U.S. GOVERNMENT SEEKS TO KNOW HOW POCs WORK

In March 2010, The U.S.Government Office of Science and Technology Policy and National Economic Council issued a Request For Information (RFI) from the pubic. The questions ranged from entrepreneurial education, technology clusters, and proof of concept center operations and "gap funding." I sincerely hope some of my opinions, observations and experienced suggestions are helpful for all managers engaged in these activities.


The linked document, below, contains my answers to the requested RFI questions shown in bold. My replies are in the exact order of the RFI. The post is long but I believe worthwhile. Leave comments to this post or email me for further discussion. Link here to my submitted  document  and click the "+" sign for clearer viewing.
Regards, Jack

MY COMMENTS (re-edited 3-27-2010) TO TOM FREIDMAN'S ARTICLE IN THE HARVARD BUSINESS SCHOOL - Working Knowledge online NEWLETTER

Date: January 7, 2009

Friedman and Bihde writings http://hbswk.hbs.edu/item/6090.html center on innovation, its ease of travel and origin. U.S. technology prowess relies on rapid movement of innovation to feasibility to development to market. We do this part better than most. So, I have no argument about the genesis of an innovation, but I am concerned that the global wellsprings of truly value producing innovation will begin to extinguish without concern for the most vital innovation-to-market phase. That is, the 1st stage to accomplish an idea's proof of concept (PoC) .

PoC work must bridge applied research to rational feasibility then to the product/service Development phase. In the PoC environment novel ideas are crafted into realistic innovations. Then six months to one year are spent shaping, testing and guiding an innovation based project to understandabilty of its higher performance/value and cursory market validation. Very few observers of the innovation processes describe these crucial steps from idea to commercialism.

Here is a short PoC FAQ:

1. Investment money to move ideas to innovations to feasibility is not available from venture capitalists nor angel networks - far too early stage and risky.

2. Universities are uncomfortable having commercial activity on campus and are reluctant to use operating or research money for PoC operations or PoC faculty grants.

3. Corporations percieve PoC's as culture disrupting. They chose outside investments to satisfy growth while perhaps brilliant ideas from their engineers/scientists remain in their notebooks.

4. The value of doing PoC work is not to gain more commercial potential ideas, but to cause projects of higher quality to become nearer to the market stage. An additional PoC benefit is the catalyzing of greater numbers of ideas from researchers where a PoC is operating.

5. Over the last 30 years many PoC initiatives began with hopes of a new venture yielding returns sufficient to provide PoC activities self-sustainability. Observation and history conclude that only a philanthropic attitude and funding will sustain PoC efforts on a campus, in an institution or corporation.

6. Once the scoured ideas that may lead to innovations are processed by PoC Centers, they reach the prototype or development stage to be assessed by venture capitalists who may invest in 5-10% of these offerings. (see post below - "Life Cycle of a Novel Idea."

Installing proof of concept initiatives in universities, Federal Laboratories, and research institutions is a national imperative best supported by governments and philanthropy. No matter where the innovations orginate, America must seize them and apply resources to increase their value for development and market delivery. Historically, our nation's risk tolerance drives innovation to the highest performance thus market value. The proof of concept stage leading to more unique innovations has and will keep us ahead of foreign competition. As science based clusters researchers generate higher value innovations leading to desired products/services, this ignites from them more novel ideas.

Proof-of-Concept Centers - The Germinating Cluster Hub

The 2009 recession is muting efforts by regional economic development agencies, higher education institutions and corporations to commercialize innovations generated by their scientific and technology researchers. However, the competitive and employment future mandates persistence to encourage and allow the emergence and nurturing of novel ideas, development to commercial feasibility and market readiness, and melding business management to form businesses and thus create new jobs. Articles, white papers, and scholarly essays use a confusing mixture of words to describe the environments where all this "innovation to enterprise" takes place. I believe it time to clarify the role of incubator, proof-of-concept center, accelerator, or translational venues.

To begin, refer to my previous blog, below, "Life Stages of a Novel Idea" for the details of each waypoint from idea to emerging company status. Business incubators have populated technology clusters for more than thirty years and are the most referenced as starting points for research to become commercial reality. They serve a purpose but are not designed, nor managed to nurture the earliest stage novel ideas toward becoming useful innovations.

