that float on water and rapidly decompose crude oil using sunlight. The result is that pollutants are turned into water, carbon dioxide and other biodegradable organics for environmental remediation. Their slides sounded like a technical presentation of nanocatalyst features but their blog showed that they had been actively talking to customers in the last two days.

If you can’t see the slide deck above, click here

After the teams presented it was the turn of the teaching team.  We presented our second lecture, this time on “Value Proposition.”

If you can’t see the slide deck above, click here

For tomorrow, the teams had 15-hours to get out of the building and talk to 10-15 customers and test their Value Proposition.

While most of the teams got on the phone or into their cars, a couple of others complained, “You didn’t tell us we were supposed to use our spare time to talk to customers. We thought this was just spare time.”

At first, I thought they were joking. Spare time? I don’t think you understand the key principle in a startup – there is no such thing as spare time. The clock is running and you’re burning cash.

Go!
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The Government Starts an Incubator: The National Science Foundation Innovation Corps

Over the last two months the U.S. government has been running one of the most audacious experiments in entrepreneurship since World War II.

They launched an incubator for the top scientists and engineers in the U.S.

This week we saw the results.

63 scientists and engineers in 21 teams made 2,000 customer calls in 8 weeks, turning laboratory ideas into formidable startups. 19 of the 21 teams are moving forward in commercializing their technology.

It was an extraordinary effort.

Your Country Needs You
In July I got a call from Errol Arkilic, a program manager at the National Science Foundation (NSF), the $6.8-billion U.S. government agency that supports research in all the non-medical fields of science and engineering.  “We’ve been reading your blog about your Lean Launchpad class.”  Wow, that’s nice, I thought, a call from a fan. No, the conversation was about to get more interesting.

“Our country needs you.” Say what? “Part of the NSF charter is to commercialize the best of the science and engineering research we fund. We want to make a bet that your Lean Launchpad class can apply the scientific method to market-opportunity identification. We think your class can train scientists to start companies better than how we’re doing it now.”  Uh oh, where’s this heading?  “We want to select the best of our researchers, pay them $50,000 to take your class and see if we can change the outcome of their careers and their research.”

“That’s great, maybe I can set up a class for you next year,” I replied.  The answer shot back, “We want the class to start in 90 days,”

I remember thinking, “Wow, whoever’s on the other end of phone sounds just like an entrepreneur, they were asking for the impossible.”  Just as I was computing whether this was possible, he added, “And we want to bring 25 new teams every quarter.”

So of course, I said yes.

While they’ll never admit it, the National Science Foundation was starting an incubatorthe Innovation Corps – to take the most promising research projects in American university laboratories and turn them into startups.

The Innovation Corps – Using the Lean LaunchPad as an Incubator for Scientists and Engineers

The Innovation Corps Startup Team
These weren’t 22-year olds who wanted to build a social shopping web site. Each of the teams selected by the NSF had a Principal Investigator – a research scientist who was a University professor; an Entrepreneurial Lead – a graduate student working in the Investigator’s lab; and a mentor from their local area who had business and/or domain expertise. And they were hard at work at some real science.

The I-Corps Incubator Program
Unlike other incubators, our Lean LaunchPad Class had a specific curriculum. We taught them the business model / customer development / agile development solution stack. This methodology forces rapid hypothesis testing and Customer Development by getting out of the building while building the product. (The mentors in our program are there to support the methodology, but aren’t there to tell stories.)

The gamble was that we could train Professors doing hard-core science, who had never been near a startup or Silicon Valley, to get out of the building and talk to customers and Pivot as easily as someone at a web startup.

The Scientists, the NSF and the teaching team were all going to go where no one had before.

Given that Silicon Valley had started with scientists and engineers not MBA’s, I thought this was a bet worth making.

The Curriculum
Since the teams were in Universities scattered across the U.S., we couldn’t keep them in Silicon Valley for all 8 weeks, so we tried an experiment in teaching remotely.

