University Startups And Spin Offs Guide For Entrepreneurs In Academia

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University Startups and Spin-Offs

UNIVERSITY STARTUPS AND SPIN-OFFS

UNIVERSITY STARTUPS

AND SPIN-OFFS

Guide for Entrepreneurs in Academia

University Startups and Spin-Offs teaches university students, researchers, and educators the most effective

strategies and tactics for launching their own startups from academic platforms with the backing of school

programs, public grants, incubators, seed accelerators, and private partnerships in all parts of the world.

Serial entrepreneur Manuel Stagars advises students, faculty, and researchers how to test their ideas

for marketability, how to develop commercial products out of research projects, and how to engage

companies and investors with attractive value propositions. The author has seventeen years of experience

as startup entrepreneur, founder of seven companies in the United States, Europe, and Japan, consultant

to universities on commercializing their research programs, angel investor, and startup mentor. Stagars’

advice is field-tested, battle-hardened, and supported with a wealth of instructive first-hand examples

from his international experience.

The author advises academic entrepreneurs to take matters into their own hands instead of relying on the

initiative and support of universities and governments. He shows students and researchers how to fit lean

startup methods to their existing university ecosystems, leveraging their strengths without getting bogged

down in bureaucratic morass. Avoiding theory and jargon, the book focuses on real-world situations, practical

steps, checklists, and case studies. University students and researchers will learn the skills they need to

become startup entrepreneurs on an academic platform, including how to

• test ideas for marketability

• develop commercial products out of research projects

• engage companies and investors with attractive value propositions

• integrate lean startup methods into existing university ecosystems

• negotiate cultural idiosyncrasies and regulatory barriers in different countries and industries

The final part of University Startups and Spin-Offs addresses university administrators, educators, technology

licensing officers, incubator managers, and government grant officers. It shows them with practical examples

from the private and academic sectors how to

• integrate startups into the fabric of the university

• develop a thriving entrepreneurial ecosystem for students and researchers

• leverage latent network effects

• build bridges between scientific research and industries seeking innovative solutions

• enhance the public image of the university

• motivate your university’s best and brightest to engage in startup enterprises that will deliver

benefits to themselves, the university, and the public

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Contents

About the Author. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .ix

Acknowledgments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .xi

Preface. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .xiii

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xv

Part I: Strategies for University Startup

Entrepreneurs . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Chapter 1: The Status Quo: How Do Startups Fit into Universities? . . . 5

Chapter 2: The Lean Startup Changed Everything. . . . . . . . . . . . . . . . 15

Chapter 3: What Does It Mean to Be a Startup Entrepreneur? . . . . . 29

Chapter 4: Engaging Others with Actionable Next Steps. . . . . . . . . . . 55

Chapter 5: Benefits vs. Features . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61

Chapter 6: Simple Strategies to Get Unstuck . . . . . . . . . . . . . . . . . . . . 67

Chapter 7: Troubleshooting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77

Chapter 8: The Financial Model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81

Chapter 9: The Legal Setup of Your Startup. . . . . . . . . . . . . . . . . . . . . 93

Chapter 10: Meetings and Communication Skills . . . . . . . . . . . . . . . . . . 99

Chapter 11: Startup Grants: Can Government Programs

Stimulate Entrepreneurship? . . . . . . . . . . . . . . . . . . . . . . . . . . 119

Chapter 12: Venture Capital and Angel Investors . . . . . . . . . . . . . . . . . 125

Chapter 13: Incubators and Accelerators . . . . . . . . . . . . . . . . . . . . . . . 131

Chapter 14: Moving Past the Startup Stage. . . . . . . . . . . . . . . . . . . . . . 137

Part II: Strategies for Universities . . . . . . . . . . . . . . . . 145

Chapter 15: How Do Universities Measure the Impact of

Their Research? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 151

Chapter 16: Why Are University Startups Not Taking Off ? . . . . . . . . . 157

Chapter 17: How Universities Can Support Their Startups Today . . . . 165

Contents

viii

Chapter 18: Building a Bridge to the Market. . . . . . . . . . . . . . . . . . . . . 171

Chapter 19: Platform Thinking for Startup Success . . . . . . . . . . . . . . . 177

Chapter 20: More Platform Projects. . . . . . . . . . . . . . . . . . . . . . . . . . . . 187

Appendix A: Additional Considerations . . . . . . . . . . . . . . . . . . . . . . . . . 203

Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 219

Introduction

If you have ever been inside an MRI scanner, had a vaccination, ﬂown in an

airplane powered by rocket fuel, or used the seatbelt in your car, then you

have experienced the beneﬁts of university research. Thousands of products

used every day have sprung to life out of university research labs. But in

recent years, when it comes to leadership in innovation, universities have

ceded the limelight to the private sector. Although much university research

is still potentially useful, it rarely sees the light of day beyond publication in

a scientiﬁc journal. Most of the patents held in university patent portfolios

never earn a cent in revenue. Only a tiny minority of researchers will ever

run their own company and apply the technologies they have so passionately

invented. What does this disconnect stem from? Often from a lack of

information about how to turn ideas into startups to make an impact.

Startup entrepreneurship is a learning experience that encompasses

disciplines outside of your domain. It is a mindset, not a job. With that

mindset, you should embrace the opportunity to integrate new skills into

your life. You may discover a new talent you never knew you had. Starting

a company sounds difﬁcult, but the alternative, working in a corporation, is

no cakewalk either. Few big corporations innovate. Climbing the ranks from

the ground up often takes decades and is fraught with politics. Doing a good

job and trying to be inventive will not help you to advance in the corporate

environment. This leaves creative people frustrated. However, when joining

a big corporation as an accomplished entrepreneur, your chances are much

better. I know several founders who sold their startups to large companies.

For them, entrepreneurship was the fast track to an executive position in a

larger corporation.

Startup entrepreneurship is a huge advantage on your resume. You will gain

diverse knowledge unlike that from any other project you have undertaken so

far. After all, life is short. Wouldn’t it make sense to explore all the possibilities

before committing to a line of work in which you spend 60% of your waking

hours? I encourage everyone to give entrepreneurship a try. The guidelines

in this book will enrich your experience and give you the tools to make the

most of your ideas. You will gain a wealth of diverse knowledge by launching

a startup. When you work in your own company instead of somebody else’s,

you will learn the ropes of doing business and making an impact much faster

(see Figure 1). This makes up for the long hours spent trying to get it off the

ground. You will be able to draw on this throughout your life.

Introduction

xvi

Who Is This Book For?

The ﬁrst part of this book speaks directly to students and researchers

who are interested in launching a startup or spin-off. In a nutshell, this is

about showing founders how they can use the existing university system as

a springboard for entrepreneurship, make the best of existing synergies, and

sidestep all the ballast not conducive to startup success. The strategies are

of course also useful for entrepreneurs venturing out on their own without

an academic support system.

I do not examine the topic academically. Much has been written elsewhere

about the commercialization of university patents and the complexities

of public programs to stimulate entrepreneurship. It is also not my intent

to suggest sweeping reforms to the education system to make it more

entrepreneurial. But if you are studying, researching, or teaching at a university

and are thinking about entrepreneurship, this book is for you. It contains

practical advice that I ﬁnd useful in launching a company, mostly based on my

personal experience. All startups and entrepreneurs are unique, and I do not

claim to have all the answers. Nevertheless, I introduce some unconventional

ideas and approaches here that you may ﬁnd useful in your own endeavors

as an entrepreneur.

The second part of the book concentrates on universities. You may ﬁnd

yourself in a position where you wonder how the current system could

better help foster startups and entrepreneurship. There are numerous

opinions about how this should be done. However, a relatively conservative

organization like a university cannot be turned on its head overnight with

a sweeping reform. Yet there exists a growing desire among universities to

redeﬁne their relationship with the market and other external stakeholders.

Making an impact with research beyond scientiﬁc publications occupies

more and more mindshare. By understanding how the startup process

works, universities can leverage their existing resources to help students

and researchers launch companies with more impact.

Diversity of

knowledge

Time

Working in

someone else’s

company

Working in your

own company

figure 1. Diversity of knowledge from launching a startup

Introduction xvii

Many of those ideas and approaches run contrary to what your startup

advisors will tell you. This book may advocate that you do the opposite of

what you read in the university’s ofﬁcial startup publication or in popular

books about startups. It may even suggest that you forget what you just

learned in a Guru workshop about entrepreneurship. Some of the ideas

may seem overly opportunistic to you, especially if you have never been

exposed to entrepreneurship before. Launching a startup is by deﬁnition

opportunistic. If there is a chance, then take it. If there is none, then make

one. Nobody will make your life work for you. You need to take matters into

your own hands and take full responsibility for your destiny. This is one of the

prevailing themes of this book.

What Will You Learn in This Book?

Launching a startup is not rocket science. Regardless, there are a few strategies

and skills that founders must know to have a real chance at success. Putting

together an entrepreneurship program at a university has much in common

with launching a startup. So the strategies outlined in the ﬁrst part of the

book are just as useful for those who implement entrepreneurial programs

in the curricula of universities. The overview in Figure 2 groups the book’s

chapters by topic.

Simple startup

support strategies

Chapter 17

Building a bridge

to the market

Chapter 18

Roadblocks to

startup success

Chapters15, 16

Platform thinking

for startup success

Chapter 19

Lean startup, test

of ideas/products

Chapter 2

What does it mean to

be an entrepreneur?

Chapter 3

Grants, venture

capital, incubators

Chapters 11, 12, 13

Entrepreneurial

skills and strategies

Chapters 4, 5, 6 ,7, 10

Moving past the

startup stage

Chapter 14

UniversityStudent, researcher

Legal setup

Chapter 9

Financial model

Chapter 8

More platform

projects

Chapter 20

figure 2. Chapters and topics

Introduction

xviii

While you read, I encourage you to keep an open mind. Look at

entrepreneurship as a process—an ongoing learning experience. It is in many

ways more a mindset than a job, which may confuse you at times. There

will be much conﬂict ahead. Armed with some basic tools, you will come to

understand what it means to launch a startup. You will be in a position to

analyze your challenges, break them down into manageable parts, and move

them toward solutions quickly. Even though the end goal of your startup may

still be uncertain, you will have a guide that explains the next steps.

All this comes not from a theoretical source, but from a battle-hardened

practitioner who has walked this walk before: seven times, to be exact, as of

this writing. That being said, do not take any of this as gospel. This is simply

a collection of concepts I ﬁnd helpful in getting a company off the ground in

a relatively short time, with limited resources.

I wish I had a sure-ﬁre recipe to create a successful company, but I don’t.

Many turtles hatch, but few make it to the sea. Achieving startup success

remains elusive. A whopping 93% of companies backed by Silicon Valley–based

accelerator Y Combinator fail.1 Mind you, these are the 2% of handpicked

companies that were selected to enter a 90-day entrepreneurship crash

course in the startup capital of the world. Startups fail despite the best efforts

of an army of talented venture capitalists, consultants, and the entrepreneurs

themselves, who often display incredible drive to make their company work.

There is no shame in failure. But if you and your startup arm yourselves with

practical tools that entrepreneurs around the world have successfully used,

the odds of graduating to the successful 7% have just increased.

With slight upgrades, universities and their startups can improve their

chances of entrepreneurial success signiﬁcantly. This requires effort from

all stakeholders in the startup equation—not just from the government and

universities, but ﬁrst and foremost from the entrepreneurs themselves. If

one thing is obvious, it is that entrepreneurship is hardly a theoretical school

of thought, but a hands-on exercise. With this in mind, let’s begin.

1Henry Blodget, “Dear Entrepreneurs: Here’s How Bad Your Odds of Success Really

Are,” Business Insider, May 28, 2013, www.businessinsider.com/startup-odds-of-

success-2013-5.

Strategies for

University

Startup

Entrepreneurs

When did you choose to become an entrepreneur? In early childhood, or just

yesterday? Or are you still on the fence? Whatever the case, you should have

some idea about what it is like to start your own business before you take the

plunge—an idea based on the entrepreneurial experience of someone who

has done this before.

If you study or do research at a university, take a step back and observe your

environment from 50,000 feet in the air. You see a fail-safe system where

you acquire deep knowledge without much distraction. It does not matter

whether the economy is in a boom or in a slump; learning always has priority.

