BLUEPRINT FOR A REAL RECOVERY                 THE    NEXTAMERICANECONOMY                                  Carnegie Mellon’...
THANK YOU FOR YOUR SUPPORT   Many thanks to those here at Carnegie Mellon   University who took part in the book:    Red W...
OUR COMPETITIVE EDGE    ‣ I’ve been studying wealth creation for many years, since       my early days in China and Japan ...
THE PROBLEM   But we have lagged in recent years in actually   commercializing our innovation. We’ve been   swept up by:  ...
CRITICAL FACTORS    ‣ We need to acknowledge the need       for structural change in our       economy, not just cyclical....
MACROECONOMISTS JUST CAN’T HELPUS…    ‣ They don’t know anything about HOW wealth       is ACTUALLY created!    ‣ I believ...
WHAT IS AN IDEA FACTORY?
WHAT IS AN IDEA FACTORY?   It can be a university, research institute, large   hospital, national weapons laboratory or a ...
WHAT IS AN IDEA FACTORY?   It is characterized by:    ‣ Sustained Interactions    ‣ Both Formal and Informal   Between:   ...
HOW DO IDEAS LEAVE THEFACTORY?
HOW DO IDEAS LEAVE THE FACTORY?   The key is the technology licensing and patenting   office.    ‣   Under what terms does...
DISINCENTIVE    Unlike MIT, at one point Carnegie Mellon’s    technology licensing office wanted to retain    majority con...
COMMERCIALIZATIONECOSYSTEM:5 STAGES
THE ECOSYSTEM   Then ideas enter an “ecosystem,” created by   governments, universities, foundations, angel   and venture ...
STAGE 1 START UPSETTINGUNIVERSITYFINANCINGLARGE CO’S   GOV’TTEAMSCIENTISTS &RESEARCHERS    STAGE 1ONLY           ‣   Profe...
STAGE 1     STAGE 2 START UP DEVELOPMENTSETTINGUNIVERSITY INCUBATOR                    STAGE 2            / HALFWAY       ...
STAGE 1     STAGE 2       STAGE 3 START UP DEVELOPMENT       MARKET                            FACINGSETTINGUNIVERSITY INC...
STAGE 2       STAGE 3DEVELOPMENT     MARKET                FACINGSETTINGINCUBATOR        OFFICE / HALFWAY   HOUSEFINANCING...
STAGE 1     STAGE 2       STAGE 3      STAGE 4 START UP DEVELOPMENT       MARKET      VALLEY OF                           ...
STAGE 3       STAGE 4  MARKET       VALLEY OF  FACING         DEATHSETTING   OFFICEFINANCING                  STAGE 4LARGE...
STAGE 1     STAGE 2       STAGE 3      STAGE 4    STAGE 5 START UP DEVELOPMENT       MARKET      VALLEY OF    FULLY       ...
STAGE 4    STAGE 5        STAGE 5VALLEY OF    FULLY         Finally the product is  DEATH   COMMERCIALIZED   commercialize...
STAGE 1     STAGE 2       STAGE 3      STAGE 4    STAGE 5 START UP DEVELOPMENT       MARKET      VALLEY OF    FULLY       ...
WHERE ARE THE GAPS?    ‣ We now know how to analyze these ecosystems       and look for “gaps.”    ‣ We can also look for ...
GAP #1 - TECHNOLOGY LICENSINGOFFICE    ‣ I understand it has been improved, but is it as strong as       MIT or Stanford? ...
GAP #2 - FINANCING    Pittsburgh faces an obvious absence of venture    capital.     ‣ The financing that comes from found...
GAP #2 - FINANCING    The good news is that there are ways of    attracting venture capital:     ‣ One absolute key is the...
GAP #3 - ACHIEVING SCALE    The gold standard for any university is creating    companies of at least $1 billion in annual...
GAP #3 - ACHIEVING SCALE    Another key would be examining the role of big    companies that are paying for research here,...
GAP #4 - INCUBATORS   These are hugely important but they come in a   variety of different flavors:    ‣ Some want to enco...
