There is no shortage of advice for academics who want to spin their research out into a new business. A lot of that wisdom is based on experience and conventional wisdom rather than detailed studies of the process. Nothing wrong with that, but it helps to have some numbers to support the current enthusiasm, in the UK at least, for university spinouts. That’s why it is interesting to read the latest issue of the journal R&D Management.
In their paper “Commercial exploitation of new technologies arising from university research: start-ups and markets for technology” R & D Management , Volume 37 Issue 4 Page 319-328, September 2007, Fred Pries and Paul Guild report on a study of 57 “public start-up firms created to commercialize the results of university research”. The reason why this paper is particularly interesting is that the researchers have compared start-ups built around products with those that set out to commercialise a technology.
The advice to most academics wanting to bring their science to market is that they should find a product that they can make. Science looking for problems is, says the conventional wisdom, unlikely to succeed. Pries and Guild found that this isn’t always the case. In their paper they distinguish between “startups that operate through product markets and start-ups that operate through markets for technology”.
There’s a clear difference between how the two sorts of businesses make their money. “When a start-up operates through product markets, it produces goods or services based on the new technology.” So it is likely to get revenue from selling products and from contracts for products or services. “When a start-up operates through markets for technology, it is expected to derive its revenue primarily from intellectual property-related sources.”
If a start-up is in the products business, then it has to be involved in technology development and production. For a technology start-up, the idea is to be involved in technology development while the businesses that plan to use the knowledge will carry out product development.
Pries and Guild decided to look at the two different types of business because they thought that too much attention had gone to the product start-up. In the event, they found in their survey of a sample of new businesses in Canada and the USA that while product oriented businesses made up about a half of new start-ups, technology firms “represent 14% of the start-ups examined and 20% of those that have emerged from development stage”.
These results, they say, “demonstrate that operating through markets for technology is a common and viable method of commercialization for start-ups”. They found big differences in the activities of the two types of firms.
Among the lessons that they draw from their results is the need for “commercialization models that reflect the existence of markets for technology”. There is a message there, then, for the ‘knowledge transfer agents’ in universities and elsewhere.
They also suggest that there should be research into the choice of “operating through product markets vs. markets for technology in commercializing the results of university research”.
The fact that there are different role models for innovative businesses should be grounds for thinking about the best way to bring ideas to the market. The automatic ‘think product’ advice may not always be valid. Are there, the paper asks, “different ways to operate through markets for technology?” For example, “It may be possible, for instance, for start-ups to retain ownership of the rights to a technology while letting established firms acquire limited rights to use the technology through, for example, non-exclusive licenses.”
After all, as they say, “University researchers forming start-ups to commercialize technologies they invent may have technology development skills but typically lack product development and business development skills.”
Pries and Guild suggest that “a strategy of operating through markets for technology is a more focused approach than a strategy of operating through product markets and may pose less risk and require fewer resources”.
There is another issue for that universities should consider. “For some early stage technologies, a viable strategy may be to use start-ups as a method of financing technology development before licensing the technology to established firms. Universities typically do not have the resources to finance technology development but use of a start-up may provide a method of accessing capital for technology development from venture capitalists or public markets.”
The paper doesn’t mention this, preferring to focus on lessons for the spinners out, but there could also be lessons here for the people who back those start-ups. Perhaps they should pay more attention to researchers who want to shift technology rather than stuff.