Now think about what this environment could do for you as a startup entre-

preneur. You have a strong community, an excellent network, diversity of ideas

and opinions, fully equipped workshops and labs, and tech support at your

disposal—all for free. Your university may have a strong reputation. It may

attract powerful external parties such as governments and corporations that

want to be involved in one form or another. All these advantages are unique,

and they exist only for students and researchers. In this walled garden, you can

P A R T

test and experiment. If you fail, there is almost no consequence. Companies

seldom have such luxury. University startups have a leg up on anyone else.

When you know how to use this environment to your benefit, you can

compete with companies anywhere in the world from a strong base that

supports you all the way. Why not give it a shot and make the most of your

university experience?

Most of the time, your university or government will have some startup advice

for you. This is the conventional advice that others have diligently followed:

apply for this or that grant, participate in the business-plan competition, and

get some MBA students from another faculty to create a business model for

you. The startup consultant from the university or the government has never

launched a startup, so how can they be experts to guide you toward success?

Out of ignorance about what entrepreneurship really entails, startups give

away much of the control over their destiny.

Part 1 of this book will empower you with actual, practical steps that you can

apply today. Of course, this is no guarantee that your venture will succeed.

Nevertheless, it is much better than having no clue about how to begin, in the

process relying on non-entrepreneurs to call the shots for you. I have included

a few episodes from my own startup journey. They have little in common

with the success stories you would read in a Donald Trump book, but they

paint a picture of what most entrepreneurs may go through to eventually turn

their companies profitable. To make the point that successful startups are not

created overnight, let me recount how my first company came to pass in a

little more detail.

When I started out as an entrepreneur, I had the odds stacked firmly against

me. Nobody from my family had ever started their own business. None of

my friends had, either. Because I thought I wanted to be a medical doctor

from a very young age, I never seriously looked at any other professions.

Not only that, I never investigated what it really meant to be employed in a

hospital. After the first year at medical school, I terminated my studies with

the vague idea of doing something with the Internet and multimedia. All of my

old friends from school reacted to the decision with disbelief and criticism.

The same was the case with the new friends I had made during my freshman

year. Nobody could quite understand why this guy was dissatisfied with what

worked so well for them. Why did he decide to give it all up to try to do the

impossible? My parents were obviously less than thrilled when they heard of

my latest plans. They were not particularly supportive of this new direction,

yet they had no other choice than to let me try.

Because I was not independently wealthy, I had to take on some humbling,

menial jobs—just menial enough that I had enough time to develop my vision

and skill set in my free time. The first was part-time work as an usher in a movie

theatre. Occasionally some old classmates would see me vacuuming popcorn

from the floor; they must have chuckled at the sight of the valedictorian of

their class from the prestigious high school, the former medical student, who

was now laboring side by side with shady characters, some of whom you would

rather not face at night in a dark alley. This was a difficult time, no doubt. But in

retrospect, it was an essential test of my dedication to make it work.

With the little money I had saved, I bought a desktop computer and picked

up some programming on my own. After a brief stint at a copy shop (where I

learned to use Adobe Photoshop), I took a part-time job at a TV station (where

I learned about marketing and using multimedia software). A few more inter-

ludes followed, most of them hardly worth recounting. However, after about

a year, I felt I had enough knowledge to launch my first startup. The Internet

was just beginning to take off, and there was a fast-growing demand for flash

web sites with audio and CD-ROMs with sound effects and narration. This is

what I offered to produce as a service. I was 22 years old, with no experience,

let alone a track record. As you might expect, I blundered my way through

many embarrassing episodes. One of them was the brilliant idea of making a

big marketing splash by sending 100 potential clients little boxes of chocolate

with my business card inside. After a few days, I called the clients and asked

whether I could come by for a meeting to show my services. It turned out to

be an unusually hot summer. Someone at the post office must have parked

their delivery truck in the roasting sun. You can imagine what those well-

intentioned presents looked like when they arrived at the clients by mail. It

was an expensive marketing stunt gone wrong.

Finally landing my first paid project put the gears in motion. The Internet was

rocket fuel to the economy, so more projects followed in swift succession.

All in all, I have to admit I was lucky that this first startup was successful.

Many other entrepreneurs went under in the first dot.com crash. Their

founders had come from much more privileged backgrounds than me. Some

were MBAs; others were launching their second company with powerful joint

venture partners and ample funding. Because none of that was available to

me, I had to be creative and resourceful from day one. Had I relied on my

surroundings and waited until someone took me under their wing to make

things happen for me, I would not be writing this book today. Through trial

and error, I found an approach that helped my company become profitable

fast, with products that clients paid money for from the start. This trial phase

is something I still draw from today. Some of the startup advice in this book

is directly related to it.

Fortunately, it got easier over time. With more experience, I put less trust

in those who insisted that starting a successful company without funding was

impossible, perhaps because I knew that it could be accomplished. Not all my

ventures were profitable, but the failures were just as valuable as the successes.

An iron will and common sense go a long way. Unfortunately, these are what

I see lacking with many of today’s startup entrepreneurs. A flood of recent

business literature gives founders the impression that they have to study entre-

preneurship before they can do it. Grant programs, government initiatives, and

startup workshops saturate them with theory, taught by people who have

never started a company themselves. Media stories about recently minted

billionaire founders are selling the Hollywood version of entrepreneurship.

Please do not buy into this hype.

Entrepreneurs have always existed, and to launch a thriving business is

doable with little theory if you put your mind to it. It was possible before

any government grants existed and before venture capital and seed accelera-

tors arrived on the scene. You need the determination to succeed and a few

simple strategies. Most important, you have to take action, sooner rather than

later. The simplicity of entrepreneurship is its power. This power lies with the

entrepreneur alone. As soon as you take matters into your own hands, you

will start making real progress toward your own success story.

If you come from an entrepreneurial family, then you have a better chance of

making it. But if not, what will you do? Not even try because nobody is helping

you? Quietly agree with the opinion of the mainstream that startup success

is a lottery or requires an MBA and millions of dollars in venture capital?

If your university or government has programs available, then take full advantage

of them. But do not let them distract you. If you get on the wrong trajectory

early, reaching your destination will be a challenge.

A recurring theme of this book is taking matters into your own hands to

move your startup forward step by step. On the way, take advantage of all the

synergies you can get. Learn from your mistakes. Pick yourself up and keep

walking. Take initiative, and never wait for opportunities to come to you. This

is the defining characteristic of a successful entrepreneur.

The Status

Quo: How Do

Startups Fit into

Universities?

Students and researchers have always founded their own companies right out

of universities. This is not new. Just as in any other venture, some of those

companies thrive, while others falter. Some entrepreneurs have a natural tal-

ent for running a business, whereas others are less skilled. In recent years,

there has been a huge surge of interest in entrepreneurship, both inside and

outside universities. Researchers are beginning to realize that running their

own company may be more adventurous and rewarding than a lifetime teach-

ing position in higher education. Students converge on popular fields such

as computer science to launch their own companies while working on their

degree or after graduation. News stories abound about 20-year-olds turning

into billionaires with virtual reality startups.1

CHAPTER

1Alexei Oreskovic and Malathi Nayak, “Facebook to Buy Virtual Reality Goggles Maker

for $2 Billion,” Reuters, March 26, 2014, www.reuters.com/article/2014/03/25/

us-facebook-acquisition-idUSBREA2O1WX20140325.

Chapter 1 | The Status Quo: How Do Startups Fit into Universities?

Entrepreneurship has attracted global buzz. However, when it comes to prac-

tical know-how about launching a startup, universities have much catching

up to do. To fill the void, incubators and seed accelerators have sprung up as

startup schools that offer crash courses in entrepreneurship, infrastructure,

mentoring, and financial aid.

Before you jump in and learn about the practical guidelines for entrepre-

neurs, you first need to understand the place of startups in universities today.

This chapter explains the components that enable startup success, how they

interact with each other and how universities currently put them to use. It

also outlines the launch sequence of academic startups and the roadblocks

entrepreneurs encounter, Later in this book, we will look into some of the

support systems available for startups, such as entrepreneurship programs,

technology transfers, and startup grants. The discussion would be incomplete

without deliberating on why some of these programs are useful and others

less so. This chapter also introduces the main obstacles that stand in the way

of setting up effective startup programs at universities, and common miscon-

ceptions about startup entrepreneurship in general. This groundwork sets the

tone for the rest of this book. Without it, I feel entrepreneurs have only half

the picture of what it means to launch a company. Examples for upgrading a

university’s startup program are in the second part of this book.

Universities Can Build the Optimal Startup

Ecosystem

Universities are still the undisputed centers of excellence when it comes to

knowledge and scientific research. But using their assets in the marketplace

is not their strength, and, unfortunately, the impact of scientific research on

the lives of people outside of academia is small. This is unnecessary, because

universities occupy an important space at the intersection between science,

business, and public policy. They connect many stakeholders from different

domains in their daily activities. Some universities have a high pedigree and an

international reputation that draw attention from financial investors and the

media. They participate in summits such as the World Economic Forum (WEF),

world city summits, and climate conferences. Universities often interact with

multinational companies that sponsor their research. And the government is

also on board as principal financier.

Despite the fact that opportunities for network building and cooperations are

readily available to them, universities hardly use them enough for their own

benefit. They actively communicate with many third parties, but the energy

this creates often evaporates, unused. If universities channeled this energy,

they could help create a robust ecosystem for startups, to the advantage of

University Startups and Spin-Offs 7

students and researchers interested in entrepreneurship. Such an ecosystem

would prepare participants for the journey ahead and would eventually build

a bridge between scientific research and millions of people who stand to gain

from it in their everyday lives. It would anchor the university in the public

image as a force for real-world impact. And it would motivate staff and profes-

sors to discover a deeper meaning in their work. Let’s examine what such an

ecosystem could look like.

Universities are platforms. Many different stakeholders exchange ideas and

energy with universities daily, creating vast potential resources that are just

sitting there, unused. As soon as universities focus and channel energy toward

their startups, synergies emerge. Dynamic knowledge exchange, collabora-

tions, constant feedback, and engaged discussions grow a ring of network effects

around the institution (the large arrows in Figure 1-1).

Leverage Research

Financing Projects

Financial

Sector Governments

Partnerships

NGOs Multinationals

University

Networks

Introductions Joint

ventures

IGOs SMEs

Knowledge

exchange

Feedback

Figure 1-1. Ideal university ecosystem and resulting synergies

Chapter 1 | The Status Quo: How Do Startups Fit into Universities?

With the energy and momentum available on this supercharged platform,

startups load their batteries and eventually lift off like helicopters. Figure 1-2

shows what the ideal situation looks like. A university with a strong entrepre-

neurial ecosystem is the ideal launch pad for startups founded by students and

researchers. Most universities have all the components to build it right in their

backyard. They just need to remove the blockages that prevent the ecosystem

from growing. Academia is a natural magnet for smart people and interested

external stakeholders. As soon as their energy is channeled toward a com-

mon goal, startups in this environment draw on much stronger resources than

the private sector alone can provide.

Figure 1-2. The university ecosystem turns into the ideal startup launch pad

However, such ecosystems are still nascent or nonexistent. A few global

hotspots have managed to create them over the last couple of decades, but

one can count them on the fingers of one hand. At present, most synergies lie

dormant, and startup launch pads are not fully formed. To understand what

this does to university entrepreneurship, look at Figure 1-3, which illustrates

the current, incomplete version of the launch pad.

University Startups and Spin-Offs 9

The status quo looks much less inviting. A weak entrepreneurial ecosystem

leads to a weak startup launch pad. The ring of network effects around the

university is interrupted, and no ecosystem can grow. Synergistic interaction

with third parties is almost entirely missing, which leads to roadblocks and

gaps in the structure. Far fewer startups are possible on an incomplete plat-

form. That is obvious, because there simply is not enough room and energy

for them to thrive. Serious pitfalls can hamper startups at any stage of their

evolution. Looking at it from this perspective, it is evident why so few success-

ful startups come from academia.

