Innovation and Entrepreneurship- Ingram's Magazine August 2012


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Interview with Executives on Innovation and Entrepreneurship.

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Innovation and Entrepreneurship- Ingram's Magazine August 2012

  1. 1. This is just a glimpse of what innovation looks like in Kansas City at this time:• TVAX Biomedical is working on breakthrough technologies for treatment of brain and kidneycancers, and has received FDA authorization for its first round of final human trials. The Lenexa-based firm hasn’t developed a cure—yet—but CEO Gary Wood has reason to believe a majorvictory in the war on cancer is within reach.• Toby Rush’s fledgling EyeVerify, also in Lenexa, is breaking new ground in mobile-devicesecurity using eye-vein biometrics, a technology that surpasses passwords, key fobs, access cards—even iris and fingerprint scans.• The Center for Animal Health Innovation, based in Olathe, is taking a new approach to theconcept of commercializing animal-health research, generating inquiries from domestic andforeign companies alike about doing business in the region’s animal-health corridor. An earlysuccess: Aligning with a K-State researcher to commercialize a novel natural antibiotic to treatmastitis in dairy cattle—a condition that inflicts an estimated $2 billion in losses on that industryevery year.• Bruce Steinberg, in the final stages of negotiating his first grocery shelf space for what hebelieves will be a disruptive force in a field as well-established as ketchup production. His FineVines Artisanal Ketchup varieties are being produced in Independence to bring productdifferentiation to a $500 million consumer category sorely lacking it. Ingramʼs Magazine - August 2012 p.64-65
  2. 2. • Even the way we teach innovation itself is being reshaped. Last fall, the Journal of ProductInnovation Management recognized program changes at the Bloch School of Management’sInstitute for Innovation and Entrepreneurship, ranking it No. 1 worldwide for innovationmanagement research. On many fronts, Kansas City is carrying on the entrepreneurial traditionsthat spawned companies like Hallmark, H&R Block, Sprint, Cerner and Garmin. While much ofthe emerging roster is dominated by higher-tech interests or life-sciences companies, some of themost successful local innovators in recent years have been people with the vision to apply newprocesses to longstanding business models.Bonnie Kelly and Teresa Walsh, who pursued the jewelry-party sales strategy that grew intoSilpada and turned $25 in household grocery money into a $650 million sale to Avon in 2010.And BATS Global Markets, launched in 2005, has used advances in algorithm-driven trading tobecome the third-largest stock exchange in the world, already approaching the billion-dollarrevenue threshold.“One of the key elements of Kansas City’s innovation infrastructure is the proximity of so manygreat universities—from KU to MU to Nebraska—that turn out great talent,” says Joe Ratterman,CEO at BATS. His company has drawn extensively on the technology, engineering, andentrepreneurial talent coming out of those schools, he said: “Companies can only be successfuland continue to innovate by building teams of smart, dynamic individuals and, with the richeducational foundation of the Kansas City-area, this has been an integral part of BATS’ success.”Executives from companies engaged in new innovative efforts says that this area also is blessedwith assets like the Kauffman Foundation and its research and promotion of entrepreneurship, avibrant network of experienced entrepreneurs who share their expertise, grant-makingorganizations like the Kansas Bioscience Authority, and research efforts at regional universitiesand medical centers.The flip side, innovators note, is that the advantage Kansas City holds in logistics anddistribution—its central location—continues to be a disadvantage in one very key aspect of start-up company success: Attracting the kinds of venture capital and angel investment that is far morereadily available in coastal population centers like San Francisco and Boston.“Most people view the fact we’ve raised $10 million from angel investors locally as anextraordinary thing, which it is,” says Gary Wood, CEO at TVAX Biomedical. “But the money ison the coasts.” Historically, he said, venture funds want easier access to their projects, Woodsaid, and “it’s hard to do that from a distance. They want to be able to call up a CEO for lunchand not have to fly half-way across country to do that.”Jeff Boily, CEO of the Center for Animal Health Innovation, said that in those coastalcommunities, “you can throw a stone and hit 50 investment opportunities without leaving youroffice. It is more difficult to raise capital here, but as we continue to promote the tremendousassets we have here, we’re hoping that more of the people with that kind of money investmentcapital will stop, take a look at Kansas City, and say ‘maybe we should be investing here.’ Ingramʼs Magazine - August 2012 p.64-65