First, we brought all 21 teams to Stanford for 3-days of 10 hour-a-day classes in business model design and customer development. After returning to their schools, they got out of their labs while they built their products. Once a week, via Webex,they presented their Customer Development progress on line to the teaching team and the other teams. Then it was our turn, and we lectured all the teams remotely. After 7 weeks they returned to Silicon Valley for their final presentations.

(The class syllabus is here. The class textbooks were “The Four Steps to the Epiphany and Business Model Generation.”)

Assembling the Teaching Team
We recruited two veteran Venture Capital partners to be part of the 10-week teaching team: Jon Feiber, at Mohr Davidow and John Burke of True Ventures. Alexander Osterwalder joined us for the opening day, and Oren Jacob, ex-CTO of Pixar joined us for a finale.

The First Class
As the first class settled into their seats at Stanford I wondered if we were going to be able to get them to act like startups. Most of the Principal Investigators were professors. Some had their own labs managing large groups of researchers. Their average age was in the mid-40’s. Their mentors were at least that old. Only the Entrepreneurial Leads (the PI’s assistants) were in their mid to late 20’s.

Looking at them  I wondered if: 1) hard-core science and engineering projects could rapidly pivot, 2) if the Principal Investigators would simply “assign” the work to their graduate students. I thought about the common wisdom that only 20-year olds doing Internet startups could be agile. Some incubators would have labeled this group too old to be entrepreneurs. I smiled as I realized that I was older than most (but not all) of them.

The Stanford Lectures
Our first lecture was about 1) how to organize their thinking of what it takes to build a startup – the business model canvas and 2) how to test their hypotheses – the Customer Development Process.

Since the first part of the lecture was about Alexander Osterwalder’s Business Model Canvas, Osterwalder flew in from Switzerland to teach slides 20-76. And since the rest of the slides were about Customer Development, I taught those.

If you can’t see the slide deck above, click here.

The homework for the 21 teams in the next 24-hours? Come up with a business model canvas for their startup. And tell us how they will test each of their business model hypotheses.

As day one ended, I wondered what those canvases would look like.

Stay tuned for Part 2.
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Scientists Unleashed

Some men see things as they are and ask why.
Others dream things that never were and ask why not.

George Bernard Shaw

We’re in the middle of our National Science Foundation Innovation Corps class – taking the most promising research projects in American university laboratories and teaching these scientists the basics of entrepreneurship. Our goal is to accelerate the commercialization of their inventions. Our Lean LaunchPad class teaches scientists and engineers that starting a company is another research project that can be solved by an iterative process of hypotheses testing and experimentation built around the business model / customer development / agile development solution stack. It’s “the scientific method” applied to startups.

Although I typically don’t write about a class while it’s going on, I had to share this extraordinary reflection that Satish Kandlikar, one of the National Science Foundation principal investigators, posted to our Lean LaunchPad class blog.

Satish Kandlikar – The Spirit of Entrepreneurship
Satish Kandlikar has been a professor in the mechanical engineering department at the Rochester Institute of Technology for the past twenty-one years. His research is focused in the areas of flow boiling, critical heat flux, contact line heat transfer, and advanced cooling techniques

His team, Akara Lighting, wants to build a device for LED lights that gets rid of heat 50% better than anything on the market. This would result in LED’s having a higher performance at a reduced cost.

Here’s what he had to say about his experience in the Lean LaunchPad class ….

“It is quite an eye-opening experience to transition from an academic “PI” (Principal Investigator) to someone who wants to run a technology start-up. The change in the mindset is perhaps the important factor on the path to success…

The teaching team is simply phenomenal in identifying the pitfalls in our path and guiding us in finding the solutions. They have shown us the other side of the equation from technology to market acceptability. We have been extremely fortunate in having this kind of guidance and support.

