Category Archives: Entrepreneurship

Research: Catalyst for Economic Growth

Published in the Telegraph-Journal 2nd October 2012

New Brunswick’s universities have been involved in much of the prosperity and growth in every industry in this province. There is a long history of university-industry partnerships that have supported the successful commercialization of university research as well as the creation of many competitive spin-off firms. The development of innovative products and services in existing companies and the generation of thousands of jobs in New Brunswick has been the hallmark of successful university collaboration with industry.

But in recent years, universities and scientific research centers have not been the catalysts for entrepreneurship and regional economic development in the way that similar and more successful institutions have in other regions. Even though there have been notable successes, New Brunswick’s university-industry collaboration is falling short. University and corporate business leaders need to more aggressively support start-up ventures and mid-size firms.

This represents a huge opportunity for New Brunswick.

There is a need to create new engines of job growth. As the demand for expertise and experience outpaces supply around the world, New Brunswick must take steps to increase its pool of talent. Other countries are already investing heavily in research and development. In Asia, R&D spending is forecast to overtake U.S. levels in the next five years, due primarily to remarkable growth in R&D investment in China.

In New Brunswick, the private sector may have limited capacity to create the jobs and prosperity needed to restore economic stability. The ability of the government to act as the generator of economic growth has become limited because of the province’s fiscal obligations. Essentially, the longer we wait, the more challenging the economic situation will become.

New Brunswick should follow the lead of New York City Mayor Michael Bloomberg to meet this challenge.

In 2011, Bloomberg and the New York City Economic Development Corporation announced that the city was seeking responses from universities, research organizations and related institutions to develop and manage an applied sciences research facility. The city’s objective was to strengthen its practical sciences capabilities in order to maintain a diverse and competitive economy, particularly in fields which lend themselves to commercialization and capture the considerable growth occurring within science, technology and research. Bloomberg committed the city to making a significant capital contribution in addition to providing city-owned land.

“A new, state-of-the-art applied sciences research school would be a major asset for New York City as we develop a 21st century innovation economy,” said Mayor Bloomberg. “The City is committed to finding the right partner and providing the support needed to establish such a facility because research in the fields of engineering, science and technology is creating the next generation of global business innovations that will propel our economy forward.”

A substantial applied sciences research centre with similar objectives of creating global business innovations is needed in New Brunswick, even if the financial commitment would be substantially less than the US$3 billion of New York City’s total expenditure. Rather than re-purposing New Brunswick’s current universities’ budgets to serve corporate objectives, creating additional world-class capacity to New Brunswick’s existing science and technology communities would allow the province to stay globally competitive. As with Bloomberg’s model, a substantial percentage of the costs will be carried by a consortium of collaborating universities, international applied science and technology organizations, as well as private sector partners.

This capacity would not only substantially enrich the province’s research capabilities, but would lead to greater commercialization and expand the province’s economy. While some of the development would be for academic use and would include teaching space and laboratory facilities, much of the focus would be on providing the business acumen needed to drive commercialization in startup and early stage firms.

We know that investing in innovation is the key to creating a robust and expanding economy. This initiative would be a strong demonstration of the province’s commitment to making these critical investments.

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Filed under Business attraction, Business strategy, Education, Entrepreneurship, Innovation strategy, New Brunswick, Universities

New York’s Newest Idea Incubator: Cornell-NYC Tech

By Peter Lindfield, published in the Telegraph-Journal 21st September 2012

A longtime myth may soon be discredited. For more than 20 years, conventional wisdom had it that the success of Silicon Valley would never be duplicated. But Cornell University earlier this year won a bid to build a $2-billion graduate school on New York City’s Roosevelt Island.

The Ivy League school partnered with the Technion-Israel Institute of Technology, an Israeli-based public research university, to create the Cornell-NYC Tech campus. This helps fulfill a growing vision of generating a startup boom in Gotham.

The Cornell-NYC Tech project may provide a view into the future where large and complex technical infrastructure provides the blueprints for successful ecosystems of innovation. The development of similar mega-tech centers are underway or in the planning stages in countries such as China, India and Germany.

The joint project is part of New York City’s Mayor Michael Bloomberg’s ambitious efforts to create new businesses in New York and to develop the city’s five boroughs as the technical business capital of the world. The project could be a large as two million square feet on Roosevelt Island, across the East River from Manhattan.

It promises to give other hubs of entrepreneurial science around the world “a run for their money,” said Bloomberg. “It really is a game changer. In fact, the economic impact will be even greater than we originally thought. It will generate more than $23 billion in economic activity over the next three decades as well as $1.4 billion in tax revenues.”