Why don’t universities repair their incomplete startup launch pads? They

would first have to grow stronger entrepreneurial ecosystems, and the need

to do that is not yet dire enough. In many universities, the opinion prevails that

entrepreneurship workshops, business plan competitions, and grant funding

will fix the underlying structural problems. However, without a fundamental

shift in the way academics and institutions approach entrepreneurship, current

efforts will bring mostly cosmetic improvements that only go so far. This is

unfortunate. As education becomes increasingly globalized, it will be critical

for universities to adopt entrepreneurial thinking and have something to show

for it. It will no longer be sufficient to point to key performance indicators (KPIs)

that show a certain number of spin-off companies or patent applications per

year. Uncomfortable questions about the measurable impact of such start-

ups will surface. This may not happen immediately, but the day will come.

Academia will have a lot of catching up to do then.

Figure 1-3. Startups on the incomplete launch pad

Chapter 1 | The Status Quo: How Do Startups Fit into Universities?

The good news is that many ideas coming out of universities are groundbreak-

ing. They have the potential to make a difference in the lives of millions of

people. With a mind shift, it will be possible to transform the status quo at

universities into thriving ecosystems for startups. It will take much effort to

put the gears in motion. How universities can do this is the subject of part 2

of this book. Let’s first discuss the necessary steps and the roadblocks on the

way to startup success.

The Startup Launch Process

With their natural wealth of resources and synergies, universities should be

hotbeds of startup success. Let’s pretend for a few minutes that everything is

perfect and universities make the most of the opportunities available to them.

Figure 1-4 shows the ideal launch sequence for startups.

Funding to scale

Research project or idea for startup

Testing a minimum viable product (MVP)

Incremental product development

Relationship building

Partnership or joint venture

Product launch

Measurable impact

Motivation and freedomSynergies and ecosystemNetwork effects

Figure 1-4. Ideal startup launch sequence

University Startups and Spin-Offs 11

The underlying forces that enable startup success are as follows:

• Motivation and freedom: Students and researchers have a

strong motivation and the freedom to follow through on

their ideas for startups.

• Synergies and ecosystem: The university has cleared

roadblocks to synergies and has allowed an entrepre-

neurial ecosystem to grow. Startups draw massive energy

from that.

• Network effects: Once enough synergies are in place,

network effects kick in. Launching additional startups

becomes increasingly easy, and startups stand a better

chance of making an impact in the market.

If these forces are in place, the stage is set for startups to take off. How uni-

versities may develop these forces is the subject of the second part of this

book. For the time being, let’s assume they exist already. In the ideal environ-

ment, all that students and researchers need is a practical approach to entre-

preneurship. Unless they mismanage their venture in the launch process, they

automatically achieve the right trajectory.

To illustrate how the launch sequence works, let’s start with a research proj-

ect at a university. Assume the team had an idea about a potential commercial

product and decides to launch a startup. Empowered to do so, they first test

their assumptions. Without testing, the startup would be flying blind. Serious

entrepreneurs cannot afford to do that; they need to know if their intended

product meets a demand in the market. If enough people are ready and will-

ing to pay money for the product, then there is a business. The startup can

charge ahead full-steam and develop the product incrementally. The founders

test and re-test their upgrades often with potential customers in the market.

In parallel, they begin building relationships with third parties. These may be

companies in the same field or other experienced entrepreneurs who have

already launched successful startups. The financial sector and wealthy indi-

viduals should also be part of entrepreneurs’ networks. The startup engages

them all for frequent feedback on their progress and a dynamic exchange

of ideas.

Because the founders communicate effectively and professionally, they have a

clear understanding of who to approach. They also understand the benefits

they provide to third parties. With actionable next steps, they keep them

involved and direct all the energy they can into the development of their

product. Because stakeholders outside of the university see a value in what

the startup produces, they inspire the founders with ideas. When the prod-

uct has evolved to the point that the startup can launch it in the market,

the team brings their connections to venture capital firms to the table. The

entrepreneurs can scale rapidly when they need to. Their product serves

Chapter 1 | The Status Quo: How Do Startups Fit into Universities?

an existing need in the market, and their business model is strong enough to

drive a profitable company. Because they always had an ear to the ground, the

launch is a success. The startup transformed university research into a useful

product that improves the lives of people. It has a measurable impact on the

real world.

Universities and their entrepreneurs should continue to strive for this ideal

process. As you already learned, universities can build powerful ecosystems

for startups. Once they have achieved that, reality will be closer to the ideal

scenario we just described.

Let’s now take off the rose-colored glasses. Unfortunately, the reality for

startups at universities is less than ideal. The experience for entrepreneurs

can often feel similar to the illustration in Figure 1-5.

Funding to scale

Incremental product development

Relationship building

Partnership or joint venture

Product launch

Measurable impact

Research project or idea for startup

Testing a minimum viable product (MVP)

Motivation and freedomSynergies and ecosystemNetwork effects

Figure 1-5. Startup launch sequence with roadblocks

University Startups and Spin-Offs 13

Numerous roadblocks prevent startups from moving from one step to the

next. Entrepreneurs cannot skip any of the steps of the launch sequence—

they are all necessary to build a solid foundation for the startup. Some of the

hurdles are external: they exist within universities that are unprepared to give

startups what they need. Synergies, the ecosystem, and network effects may be

missing. Other hurdles are internal: students and researchers may not know

how to advance from one level to the next. They linger in analysis paralysis

or lack constructive strategies to express and develop their ideas. They often

struggle to define their own value for third parties, let alone engage them

in a mutual knowledge exchange. As a result, their networks are not strong

enough to help them reach escape velocity. Despite good ideas, many startups

are trapped on the ground level. They never launch a useful product, so they

fail to attract a joint venture partner or venture capital. Such startups and

spin-off companies do show up in the university’s KPIs, but their measurable

impact is zero.

So what is there to do? It will take a while for universities to get their eco-

systems up to speed. In the meantime, it is up to the entrepreneurs to over-

come the roadblocks. More often than not, the prevailing thought is that more

money fixes all problems. But instead of paying the roadblocks to go away,

startup entrepreneurs need to know practical strategies to overcome them

(see Figure 1-6).

Chapter 1 | The Status Quo: How Do Startups Fit into Universities?

In a less-than-perfect world, students and researchers must take matters into

their own hands. Whenever they encounter roadblocks, they should know

how to kick them away with the right karate moves. With entrepreneurial

thinking at their disposal, they develop products with the lean method. They

learn how to articulate their business ideas to third parties outside of the

university. This gives them a clear understanding of their value proposition and

helps identify the right partners, which helps them to build strong networks

with established companies and the financial sector.

When they have to fend for themselves, startups may advance more slowly

than in the ideal launch sequence, but they do so steadily nevertheless. They

move forward step by step and eventually take off on their own terms. By

developing their own powers, entrepreneurs can thrive in today’s less-than-

perfect ecosystem. What these powers are and how to acquire them is up

next in this book.

Funding to scale

Incremental product development

Relationship building

Partnership or joint venture

Product launch

Measurable impact

Research project or idea for startup

Testing a minimum viable product (MVP)

Motivation and freedomSynergies and ecosystemNetwork effects

Figure 1-6. Overcoming roadblocks with practical strategies

The Lean

Startup Changed

Everything

When Eric Ries published his book The Lean Startup in 2011, he brought about

a paradigm shift in business modeling.1 Only a few of the ideas in the book

were groundbreaking or new, but many people were seeing them outlined

neatly and logically for the first time. According to the Lean Startup method,

“build, measure, learn” is at the heart of entrepreneurship. This means testing,

measuring, changing, and retesting several hypotheses before a product launch.

Real potential clients give feedback on minimum viable products (MVPs), which

helps tailor the product or service to the market in small steps. Learning

and experimenting therefore trump planning and politics. Businesses focus on

product development close to their customers to improve their impact from

day one. Hallelujah!

When the book came out, I was recovering from a venture that had started

out promisingly. Flush with seed investment in the mid-six figures, the com-

pany I cofounded in San Francisco was about to revolutionize the trading of

copyrights, trademarks, and patents on a digital platform. Offices in the Mission

District were rented. A board 12 members strong, including executives from

CHAPTER

1Eric Ries, The Lean Startup (New York: Crown Publishing Group, 2011).

Chapter 2 | The Lean Startup Changed Everything

eBay, was summoned. A fancy code shop full of developers was hired to pro-

gram the platform. Hours were spent in conference calls, with phone-ins from

different continents. Things were looking up, until the financial crisis in 2007/8

came around. The second round of financing fell through, and the startup col-

lapsed under its heavy overhead without having launched a single line of code.

This was the opposite of a lean startup, and it is painful to remember all the

silliness. We wasted much time, not to mention the investment of the venture

capital firm. Lucky for us, they understood that bad things happen to good

people, which softened unwinding the mess a great deal. Having such lenient

investors was by no means a foregone conclusion.

According to the Lean Startup method, we should have approached the busi-

ness differently. Instead of trying to build a new universe to revolutionize the

licensing market with a big bang, we should have thought about our MVP first.

If we had coded it ourselves, we could have tested it daily with actual potential

users and clients. We probably would have learned that the original idea was

much too large and doomed to fail and that we should focus on a smaller niche

from the beginning. We could have found the most profitable niche through

further testing. With clear signals for or against the need for such a platform

and a much stronger idea of what the code should look like we could have

engaged professional developers to finish the beta for launch. Going about the

project this way would have required only 10% of the investment, with much

more learning and insight along the way. Instead we were flying blind based

solely on our own rigid assumptions, which we even vehemently defended to

investors and advisors.

Before the Lean Startup method became widely adopted, most business found-

ers focused primarily on launching the perfect product and much less on feed-

back from the market. Long brainstorming sessions about the perfect strategy

replaced simply trying something and seeing what happened. Entrepreneurs

founding a company today should figure out how to run it lean to make the

best use of their resources.

The Lean Startup method is not only for tech startups. Multinationals like

General Motors use it for their in-house R&D as well. Steve Blank goes as

far as calling it a new strategy for the 21st century that goes hand in hand

with other changes like democratization of knowledge and capital, low startup

costs, mobility, globalization, and convergence.2

There are various schools of thought about launching a company. For univer-

sity startups, I find the Lean Startup method ideal. This chapter explains how

to apply it with two examples. But let’s first understand the main underlying

principles.

2Steve Blank, “Why the Lean Start-Up Changes Everything,” Harvard Business Review

(May 2013).

University Startups and Spin-Offs 17

Incremental Product Development

Under the old paradigm, most university startups think they have to brain-

storm extensively to arrive at the perfect product. After meticulous planning,

they build it behind locked doors and finally launch it in the market with a

big splash. This is expensive and risky and also impractical. There is a more

intuitive approach to develop products, which the Lean Startup method refers

to as incremental product development. This is how it works: you first create

an MVP based on your assumptions about what the market could be willing

to accept. This is obviously not the full-featured version of your ideal prod-

uct, but the opposite. The simplest, least-expensive product you can produce

quickly with the sole purpose of getting feedback from real potential clients

is your MVP 1. Now you continually improve your product, called pivoting in

Lean Startup jargon. You test the next assumption with MVP 2—for example,

when you have fixed the flaws in MVP 1 and made it more complex with

added features. Along the way, the product becomes better and better, and

it is always approved by the market. At some point, you feel it has developed

into a robust commercial version that enough clients are willing to pay money

for. Only then do you launch your first actual product (the final MVP) in the

market. Even after launch, product development still continues. You keep col-

lecting information about how you could improve the product in an upgrade

or the next version. Figure 2-1 illustrates this process.

Build

•Create a minimum viable product (MVP)

•Use and recycle what you have available

•Create at least a rendering, animation, picture

Measure

•Show the MVP to potential users

•Record how they use the MVP

•Record their feedback and comments

Learn

•Use the feedback to improve your MVP

•Pivot when necessary

•Test the upgraded MVP again

Validate

•Value hypothesis: Does the market need it?

•Growth hypothesis: Will enough people pay for it?