The vast majority of incubators were built to supplement regional or local economic development goals. Conceived as a real estate investment, investors and governments underwrite constructing space to serve up to 100's of tenants in 200 to 1500 square foot office spaces with shared conference rooms, reception areas and modest eating spaces. Tenants are legal business entities and accepted for occupancy based on financial capabilities to pay rent. Operating independently to pursue their business, tenants receive little or no incubator person ell business advisory help or guidance to find expertise they may need. It is critical to say, these facilities are vital by offering lower cost tenant space get new enterprises growing and creating local employment.

The question needing an answer is what kind of space is best to cause commercialization? Choices are several: (1) a Proof-of-Concept Center for enthused, dedicated science/technology teams to move an novel idea to a point of proving its feasibility to be defined as an innovation of potential commercial value; (2) an Incubator, as described above, for start-up stage businesses that left a campus or sheltered corporate "skunk works" to become a company to prove the innovative product/service can become working demonstrable; (3) an Accelerator where the prototyped beta ready innovation can be demonstrated to attract more grant money, contracts or venture capital to prove its commercial value; or (4) Offices and Production facilities that legitimizes an enterprise that must seek expansion capital to launch a product/service marketing and selling effort. These four choices meet very different objectives with each requiring different operating, funding sources, and success outcomes; and (5) Clusters composed of each novel idea enriching facility - (1), (2), (3) and (4) above. Clusters form near multi-university or corporate activity concentrating on specific technical domains such as pharma, bio based products, semiconductors and electronics, software, etc. They become a regional attractant for job seeking domain expertise. A cluster, in time, is greater than the sum of its parts. The Proof-of-Concept Center must be the Cluster hub catalyzing feasible innovations to migrate into Incubators who then graduate demonstrable product/service companies to Accelerators and once market proven move to occupy Offices and Production Facilities.

There is deep misunderstanding about the roles these five commercialization venues play in creating true innovations, marketable products or services, well prepared start-up companies, financed enterprises ready to compete and the motivations behind creation of these venues.

Consider carefully what you really want to accomplish when planning to capitalize on novel ideas, innovations, established feasibility, developed and demonstrable products or services, and new commercial entities about to enter a market. Each of the novel idea evolutionary stages require different development support systems and if provided will greatly improve success probabilities. This writer has watched and been part of the above processes for many, many decades and concludes the critical element to improve the odds of creating truly valuable innovations and the businesses that propel them to market is the germinating establishment of a Proof-of-Concept Center. Some validation of these comments were reported by the Kauffman Foundation at http://www.kauffman.org/uploadedFiles/POC_Centers_01242008.pdf

Let's discuss.

A Government Must Fund POC Initiatives

Thomas Friedman's article, NY Times Feb 22 - "Start Up the Risk-Takers" is half right and the March 3rd WSJ editorial is half wrong

VC money is always available to fund perceived winners without government's help. However, no money is available from VC's for the 1st stage in the an idea's evolution to commercialization - known as the translational, or proof of concept stage. Perceived winners only come into VC view somewhere in the development stage, after a novel idea has attained feasibility.

Resources to become feasible are far too risky for VC's or wealthy individuals called angels, and universities, as do regional and state treasuries, plead poverty or corporations look only for incremental advances,. Our national innovation prowess depends upon a constant idea flow into the pipeline for further funding by risk-taking investors. I fear, in these times, the pipe will run dry without money from governments to urge very, very early novel ideas toward innovation to then be proven feasible.

IDEA TO COMMERCE – THE JOURNEY

 
Let us start by understanding the life of say - 1,000 ideas. What happens through their evolutionary journey to become, maybe, a valuable enterprise? Disclaimer - the chart below is not accurate but close enough. The information sources I used are several:

• Over 5,000+ ideas/innovations nurtured processed by proof of concept initiatives;
• statistics culled from published papers and reports;
• experienced observations from many years as a venture capitalist and due dilligence consultant;
• as Board member for twenty-four small and emerging technology companies;
• forty-five years working in the proof-of-concept trenches with corporations, governments, and universities.

