by Tom Gerrow

Economic leadership belongs to those who can innovate most efficiently, but commercializing new technology can be a daunting challenge. Anticipating the needs of future markets (some of which don’t yet exist), finding funding and assembling a team to bring new technologies to commercial viability are all as important—if not more so—than the technology itself. What’s an aspiring entrepreneur to do?

While global competition places a high value on speeding new technologies to market, as McCombs Management Professor John Butler says, a great idea is not enough.

“There are great ideas sitting on the shelf everywhere,” he says. As director of the university’s IC2 Institute, Butler works to build relationships between technologists and entrepreneurs. “With technology transfer, we have to combine science with business knowledge. You have to look at how you can bring finance, accounting and marketing to bear on those technologies.”

Commercializing a new technology, however revolutionary or ingenious, requires a management team with the business savvy to connect with customers constantly bombarded by new products and services.

“You have to understand what the market wants,” says Rob Adams, McCombs management lecturer and director of the school’s Moot Corp competition. The annual Moot Corp competition (scheduled for May 2-5) gives MBA students from around the world an opportunity to try their hand at creating new ventures, many based on new technologies. By developing a business plan and pitching it to a panel of entrepreneurs, venture capitalists, lawyers and accountants, MBA students gain valuable hands-on entrepreneurial experience.

According to Adams, the key is learning to recognize an idea with real market potential. “You need to identify a business pain that is so dramatic people will pay to get it fixed,” Adams says. “But if a business is feeling pain, you know they are already trying to fix it. To succeed, you need to make a breakthrough. One of the ways you do that is by applying technology to the problem.”

Even though technology fuels the creation of many new business ventures, many end in failure. One of the principle reasons, says Adams, is a lack of market validation.

“It’s been proven time and time again that when a company or product fails, 90 percent of the fault is getting the market wrong,” Adams says. “You want to find a problem and solve it with technology, rather than having a technology and trying to find a problem to solve.”

A Team Effort
It’s natural that inventors want to focus on the technology, but that’s one reason why they often have a hard time growing a company. To turn a new technology into a successful enterprise, they need to connect with business talent.

“One of the major problems in commercialization is that the scientists responsible for generating ideas often don’t understand business, and the business people don’t necessarily understand the science and technology,” says Tim Ruefli, professor in the Department of Information, Risk, and Operations Management (IROM) at the McCombs School. “The focus needs to be on the team bringing the venture to market and their ability to be flexible and adaptive as the venture moves forward.”

Markets are often slow to embrace new technologies, especially in a rapidly changing environment that makes it hard to predict which will emerge as tomorrow’s standards. Frequently, marketing a new technology effectively requires adapting it for mass consumption rather than focusing on the leading edge.
 
“Companies that are successful don’t necessarily have the best products,” says Jim Nolen, a senior lecturer in the McCombs Finance Department. “They have a management team that knows how to market to the masses and motivate people.”

Think about McDonald’s—they never say they have the best-tasting burger, Nolen notes, but their marketing machine has made it ubiquitous. Apple is another example of a company creating a market for its product. “Look at Apple and [CEO] Steve Jobs—he convinced people that although his MP3 player produced the same sound quality as other MP3 players, that the design and size of Apple iPods were cool. It’s not always about the product, and that’s what frustrates inventors and engineers.”

Over the long haul, however, there is a compelling argument that economic leadership will depend on fostering connections between the engineers and scientists who create new technologies and the entrepreneurial talent who can identify market needs and grow new enterprises based on those technologies.

“Like a biological ecosystem, it is the links between the players that make the ecosystem work,” says Neil Iscoe, director of the Office of Technology Commercialization (OTC) at The University of Texas at Austin. “Our goal is to reduce friction and transaction costs, to encourage people with entrepreneurial expertise to interact with inventors, to take new technologies and apply them for the benefit of society.”

Several factors—cyclical economies, changing technologies, international competition—can affect commercial success. But judging by their success in creating new technologies and new companies, locales that create a critical mass of innovation, entrepreneurship and capital funding—Silicon Valley, Route 128 in Boston, the Research Triangle in North Carolina—have created a model worth emulating.

The Money Question
For corporations worried about hitting their quarterly earnings targets, making a significant investment in unproven technology can be a risky proposition. That’s why government funding is often critical in the early stages as new technologies make the leap from the lab to the market.

“When you look at going from idea to feasibility, not many people or firms are willing to invest money there,” says Prabhudev Konana, associate professor in IROM at McCombs. That is an area where government can play a role. “Government can step in to subsidize the development when there is high risk but the potential rewards are great,” he says.