The product that your company

will produce and launch in the market

Final

MVP

Pivot

Figure 2-1. Minimum viable product (MVP) testing with “Build, measure, learn”

Chapter 2 | The Lean Startup Changed Everything

For each MVP, you need to test two hypotheses: the value hypothesis (whether

anybody in the market wants it) and the growth hypothesis (whether there is

sufficient demand in the market to have a business). This boils down to, “Do

people want our product?” and “Will enough of them pay for it?” Often, both

hypothesis tests can occur at the same time. MVP testing is about experiment-

ing and recording your findings—not in the lab, but in the real market with

real potential clients. By leaving the building, you shift the question from “Can

we build it?” to “Should we build it?” If your market gives you the thumbs up,

then you have a business, and the startup is ready for takeoff. Otherwise, keep

experimenting with other MVPs.

Most university startups, even those with repeated grant funding, have never

conducted such tests and are not going to do so anytime soon. This is unfor-

tunate, because in a global marketplace you cannot afford to fly blind. You are

up against millions of highly motivated incremental product testers who are

validating hypotheses on a daily basis to get a head start. Spending time writing

grant proposals will put you at a disadvantage.

Simplify, Then Simplify Again

The idea of testing MVPs sounds intuitive—that is, until you try to apply it in

your own startup. It can be surprisingly hard to come up with a quick product

that can be tested easily. Not only that, but you need to be able to implement

that feedback rapidly to improve your product. If your MVP is too complex

or expensive to build, you may collect some feedback, but incremental devel-

opment will be tedious. Finding the right MVP is therefore the first order of

business for a startup.

As a software company, especially when your product involves a mobile app,

you can quickly mock up a user experience with design software or even on

paper. It is less easy when your startup involves hardware. The MVP is never

what you would like to make, but what you can make today with little fund-

ing and no additional materials. Toward that end, Table 2-1 outlines a simple

process to find possible MVPs.

University Startups and Spin-Offs 19

Table 2-1. Table to Arrive at Minimum Viable Products (MVPs)

Description Material

Needed

Other Things

Needed

Cost

What would we like to make? $100,000

or more

What is a simpler version of that?

What is an even simpler version? Recycling what

is already there

Nothing $0

What does it look like? An image or

screenshot

Nothing Nothing $0

The goal of this exercise is to find an MVP that you can create quickly with

the materials you already have. Go down the list until you cannot simplify any

more. As a rule, the most-reduced product is always just a picture of what you

want to make. This may sound trite, but many startups think their technology

is too complex to create an MVP. You may have an animation, a screenshot,

or any other visual representation of your product. Get feedback on this

first, using a checklist like that in Figure 2-2. Then you can step up and test a

physical MVP. Ideally it should cost you nothing, because you can easily put it

together yourself. You should be able to produce this MVP in a few days.

How do potential customers use the product?

What do you learn from observing them?

What do they say about the product?

What do they like, what do they not like?

Would they pay price X for the product?

How do they suggest you improve the product?

What are your own impressions about needed changes?

How can you improve the product based on this feedback?

Figure 2-2. Checklist for MVP testing

Chapter 2 | The Lean Startup Changed Everything

Entrepreneurs generally like to start with the maximum viable product in mind.

To scale that down to the minimum is easier said than done. Researchers in

particular feel like frauds unless their product is flawless. In startup entrepre-

neurship, this is impractical. Pivoting a buggy product wins the day. Have you

thought hard, but you cannot come up with any ideas to simplify the MVP?

Engage your team in a brainstorming session. Perhaps also invite the accountant

and the guy who does IT support at your university. Those without domain

knowledge sometimes have unexpected suggestions that help you strip down

your MVP. You will have difficulty to gather timely information in the market

if your product is too complex. The worst outcome is to perfectly carry out

a plan that results in a product nobody wants. Better to make the simplest

prototype you can think of and show it to potential consumers today.

The Lean Startup in Action, 1: Battery Startup

Imagine the following fictitious example. Three PhDs named Adam, Ben, and

Christine are working on their postdoc, researching a new smartphone bat-

tery technology. Not only is their battery biodegradable, it also fully recharges

in ten minutes. Two years of diligent research have yielded promising results,

and the postdoc is nearing its end. One evening, over beers, the team talks

about their future, and someone makes a joke about starting their own bat-

tery firm. Hours later the trio is still brainstorming about how to do that, and

it becomes obvious the entrepreneurial bug has bitten them. The idea sounds

even better the next morning. But where to begin? They have published

several papers about the technology and given presentations at congresses.

Industry leaders have expressed vague interest in “doing something together,”

but none of the team knows much about business or raising funds. Their

scientific advisor supports the startup idea. She proposes that they write a

business plan, make a budget, and apply for grant XYZ. The grant-award date

is 12 months away.

Instead of getting sidetracked in writing a lengthy business plan and a grant

proposal, the team should first gain clarity about their motivation and product.

They should start confirming their idea while they still have the infrastructure

of the university available. Is the battery (or a variation of it) something the

market wants? If so, what price will buyers be prepared to pay for it? Does

the team really want to run a company? They should start thinking about

their MVP. Instead of the finished battery for the smartphone, this will be per-

haps a larger rechargeable battery that the team could create more quickly.

In the best case, the MVP is a good-enough product they can produce in a

small series for market testing without much effort. Before they produce the

MVP, the team should leave the lab and speak with manufacturers and whole-

sale and retail customers about the product. Would they carry it in their

stores or make their distribution channels available? Will they pay price X?

University Startups and Spin-Offs 21

What about price Y? The first MVP could be an advertisement in which the

battery is available only on paper for preorder. In love and war, all is fair.

Another simple MVP could be a campaign on a crowdfunding platform such as

Kickstarter. The goal is to get real-life data from potential clients fast, without

spending much time and money.

Once you start thinking about possible test cases, you will come up with many.

The key is to engage your thinking along this path and get busy—not in the

bubble of the lab, but in the real market.

Back to the battery startup. Within a month of the first hypothesis test, one

of the team, Adam, has thrown the towel and left for his native land where a

position on a tenure track beckons. Good for him. Now it is up to Ben and

Christine. They have found that the biodegradable, rechargeable battery they

imagined is too expensive to make. However, if they forget about making it

rechargeable, they can offer it competitively. But then it will no longer work

in a smartphone. Interviews and responses to the mock advertisement have

shown that a deep market exists for biodegradable batteries. The simplest

battery they can produce is a car battery. Tests with potential buyers have

validated both the value hypothesis and the growth hypothesis: people want a

biodegradable car battery and are willing to pay for it.

Let’s recap. The team wanted to produce a smartphone battery, but it became

obvious that they needed to simplify their MVP. The original idea involved

complex manufacturing, device dependence, and other roadblocks that can

only be overcome with scale. As a result, they had to think about other appli-

cations of batteries, such as AAA, 4.5 volt, CR, and car batteries. Whichever

of these was the simplest for them to make, they chose as their MVP. Tests of

the car battery in the market showed that there were willing buyers for such

a product. Thus, with a car battery, they have a product that satisfied the value

hypothesis and the growth hypothesis. With this, they have a valid business

idea and can move forward.

The startup duo can now decide whether they still want to embark on the

venture. If they do, they may approach a leading battery manufacturer and offer

to enter a joint venture to further improve, test, and finally mass-produce the

battery. If this happens, they will not need to raise funding because their joint

venture will be a subsidiary of the battery manufacturer, in which both Ben

and Christine will own equity. The university will often also own a small stake

in spin-off companies, which is only fair.

To engage the battery manufacturer, Ben and Christine had to first confirm

their idea. They had to find out the original product they planned was imprac-

tical and too expensive to produce. Only through testing in the real market

could they match their technology with existing demand. Because they were

running lean, they developed a useful product inexpensively. Had they not

done that, someone else would have had to figure out the right product based

Chapter 2 | The Lean Startup Changed Everything

on their technology. This is often unattractive for joint venture partners, who

have enough on their minds with their own problems. Yet if you can prove to

them that a profitable market for your validated product exists, their risk is

much lower. They only need to finalize the product and can then integrate it

in their sales and distribution channels.

This is an idealized story, of course. But note that no business plan was at the

heart of this team’s success. Many assumptions about the project changed,

which would have resulted in pointless updates to a business plan that nobody

will ever read. And no grant proposal was submitted. Had the team done that,

they would have robbed themselves of momentum, valuable data, and deeper

insights about the nature of the market. This eventually laid the foundation for

the future of the business. As a bonus, they learned that one of the cofounders

was uncomfortable with startup life and preferred a 9-to-5 job. Sorting this

out later down the road would have been a messy affair.

Because lean product development is inexpensive, startups have strategies at

their disposal to test ideas and assumptions right away. From the beginning,

they have one foot firmly planted in the market, collecting feedback and incre-

mentally developing products. The founders immediately see what startup

entrepreneurship entails and can decide if they are cut out for it or not.

Gaining momentum as early as possible is extremely valuable. The lean startup

will always have a leg up against those who sit at their desks, formulating per-

fect business plans even before they test their product ideas in the market.

The Lean Startup in Action, 2: Electric Scooter

Startup

Let’s look at another fictitious example of MVP testing. In this case, a proto-

type exists that incorporates several individual technologies. This is frequent

with university startups.

Assume that in his PhD, Simon has built an electric scooter that he wants to

bring to the market with a startup. The scooter has a slick design with sev-

eral innovations in the technology of the wheels and the closed body. Other

features include a newly developed accelerator, regenerative braking, and a

quick-charging battery. Simon believes the retail price of the scooter should

be around $2,000. A prototype of the scooter exists in the lab, but he is

unsure what to do as the first step to commercialize the idea. How should he

go about all this with the Lean Startup method?

First, Simon should test the value hypothesis with potential buyers of the

scooter. Do they want what he built in the lab? If the scooter drives safely, he

could test the prototype right out of the gate. However, this is not his MVP.

What will Simon do if he finds that test drivers do not like the prototype?

University Startups and Spin-Offs 23

Is there something wrong with the wheels, the body, the accelerator, or the

brakes? There are too many moving parts, which will prevent him from gather-

ing meaningful feedback, and he will be no wiser than when he started. Instead

he should simplify the MVP and break down the tests into several steps.

Simon can start by testing any of the scooter’s components, but he should

focus on the one that is easiest to test. Is it the battery, the wheel design, the

electronics, certain features of the build, or something else? He should find

the MVP, with emphasis on minimum. If he is testing the wheel design, then he

can take an existing scooter and just add his wheels. He has already tested

them in the lab to see how much traction they have and how many hours

they last with normal use. Now he has to leave the building and invite some

potential customers for a ride to see what happens. Do they prefer his wheels,

or are they indifferent? Simon should measure how his MVP scooter fares

compared to a normal model. He may learn that customers love the wheel

design, because it provides a new kind of driving experience. If this is the

case, he could commercialize the wheels alone and approach a manufacturer.

Right from the beginning, Simon’s startup has a product with the potential to

generate revenue. If he was still brainstorming about how to build the perfect

untested prototype, he might never have known that a marketable product

was lying around in the lab, unused.

Simon has tested the wheels. Test riders felt that they are “more fun” than

traditional wheels, because they are easier to navigate with. He records this

and moves on to the next MVP. To find out how close to the market his

original prototype is, he adds parts of his scooter to the MVP one by one and

tests how long the market still accepts it as a product. The next component

of the scooter is the accelerator. Simon adds it to MVP 1 and arrives at

MVP 2 (wheels and accelerator). He tests it in the center of town, where most

potential buyers of the scooter are. One day, it begins to rain unexpectedly,

and the accelerator stops working. He never knew of this flaw, because up to

this point, he only tried it in the university’s air-conditioned hangar. He can

now find out what the problem is, improve the accelerator, and test it again.

Then Simon moves on to the brakes. Afterward he tests the closed body.

The original prototype of the body turns out to be impractical for most

potential users. So Simon mocks up changes with CAD software and shows

the renderings to potential customers, just to see what they say. He adapts

and improves the design until the market gives him the thumbs up.

He moves along like this until he has tested all the different features of his pro-

totype. The wheels and the accelerator deliver a new driving experience, but

the fast-charging battery adds too much weight, which slows down the scooter.

He learns which individual parts—the wheels and the accelerator—satisfy the

value hypothesis of the market. So, Simon could start with them alone as his

first products. Had he tested his prototype in one go, he would have gotten

either a positive or a negative response and would not have known where to

Chapter 2 | The Lean Startup Changed Everything

start with improvements. Based on his findings in MVP testing (illustrated in

Figure 2-3), he can now commercialize the individual components and build a

scooter the market wants.

