Scientists Learn Tricks of Trade, Marketing In Business Incubators

These organizations help startups get assembled and launched by easing the pressures that can cause early failures Jason Lieu, an applied mathematician, had big plans for a computer system he had designed to model telecommunications and computer networks. So he quit a high-level job as a technical director at ITT Inc. in New York in 1984 and went into business for himself. The first few years were tough. Hardly anyone wanted to buy his invention. Luckily for him, Lieu had located his company at Science Park, a New Haven, Conn., business development designed to help scientists become entrepreneurs. Lieu credits the organization, known as a business "incubator," with helping to keep his fledgling firm from going under for the past six years, and although his company has yet to turn a profit; sales are picking up. "When I started I thought I was a scientist," he says. "Now I am a businessman and I see that profitability is the true challenge. The incubator was a cocoon where I was transformed from a scientist into a businessman." Each year organizations like the one Lieu joined are helping more scientists avoid the economic perils that plague most first-time business people. When Lieu opened his company, General Network Services Inc., there were 53 business incubators across the country. Today there are 400, according to Dinah Adkins, executive director of the National Business Incubators Association in Athens, Ohio, and five more open each month. About one out of seven serve science entrepreneurs. Sarah Cohn and Paul Christensen might have gotten married, anyway. But it helped that the musician and the electrical engineer first went into business together. They met five years ago at a social occasion. Today they are bound together in business as well as marriage, she as marketing manager and he as president of Potomac Photonics Inc. in Lanham, Md., a company he founded to market a small-scale, inexpensive excimer laser. Professionally, they had little in common except for an avowed obsession to be entrepreneurs. She has two degrees in music and an MBA, and she once owned a company that booked foreign gigs for classical musicians. He has a Ph.D. in electrical engineering from the University of California, Berkeley, and has devoted his career to research on excimer lasers. But Cohn says she now prefers working with scientists. "There is a logic to science," she says. "And compared to the music industry, it's a lot less vicious." Nine years ago Christensen left a job at a consulting firm to start his company. At first he worked in his basement on the excimer laser he had developed at Berkeley. Later he and a partner moved into an incubator at the University of Maryland, College Park, where Cohn joined them as a marketing consultant. Awed by their laser, she was appalled by their marketing techniques. "They were trying to improve the laser and only thinking about the customer on the side," she says. "I set up a booth for them at a show and told them to send out press releases, and for a while they sold a lot of lasers." When that initial flurry of success ended, Cohn and Christensen realized the company couldn't make it without a full-time marketing manager so she left her company and joined his. "Everyone knew that excimer lasers had to get smaller and cheaper," says Cohn. But Christensen's initial ideas turned out to be too specialized. "He would come back from scientific meetings where all his friends were laser jocks," says Cohn, "and all their ideas were for laser jocks." Business picked up when Cohn broadened the market to include the chemical analysis and semiconductor industries. It has helped them generate $1 million a year in sales. "Paul has a good business sense," says Cohn. "The problem was he didn't have the time." Christensen says he learned a lot about business as a boy from his father, who owned a hardware store and lumber yard. "My father died about the time I was thinking about leaving the consulting firm and setting up my own company," says Christensen. "I went back home to Colorado to run things for a while. That helped me when I got back.' The couple got married a year and a half ago, but now, Cohn says, they're so busy that they'd hardly ever see one another if they weren't in business together. They resemble schools for the commercially illiterate. Along with other startup businesspeople renting of office and lab space, Lieu learned the basics of management, financing business planning, and marketing at the feet of experienced Science Park managers and outside consultants. For their part, the incubators, 86 percent of which are nonprofit, are designed to create more jobs, revitalize neighborhoods where they are located, and help move discoveries from the lab to the marketplace. In exchange for charging lower rates, the consultants who advise these startups are building ties with a pool of clients who have a better-than-average chance of doing well. Lieu's rocky road is typical of scientists who bring bright ideas to an incubator, say those who have studied the phenomenon. "Scientists have a tough time managing a company because it's different from managing a research operation," says molecular biologist Joe Key, vice president of research at the University of Georgia in Athens. "Scientists underestimate what it will cost to innovate and develop a technology. And they ignore the whole issue of marketing. A piece of research may be superbly good, but it may never find a niche because of the naivete of the scientist." Researchers taking advantage of incubators often struggle initially because they think too much like scientists (see Close-Up). Enamored of their technology, they focus on improving it and ignore the need to market it. According to Key and others, they don't know or care enough about obtaining financing. Lieu's business was failing for a simple reason: he had never stopped to think about who would actually buy his computer system. "Many times it appeared the business was going to fail," he says. Though it "was technically successful, it wasn't profitable. How do you achieve profitability? As a scientist I didn't care. but as a businessman that is what has to obsess you." Incubators take in a full range of businesses besides science, Adkins says. As well as below-market rents, most incubators offer shared office services and personnel, including fax machines, secretaries, and bookkeepers. Each is run by a manager who counsels the tenants and brings in legal, accounting, and marketing consultants. Incubators typically house tenants for less than two years and are often associated with a university, where entrepreneurs can rent instrument time and consult with other scientists. Once having joined an incubator, most scientists manage to keep their companies afloat. Only 9 percent of incubator tenants failed in 1989, according to a survey by the National Business Incubator Association. On the other hand, 22 percent did well enough that year to move out of the incubator and into larger facilities. Even more scientists could become successful industrialists, say managers and incubator graduates, if only they would follow a few simple rules. The first is to learn as much as possible about financing and to develop a business plan, one that emphasizes marketing. Some incubators won't even accept a