Principal Lecturer of Entrepreneurship at Karelia University of Applied Sciences
More and more universities offer not just entrepreneurship education and traditional patenting-licencing scheme, but also have built in-house commercialization processes (Munari et al, 2016). In this text, I write about the so called proof-of-concept programs (POCs). My personal experience in running one such a program at Karelia University of Applied Sciences has influenced my understanding of the topic quit a lot. For this reason towards the end of the text I raise up one of the key problems associated with POCs i.e. the problem of selecting the right ideas and teams to enter the POC stage. I hope to discuss this problem in more detail in future texts.
Commercialization of novel ideas is a process of uncertainty reduction. There are many questions (Anthony, 2014) such as: Is there a need for our product in the market place? Can we make the technology work and produce it at scale? Are there enough potential customers willing to pay a price that will earn us an attractive profit? The main idea of POCs is to use simple and low cost methods to kill bad ideas early. Ideas that survive with reduced uncertainty earn more investments at later stages of readiness. In a world of limited resources, the moment when an idea or business case is ready for more investments, is a central question in commercialization.
The purpose of Proof-of-Concept (POC) programs is to reduce uncertainty by testing key assumptions of novel ideas. These can include team’s capability of building a working prototype or customer’s willingness to use a demo version of the invention. POC stage takes place after initial analyses on the validity of the business case are done. In higher education, POC programs often bridge the funding gap between traditional R&D activities and private funding. A business case that survives the POC stage becomes much more attractive to the private investors, as the associated uncertainty is lessened (Munari et al, 2016). POC programs often focus on IP owned by the university, but some program operate more like grant programs supporting university-born entrepreneurship regardless of the status of the IP ownership
Picture 1. Role of POC programs in the commercialization pipeline
To illustrate how POCs work, let’s look at NASA’s technology readiness level (TRL) classification (Kapurch, 2010). According to TRL an idea is ready for physical tests and prototyping when it passes the first two levels. Passing the first level requires gathering and reporting most relevant scientific findings about the technological challenge. To put it in other words, TRL 1 is about becoming familiar with what is already known. In some cases basic research type activities are needed, if the phenomenon is not well studied. At the second level actual concepts are being developed and analysed for feasibility and benefits. No experimental data or detailed analyses are required to pass this stage. Thus, given what we already know from TRL 1, TRL 2 can be said to be about creating good concepts that solve the challenge. The POC stage begins at TRL 3. This is when developers start to do small experiments to validate their models and assumptions.
NASA’s TRL classification assumes that the technological challenge at hand is important and a solution is required. In business setting however, the existence of a customer need is often the most important uncertainty. In a more business oriented POC toolbox, the lean start up methodology, validation of customer need is the first step. In lean start up, techniques such as use of google ads for testing for customer interest can be used. In the next stage of the process a minimum-viable-product (MVP) is created (Ries, 2011). Anthony (2014) introduces a process with an initial definition stage and then two steps of so-called desktop research. During these steps basic assumptions of the business case are evaluated by searching for evidence using various sources of information such as online sources and expert interviews. According to Anthony these steps should take only from few hours to few days to do. For Anthony, the POC stage can be seen to begin with building a simple demo to be used by the potential customer.
POC programs that operate in higher education can face unique problems. All students, researchers and faculty in higher education setting are not necessarily fully up to date with business case evaluation and commercialization methods. POC programs or idea grants that only cover some expenses and don’t pay inventor salaries, also have the uncertainty regarding the would-be entrepreneur’s continued motivation (Immonen, 2017). This puts a lot of burden to the selection process, as program should be able pick good ideas and teams from poor ones. Pitching to a panel of experts is a method used by many POC program, but selection based on pitching alone can be heavily biased (Pentland, 2008). One option is to comb through every business case in detail, but this easily increases the relative cost of the selection process itself. Robust and quick ways to deal with selection process would be much needed. This very topic I hope to address in future writings.
Anthony, S. D. (2014). The first mile: a launch manual for getting great ideas into the market. Harvard Business Review Press.
Kapurch, S. J. (Ed.). (2010). NASA systems engineering handbook. Diane Publishing.
Munari, F., Rasmussen, E., Toschi, L., & Villani, E. (2016). Determinants of the university technology transfer policy-mix: A cross-national analysis of gap-funding instruments. The Journal of Technology Transfer, 41(6), 1377-1405.
Principal Lecturer of Entrepreneurship at Karelia University of Applied Sciences
Many moons ago I did my master’s degree in physics. One of my classmates continued and finished his PhD a few years after. His next step was to move with his wife to Switzerland. He had received a post-doc position from a prestigious Swiss research institution. During their three-year stay, my friend became an expert in X-ray optics. He designed optical elements that were bought by synchrotron operators around the world. After his post-doc position at the research institution came to an end, he and his wife made the decision to move their family back to Joensuu, Finland. My friend had realized that he had the opportunity to keep servicing his synchrotron customer network independently of the Swiss research institution by utilising the lab equipment available at the physics department in Joensuu. And simply as that, he had become an entrepreneur.