…

MVP 3 (wheels and

accelerator fixed)

MVP 1 (wheels)

Improve

and pivot

Improve

and pivot

MVP 2 (wheels

and accelerator)

Improve

and pivot

Figure 2-3. MVP testing of the electric scooter

Simon confirmed several value hypotheses. How about the growth hypoth-

esis? Will people pay $2,000 for the scooter? If some testers already want to

buy the scooter, then yes. Otherwise, Simon can speak with potential custom-

ers about pricing and find out this way. He may learn that adding the closed

body leads to most of the cost, so he has a bigger market if he produces a

conventional, open scooter. In either case, Simon has first-hand intelligence

about his market and his customers’ preferences.

To have a viable startup, both the value hypothesis and the growth hypothesis

need to check out. When they do, a startup is infinitely more advanced than

one that is still brainstorming. If Simon is not exhausted yet and wants to pur-

sue entrepreneurship with his startup, then he is in the game, up and running.

A Startup Coach Can Be Valuable

In the real world, the process of creating and testing MVPs is easier said than

done. Doing so often requires experience and unconventional thinking that

may not be native to the founding team. It is therefore helpful to engage a

startup coach for the research team in the early stages, when the idea seems

daunting and many insecurities about the path ahead exist. Universities are

often open to engaging external advisors for startups. Of course, this should

not be theoretical advice or yet another weekend workshop in startup entre-

preneurship. An MBA or economics student from another faculty who will

work on the case as part of their master’s thesis also is not enough. The team

needs a dedicated, experienced entrepreneur who will enjoy working with

them for several weeks in the lab to address their challenges.

University Startups and Spin-Offs 25

Research shows that it is often very effective to learn a new skill by seeing an

expert doing it and then repeating it.3 This approach trumps theoretical advice

any time, as well as self-directed learning by doing. If startups have access to

a seasoned entrepreneur who works with them one-on-one, this can make

all the difference. It can accelerate the learning curve by two or even three

times while avoiding many early common pitfalls and distractions. If the team

has built their own network and reached out to other entrepreneurs, they

may suggest someone they see fit as their advisor. A startup coach should

obviously have firsthand entrepreneurial experience, but domain knowledge is

unnecessary. The whole point of working with a coach is to get an outsider’s

view and a fresh perspective on the team’s challenges. Domain knowledge

exists already on the team in the form of the founders. The added value of the

startup coach lies more in management: getting the startup out of the building

and into the market as soon as possible.

Do You Need a Business Plan?

A business plan in the classic sense is a thing of the past. It is largely a thought

experiment with little merit once a business has gotten underway. Some

entrepreneurs admit that but insist the business plan can be a guideline to

keep them on track and their thinking focused. To me, it is the other way

around: once you start, you need to be as flexible as possible to pivot and

incrementally change your products and services. A rigid 50-page document

will only hinder you in that regard. I have never written a business plan for any

of my businesses in almost 20 years. Launching a startup is an exercise not in

thinking, but in doing. The practice of requiring a written document before tak-

ing any action is against the nature of entrepreneurship. Flexibility and time to

market are much more important than perfect planning and consideration of

eventualities. A business plan stands in the way of getting started.

Of course, you still need to think about your startup in a systematic man-

ner before taking the plunge. This is important, but you need to do it with

an open mind. A relatively new approach is the business model canvas, which

is basically a business plan condensed onto one page.4 It does away with the

need for speculation about potential revenue down the road and focuses on a

3Robert Greene, Mastery (New York: Viking, 2012).

4Alexander Osterwalder and Yves Pigneur, Business Model Generation: A Handbook for

Visionaries, Game Changers, and Challengers (Hoboken, NJ: Wiley, 2010).

Chapter 2 | The Lean Startup Changed Everything

few specific key questions about the business and its market. An updated ver-

sion of the business model canvas has been proposed by author Ash Maurya.5

His lean canvas is what I use for the startups I work with (see Figure 2-4).

Although the original canvas is good to analyze a business, the lean canvas

helps entrepreneurs get started quickly. I also find it more useful when I need

to discuss the business with third parties.

Product Market

Problem

Top 3 problems

Solution

Top 3 features

Unique value

proposition

Single, clear,

compelling

message that

states why you

are different and

worth paying

attention to

Unfair advantage

Not easily copied

or bought

Customer

segments

Target

customers

Key metrics

Key activities

you measure

Channels

Path to customers

Cost structure

Customer acquisition cost, Distribution cost,

Hosting, People, Etc.

Revenue streams

Revenue model, Life time value, Revenue,

Gross margin

Figure 2-4. Lean canvas, adapted from the Business Model Canvas

(www.businessmodelgeneration.com), licensed under the Creative Commons

Attribution-Share Alike 3.0 Un-ported License

When filling out the canvas, make a different one for different assumptions.

For example, if your startup is in Singapore, you should show how it applies

to the local market, to the wider market in Southeast Asia, and to all of Asia

including China. Analyze different scenarios for your startup on different

canvases. If you speak with different third parties, make a canvas for each of them.

The problems, solutions, unique value propositions, distribution channels,

customers, costs, and pricing models will vary from market to market. This is

a good exercise to understand the platform you are playing on.

5Ash Maurya, Running Lean: Iterate from Plan A to a Plan that Works (Sebastopol,

CA: O’Reilly, 2013).

University Startups and Spin-Offs 27

When you begin, you will quickly find that all this looks simple but is far from

intuitive. Prepare yourself for the fact that your first canvasses will rarely

survive much scrutiny and will need an update soon. This is fine, because the

canvas is the opposite of a business plan set in stone; it is a fluid document

you use to organize your startup and put the different puzzle pieces together

over time. Treat the canvas as a work in progress, and carry it around with

you. Update it as needed, when new findings emerge from market feedback or

you feel a pivot is necessary. The lean canvas and the financial model, which

we will visit later are both the cornerstones of your toolkit to present your

startup to the world.

CHAPTER

What Does

It Mean to

Be a Startup

Entrepreneur?

Thanks to the movie The Social Network, we now all know what startup entre-

preneurship is like.1 Late night hackathons in the house in Silicon Valley, half-

empty pizza boxes and shot glasses everywhere, groupies, parties. We lost a

few friends on the way, but there is still the billion dollar paycheck at the end

of the road. It would be nice if this were true. Unfortunately, it is not—unless

you are Mark Zuckerberg. Entrepreneurship is fun, but rarely the sort of fun

shown in the movies. More the fun of solving a complicated chess problem.

Or the fun of writing a beautiful mathematical equation. Or combining many

agents who seemed unconnected into a springboard for your product.

At this point, I encourage you to stop for a minute and think about your

motivations for startup entrepreneurship. Are you seriously dedicated to

making this work? Or is the startup more of a convenient strategy to stay a

little longer at your research institute after your postdoc has run its course?

1The Social Network, directed by David Fincher (2010; Columbia Pictures).

Chapter 3 | What Does It Mean to Be a Startup Entrepreneur?

Do you just want to find out what it is like to dabble in entrepreneurship, with

no plan to see the whole affair through? Ask yourself the inconvenient ques-

tions at the beginning. Be aware that unless you have a strong motivation, it

will be hard to enjoy the fruits of your labor, in terms of both experience and

success. I believe that everybody has entrepreneurship in them. That’s why I

encourage you to give it an honest try.

Entrepreneurship is taking place on a global stage today. Right this second, mil-

lions of startup entrepreneurs are thinking about how they can take market

share from somebody else. They are hungry, scratching and clawing their way

into the market with little or no capital. They are fueled by Top Ramen, sleep-

ing three hours a night in their parents’ basement (at age 35), with no other

choice than to make their startup work. You need to know that launching a

successful startup is no cakewalk. It also has little to do with a lottery that

you can play passively and hope to win the jackpot. Honestly check your own

motives and those of your team before you charge forward. This chapter is

not meant to dissuade you from entrepreneurship, but you should understand

what you are getting into before you dedicate time and resources to this

rewarding but demanding challenge.

You may have guessed it by now—there is no quick fix to launch a startup.

There is also no secret sauce that only the chosen few have. Viewed from a

distance, entrepreneurship is just a persistent movement toward a certain

goal. The road is winding, and you only see the short distance right ahead

of you. By taking one step after the next and adjusting your course, you will

eventually achieve the goal. That’s it. This chapter discusses some defining

characteristics of entrepreneurship and some loosely defined ground rules

that distinguish entrepreneurs from non-entrepreneurs. Some of those may

be unexpected because they are different from commonly accepted business

advice. They come primarily from my personal observation and experience,

with no claim to be contextually exhaustive. Think of this chapter as a conver-

sation with someone who shares his personal viewpoints about the mindset

required to become an entrepreneur.

More Management Than Creativity

Contrary to public opinion, entrepreneurship is nothing like going to the

casino and betting everything on red 13. It is more perspiration and manage-

ment than fun and games. Creativity is important, but long stretches of run-

ning a company have little to do with that. In other words, startup success

lies less in creative planning and brainstorming and more in doing and taking

action. Many nights are spent diligently managing delicate issues, evaluating

data, and troubleshooting. Researchers have an advantage, because they are

familiar with meticulous documentation, statistical testing, and reporting their

findings. This can be a considerable asset over the college dropout who has a

University Startups and Spin-Offs 31

great idea but few tools and no patience to work with data. Startup entrepre-

neurship has a great deal to do with tinkering. Getting it right the first time is

nearly impossible. Make sure you have the energy and flexibility to adjust your

course when you see that improvements are necessary.

Here is another popular view of entrepreneurship. A team has decided to

launch a startup. Before they can do so, they need to brainstorm for months

about the perfect product. Finally they hit on a brilliant idea, which they carry

out over the following months by endlessly laboring in their top-secret lab.

They get feedback from MBAs who help them create the perfect business plan

and marketing plan. With the perfect product and the perfect plan to push it

into the market, they are prepared to conquer the world.

I certainly thought this is how it works until I launched my first startup.

However, it is an outdated notion of product development, which arose in

the paradigm of mass production that held true during your parents’ lifetime.

Today’s model is lean production, which Chapter 4 explores in more detail. As

a startup, you need to first come up with the simplest test product imaginable

to see how potential buyers react to it. We explored how to do this in the

previous chapter. You can build your MVP in a few days, with little brainstorm-

ing and planning. When you get positive signals, you continue and improve

the product. If the signals are negative, you change course, tinker with the

product, or invent a new one. You do this until you have proof that enough

people in the market need your product and will pay for it. Then you are ready

to launch it. Because you tested it in every upgrade cycle, you already know

which market segments want your product. Advertising and marketing costs

are minimal and draw on pull factors, not push factors. This requires diligent

market testing, recording data, managing progress, and keeping track of your

overall goal. With creativity alone, this is impossible.

Many additional aspects of startups need management. For example, angry cli-

ents, or the lack of clients altogether. A neglected spouse. Concerned parents.

These require management skills and perhaps some creativity, but mostly they

just need to be handled. When there is a founding team, even more politics

and psychology enter the mix. Perhaps one co-founder has lost faith in the

startup and wants to exit, but still wants to share in future gains of the inven-

tion he helped pioneer. If no paperwork exists, then this can quickly become

a sticky issue. Or you may receive a cease-and-desist letter from a lawyer in

a far-off land, stating that you are infringing on patents X, Y, and Z and are

hereby notified to immediately stop any and all business activity and contact

her firm to negotiate damage compensation. Dealing with such issues is most

unwelcome, delicate, and a huge time waster. You can only master them if you

draw from a well of strength, fueled by your own conviction that you are on

the right path. Per aspera ad astra.2

2Latin phrase, loosely translated “A rough road leads to the stars.”

Chapter 3 | What Does It Mean to Be a Startup Entrepreneur?

Succeed Turtle-Style, Not Kamikaze-Style

Discipline and self-motivation are extremely important for entrepreneurs.