tenant who doesn't have one. "Being a businessman was very new to me," says David Jenkins, a computer scientist who moved into Science Park with three other computer scientists in 1987. Before setting up their own company, the group worked on parallel processing computer technology for a research center of ITT Inc. in Shelton, Conn., until the parent company closed the center in l987. Jenkins's business, Visionary Systems Inc., stumbled at first because he and his partners had so little business know-how. That's where the incubator helped. "The Science Park had consultants, and they continued to try to work with us to develop our business and marketing plan," says Jenkins. Even so, experts say that most scientists unfamiliar with the world of commerce would do well to hire either a consultant or a full-time executive officer with business experience before thing to launch a company. If I were a scientist starting out, the first thing I would want to do is get managerial and technical assistance," says John Heizer in the Office of Technology Commercialization at the United States Department of Commerce. "Managerial [consultants] would offer help to develop a business plan, to do feasibility studies, and do a patent search. Technical assistance would help you look at the technical feasibility of the project." No matter how good the business plan, an entrepreneur will fail without adequate financing. Yet many scientists, seduced by the technical wizard of their product, expect venture capitalists to come to them, offering money, experts say. "We had no business plan," remembers Jenkins of his first years in the incubator' "So we bought a bunch of books and tried to figure out a business plan. We were all set to raise $9 million, until we found it wasn't as easy as just telling people we needed money." "Scientists ate used to getting NIH and NSF funding to do a specific piece of research," says Jonathan Gorham, managing Partner of Science Park Associates, which operates the New Haven enterprise. "But a venture capital firm wants a 40 percent annually compounded rate of return, and most scientists don't have a clue how to do that." Obtaining funding can be particularly difficult for scientists trying to commercialize untested technologies, says Adkins. Once again, incubator managers can help clients develop financial plans and introduce them to sources of funding. Otherwise, many scientists are I forced to ask relatives for money, or mortgage their houses. Others keep the business afloat by taking on outside consulting or research contracts . The incubators can lend a hand by helping scientists apply for state- I supported matching grants and for federal Small Business Innovation Research (SBIR) contracts. Available from 11 federal research agencies, SBIR grants provide small businesses with up to $50,000 for a six-month feasibility study, and as much as $500,000 for up to two years for the testing and refinement of products. Incubator managers may also help tenants tap into private sources of money. These organizations, referred to informally as the "Angel Network," provide access to local philanthropists or scientists interested in investing seed money in a high-risk technical startup. Venture capital often follows, says Adkins, once a business has established itself and can demonstrate its technology. Perhaps the toughest lesson for the neophyte is the importance of marketing, experts say. "Scientists seem to have a blind spot in sensing the benefits that must accrue to the buying public," says Gorham. "They are so excited about the technology t hey don't bother to see if it really solves a consumer's needs. They spend too much time focusing on the technical features of the product and they ignore things like size or whether a new piece of electronic equipment is easy to carry around. They can't even tell you what the size of the market is." It took months of rejections from investors and persistent hectoring from incubator consultants, says Jenkins, before he was willing to concentrate on marketing his system. "We lacked focus," he says. "We had a lot of ideas of what we wanted to do with our technology and we had no priorities. We thought: We'll try all of them, from seismic modeling to economic modeling to 3-D computer-aided design for airplane wings. We didn't understand the market, and we didn't choose to attack a particular segment." Finally, tired of keeping their business afloat with money from outside contract work, Jenkins and his partners decided to concentrate on molecular modeling for pharmaceutical and chemical companies. It was a painful decision, and one of the founding partners left as a result. Today, with a more dearly defined market focus and less ambitious financial requests, which they have tied to development milestones, they are again knocking on investors' doors. The company has also recently hired a CEO with marketing experience. He says he expects to be signing contract with investors in the spring. Abandoning a successful research career at a university for the chancy and demanding world of the incubator may not suit every scientist, however Some experts believe both the scientists and the incubators would be better off if university researchers stayed in the universities. "A scientist should have the option to recognize that he is truly a scientist and that he does not have to be a businessman, too," says David ; Scholl, a molecular biologist and vice president of research of Diagnostic Hybrids Inc., a startup at Ohio University's Innovation Center in Athens. More scientists with ideas for new technologies might be willing to commercialize them if they didn't have to forsake a salary, research labs, and academic colleagues, he maintains. "In a university climate," he says, "it is hard to ask a tenured researcher to drop everything and spend $150,000 of his own money to demonstrate feasibility." Universities should be more willing to offer professors temporary leave or partial pay "during the 12, to-15 month gestation period, when [the startup] is being given a shot," Scholl says. Once the scientist has formulated a business plan, improved his technology, and obtained funding, he adds, "he will have a far better sense of what he wants to do. " Allowing a scientist to stay on campus is the goal of incubator director Michael Cassidy at the Advanced Technology Development Center in Atlanta. He hopes to establish "wraparound" companies at his incubator, in which the scientist is just one component. "We are matching up scientists with a team of business experts, such as a business manager who can gather venture or seed capital and a marketing type who knows the technical market," he says. "This is a way for the scientist to exploit his technology commercially without leaving what he likes to do best."Though the scientist may remain as scientific director or consultant, Cassidy believes that his firm is mom likely to succeed with a business person at the helm. Don't try selling that idea to Jason Lieu, however. He isn't interested. "The scientist with the entrepreneurial spirit is the most valuable asset the United States has," he says. There are a lot of scientists out there, he adds, "with the toughness to handle the challenges of the marketplace."

Scientists Learn Tricks of Trade, Marketing In Business Incubators

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