A key finding I would like to report is that we just had another “pivot” two days ago when our mentor brought to our attention that we can succeed as a heat pipe company providing thermal solutions to various LED products as well as other applications. I visited two companies, one providing data center cooling solutions, and other providing control panel cooling systems. Key alliances are expected to occur through these initial, very positive, contacts.

One fundamental change that I see in my approach going forward is that I am looking at the research in a totally different way. It is no longer, in my mind, a means to publishing papers and simply graduating students. It means now, to me, how the research can be applied to make products that are accepted in marketplace. Making students understand the entire process, to whatever extent I can influence them, and inspiring them to aspire for transferring their knowledge to products is becoming an important thrust in my classroom interactions.

Another eye-opener was on understanding communications. While making presentations in academic setting, it was more of a paper-based research with extension of knowledge, without too much understanding of its application. Knowing the audience was really not a factor. Now after making “cold-calls”, and seeing that there is a certain way to get them interested in just a few opening sentences, was simply amazing. Knowing what their needs are is a crucial step.

Now it is becoming clear what Steve meant when he said, “get out of the building”. It is clear that the building referred to our mindset more than the physical act of going out or simply contacting someone outside.

The purpose of this posting was to document my beginning of the transformation process from an academician to an entrepreneur. And I am definitely enjoying it.”

Scientists Unleashed
Over fifty years ago Silicon Valley was born in an era of applied experimentation driven by scientists and engineers. Fifty years from now, we’ll look back to this current decade as the beginning of another revolution, where scientific discoveries and technological breakthroughs were integrated into the fabric of society faster than they had ever been before, unleashing a new era for a new American economy built on entrepreneurship and innovation.

And scientists like Satish Kandlikar and the National Science Foundation will lead the way.
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Eureka! A New Era for Scientists and Engineers

Silicon Valley was born in an era of applied experimentation driven by scientists and engineers. It wasn’t pure research, but rather a culture of taking sufficient risks to get products to market through learning, discovery, iteration and execution. This approach would shape Silicon Valley’s entrepreneurial ethos: In startups, failure was treated as experience (until you ran out of money).

The combination of Venture Capital and technology entrepreneurship is one of the great business inventions of the last 50 years. It provides private funds for untested and unproven technology and entrepreneurs. While most of these investments fail, the returns for the ones that win are so great they make up for the failures. The cultural tolerance for failure and experimentation, and a financial structure which balanced risk, return and obscene returns, allowed this system flourish in technology clusters in United States, particularly in Silicon Valley.

Yet this system isn’t perfect. From the point of view of scientists and engineers in a university lab, too often entrepreneurship in all its VC-driven glory – income statements, balance sheets, business plans, revenue models, 5-year forecasts, etc. – seems like another planet. There didn’t seem to be much in common between the Scientific Method and starting a company. And this has been a barrier to commercializing the best of our science research.

Until today.

Today, the National Science Foundation (NSF) – the $6.8-billion U.S. government agency that supports research in all the non-medical fields of science and engineering - is changing the startup landscape for scientists and engineers. The NSF has announced the Innovation Corps – a program to take the most promising research projects in American university laboratories and turn them into startups. It will train them with a process that embraces experimentation, learning, and discovery.

The NSF will fund 100 science and engineering research projects every year. Each team accepted into the program will receive $50,000.

To commercialize these university innovations NSF will be putting the Innovation Corps (I-Corps) teams through a class that teaches scientists and engineers to treat starting a company as another research project that can be solved by an iterative process of hypotheses testing and experimentation. The class will be a version of the Lean LaunchPad class we developed in the Stanford Technology Ventures Program, (the entrepreneurship center at Stanford’s School of Engineering).

—–

This is a big deal. Not just for scientists and engineers, not just for every science university in the U.S., but in the way we think about bringing discoveries ripe for innovation out of the university lab. If this program works it will change how we connect basic research to the business world. And it will lead to more startups and job creation.