Forget about the cliché of the entrepreneur who is finally his own boss,

spends most of the time on the golf course, and wanders into the office

once in a while to make certain profits are still rolling in. The other cliché

of the workaholic who only got her startup off the ground by working 24/7

also is inaccurate. Both of these are extremes—the real-world experience

lands somewhere in the middle. Although it sounds good to work hard and

play hard, this is rarely helpful in the long term for entrepreneurs. It is better

to adopt a disciplined, slightly boring lifestyle to get things done. Putting one

foot after the other every single day will take you to the finish line faster than

quick sprints with much exhaustion in between. Binge behavior, even if it is

good behavior, such as staying up all night to solve a problem, is rarely helpful

in the long run. Discipline yourself to adopt healthy, sustainable habits. If you

are older than 30, you know that staying up until 6 am three times in a row

will take a toll on you. You will achieve your milestones faster if you warm up

to the idea of getting to the finish line turtle-style, not kamikaze-style.

Willpower vs. Self-Confidence

What about self-confidence? Isn’t that also vital? It is true that those who have

good self-esteem are more likely to act on their beliefs than those without.

But research has shown that pep talks in the style of “You can do it” mostly

improve a person’s ego instead of their performance.3 On the other hand, if

you develop long-term willpower, you are much more likely to achieve suc-

cess. This is also essential for universities and their advisors. Little good will

it do their startup performance if they hire motivational coaches or engage

an expert to give a talk once in a while to fire up the students. Sure, an inter-

esting afternoon will be had by all. But the effect on the bottom line will be

questionable. It’s better to help startups by providing practical support such

as a hands-on startup coach or longer-term advisor who is living proof of the

entrepreneurial attitude required to succeed.

Time Management

Time management is another important skill. Most successful entrepreneurs

are always working, when they are working. Get the most out of the time you

have available, especially if you can benefit from the well-equipped research

laboratory or other infrastructure at your university. Make sure you use it

3Roy Baumeister and John Tierny, Willpower: Rediscovering the Greatest Human Strength

(New York: Penguin Press, 2011).

University Startups and Spin-Offs 33

thoroughly while you’re at it. Being an entrepreneur occupies a different para-

digm than being a student or staff at a university. The sense of urgency that

a startup introduces is often foreign to the daily business of research institu-

tions, which mostly run on their own time. When you launch your startup

lean, time will take on an entirely new meaning for you. It is critical to keep

your momentum going, so you cannot afford to waste any of it. Stop procras-

tinating. Stop wasting time. Stop spending time with those who do. This may

mandate some radical strategies, because not everybody at a university is goal

oriented and on a timeline.

Dealing with disruption is a good skill to learn. First, avoid disrupting your

own flow. Of course, stay off Twitter and Facebook when you need to get

something done. Avoid compulsively checking your e-mail or other messaging

platform. Always being connected is addictive. It is also damaging your concen-

tration. If you wish to improve your time management, turn off all toys that

may ping you any second. Answer your phone just one hour in the afternoon,

and make this known on your voice-mail. The same applies to your e-mail. You

may even want to block out time on your calendar for replying to messages. I

know this all sounds extreme and strange. If you have enough time during the

day, a few instant messages here and there will seldom make much impact. But

if you are on a mission and are strapped for time, then these habits are the

first that have to go. Shut them off for one day and see what happens—this

frees up a surprising amount of concentrated time.

There are also many distractions beyond your control. In each office or uni-

versity department, there are always those with too much time on their hands

who will begin a conversation with you and then ramble on endlessly until

stopped. They are rarely willfully wasting your time but are simply unaware

that for entrepreneurs, time is money. If someone has made it a habit for a

decade or more to stop others in their tracks and tell them about the latest

thing that happened to so and so, then this behavior will be difficult to shake.

However, entrepreneurs should beware of those who interrupt their flow.

After each interruption, even an innocent text message ping, it takes about ten

minutes to get back to the level of focus you had prior to the interruption.4

If you are already in a conversation with someone via messaging or e-mail

and engage in a purely administrative task at the same time, the impact of the

disruption will be smaller. But if you are in deep thought about your strategy,

brainstorming a thorny issue, or just getting in the flow with some good ideas

coming, then even a harmless smiley face sent to your phone can have devas-

tating effects. You will lose your train of thought and may never regain it.

4Gloria Mark, Victor M. Gonzalez, and Justin Harris, “No Task Left Behind? Examining the

Nature of Fragmented Work,” Proceedings of the SIGCHI Conference: on Human Factors in

Computing Systems, Portland, OR, April 2–7, 2005 (New York: Association for Computing

Machinery, 2005).

Chapter 3 | What Does It Mean to Be a Startup Entrepreneur?

Assume you get six unexpected text messages a day: one each hour. In addi-

tion to the time you spend responding to these messages, they will cost

you about 1 full hour of fully focused work during the day—7 hours per

week, about 30 hours per month. Think about all the brainstorming and

MVP testing you could complete in that time. Now, what if you get a total

of 60 messages per day, including text, e-mails, and instant messages, each of

which you address immediately? You may get some routine work done, but

your focus and concentration will be subpar most of the time. That may be

fine if nobody competes with you, but entrepreneurship demands as much

concentration as practicing martial arts. Postpone interruptions until your

free time, and avoid all of them during your work hours.

In addition, I strongly recommend that you go on a low-information diet from

time to time, as recommended by author Tim Ferriss.5 Unplug yourself from

all media, including news, TV, blogs, e-mails, messaging, phone calls, and so

forth. Celebrate selective ignorance for a week, and you will find you have all

the time you need to accomplish what you thought was impossible. You can

easily do this while working on your startup. Just announce to everyone via

voicemail and e-mail autoresponder that you will be unavailable for the next

seven days. Most people will think you are on leave and will postpone their

questions until you return. Meanwhile, some pressing issues lose their urgency

or turn out to be unimportant, and you will never know they existed. When

you return to the plugged-in world after this one-week media fast, you will

see how stressful all the disruption going on in most people’s lives is. It will

take you a while to adapt—but before you know it, the Matrix will have you

back. If you need more time in your life, remove the things that waste it. It is

as simple as that.

I recently worked with a startup team on the lean canvas. Some good ideas

were flowing until about an hour into the session, when somebody appeared

and asked for “just five minutes” of one of the founders’ time. The discussion

took place in the room where we were working, so this distupted the whole

group. There was some confusion about a certain unknown webmaster, who

might have failed to update some content on a web site about a project.

Finding this webmaster proved difficult, so speculation started about who he

was and where he might be at present. Perhaps he was on holiday? Or perhaps

he had left for his home country? Or perhaps it was the entrepreneur himself,

but he couldn’t remember? Or perhaps … This took fully ten minutes, with

no conclusion to the matter. I sat there, flabbergasted. Why couldn’t this have

waited until later? Clearly, the interrupter had no plans to willfully disturb

our session, and I love her dearly. Yet the effect was devastating. After this

5Timothy Ferriss, The 4-Hour Workweek: Escape 9-5, Live Anywhere, and Join the New Rich

(New York: Crown Publishers, 2007).

University Startups and Spin-Offs 35

incident, the group never achieved the previous focus and flow. This was a pity,

because such consulting sessions are rare, and they are exactly what bring

entrepreneurs forward. Five more minutes of focused attention can make all

the difference: they can result in a breakthrough about the business model or

a solution to a certain problem. When you need to focus, hide where people

cannot find you. Make it a rule to turn off all phones, and ban tablets or laptops

on which people may otherwise read their instant messages or book a flight

while you are trying to work.

It is difficult to avoid all interruptions, but you should try to minimize them.

When others interrupt you with unimportant requests or gossip, the follow-

ing strategies by author Dan Kennedy have worked quite well for me6:

Someone: “Have you got a minute?”

You: “Sorry, but I’m extremely busy today. We can meet at 4:45 pm for 15

minutes and tackle everything on your list at one time.”

Or even better:

Someone: “I need to discuss something with you.”

You: “I am extremely busy right now and can only deal with tasks that are

either a nine or ten on a scale of one to ten. Is this a nine or ten?”

Stop Being Late

An often-overlooked component of time management is punctuality. Although

it may be OK among students to be academically late, business people, bank-

ers, and other entrepreneurs value their time above all else. As the saying

goes, “Those who cannot be punctual cannot be trusted in other ways either.”

Nobody will inform you that you should be on time more often—they will just

categorize you as someone who is habitually late and untrustworthy. Or even

worse, they will not meet you again and will never do business with you. Avoid

this at all costs. Being late is rude (both in business and private matters).

When I lived in Los Angeles, one of my neighbors was a retired rock-star gui-

tar player from a famous 1980s band. For 20 years, he had toured the world,

flown around in private jets, and lived the good life. Just as with entrepreneur-

ship, his lifestyle actually had very little in common with the Hollywood ver-

sion of stardom as all chaos and mayhem. Celebrities have a tight schedule and

must show up on time. They can only do this with iron discipline and serious

planning. Whenever I met with this neighbor for coffee, he would suggest an

6Dan S. Kennedy, No B.S. Time Management for Entrepreneurs: The Ultimate No Holds Barred,

Kick Butt, Take No Prisoners, Guide to Time Productivity & Sanity (Irvine, CA: Entrepreneur

Press, 2004).

Chapter 3 | What Does It Mean to Be a Startup Entrepreneur?

odd time like 9:10 am or 3:25 pm. It later occurred to me that he was running

on a schedule partitioned in slices of five and ten minutes: 9:10 am meant 9:10

am, not 9:15 am. In those five minutes he could have done something else,

and time is money. Do you think someone like this would give you another

meeting if you were 15 minutes late? There is no need to be that extreme,

but you get the point. Make it a rule to be extra punctual to all meetings and

gatherings.

Bootstrapping

Startup entrepreneurs should be experts in bootstrapping. As mentioned

before, I think the best way to ruin a startup is to give it a lot of money. This

may sound illogical, but I have seen it happen firsthand with my own projects.

The ones that eventually turned profitable always limped along on limited

private finances for a longer time than I would have liked, then slowly turned

profitable, and then accelerated along the “hockey stick” (see Figure 3-1).

Because the changes are exponential, it is impossible to spot them at the

beginning. Over time, as they compound, growth reaches the upward sloping

part of the hockey stick and explodes.

Revenue

No growth or very slow growth

You could be here

Time

Explosive

growth

Figure 3-1. The hockey stick

The flat part is necessary in order to iron out the business model, market

approach, and financial model. Last but not least, you gain clarity about whether

you and your co-founders wish to continue this venture. The groundwork for

your future business success starts in the tough times of the flat hockey stick.

The accelerating part is when you experience the fun and payoff. Without the

flat part, long-term success will be impossible. If your goal is just about making

a quick buck, then entrepreneurship is the wrong avenue. You need to learn

important lessons about your venture and about yourself first. These insights

will last you a lifetime.

University Startups and Spin-Offs 37

The learning experience that comes with entrepreneurship is another reason

having wealthy parents or early funding is a disadvantage for the bootstrap-

ping entrepreneur. It steals the thunder of being inventive and robs you of the

ability to make do with little or no means. A successful serial entrepreneur I

know had an incredible drive in his first self-funded venture, launching product

after product in a 24-hour release cycle. After selling the first startup in the

low nine-figures, he embarked on his next tech venture, which immediately

attracted multimillion-dollar venture capital. But instead of losing sleep fret-

ting together with the team about ideas for the next MVP, he phoned in from

the racetrack (he had taken up sports-car racing) and only showed up at the

office once a week. The entrepreneurial fire was obviously gone. The venture

did OK, but it was a mere shadow of the first company. Early funding puts you

right in this second category. You lose your edge over all the hungry entrepre-

neurs who must make it work on a shoestring. If you are really interested in

learning the ropes of entrepreneurship, there is no way around experiencing

the long, flat part of the hockey stick.

Ideally, you should wrap the initial stage of your startup into an existing engage-

ment, such as an ongoing research commitment or postdoc. It is best to start

with hypothesis testing without having to scramble for a roof over your head.

Most universities are open to letting their research teams start a business

with their ideas, and they even encourage them to do so. If you are straight-

forward about your plans, others will support you. Make sure the university is

on board with your idea. Then use its infrastructure 24/7.