The journey to commerce begins far back in the pipeline – with a novel idea. So, the ultimate enterprise deal flow starts with someone's "creative idea", pieces of paper in a suggestion box", the outflow of a "brainstorming session", and a "brilliant flash" that comes in night.
A glossary of chart terms, below, may be helpful.

1. Novel Idea is a thoughtful conception of doing anything in a new way.
2. Rejected because the idea is not market timely nor developed enough to consider.
3. Sift for Reality rates the innovation for probable market acceptance.
4. Proof of Concept determines whether the innovation is feasible to develop and make.
5. Development brings the feasible innovation to performance/value demonstrability.
6. Pre-Market Beta is the first trial by typical users/customers.
7. Product/Service
   Launch takes to market a value validated offering.
8. Revenue/Growth occurs as user demand continues to buy a product/service.
9. Cash-Out exchanges money for the valuable product/service enterprise.
   
    
   
   AN IDEA'S LIFE JOURNEY

Event	Timetable	Investment	Survival Rate	Cum Ideas
Novel idea	Immediate	Zero	100%	1,000
Rejected - too early/late	4 weeks	Listen time	40%	400
Sifting for Reality	3 months	$5 - 10K	50%	200
Proof of Concept	1/2 - 2 yrs	25 - 100K	60%	120
Development	1 - 2 yrs	250K - 2M	50%	60
Pre-Market -Beta	6 - 9 months	1M	80%	50
Product Launch	3 - 9 months	1 - 2M	75%	40
Revenue/Growth	2 - 4 yrs	3 - 5M	30%	12
Cash-Out – from launch	5 – 7 yrs		40%	5
Cum Totals	9.5 yrs	$7.2 million	0.50%

(C) The Proof of Concept Institute, Inc. 2008 Estimates based on author's 40+ years of experience
Comments to consider:

1. Building a flow of novel ideas is mandatory to assure enough will survive.
2. The first filter, rejected - too early/late, drops sixty percent of Innovator ideas. Good practice is feedback about why, what they can do to improve the idea, and help offer to resubmit.
3. Sifting for reality will yield innovations that are just "incremental" – that is, adding modest improvement/value over existing ways; and, innovations that are ground breaking, disruptive, paradigm changing. Good practice is nourishing these.
4. Innovations, incremental or disruptive, CAN NOT move to the development phase without passing through proof of concept stage. Unless an innovation is shown feasible, there is not development funding.
5. The PoC Manager stands between arm-waving innovators and risk-averse investors. Your work is the most vital in the idea's journey to enhance its value.
6. Note that although attaining feasibility, only 50% get funds to reach the development phase.
7. While 70-80% of those move into the market, 70% fall away before reaching revenue growth.

The Institute's blog mission is to coach PoC managers how-to assist innovators to move their best ideas forward. I will probe critical issues, illuminate actionable alternatives, assess how others have solved problems, and distribute best practice with experienced wisdom. Your comments are most welcome.

 

 

 

WELCOME

This is your gateway to proof of concept (PoC) venturing reality.

My mission is to engage you - the managers of proof of concept centers, innovation accelerators, internal corporate venturing initiatives, regional economic development planners, and government official constructing policy to increase technological competitiveness. My methods will be to take apart and reconstruct these important PoC topics:

• Specifying elements of and installing a PoC Center


• its management and operations


• defining benchmarks, best practices and causes of success and failure


• collecting and managing mentors/advisors to innovators
  
• establishing criteria for, securing and disbursement of operational and project funding


• linking and reporting of PoC news, articles and reports
  
• offering my observations, opinions and experienced wisdom in how-to, historical story, and essay format
  
• building and facilitating a vigorous and involved global PoC manager network

Sounds like a sweeping epic journey – well, it may very well be just that. Please join your fellow managers to comment on all you find interesting on these pages.

New Website Launched Today!

Our new website for the Proof of Concept Institute has been launched today, 12/23/2008. Visit our homepage at http://www.pocinstitute.org/ If you have any questions or comments, please feel free to contact us.