GAP #4 - INCUBATORS   So we have to ask ourselves:    ‣ What are the precise mix of incentives in an incubator?    ‣ Are t...
GAP #5 - GENERAL   Of all the players involved in your   commercialization ecosystem, are some of them   competing with ea...
GAP #5 - GENERAL   You at Carnegie Mellon can’t possibly control this   entire ecosystem.    ‣ But you can engage in dialo...
IN CONCLUSION   Ultimately, Carnegie Mellon will be stronger in so   many respects if you are surrounded by a healthy   ec...
IN CONCLUSION   There is clearly self-interest at stake in finding more overlaps   with these other institutions.   What w...
IN CONCLUSION   Based on the research for this book and based on the research   of a lifetime, I am convinced that there a...
BLUEPRINT FOR A REAL RECOVERY                 THE    NEXT                            Available in print and               ...
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The Next American Economy - Pittsburgh

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The Next American Economy
by William J Holstein

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  • The Next American Economy - Pittsburgh

    1. 1. BLUEPRINT FOR A REAL RECOVERY THE NEXTAMERICANECONOMY Carnegie Mellon’s Technology Commercialization AUTHOR OF WHY GM MATTERS EcosystemWILLIAM J. HOLSTEIN WilliamJHolstein.com
    2. 2. THANK YOU FOR YOUR SUPPORT Many thanks to those here at Carnegie Mellon University who took part in the book: Red Whitaker Raj Rajkumar WilliamJHolstein.com
    3. 3. OUR COMPETITIVE EDGE ‣ I’ve been studying wealth creation for many years, since my early days in China and Japan beginning in 1979. ‣ I’ve crisscrossed America, seeking answers to what we do better than they do. ‣ The answer is: America’s unique brand of innovation WilliamJHolstein.com
    4. 4. THE PROBLEM But we have lagged in recent years in actually commercializing our innovation. We’ve been swept up by: ‣ Easy money ‣ The myth that manufacturing does not matter. ‣ Now the financial bubble has popped, the economy is not going back to the way it was. ‣ Consumer spending, real estate, construction and housing was fueled by easy borrowed money. ‣ That has permanently changed. WilliamJHolstein.com
    5. 5. CRITICAL FACTORS ‣ We need to acknowledge the need for structural change in our economy, not just cyclical. All of which means we have to drive up the technology food chain. ‣ We need to agree on a national strategy to create new industries on U.S. soil. This is a structural change. A huge piece of the response is at the microeconomic level, in places like here in Pittsburgh. WilliamJHolstein.com
    6. 6. MACROECONOMISTS JUST CAN’T HELPUS… ‣ They don’t know anything about HOW wealth is ACTUALLY created! ‣ I believe the key is in our idea factories WilliamJHolstein.com
    7. 7. WHAT IS AN IDEA FACTORY?
    8. 8. WHAT IS AN IDEA FACTORY? It can be a university, research institute, large hospital, national weapons laboratory or a large private sector company. WilliamJHolstein.com
    9. 9. WHAT IS AN IDEA FACTORY? It is characterized by: ‣ Sustained Interactions ‣ Both Formal and Informal Between: ‣ Different disciplines ‣ Different cultures, nationalities With A Mix of Basic and Applied Research Mostly Funded by Government and Corporations WilliamJHolstein.com
    10. 10. HOW DO IDEAS LEAVE THEFACTORY?