  3. 3. Whats WorkingAmong the region’s unheralded assets, says Bruce Steinberg, founder of Leawood-based FineFoods of America, is the Ennovation Center in Independence. In another example of innovativethinking, the Independence Council for Economic Development partnered with the Independenceschool district to turn a liability—the emptied-out 400,000 square feet of the formerIndependence Regional Health Center—into an asset.By converting the building into a business incubator—with kitchen facilities and labs rangingfrom a few hundred to 1,400 square feet—they opened the floodgates for would-beentrepreneurs. Steinberg’s was one of roughly 300 inquiries received since the facility opened. Inthe center’s kitchen space, he developed 11 flavors of ketchup that can be paired with differentfoods, and hopes to do for ketchup what Grey Poupon and its successors did for the mustardmarket.“The center is mostly a food business incubator,” he said. “It has nine biotech labs, and fivekitchens, and it’s one of only about 20 food incubators in the country. That enabled me to startproduction of a shelf-stable, jarred project. Otherwise, I’d be going to co-packers right away,”risking control of his production scheduling and flexibility during critical early-stagedevelopment.Other important assets he tapped into were the Kauffman FastTrac program, which providesassistance from conception to early-stage growth companies; the Entrepreneur Scholars programat UMKC, originally for students but opened up to public competition in 2011; food-sciencedepartments at regional universities; and the networking that all provide.“There’s a real high value in the mentors and the connections,” said Steinberg, who drew on hisown retirement savings to get launched. A native of Long Island who came here during a careerin the pharmaceutical industry, he says one of this region’s strengths is “the entrepreneurialknowledge base in Kansas City.”Toby Rush, who developed a radio-frequency identification system for supply-chainmanagement, then sold Rush Tracking Systems to an investor group, cited some of those sameassets in talking about his latest venture, EyeVerify. The company holds the worldwide exclusivepatent for the conjunctival vasculature biometric, allowing mobile devices to scan eye-veinpatterns in users and verify their identities for secure on-line transactions.“When you look nationally, the places that are healthiest, doing the best, have a vibrantecosystem, random interactions that aren’t necessarily planned for but are significant for growthof the overall environment,” he said. The Kauffman Foundation provides such a spark, as did thePipeline program, launched by the now-defunct Kansas Technology Enterprise Corporation, butnow a Kauffman initiative.“There are a lot of good advisers here, lots of strong boards of directors, including some whohave saved my bacon a number of times, so I see that as important,” Rush said. “Butentrepreneurs invest in each other more in general, anyway: They know the people behind theorganization or the business.” Ingramʼs Magazine - August 2012 p.64-65
  4. 4. Michael Song, at the Bloch School, is looking ahead to 2013, when a new community asset is inplace: the Henry W. Bloch Hall for Entrepreneurship and Innovation. The university brokeground earlier this year on the building, funded largely with a $32 million gift from its namesake,one of Kansas City’s legendary entrepreneurs. The university says that facility will elevate theBloch School’s reputation as a global leader in the instruction of future leaders inentrepreneurship, innovation and business management.By turning out 100 or more entrepreneurs trained in that particular business-development niche,Song said, the institute will have the potential for transforming Kansas City’s economy. Researchhas shown that each successful entrepreneur creates 512 jobs over the course of a working injecting a new cohort of 100 prospective business owners every year will have a profoundimpact.The school would complement other elements of the regional innovation infrastructure, Songsaid. “Look at how this city is built; it has a legacy of entrepreneurship,” he said, and that abilityto generate fresh ideas is one leg of a three-legged stool. “We have a lot of good ideas here.” Thesecond, he said, were assets like the Kauffman Foundation and the Bloch School. “But the thirdleg of that stool,” he said, “is funding. We have a lot of seed funding in Kansas City.”The Missing PiecesYet even with all of that going for it, Kansas City as a region has some needs. Seed funding isone thing, Song said; venture funding, to take companies to the next level, is where we’relacking. He, too, cited the coastal aggregation of wealth as a deterrent to progress here.