Make a Good First Impression

I cannot stress enough how important good manners and being presentable

are in business. Startup entrepreneurs play in the league of the business world

rather than the academic world. They should therefore adopt the style that

will brand them as businesspeople. Yes, Mark Zuckerberg wears flip-flops and

a bathrobe for meetings with venture capital firms, but he is probably the

lone exception. Extremely few entrepreneurs have been able to engage other

companies, investors, and venture capitalists by dressing down and celebrating

the student image. Of course, nobody asks you to wear a suit and tie to your

lab. But how about a polo shirt instead of a t-shirt? That simple shift alone can

make a huge difference. You can still wear tennis shoes, but they should be

clean, without holes. By all means, wear something comfortable, but please do

not show up in your pajamas. If you dislike wearing a business suit, fine. Wear

dark jeans or khakis and a dress shirt. Or a longer skirt and a blouse. Please,

leave the athletic pants and the Adidas flip-flops at home. You never know

when unexpected visitors will drop by, and you never know who they may

be. They may be distant descendants of the royal family, looking to invest in a

university startup. You never know when a government delegation may tour

the building, and you will have the opportunity to give a little presentation

Chapter 3 | What Does It Mean to Be a Startup Entrepreneur?

about your current development. Not only will you make a better impression,

but you will feel more on par with the people you present to. When you feel

underdressed, you lack the confidence to inspire others.

A brief word about language. For some reason, in some parts of the world,

it has become fashionable to use obscene language in everyday conversation

as if there was nothing to it. If you are an entrepreneur, this is not for you,

because you wish to be taken seriously by the business and investor commu-

nity. You may think this advice is overly conservative and patronizing. However,

the majority of businesspeople and those in decision-making positions at ven-

ture capital firms will appreciate it if you refrain from using gutter language.

They may use this or that word once in a while themselves, but their language

is generally cultivated.

The tricky part about language is that you may think you can adjust easily

to different settings depending on who you are talking to. Unfortunately,

this is not true. As soon as you establish some rapport with other people,

you will drop your guard. If you normally use profanities, they will roll off

your tongue without you noticing it. Just as with being late, nobody will tell

you to please watch your language. But they may subconsciously feel that

your startup still needs more development, or that they preferred another

entrepreneur who made a more professional impression. Give third parties

as few reasons as possible to reject you. One of them is proper language. No

need to emulate Prince Charles but f-words and any derogatory language

have no place in business.

I once introduced a friend in Los Angeles to an attorney I had worked with

previously. I thought she might be interested in an invention my friend was

working on. So I set up a lunch for the three of us to see if there was some

common ground. Having known my friend for a while, I had somewhat gotten

used to his rough language and liberal use of f-bombs. Naively, I assumed that

he would control himself in a business meeting. Was I ever mistaken. F-bombs

were flying in the chic cafe in Venice Beach, over seared ahi tuna salad and

sugar-free ice tea. F- this, and f- that, this f---ing m-----f---r, what a f---ing idiot,

and so on. He talked himself into a frenzy. In his view, people were out to get

him, and they should all be f----d. This was obviously the first and last time I

introduced this guy to anyone. Not only was his behavior blatantly rude, but

he also sabotaged himself—and it reflected terribly on me. You cannot tell

a grown man in front of others to watch his language. After he left, I had to

profusely apologize to the lawyer from Beverly Hills, who commented that the

guy was quite intense, in her own words. That introduction led nowhere. My

friend failed to get his project off the ground. And the next one. And the one

after that. It’s a pity, because some of his ideas were good and could have taken

off. By all means, do not be that guy.

University Startups and Spin-Offs 39

In addition to avoiding gutter language, you should avoid speaking negatively

about others. Think twice before you talk down about your competitors in

their absence. In fact, never speak ill of anyone, except to their face. Recounting

the calamities that have happened to you is also unattractive. Avoid stories

about how you were sick over the weekend and spent most of it in the bath-

room. Put yourself in the other person’s shoes: would you like to spend time

with someone who mainly speaks about things you would rather never have

happen to you? Or would you prefer someone with an upbeat outlook on

life who sees the opportunity in everything? By no means am I advocating

that you fashion yourself into a careless Pollyanna. But there exists a magical

balance between being a realist and having a positive outlook. Start observing

the impact it has on you when someone won’t stop telling you about their

problems and mishaps. It creates a climate of negativity that drags everything

down. It’s better to see the bright side of things and avoid dark topics. This

makes a better impression on others, especially in your first meeting.

Doing Business Abroad

If your university has a campus in a foreign country, then you may already be

familiar with the idiosyncrasies that different cultures bring with them. Asian

cultures in particular often stump the American or European visitor with

their many intricacies. As a student, consequences of severe mishaps may be

minimal; but for an entrepreneur, a misstep can break your venture. Business

culture is rigid in some countries, whereas it is relaxed in others. Become

familiar with the business etiquette of your locale. As a foreigner, nobody calls

on you to do everything right. If it seems as though you genuinely care, then

you are in the green and small mistakes will matter less. There are numerous

books about conducting business abroad. Read one about the country where

you are a guest. Even if you think you already know everything, the dos and

don’ts may surprise you.

A key custom is the act of greeting. Each country has its own protocol. Some

religions may forbid a man to shake a woman’s hand. People may dislike it if

you hug them cordially. But others will find it strange if you refuse to par-

ticipate in the ritual of three kisses on their cheeks. Familiarize yourself with

the greeting protocol if you engage with partners from a foreign culture. It is

usually easy enough to ask someone before the meeting about how things will

unfold. You can then copy what others do. It has always been a good practice

to wait on a handshake until the other party extends their hand. If they don’t,

then you do whatever they do: either bow or nod.

The same goes for food. You will rarely have an important business lunch

or dinner where table etiquette is so exotic that you are at your wit’s end.

Most lunch meetings are informal. But occasionally you may unexpectedly find

yourself at a banquet. If this happens, copy what everybody else is doing. If you

Chapter 3 | What Does It Mean to Be a Startup Entrepreneur?

are being served food, then let that happen, without refusing any of it. Nobody

expects you to eat everything that is put before you, but rejecting food is seen

as very impolite in many cultures.

A few years ago, a company of mine entered in a joint venture with a Japanese

company. When the business relationship was forming, the Japanese partner

flew my firm from Los Angeles to Tokyo for a week to hammer out the legal

agreements. One of the partners in the American business, let’s call him J, had

a tattoo of the Chinese character “love” on his forearm. This may have been

cute in Los Angeles, but in Japan, only Yakuza and other delinquents bear tat-

toos. Foreigners are often unaware that a tattoo reflects badly on the person in

Japan. In the Japanese view, tattoos violate the body, and they are a reflection of

low self-esteem. In a negotiation, you obviously need to make the best impres-

sion possible and come from a position of strength. To negotiate with Japanese

businesspeople is tricky enough, to say it mildly. The last thing you want is the

other party perceiving you as flawed and weak. I advised J of that and suggested

he wear a long-sleeved business shirt to cover the tattoo. Knowing he had a

stubborn personality, I doubled up and sent him an article from a book that

explained the problem. With that, I considered the issue closed. Fast-forward

two weeks. We are seated in the conference room in Tokyo: three people from

my company on one side of the table, five older Japanese businessmen on the

other side of the table. Negotiations are not going well. The Japanese repeat-

edly say, “Just sign the contract!” That contract contains blatant flaws and is a

long way from I want for my business. But most important, J’s tattoo is shining

brightly for everyone to see. Not only that, but his cowboy boots and the rolled-

up sleeves of his flannel shirt give the impression that he comes right from the

farm in Ohio. He certainly made his point that nobody can tell him what to do

with his tattoo or what to wear. Yet how can a settled Japanese businessperson

in a tailored suit consider a person looking like a farmhand an equal partner in

a joint venture? I certainly am no micro manager. But dressing properly for a

business meeting is a basic requirement when negotiating a contract. After much

wrestling, the deal eventually came to pass, in the least elegant way possible. The

business later turned sour, and I exited before it tanked. I am not blaming that on

J. However, the foundation for a strong future of that joint venture was missing. It

could have started in that first meeting, had the other party taken us seriously.

This concludes the crash course in manners. Read a book about business eti-

quette, and you will be all right.

A Mindset, Not a Job

Entrepreneurship is much more a mindset than a job. It is about finding open-

ings and possibility where others don’t. If you look at the world through the

entrepreneur’s eyes, you will suddenly see many opportunities that you pre-

viously missed. Opportunities to get feedback from others to assist you in

University Startups and Spin-Offs 41

moving your idea forward. Opportunities for partnerships that open new plat-

forms for you. And opportunities to save money wherever you can. You can

be entrepreneurial in any line of work, not just as a startup founder.

The main point is that an entrepreneur needs to switch from being a con-

sumer to being a producer. What does that mean? Producers have new ideas,

come up with innovative solutions, and launch products and services that

consumers cannot live without. Consumers benefit from these ideas: they

need the new solutions and buy the products or services the producers offer.

Of course, everybody is both a producer and a consumer at the same time.

On balance, however, an entrepreneur should be more producer than con-

sumer. This is a tricky topic, and by no means is this a value judgment. But

it is important to understand that startup entrepreneurship shifts you from

the consumer side to the producer side. This is intuitively clear, because a

startup produces a product or service for the benefit of clients in the market.

You provide a product or service instead of consuming one.

This shift is fundamental and will eventually seep into other areas of your life.

You can no longer take the easy way out, but have to meet challenges with

leadership. Instead of blaming others for a botched job at your company, you

must now take on full responsibility, because there is no one else to point

fingers at. Instead of trying to carry out a task, you must deliver, whatever it

takes. Instead of partying the whole weekend and calling in sick on Monday,

you must be a professional, always ready to pull the trigger when a lucky

chance presents itself. It may be inconvenient, but if it helps get your startup

off the ground, you should jump on it.

As an entrepreneur, you are always on. Most people are no startup entrepre-

neurs and are firmly rooted on the consumer side, so making the switch is dif-

ficult. Why do you keep talking about business when everybody else is trying

to forget the day at the office after five o’clock rolls around? When you see

your startup as a mission, then there are no business hours. It takes willpower

and determination to stay the course. Otherwise, you may miss an opportu-

nity that could potentially launch your venture into the stratosphere. To adopt

an entrepreneurial mindset, it is of course very helpful to surround yourself

with other entrepreneurs. These are your peers, from whom you can learn by

osmosis. When you have access to a supportive group of businesspeople, then

over time you will see how they do things and approach certain situations and

learn what it takes to get your startup off the ground.

Get Out of Your Comfort Zone

As an entrepreneur, you must learn to be open about life and its opportuni-

ties. These often present themselves in the least likely places. What do you do

if a project is only somewhat in line with what you can or want to deliver, but

Chapter 3 | What Does It Mean to Be a Startup Entrepreneur?

it has the potential to get you closer to a company you would like to enter a

joint venture with? By all means, take on the project, even if doing so is a little

uncomfortable at first.

One day, a casual acquaintance from a business workshop called my company

in Switzerland and asked me to put together some documentation for a cer-

tain sound system for a store his architecture firm was working on. This had

little to do with the core business of my company, but sound systems are a

hobby of mine. I did some research, called a manufacturer to order a catalog,

and then sent everything to the architect. With this documentation, he went

to meet his client. Rather unexpectedly, I then received a phone call with a

request to calculate the exact cost of the system. So, I made another call to

the manufacturer and created a table in Excel. I thought of this as nothing but

a favor to another businessman. A week or so later, the architect called me

excitedly and congratulated me on landing the project. What project, I won-

dered? It turned out that his firm was remodeling the stores of a mini-super-

market chain, which wanted to install sound systems in each store. Because

the documentation I had put together looked professional, he was under the

impression that I was a dealer of these sound systems. His client approved of

using the system I had researched and wanted to order it from my company.

Well … sure, we could deliver that! All I had to do was ask the wholesaler to

drop-ship a system to each location. Local electricians then carried out the

installation under the architect’s supervision. My company’s markup on each

system was $1,000. There were 500 stores in total. Feel free to do the math.