    11. 11. HOW DO IDEAS LEAVE THE FACTORY? The key is the technology licensing and patenting office. ‣ Under what terms does the office allow development on favorable terms? ‣ Does it facilitate robust exchange of ideas between "inside" and "outside?" ‣ What resources does it possess? WilliamJHolstein.com
    12. 12. DISINCENTIVE Unlike MIT, at one point Carnegie Mellon’s technology licensing office wanted to retain majority control of any company created here. ‣ The office insisted on nondilutable positions. ‣ Thisinvestors alike. and was a major disincentive for entrepreneurs WilliamJHolstein.com
    13. 13. COMMERCIALIZATIONECOSYSTEM:5 STAGES
    14. 14. THE ECOSYSTEM Then ideas enter an “ecosystem,” created by governments, universities, foundations, angel and venture capitalists, incubators, large companies, mentoring networks, etc. ‣ No one can control the ecosystem. It is shared. ‣ The ecosystem depends on various institutions and personalities finding overlap of interests. ‣ What Brookings calls a “thick network of formal and informal relationships” across institutions. ‣ I’ve borrowed the five-stage concept used by big companies to describe the ideal of how commercialization works WilliamJHolstein.com
    15. 15. STAGE 1 START UPSETTINGUNIVERSITYFINANCINGLARGE CO’S GOV’TTEAMSCIENTISTS &RESEARCHERS STAGE 1ONLY ‣ Professors or graduate students have an idea. ‣ They receive funding from the government and perhaps some from large companies. WilliamJHolstein.com
    16. 16. STAGE 1 STAGE 2 START UP DEVELOPMENTSETTINGUNIVERSITY INCUBATOR STAGE 2 / HALFWAY HOUSE This is where it gets tougher. ‣ Here, the scientists need toFINANCING move off campus and startLARGE CO’S building a team of people with GOV’T GOV’T (SBIR) broader skills. ANGELS FOUNDATIONS ‣ Mentoring and incubators are critical at this points. ‣ Note - Government funding forTEAM basic research begins toSCIENTISTS & TEAM GROWS: change. It is not SBIR fundingRESEARCHERS - MARKETING that might become moreONLY - FINANCE important than NSF. OTHER - MENTORING ‣ Also Note - Angels or foundations might be involved KEY - INCUBATORS INPUTS: - SKILLED LABOR in funding the research at this - NETWORKING MECHANISMS stage. WilliamJHolstein.com
    17. 17. STAGE 1 STAGE 2 STAGE 3 START UP DEVELOPMENT MARKET FACINGSETTINGUNIVERSITY INCUBATOR OFFICE / HALFWAY HOUSEFINANCINGLARGE CO’S GOV’T GOV’T (SBIR) ANGELS FOUNDATIONS VENTURE CAPITALISTSTEAMSCIENTISTS & TEAM GROWS: PROFESSIONALRESEARCHERS - MARKETING CEO MAY BEONLY - FINANCE REQUIRED OTHER - MENTORING KEY - INCUBATORS INPUTS: - SKILLED LABOR - NETWORKING MECHANISMS WilliamJHolstein.com
    18. 18. STAGE 2 STAGE 3DEVELOPMENT MARKET FACINGSETTINGINCUBATOR OFFICE / HALFWAY HOUSEFINANCING STAGE 3LARGE CO’SGOV’T (SBIR) At some point, and I’m theorizingANGELS that it occurs in Stage 3, the teamFOUNDATIONS has to start facing the market and asking tough questions about VENTURE what customers really want. CAPITALISTSTEAM ‣ The science experiment isTEAM GROWS: PROFESSIONAL over.- MARKETING CEO MAY BE ‣ It may be time for more- FINANCE REQUIRED professional managers, including a CEO. ‣ Angels and foundations start dropping out and Venture Capitalists start moving in. WilliamJHolstein.com
    19. 19. STAGE 1 STAGE 2 STAGE 3 STAGE 4 START UP DEVELOPMENT MARKET VALLEY OF FACING DEATHSETTINGUNIVERSITY INCUBATOR OFFICE / HALFWAY HOUSEFINANCINGLARGE CO’S GOV’T GOV’T (SBIR) ANGELS FOUNDATIONS VENTURE CAPITALISTSTEAMSCIENTISTS & TEAM GROWS: PROFESSIONAL CEO + FULLRESEARCHERS - MARKETING CEO MAY BE FINANCIALONLY - FINANCE REQUIRED TEAM - MANUF. OTHER - MENTORING - LOGISTICS KEY - INCUBATORS - SALES INPUTS: - SKILLED LABOR - NETWORKING MECHANISMS WilliamJHolstein.com