“The U.S. is a knowledge economy, and innovation is the only thing that drives that economy forward,” Konana says. “Innovation doesn’t necessarily deliver economic benefits today, but it can have an impact 20 or 30 years from now. So if you don’t keep pushing, the economy is going to suffer down the road.”

Besides the alphabet soup of federal and state agencies that fund new technology ventures, venture capitalists continue to play a role—though VC funding for startups has been harder to come by in recent years.

“These days it is very difficult for early stage technology companies to raise capital,” Adams says. How are new ventures getting off the ground? “By bootstrapping and through angel investors,” he explains. “In my classes, I push bootstrapping as the most viable option for a freshly minted MBA. If your idea is good enough, it should be able to generate enough cash on its own.”

That means rolling up the sleeves, finding customers and working with them to develop the business. Bootstrapping may mean slower growth, but on the upside it also means founders keep more of the company—and the profits.

Taking Technology Off the Shelf

When you have national research labs and world-class universities with combined annual research budgets in the billions of dollars, you have some very fertile entrepreneurial ground. For Tom Stephenson, MBA ‘95 and a partner at venture capital fund Verge, that pretty well describes New Mexico, where Verge is based.

“The technology resources here in New Mexico are a real asset and a source for both technology deals and talent,” Stephenson says. “But commercialization is a difficult task, and one piece that tends to be missing at most research labs is market perspective. What we have done is develop a highly hands-on model, where we often serve as part of the management team to provide that entrepreneurial and market perspective. The key is finding the right relationship with a technologist who recognizes what they know and what they don’t, and who can work with us to fill in the blanks.”

Verge prefers to focus on seed-stage and pre-seed stage investments in technologies that have matured to at least the proof-of-concept stage. One of the new companies Verge is funding is Altela, which offers water desalination solutions to the petroleum industry. “Altela is a good example of market pull,” Stephenson says. “We were approached by an oil and natural gas company that needed a better solution for cleaning up the contaminated, brackish water produced during exploration and production. Using current methods, the cost of disposing of this water is very high. Altela was founded by an entrepreneur that I have worked with in the past to solve this specific problem.”

Altela found the technology it needed at Arizona Technology Enterprise, LLP (AzTE), the commercialization company for Arizona State University. Like similar organizations throughout the U.S., AzTE was established to facilitate technology transfer from the university to industry.

Working with AzTE, Altela obtained an exclusive world-wide license to the university’s “dewvaporation” water desalination technology. Altela then developed and commercialized a desalination system to provide a cost-effective solution for the petroleum industry.

“This technology was originally developed to produce clean water,” Stephenson says. “But the first market opportunity turned out to be for companies trying to dispose of water.”

Ironic perhaps, but a fine example of the need to apply a market perspective when commercializing new technologies.

Moving New Technology Out of the Lab

Moore’s Law, the popular formula that predicts the doubling of computer power every 18 months, requires producing computer chips with ever-smaller transistors. As the dimensions of these transistors shrink, new manufacturing methods and processes must be developed. One promising new technology is step and flash imprint lithography (S-FIL), developed by Professors S.V. Sreenivasan and Grant Willson of The University of Texas at Austin’s College of Engineering.

To commercialize this new technology, Sreenivasan and Willson founded Molecular Imprints in 2001. Starting a company to market their new technology was not their initial plan. They first tried to license S-FIL but found the semiconductor industry reluctant to embrace a capital-intensive, potentially disruptive new technology.

During these talks, however, they were encouraged to start their own company to give the technology a chance to mature. To launch the company, they lined up funding from the Defense Advanced Research Projects Agency (DARPA) and developed a strategic partnership with Motorola.

“We had contacted Motorola as a potential customer, and they expressed an interest in investing if we could also find another source of funding,” says Sreenivasan. “After receiving initial seed funding from DARPA, we were able to forge strategic partnerships with key industry players, including Motorola, to provide further funding.

“Once we had these strategic partnerships in place, venture capitalists also began to show some interest,” Sreenivasan continues. “But they also emphasized the need for us to bring in someone with business skills who could put together a management team to take the technology to the next level.”

Today, the management team is led by tech luminary Mark Melliar-Smith, a former president and CEO of SEMATECH with more than 30 years of experience in the semiconductor industry. Molecular Imprints is now leading a $36 million joint venture with Motorola, KLA-Tencor, Photronics and The University of Texas at Austin to commercialize S-FIL as part of the semiconductor technology roadmap.