In this day and age, entrepreneurship is touted as the miracle medicine to heal economies at both the level of the individual and of society. In Finland, this is evident at the level of the National Government Programme (2018) of prime minister Juha Sipilä’s government and locally for example as one of the three strategic traverse themes of Karelia University of Applied Sciences (2018). This has resulted in a situation where universities and their partner organisations are offering continuously expanding portfolios of entrepreneurship education and services. Recently we discovered that there are more than eighty different entrepreneurship-related courses or services (including services offered by partner organisations) available for Karelia UAS students. In a university of about 4000 students, this is a big number.
In the final analysis, people give money away only in exchange for something they consider valuable, out of many other competing options. Keywords here are value and competition. In order to get the customer’s money, an entrepreneur must be competent enough. His offering must be seen as valuable by the customer relative to competition. By definition, to be competent in something is to have a capability to solve a set of associated problems, to create value competitively. A competent carpenter stands out from the rest through quality and affordability. Competence is competence regardless of the employment framework, i.e. it doesn’t matter whether the carpenter operates as a paid worker in a larger company or as a single entrepreneur.
When we teach our students the many skills and mindsets of entrepreneurship, such as creativity, experimentation, business planning and networking, are we actually teaching them anything of value? Can they find any employer or a customer who is willing to pay for the direct application of these skills? The answer in majority of cases is no. An entrepreneur with only entrepreneurial skills and without competence, i.e. something valuable to offer to a paying customer, is a bust. This is evident even at the level of ideation. In a problem-solving setting, people without any competence relative to the problem typically produce worthless ideas. You really need to be competent in the given topic to have a creative impact (Von Hippel, 1986).
Do entrepreneurship skills carry actual benefits, then? The utility of business management side of the skill-set is clear. Management of a business requires you to take care of marketing, sales, revenue, costs, labour, investments etc. To run a business, you need to know how to run a business. What about the innovation-side of the entrepreneurship? Advanced innovation methodologies such as NASA’s systems engineering framework (Kapurch, 2010), Toyota’s set-based design (Sobek et al, 1999), ICED methodology i.e. Innovative Conceptual Engineering Design (Camarda, 2013), Innosight’s first mile commercialization process (Anthony, 2014) or the Lean Startup methodology (Ries, 2011) are actually processes of learning about a problem and a set of possible solutions. In other words, the innovative and creative sides of entrepreneurship are actually processes of becoming competent in a given topic. From this point of view, innovation and creativity are similar to education; both activities have the goal of becoming competent at something that is valued in the marketplace.
Whether one aspires to become a highly paid employee or an entrepreneur, try to choose a problem that matters to you. Clinical psychologist Jordan Peterson argues that you should do what is meaningful not what is expedient (Peterson, 2018). According to him, a good compass to guide you is your interest and curiosity. It’s quite likely that you cannot even articulate why a given topic draws your attention. Try to understand the problem – the customer need – more deeply than your competitors (Christensen et al, 2016). Solutions come and go but your knowledge about the problem keeps on accumulating.
Perhaps we need to adjust entrepreneurship education with more emphasis on entrepreneurship as a process of becoming competent rather than entrepreneurship as a skill to implement and execute a business idea. From a higher point of view still, what is the correct ratio of entrepreneurship education and training of skills of more direct value on the marketplace?
Finnish Government. (2018). Government Programme. Retrieved May 3, 2018 from http://valtioneuvosto.fi/en/implementation-of-the-government-programme.
Karelia University of Applied Sciences. (2018). RDI Focus Areas and Themes. Retrieved May 3, 2018 from http://www.karelia.fi/en/research-development/areas-of-focus.
Anthony, S. D. (2014). The First Mile: a Launch Manual for Getting Great Ideas into the Market. Harvard Business Review Press.
Camarda, C. J., de Weck, O., & Do, S. (2013, June). Innovative Conceptual Engineering Design (ICED): Creativity and Innovation in a CDIO-Like Curriculum. In Proceedings of the 9th International CDIO Conference.
Christensen, C. M., Dillon, K., Hall, T., & Duncan, D. S. (2016). Competing against Luck: The Story of Innovation and Customer Choice. Harper Business.
Kapurch, S. J. (Ed.). (2010). NASA Systems Engineering Handbook. Diane Publishing.
Peterson, J.B. (2018). 12 Rules for Life: An Antidote to Chaos. Penguin Random House.
Ries, E. (2011). The Lean Startup: How Today’s Entrepreneurs Use Continuous Innovation to Create Radically Successful Businesses. Crown Books.
Sobek, D. K., Ward, A. C., & Liker, J. K. (1999). Toyota’s Principles of Set-based Concurrent Engineering. Sloan Management Review, 40(2), 67.