    20. 20. STAGE 3 STAGE 4 MARKET VALLEY OF FACING DEATHSETTING OFFICEFINANCING STAGE 4LARGE CO’S The infamous valley of ANGELS death. At this point, the team FOUNDATIONS is having to rapidly gear up VENTURE spending before being able CAPITALISTS to sell enough product to cover those ecpenses...TEAM perhaps even before it can sell any productPROFESSIONAL CEO + FULLCEO MAY BE FINANCIAL Many entrepreneurs do notREQUIRED TEAM make it through the valley of - MANUF. death. - LOGISTICS By this point, there is very - SALES little government funding of any sort. WilliamJHolstein.com
    21. 21. STAGE 1 STAGE 2 STAGE 3 STAGE 4 STAGE 5 START UP DEVELOPMENT MARKET VALLEY OF FULLY FACING DEATH COMMERCIALIZEDSETTINGUNIVERSITY INCUBATOR OFFICE / HALFWAY HOUSE PROFIT GENERATION OR IPOFINANCINGLARGE CO’S GOV’T GOV’T (SBIR) ANGELS FOUNDATIONS VENTURE CAPITALISTSTEAMSCIENTISTS & TEAM GROWS: PROFESSIONAL CEO + FULLRESEARCHERS - MARKETING CEO MAY BE FINANCIALONLY - FINANCE REQUIRED TEAM - MANUF. OTHER - MENTORING - LOGISTICS KEY - INCUBATORS - SALES INPUTS: - SKILLED LABOR - NETWORKING MECHANISMS WilliamJHolstein.com
    22. 22. STAGE 4 STAGE 5 STAGE 5VALLEY OF FULLY Finally the product is DEATH COMMERCIALIZED commercialized. We can define that in different ways:SETTING ‣ The company goes public and OFFICE raised enough capital to continue expanding. PROFIT GENERATION ‣ The company actually achieves a OR IPO profitFINANCING Note who complex this wholeLARGE CO’S process is:ANGELS ‣ The physical setting keepsFOUNDATIONS changing. VENTURE ‣ The source of funding keepsCAPITALISTS changing.TEAM ‣ The nature of the teamCEO + FULL developing the ideas keepsFINANCIAL changingTEAM This is what makes the process so- MANUF. difficult.- LOGISTICS- SALES But I don’t believe commercialization and growth have to occur by accident. WilliamJHolstein.com
    23. 23. STAGE 1 STAGE 2 STAGE 3 STAGE 4 STAGE 5 START UP DEVELOPMENT MARKET VALLEY OF FULLY FACING DEATH COMMERCIALIZEDSETTINGUNIVERSITY INCUBATOR OFFICE E / HALFWAY H HOUSE PROFIT T GENERATION E OR IPO RFINANCINGLARGE CO’S GOV’T R E A GOV’T (SBIR) W HE ANGELS ? ?? PS FOUNDATIONS A VENTURE G CAPITALISTSTEAMSCIENTISTS & TEAM GROWS: PROFESSIONAL CEO + FULLRESEARCHERS - MARKETING CEO MAY BE FINANCIALONLY - FINANCE REQUIRED TEAM - MANUF. OTHER - MENTORING - LOGISTICS KEY - INCUBATORS - SALES INPUTS: - SKILLED LABOR - NETWORKING MECHANISMS WilliamJHolstein.com
    24. 24. WHERE ARE THE GAPS? ‣ We now know how to analyze these ecosystems and look for “gaps.” ‣ We can also look for overlaps, meaning similar institutions attempting to do very similar things. ‣ Sometimes overlaps are just as debilitating as outright gaps in the ecosystem. ‣ Where are the possible gaps in the Carnegie Mellon Ecosystem? WilliamJHolstein.com
    25. 25. GAP #1 - TECHNOLOGY LICENSINGOFFICE ‣ I understand it has been improved, but is it as strong as MIT or Stanford? ‣ Does it have the resources to build robust connections between people on the inside and people on the outside? WilliamJHolstein.com
    26. 26. GAP #2 - FINANCING Pittsburgh faces an obvious absence of venture capital. ‣ The financing that comes from foundations may or may not be the right sort of money. ‣ Entrepreneurs need “Smart Money” that comes with management expertise. ‣ Despite their best intentions, foundations don’t necessarily know how to build businesses. WilliamJHolstein.com
    27. 27. GAP #2 - FINANCING The good news is that there are ways of attracting venture capital: ‣ One absolute key is the tech office’s policies -- those absolutely get the attention of the VC crowd. ‣ Another is the presence of angel investors WilliamJHolstein.com
    28. 28. GAP #3 - ACHIEVING SCALE The gold standard for any university is creating companies of at least $1 billion in annual sales. Here in Pittsburgh, that seems to be a challenge. ‣ One obvious reason is the absence of venture capital. ‣ But another is a gap in how scientists find CEOs ‣ Red Whitaker found Eric Close to run Redzone Robotics, but it wasn’t easy. Other clusters like Boston and Austin have mechanisms for networking and making introductions. WilliamJHolstein.com