Cornell-Technion’s plans include a high-tech research centre dedicated to attracting brilliant young minds, establishing fresh businesses and powering New York’s post-industrial intellectual economy, beginning in 2017.

For all that to happen, the Roosevelt Island centre will need to be an exciting, urban place and resounding of innovation. To support the right vibe, research towers and sloping lab buildings are oriented for the most efficient capture of solar energy in the proposal for a new Engineering campus. Even more investment will be necessary to connect Roosevelt with Manhattan, but as with most super-initiatives, Cornell-NYC Tech initially will be a cost centre. Profits will not roll in immediately.

“This is a story of connectivity between people and their ideas, between researchers and business people and between students and their dreams,” Cornell President David Skorton said.

New York has yet to establish a reputation in IT innovation in the way that Silicon Valley has but New York possesses some attributes that are vital to rapid growth.

“You’ve got to understand how big we are,” said Bloomberg, noting that “New York City has more undergraduate and graduate college students than Boston has people.”

Henry Etzkowitz, senior researcher at Stanford’s H-STAR Institute, coined the term “entrepreneurial university” to characterize the role universities can play to foster startups in a way that most effectively leverages local advantages. CornellNYC’s Tech graduate curriculum is intended to draw on talent and innovation in the many fields where New York City is already a dominant player, such as in global finance, media, design and fashion.

“This is the strength of New York,” he said. “It has all of these resources but many of them isolated from each other.” Cornell-NYC’s Tech will bring them together under one massive roof.

Etzkowitz calls for targeted investments as well, particularly in creating regional partnerships to create efficiencies and other institutions focused on economic development but cautions that “real success demands patience; economies grow slowly and payoffs come slowly. The powerful impulse to keep score on public spending needs to be weighed against the requirements for investments with uncertainty built into the payoffs.”

Will Cornell-NYC Tech become the model for leading entrepreneurial ecosystems? Even considering New York’s size advantage, or perhaps because of it, at a time of fiscal constraint and diminished expectations, this uncertainty looms largest.

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What Silicon Valley Can Still Teach Us About Entrepreneurship

By Peter Lindfield, published in the Telegraph-Journal 9th August 2012

The success of Silicon Valley was in no small part because of unintended consequences involving outward-facing research universities building Cold War weapons systems with the assistance of massive U.S. government R&D. In 1979, regulatory change accelerated the involvement of venture capital when changes in the U.S. Employee Retirement Income Security Act resulted in a dramatic increase in pension funds investment.

We know today that we cannot perfectly duplicate Silicon Valley’s success. But there are lessons we can learn about innovation and building startups even without Cold War funding. Many of these lessons are changing our fundamental perceptions of how innovation, startups and entrepreneurship work.

As in the early Silicon Valley days, 90 per cent of startups still fail in their first five years, representing an enormous waste of productive potential. We once believed that creating an innovative product or service, establishing a 5-year financial forecast and executing a business plan was all that was necessary for startups to succeed. Marketing and sales would follow demand. Many universities continue to teach entrepreneurship around these assumptions. There is growing evidence that this process fails because startups are not simply smaller versions of large or established companies.

Steve Blank, author of The Startup Owner’s Manual moved from being a Silicon Valley serial entrepreneur to teaching entrepreneurship at Stanford University. He is emblematic of the new thinking about how startups succeed and fail.

Today we know that many more startups fail from a lack of customers than from a deficiency of innovation, lack of investment capital or failure of product development. Startups are still being built with business tools from the 1950’s. According to Mr. Blank, established companies execute a plan because customer characteristics are known. A startup is a temporary organization designed to search for a repeatable and scalable business model. Discovering and validating customers happens before the development of a business plan and before salespeople are hired.

Companies build value for themselves while delivering products or services to its customers. This is achieved through key partners, resources, customer relationships and segments and appropriate channels. Ultimately, these elements create revenue streams and profit margins. But at the startup stage, much of this is hypothetical. Potential customers cannot easily put a value on innovative products and services and research tells us conclusively that no business plan survives first contact with customers. A key task for startups is to transform these guesses into facts. Universities such as Stanford, the University of California at Berkeley and Columbia have transformed their entrepreneurship teaching programs to reflect this new Silicon Valley model. The results have been encouraging with far fewer failures and stronger growth.

Even under this new Silicon Valley model, government is still a cornerstone of entrepreneurship development. Although the roles of universities, industry associations and venture capital firms remain critical, government is central to the development of a successful entrepreneurship ecosystem. The requirements of this ecosystem also point to what government can do. It can encourage a “fail fast and move fast” culture. It can encourage the growth of private sector-led entrepreneurial centers such as accelerators and incubators. It can review incentives for risk capital to locate in close proximity to these centers.  It can task universities with the responsibility to become more outward-facing and encourage them to develop a 21st century entrepreneurship curriculum. It can rationalize its own policies and processes to encourage small business initiatives – whether startup, early stage or established — to consistently adopt these new entrepreneurship practices. And this approach of government policies, funding and tactics will not cost taxpayers more than they are paying today.