“I’ve talked with people in Silicon Valley about funding, when I was working in Seattle, and theywould say you have to move to Silicon Valley as a precondition,” Song said. “That’s how they dobusiness.” But in the current environment, he now has a counter-argument: “I can tell them‘Why? We have the Google Fiber initiative.’ That will create a huge potential for us. But venturefunds follow the ideas and the people. We just need to capitalize on our strengths.”Michael Peck, interim CEO of KC Biomedix, said that even though Kansas City continues topush ahead on development of a life-sciences sector, it’s still difficult to launch a medical-devicecompany. His company started in 2007 and began marketing a breakthrough product that helpspremature infants develop their capacity for nursing—along with breathing, an absoluteprerequisite for neonatal development.“If you’re in the health space, you can find a lot of ex-Marion people,” he said, referring to thepharmaceutical company founded by Ewing Kauffman. “But it’s hard to find device-focusedpeople. The other thing, and it’s the constant rant of any startup, is you’re always looking formore capital.”The region has made significant progress, he said, “but we still have a long way to go on thatfront. There are still not enough institutional investors here for us to go out and raise money.That’s not always a slam dunk, and it’s always a lot of effort.” Ingramʼs Magazine - August 2012 p.64-65
  5. 5. Citing the contributions made by the Kansas Bioscience Authority in funding early-stagecompanies, Peck said the region continues to see a drag from lack of an effective Missouricounterpart.“I would love to see Missouri get its act together; it would bring a lot of focus to Kansas City,”he said. “From the KBA’s perspective, it would have a heck of a lot of competition on theirhands. Missouri could be a sleeping giant if they could figure it out. From KC Biometrix’sperspective, sure—if Missouri enhanced their efforts in certain areas, some medical device-focused efforts, that would be great.”The Show-Me state’s inability to demonstrate follow-through on funding for the MissouriScience and Innovation Act last year “hurts us quite a bit” as a region, said Boily, of the Centerfor Animal Health Innovation. “It was a great step that it got propelled as far as it did, but noweverybody is fending for themselves. That’s very unfortunate from an entrepreneurialperspective.”The challenge for Boily and his center, which launched just last year, is one of proportionality.Although Kansas City sits in the middle of a Manhattan-to-Columbia corridor, where companiesaccounting for 60 percent of the world’s animal-health business have operations, human healthfar outweighs his sector in interest from funders.“The amount of research and development on animal research is about 1/40’th of what goes intohuman health,” Boily said. “So the amount of angel or early-stage venture firms that do spendany time looking at animal health in particular is very small.”One of the things the center is doing to alter that dynamic, he said, was with its innovationawards, bringing in C-level executives, venture capitalists and angel investors from the coasts toserve as judges, and exposing them to the region’s strengths. Another is providing grants that canhelp commercialize research being done at K-State and Mizzou, such as the $250,000 awardedfor the K-State mastitis project.“That project is still early,” he said. “We have to find out if it will work on a commercial scale.It’s a great idea, and an example of the great work being done in laboratories here, but those areprojects that could be game-changers on a very large scale for this area.”Those on the commercial side of innovation generally agree that another element holding theregion back is an underdeveloped relationship between business and universities. Academicresearch centers, they say, have long been too inflexible on issues of intellectual property, butthey acknowledge that both UMKC and the MU system have been working to change that.Ratterman, at BATS, agrees that we need to fully engage business and civic leaders to supportentrepreneurship and innovation, calling it critical to the region’s success—not just because theycan help get companies up and running, but because helping native entrepreneurs succeed canensure that more successful start-ups remain here.“We have business leaders who are committed to the Kansas City region as much as they are totheir businesses,” he said. “For BATS, our roots are firmly planted in the Kansas City area and Ingramʼs Magazine - August 2012 p.64-65
  6. 6. our associates enjoy the quality of life the area affords.” But even though the company’scustomers and business is primarily focused in financial market centers around the world likeNew York and London, Ratterman said, “we can’t imagine having our headquarters any otherplace.”     Ingramʼs Magazine - August 2012 p.64-65