    29. 29. GAP #3 - ACHIEVING SCALE Another key would be examining the role of big companies that are paying for research here, like General Motors or Caterpillar. ‣ Are they investing in any companies? ‣ Are they sitting on any boards? ‣ Are they mentoring any of your young CEOs? Large businesses can play a role throughout all five stages of the commercializations ecosystem. They can help fill crucial gaps. WilliamJHolstein.com
    30. 30. GAP #4 - INCUBATORS These are hugely important but they come in a variety of different flavors: ‣ Some want to encourage entrepreneurs to leave the nest as soon as possible. ‣ Others want to keep occupants as long as possible, perhaps to continue receiving rent. WilliamJHolstein.com
    31. 31. GAP #4 - INCUBATORS So we have to ask ourselves: ‣ What are the precise mix of incentives in an incubator? ‣ Are they in favor of commercialization or are they in favor of obtaining new research grants? ‣ Are PHDs and professors incentivized to commercialize? ‣ Or are they encouraged to continue their fascination with the technology alone? ‣ What is the net impact of National Robotics Engineering Consortium (NREC)? ‣ Some CEOS in Pittsburgh told me they think it is skewed toward keeping people and ideas in the research mode -- not in moving ideas to commercialization. ‣ That’s a discussion you should have. WilliamJHolstein.com
    32. 32. GAP #5 - GENERAL Of all the players involved in your commercialization ecosystem, are some of them competing with each other? ‣ This is a particularly acute problem in older states, with overlapping agencies and non-profit players. ‣ Do your key institutions cooperate? ‣ Does information flow smoothly between them? ‣ Are they staffed by the best professionals? ‣ Is politics involved? WilliamJHolstein.com
    33. 33. GAP #5 - GENERAL You at Carnegie Mellon can’t possibly control this entire ecosystem. ‣ But you can engage in dialogue with the other players ‣ You can look at best practices at this microeconomic level - across the country - and seek to influence others. ‣ What’s your incentive to do that? WilliamJHolstein.com
    34. 34. IN CONCLUSION Ultimately, Carnegie Mellon will be stronger in so many respects if you are surrounded by a healthy ecosystem of commercialization. ‣ The community would be better off. ‣ The state would be better off. ‣ The whole economic climate would be better. ‣ You would start a virtuous cycle upward and attract more funding and more talent. WilliamJHolstein.com
    35. 35. IN CONCLUSION There is clearly self-interest at stake in finding more overlaps with these other institutions. What we’re talking about here is a smarter form of American capitalism, with institutions finding better alignment of interests. I am not advocating socialism. I am not advocating any ism other than pragmatism. The pragmatism to look around the country at what works and what doesn’t work. WilliamJHolstein.com
    36. 36. IN CONCLUSION Based on the research for this book and based on the research of a lifetime, I am convinced that there are conscious steps you can take at the microeconomic level to improve the ecosystems that commercialize technology. I believe that’s what is going to create the next American economy and respond to our global competitive challenge. WilliamJHolstein.com
    37. 37. BLUEPRINT FOR A REAL RECOVERY THE NEXT Available in print and e-reader formats today.AMERICAN VisitECONOMY WilliamJHolstein.com for more information AUTHOR OF WHY GM MATTERSWILLIAM J. HOLSTEIN

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