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Is the Glass Half Empty or Half Full?

By Peter Lindfield, published in the Telegraph-Journal 10th July 2012

A debate over the future of the New Brunswick economy is intensifying. Optimists point to the province’s relatively low operating costs and attractive proximity to large New England markets and the availability of skilled workers as reasons New Brunswick will eventually come back to life.

They claim that boosting competitiveness will revive the fortunes of industries across the province. According to this upbeat assessment, a small number of target industries are poised for breakout growth, alongside promising plays in mining, natural gas and logistics, especially when the expression “value-added” is incorporated into that industry’s export strategy. Whenever economic statistics in the province surge it appears to bolster that hope.

But when disappointing economic growth indicators are released, the pessimists have their day. They argue that New Brunswick has permanently lost its competitiveness in many sectors, that the mainstay forestry sector is still declining after years of downsizing, and that the province will never return to its nineteenth-century status as an economic powerhouse.

They bolster this argument by pointing to the current fiscal challenges of high public debt, public opposition to natural resource development, declining university registrations, a growing demographic crunch, the expense of regional economic stabilization and rising health-care and education costs, all of which conspire to constrain growth.

Both optimists and pessimists are partially correct, but not in equal measure. There can be little doubt that New Brunswick is at a tipping point. This is a defining moment for New Brunswick government, industry and universities.

How successful we are at grasping our own future will be determined by whether New Brunswick companies become serious global competitors. This ambition can’t be achieved overnight, but strategies will need to be rewritten now to make it a priority in the near term.

We still need to come to terms with the fact that the world has changed. Complacency about the future of the New Brunswick economy still features prominently in government, business and universities.

This complacency has been consistent with a pronounced disinclination among the public to support transformational change. But upon closer examination, we should also realize that we have a strong base upon which to build. The current wake-up call represents an opportunity for us to clarify our strengths, direct our investment and create our own distinctive direction.

In New Brunswick, good intentions have not been matched by results. Industry is still inadequate to the challenges of instituting best practices in continuous process improvement, sales management and export orientation. Too many companies continue to play it safe and compete locally or regionally.

It is difficult to not draw the conclusion that too many business owners and executives lack ambition, preferring low-risk mainstream competition instead. This applies not only to startups and early-stage companies but to more mature companies as well.

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Filed under Economics, Entrepreneurship, New Brunswick

How Technology Startups Fail

By Peter Lindfield, published in the Telegraph-Journal 6th July 2012

With the recent decline of Research In Motion and the earlier failure of Nortel on the Canadian technology landscape, questions are being asked about the health of the knowledge-based sectors of the Canadian economy.

The viability of Canada’s technology sectors is directly proportional to the success of its startups and early stage companies. Even these early stages of growth, too many technology firms are failing. We need to identify the reasons for these failures and understand why we haven’t taken the necessary actions to improve survival prospects for entrepreneurs.

Starting and growing any business is a challenging undertaking. Substantial research over the last 30 years of Canadian technology companies have revealed that while entrepreneurs tend to focus on technology, many have serious gaps in business skills. In these studies, three key factors have been identified that conspire to accelerate technology startup and early stage company failures: inadequate management skills, underdeveloped operational competence – especially in sales – and dysfunctional governance.

These findings highlighted that in many companies that failed, poor management planning decisions reveal a lack of awareness of changing competitor and market conditions as well as a misreading of markets. This failing usually involved overestimations of the size of the customer base. Product development often included little or no input from potential customers and the development cycles themselves were often far longer than planned. Poor planning and organization in some startups and early stage firms delayed the establishment of a viable customer base and without the capacity to generate revenue, these firms quickly burned through their cash. Others spent their time attempting to establish distribution networks even before they had products or customers. Some entrepreneurs were preoccupied with raising money but neglected customer relationships and organizational issues, while other misjudged the market and simply ran out of options.

Many technology startups had substantial problems with managing sales organization, planning and financial control. An inadequate knowledge of such critical sales management functions as distribution channels, compensation and territory development hindered revenue growth and reduced margins. Unmet sales forecasts eroded confidence in the company’s management and encouraged unnecessary risk taking. Many firms had identified markets rather than actual potential customers. High salesperson turnover reflected the consequences of hiring inexperienced personnel, but inadequate recruitment skills ensured that the problem could not easily be solved.