—–

Introducing the Innovation-Corps
The NSF Innovation-Corps program (I-Corps) is designed to help bridge the gap between the many scientists and engineers with innovative research and technologies, but little knowledge of the first steps to take in starting a company.

I-Corps will help scientists take the first steps from the research lab to commercialization.

Over a period of six months, each I-Corps team, guided by experienced mentors (entrepreneurs and VC’s) will build their product and get out of their labs (and comfort zone) to discover who are their potential customers, and how those customers might best use the new technology/invention. They’ll explore the best way to deliver the product to customers, the resources required, as well as competing technologies.  They will answer the question, “What value will this innovation add to the marketplace? And they’ll do this using the business model / customer development / agile development solution stack.

At the end of the program each team will understand what it will takes to turn their research into a commercial success. They may decide to license their intellectual property based on their research. Or they may decide to cross the Rubicon and try to get funded as a startup (with strategic partners, investors, or NSF programs for small businesses). At the end of the class there will be a Demo Day when investors get to see the best this country’s researchers have to offer.

What Took You So Long
A first reaction to the NSF I-Corps program might be, “You mean we haven’t already been doing this?”  But on reflection it’s clear why.  The common wisdom was that for scientists and engineers to succeed in the entrepreneurial world you’d have to teach them all about business. But it’s only now that we realize that’s wrong.  The insight the NSF had is that we just need to teach scientists and engineers to treat business models as another research project that can be solved with learning, discovery and experimentation.

And Stanford’s Lean LaunchPad class could do just that.

Join the I-Corps
Today at 2pm the National Science Foundation is publishing the application for admission (what they call the “solicitation for proposals”) to the program. See the NSF web page here.

The syllabus for NSF I-Corps version of the Lean LaunchPad class can be seen here.

Along with a great teaching team at Stanford, world-class VC’s who get it, and foundation partners, I’m proud to be a part of it.

This is a potential game changer for science and innovation in the United States.

Join us.

Apply now.
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How Scientists and Engineers Got It Right, and VC’s Got It Wrong

Scientists and engineers as founders and startup CEOs is one of the least celebrated contributions of Silicon Valley.

It might be its most important.
———-

ESL, the first company I worked for in Silicon Valley, was founded by a PhD in Math and six other scientists and engineers. Since it was my first job, I just took for granted that scientists and engineers started and ran companies.  It took me a long time to realize that this was one of Silicon Valley’s best contributions to innovation.

Cold War Spin Outs
In the 1950’s the groundwork for a culture and environment of entrepreneurship were taking shape on the east and west coasts of the United States. Each region had two of the finest research universities in the United States, Stanford and MIT, which were building on the technology breakthroughs of World War II and graduating a generation of engineers into a consumer and cold war economy that seemed limitless. Each region already had the beginnings of a high-tech culture, Boston with Raytheon, Silicon Valley with Hewlett Packard.

However, the majority of engineers graduating from these schools went to work in existing companies.  But in the mid 1950’s the culture around these two universities began to change.

Stanford – 1950’s Innovation
At Stanford, Dean of Engineering/Provost Fred Terman wanted companies outside of the university to take Stanford’s prototype microwave tubes and electronic intelligence systems and build production volumes for the military. While existing companies took some of the business, often it was a graduate student or professor who started a new company. The motivation in the mid 1950’s for these new startups was a crisis – we were in the midst of the cold war, and the United States military and intelligence agencies were rearming as fast as they could.

Why It’s “Silicon” Valley
In 1956 entrepreneurship as we know it would change forever.  At the time it didn’t appear earthshaking or momentous. Shockley Semiconductor Laboratory, the first semiconductor company in the valley, set up shop in Mountain View. Fifteen months later eight of Shockley’s employees (three physicists, an electrical engineer, an industrial engineer, a mechanical engineer, a metallurgist and a physical chemist) founded Fairchild Semiconductor.  (Every chip company in Silicon Valley can trace their lineage from Fairchild.)