Governance is a clear challenge. Goals and expectations of management and boards of directors were often not shared, particularly with respect to exit timing and conditions. Too many board members lacked operational experience. An insufficient number of board members were independent and boards tended to be overrepresented by finance specialists. Board members often had no clear understanding of sales or practices associated with productive interactions with customers. Inexperienced finance specialists or lawyers were sometimes placed in positions of responsibility on boards of young firms.

Studies also revealed that more Canadian venture capitalists and angel financiers lacked operational experience than their American counterparts, many of whom are serial entrepreneurs. Investors who did not fully understand the nature of the business in which they were investing, tended to under-invest. Canadian lawyers and accountants similarly lacked operational business experience.

According to research undertaken by the now-defunct Science Council of Canada, the most common reactions of boards of directors of startups and early stage technology companies to impending trouble were changing key personnel, especially the CEO, attempting to raise additional financing, or changing the target market. These board reactions rarely addressed the real issues faced by the firm.

Improvements in management expertise, operations skills and a movement to good governance are all within the realm of the possible for startup and early stage companies. Large, successful firms have long ago identified excellence in management and a professional approach to selling as critical to their continued survival. In recent years, good governance has become an indispensable factor in a company’s success. We urgently need to redouble our efforts to support innovation where it is most fragile and where it has most promise.

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Is Crowdfunding the Answer to Private Equity Investing?

By Peter Lindfield, published in the Telegraph-Journal 3rd July 2012

There is widespread agreement that Canada has been falling behind in innovation and entrepreneurship support. At the same time, the availability of private equity investment has been declining for small and medium businesses in Canada. Angel and venture capital investors have reduced early stage investments over the course of the last decade.

Even though there is recognition among business analysts and industry leaders that we need to accelerate the growth of startups in Canada, the more rapid pace of change in other jurisdictions means that Canada risks losing next-generation leaders to more sophisticated funding environments.

Some business leaders think a new investment phenomenon is a potential answer to Canada’s perennial problem of the shortage of investment capital for innovative entrepreneurs. A powerful new merger of social media and finance known as crowdfunding promises to accelerate the growth and support of innovative startups. Crowdfunding involves the collective co-operation of people who network and pool capital to support startups. Proponents of this investment approach argue that it allows good ideas to be funded even when they do not fit the pattern established by conventional investors.

The U.S. JOBS Act, which allows for a wider pool of smaller investors with fewer restrictions, recently was signed into law by President Obama and the U.S. Securities and Exchange Commission (SEC) and will establish specific funding rules. But crowdfunding has not received regulatory approval in Canada.

John Reid, president and CEO of the Canadian Advanced Technology Alliance (CATA), thinks Canada needs to adopt crowdfunding to allow this country’s emerging small- and medium-sized companies to keep up with the pace of change. “Frustrated Canadian entrepreneurs will see the advantages offered by the crowdfunding provisions for raising capital when those provisions are implemented in the United States, and they will take their best ideas to the U.S. to develop and commercialize,” said Reid.

Proponents of crowdfunding such as CATA and Invest Crowdfund Canada (ICC) claim that if securities regulators approve crowdfunding in this country, the new investment vehicle will help establish new markets, create new jobs and connect buyers with sellers in lower cost models. ICC is comprised of national industry leaders who have volunteered to create legislative change to legalize investment crowdfunding and bring Canada forward in its support of growing startups.

Crowdfunding is not without its disadvantages for startups. There is a requirement for the startup to publically disclose the intellectual property of the business opportunity for which the funding is sought. This can be a significant drawback for companies seeking to protect their innovation portfolio. At a very early stage, an organization’s intellectual property may be less defensible, exposing the organization to the prospect that the intellectual property can be copied and developed more rapidly by better-financed competitors. Similarly, making public such guarded information as business plans and financial statements can present real risk to startups.

Another significant challenge to crowdfunding is securities regulation. Soliciting investments from the general public in most jurisdictions requires that the opportunity is filed with the appropriate securities regulatory authority. The New Brunswick Securities Commission has not yet provided its approval for crowdfunding.

Investment capital is in short supply in New Brunswick. Is crowdfunding the answer? Innovative firms may never fully develop if they are not carefully provided with financial support. But financing is not the only problem facing many startups. Management experience, developing defensible intellectual property and early operational expertise are needed for startups to survive.

However, adequate investment is critical in New Brunswick where many local firms are likely to be small with few financial resources relative to the established firms against which they have to compete. The transition to broader competition needs to allow time for these small firms to adapt and improve themselves. Underfunding at an early stage simply exposes startups to greater and unnecessary risks of failure. If crowdfunding is approved as an additional investment method, we may make greater headway to support the entrepreneurship this country critically needs.

[Header image courtesy of www.crowdsourcing.org]

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