The history of Fairchild was one of applied experimentation. It wasn’t pure research, but rather a culture of taking sufficient risks to get to market. It was learning, discovery, iteration and execution.  The goal was commercial products, but as scientists and engineers the company’s founders realized that at times the cost of experimentation was failure. And just as they don’t punish failure in a research lab, they didn’t fire scientists whose experiments didn’t work. Instead the company built a culture where when you hit a wall, you backed up and tried a different path. (In 21st century parlance we say that innovation in the early semiconductor business was all about “pivoting” while aiming for salable products.)

The Fairchild approach would shape Silicon Valley’s entrepreneurial ethos: In startups, failure was treated as experience (until you ran out of money.)

Scientists and Engineers as Founders
In the late 1950’s Silicon Valley’s first three IPO’s were companies that were founded and run by scientists and engineers: Varian (founded by Stanford engineering professors and graduate students,) Hewlett Packard (founded by two Stanford engineering graduate students) and Ampex (founded by a mechanical/electrical engineer.) While this signaled that investments in technology companies could be very lucrative, both Shockley and Fairchild could only be funded through corporate partners – there was no venture capital industry. But by the early 1960′s the tidal wave of semiconductor startup spinouts from Fairchild would find a valley with a growing number of U.S. government backed venture firms and limited partnerships.

A wave of innovation was about to meet a pile of risk capital.

For the next two decades venture capital invested in things that ran on electrons: hardware, software and silicon. Yet the companies were anomalies in the big picture in the U.S. – there were almost no MBA’s. In 1960’s and ‘70’s few MBA’s would give up a lucrative career in management, finance or Wall Street to join a bunch of technical lunatics. So the engineers taught themselves how to become marketers, sales people and CEO’s. And the venture capital community became comfortable in funding them.

Medical Researchers Get Entrepreneurial
In the 60’s and 70’s, while engineers were founding companies, medical researchers and academics were skeptical about the blurring of the lines between academia and commerce. This all changed in 1980 with the Genentech IPO.

In 1973, two scientists, Stanley Cohen at Stanford and Herbert Boyer at UCSF, discovered recombinant DNA, and Boyer went on to found Genentech. In 1980 Genentech became the first IPO of a venture funded biotech company. The fact that serious money could be made in companies investing in life sciences wasn’t lost on other researchers and the venture capital community.

Over the next decade, medical graduate students saw their professors start companies, other professors saw their peers and entrepreneurial colleagues start companies, and VC’s started calling on academics and researchers and speaking their language.

Scientists and Engineers = Innovation and Entrepreneurship
Yet when venture capital got involved they brought all the processes to administer existing companies they learned in business school – how to write a business plan, accounting, organizational behavior, managerial skills, marketing, operations, etc. This set up a conflict with the learning, discovery and experimentation style of the original valley founders.

Yet because of the Golden Rule, the VC’s got to set how startups were built and managed (those who have the gold set the rules.)

Fifty years later we now know the engineers were right. Business plans are fine for large companies where there is an existing market, product and customers, but in a startup all of these elements are unknown and the process of discovering them is filled with rapidly changing assumptions.

Startups are not smaller versions of large companies. Large companies execute known business models. In the real world a startup is about the search for a business model or more accurately, startups are a temporary organization designed to search for a scalable and repeatable business model.

Yet for the last 40 years, while technical founders knew that no business plan survived first contact with customers, they lacked a management tool set for learning, discovery and experimentation.

Earlier this year we developed a class in the Stanford Technology Ventures Program, (the entrepreneurship center at Stanford’s School of Engineering), to provide scientists and engineers just those tools – how to think about all the parts of building a business, not just the product. The Stanford class introduced the first management tools for entrepreneurs built around the business model / customer development / agile development solution stack. (You can read about the class here.)

So what?

Starting this Thursday, scientists and engineers across the United States will once again set the rules.

Stay tuned for the next post.
Listen to the post here: Download the Podcast here

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