When I met this architect, did I know that he would turn out to be an impor-

tant business contact who would eventually secure a substantial project for

my company? Far from it. I had never thought about collaborations with archi-

tects, but I was curious to find out about his projects in the workshop where

we met. The conversation went well, so we exchanged business cards. At

networking events, you can always learn something new and meet people you

would rarely otherwise be exposed to. Networking events are more than a

free buffet and a chance to pick up girls. When you launch a startup, you have

graduated to adulthood and should see networking events in a new light. I

know, it can be uncomfortable to introduce yourself to strangers. Making

small talk is also not my forte. Nevertheless, if you make it a habit to get out

of your comfort zone regularly, you will acquire an important skill for success.

Your university may put on some sort of catered event for a delegation from

industry or the government. Instead of loading up your plate and then hud-

dling around a table with your fellow researchers, do something different this

time. Look for a table with just a few people, and introduce yourself. Ask what

brings them to the event, and find out what they are doing. Exchange busi-

ness cards. Tell them about your startup and the current insights you’ve had

or the challenges you are struggling with. Ask for their feedback and whether

they may know someone interested in your technology. Make outrageous

University Startups and Spin-Offs 43

demands. Do they perhaps know an investor or a joint venture partner for

your startup? Or would they be willing to assist you with testing your MVP?

See what happens. You never know what will come out of these encounters.

Building a strong network is important for the future of your startup. You may

meet someone in a few months who could benefit from a casual connection

you made last week at a networking event. Once you have connected with

enough people, you can begin linking them up with your existing network. This

is fun to do and will do more than benefit those you introduce to each other.

When you need somebody’s help, you may also tap into their network. Before

you know it, you are part of an active exchange of contacts and ideas. And all

this happens because you leave your comfort zone once in a while.

Read and Improve

Most successful entrepreneurs are voracious readers. They constantly read

books, publications, and the news to keep on top of what is happening in the

world. This concerns topics beyond existing domain knowledge, about which

I assume you are already an expert. Knowledge is power, and startup entre-

preneurs need all the power they can get. You need to expand your horizon

with knowledge from outside your field of vision. In addition to absorbing all

the information you can to solve your current challenges, also read books

that have no obvious application to the situation. If you need to find a solution

to an issue with a certain material, then do the required reading along with a

biography about Nicola Tesla. Far-flung ideas may cross-pollinate the problem-

solving process, and they may originate in the least expected places. If you

read one sentence somewhere that holds the answer to a pressing problem,

your life may change forever. You cannot expect to have that one sentence

presented to you on a silver platter. To distill the wisdom that is useful for you,

you need process large amounts of information yourself.

It is surprising how few books people read after their college years. Even

some smart people proudly announce they have read the last book a decade

ago. Sure, they may browse the news online, scan some RSS subscriptions, and

academic publications here and there, but systematic reading with the goal

of massive knowledge acquisition is rare. Not among the successful entre-

preneurial elite, though, who practice it as a daily habit. By the way, I am not

talking about reading novels, but nonfiction books. Imagine you read one such

book each week. That would be 52 books in a year. Quite a sizable library.

I doubt most people read 52 books in their entire life. Here is a knowledge

advantage you can gain in a single year. With speed-reading techniques you can

read two or even three books per week. That amounts to a whopping 156

books by the end of the year and 1,560 books after 10 years.

Chapter 3 | What Does It Mean to Be a Startup Entrepreneur?

The reason I prefer books to other written material is that you enter a con-

versation with the author. It takes about one year to write a complete book.

Considerable research and knowledge condensation go into the process. The

author recounts many experiences for your learning pleasure. When you read

a book, you absorb a whole year of somebody’s work. With speed reading,

you can assimilate in one year what 156 people took an entire year of their

life to compile. This 156X multiplier is incredible leverage.

Whenever I read a book or a research paper, I make a summary. It consists

of bullet points and some of the most important drawings or graphs from

the book. At the end of the summary, I do some quick brainstorming about

how the ideas from the book are applicable to my current circumstances. I

strongly encourage you to do the same. Even though it is extra work, you will

benefit hugely from having summaries of what you have read. It enables you

to review your reading later and quickly look up the most important ideas.

Who has ever read a 400-page book twice, or three times? I revisit most of

my summaries at least once a month so they stay fresh in my mind, ready for

use when I need ideas. When you have your own summaries, you can also

share them with others. Exchange summaries with like-minded individuals.

When you progress along your entrepreneurial journey, you will be surprised

to learn that many successful entrepreneurs are doing exactly this and have

done it for years. Only the relatively passive mainstream prefers watching TV

to knowledge acquisition.

To become excellent, you should avoid all things that make you mainstream.

When you are picking up new, positive habits, they rarely seem to make a big

difference at first. But over time, when your efforts compound, you will pull

away increasingly quickly. After several years of knowledge acquisition, there

will be a huge gap between you and the mainstream and a much smaller gap

between you and successful entrepreneurs. To achieve success, you need to

do the things that successful people do. Reading a lot and putting that informa-

tion in context with your situation is just one of them.

Then there is the subject of self-improvement. I know, you may think this is

soft and only applicable for esoteric types. But all successful people engage in

one form or another of self-improvement. Perhaps adopting a new positive

habit, like getting up at 5:30 am every day. Or learning a new language just for

fun. Or improving their working memory with N-back programs. They do

little things each day that push them a bit. Self-improvement is much more

than meditation and yoga. If you go to the gym regularly, that’s a form of self-

improvement. If you deny yourself that second piece of cake, that’s another

form of self-improvement. And if you read a book every day for 30 minutes,

that’s also self-improvement. This has little to do with seeking enlightenment,

but with adopting positive habits. When those habits have become part of

your day like brushing your teeth or taking a shower, they have the power to

help you achieve your goals without even thinking about them.

University Startups and Spin-Offs 45

So how can you get in the habit of reading more to accelerate your learning?

Begin by scheduling daily reading sessions. Make a regular, recurring appoint-

ment at some time during the day to read a nonfiction book for 30 minutes.

Or put the item on your daily to-do list. It is in your own best interest to fol-

low through on this commitment.

Get Used to Big Numbers

When you manage a business, you must begin getting used to bigger numbers.

What does that mean? Well, if your profit margin on each product sold is

$100 and your potential market size is 1 million, then that will amount to

$100 million in profit. Can you imagine such a number? Yes? Good. Feel free

to skip this chapter. But you may feel slightly queasy when talking about capi-

talist concepts like profit, margin, and sales revenue. You may think $1 million

is an enormous amount of money. If anyone asks you about your revenue

target in five years, you may feel uncomfortable if it is more than $5 million. If

this is the case, you are not alone. Startup entrepreneurs rarely come from a

background where they received early education about money. The financial

literacy of most people around the world is limited. If there is more month at

the end of the money, then they notice that they have overspent; otherwise,

budget planning has no mindshare.

Financial intelligence has nothing to do with IQ. The smartest people can

make terrible financial decisions. And some people who have never gone to

school have amassed fortunes. Nobody expects you to become a financial

planner or financial analyst, but you should at least get comfortable with big-

ger numbers. When you deal with corporations, you will notice that they have

another definition of revenue and cost. Hundreds of millions may be cheap for

a corporation, compared to their other overhead.

Once upon a time, a company of mine was working on a project for an airline.

Our contribution was small, but the entire project, handled by a large consult-

ing firm, cost several million dollars. We thought our part should be worth

$30,000, because it only involved a limited engagement for a week or so. The

big meeting took place on the top floor of the client’s corporate headquarters,

right next to the airport. The decision maker and his staff sat around the con-

ference table in tailored suits and silk ties. When the time came to approve

the budget, he addressed me and asked, “So, about your budget item here.

This is in addition to your other $30,000, am I correct?” Somebody must have

made a mistake and entered our fee twice in the overall budget. Honest as I

am, I cleared up the confusion, only to notice a hint of disappointment on the

face of the airline man. Oh, I see. It’s that cheap … I am sure those were his

thoughts. To me, $30,000 hardly seemed little at all. However, the airline man

would not have blinked had that fee been twice as big. It might even have been

OK to charge $100,000.

Chapter 3 | What Does It Mean to Be a Startup Entrepreneur?

Budget items need to make sense in relation to other items. If all the other

items are $100,000 or more, then yours should be in a similar range. If the

overall budget is several million, then adjust accordingly. But wait a minute,

you say. You would charge a company twice the cost that another company

paid, just because their budget is higher? Yes, absolutely. Your markup should

adjust to the capability of the market. Price is a result of the ability and willing-

ness to pay and has little to do with the manufacturing cost of the product or

service. This is called price differentiation in economics. It is what hotels do all

the time. Booking directly on their site may cost 50% more than booking on

a discount web site. It is the same room—the only difference is the margin a

particular customer is willing to pay. What if you sell a product with a fixed

price? Then you will always have a dominant market to which you tailor your

margin. If you cannot sell your inventory, that’s when you begin reducing the

price and your margin. As a rule, choose a market that can pay a high price for

your product or service. Marketing to them and delivering the product takes

the same effort as catering to a low-cost market. As a startup, you should

attempt to extract the highest price you can. To do this, you have to think in

large numbers.

Many startups project their future revenues way too low. If you believe you

will hit $3 million in sales in the third year, then you are thinking too small.

Look for markets and business models that will allow you to make $100 mil-

lion, $500 million, $1 billion. This market size is interesting for joint venture

partners and investors. Do a little research about other companies. Speak

with some investors. Read books about how venture capitalists think. Watch

the movie Wall Street.7 Direct your thinking toward larger numbers, and seek

out projects that can help your startup gain momentum. If you provide a ser-

vice and a project pays just $1,000, seriously think about whether you should

go ahead or decline it. If it puts you in the same room with people who could

help you land bigger projects in the future, that may be a reason to take a

bath on the first project and then engage the client toward larger projects. If

you can wrap some MVP testing into the project, that may be another reason

to accept a low-paid assignment. But steer clear of making this a habit. If you

keep doing small projects, then you will always be the small-projects company.

Clients will rarely consider you for larger projects, because you have pigeon-

holed yourself into the inexpensive category. Your work should never be inex-

pensive or cheap. Abandon clients who think it should be. Nobody wins when

you set the sights too low for your startup.

7Wall Street, directed by Oliver Stone (20th Century Fox, 1987).

University Startups and Spin-Offs 47

80% Specialist, 20% Generalist

How often have you heard the following phrase? “Only do what you are an

expert in, and outsource all the rest.” This is a common pattern for business-

people, but it misses the point of what startup entrepreneurship is all about.

Sure, you should avoid wasting time with tasks that someone else can do

much better, faster, and for a lower price. Should Tiger Woods mow his own

lawn?8 He spends a lot of time walking around on grass and may therefore

have profound knowledge about the dimensions of a golf course. Tiger would

most likely be more efficient with a lawnmower than a normal gardener, but

his opportunity cost is much too high to be doing that. In the time it takes him

to mow the lawn, he could earn a million dollars doing a photo shoot.

Despite the economic concept of opportunity cost explained with this classic

textbook example, you need to know how to pull yourself out of a sticky situ-

ation or deadline when there is no help around the corner. Therefore, being

ignorant about anything outside your expert domain is a bad strategy for a

startup entrepreneur.

Recently, I was working on a project where we had five days to prepare a

40-page printed and bound brochure for an investment proposal. A decision

maker on another continent needed this information, so the deadline was

firm, and the presentation determined the future of the project. This may not

sound like much. But since that project had started, about 100 folders with

countless articles, diagrams, summaries, and PowerPoint presentations had

been accumulated on three people’s hard drives and Dropboxes. The founders

now needed to revisit everything and pick out the most important bits. The

brochure had to measure up to others whose teams had spent six months

getting everything right. If you have ever put together an annual report, then

you know that this usually takes much longer than a week. We had five days to

condense all the information, write an executive summary, and make a profes-

sional layout in Adobe InDesign. A printer would then bind three copies of the

brochure, which had to look glossy and flawless. Somebody knew a graphic

designer who was available on such short notice, who flew in to do the layout.

Straight off the plane, she raced to the office on Thursday morning, where

we put her in front of a PowerBook that was preloaded with all the assets

and had the layout software already running. The deadline for the printer was

Friday noon, 26 hours away. Let the fun begin.

Many unforeseen issues arose. The first was the keyboard of the computer.

Because the designer was used to a foreign layout, she found our PowerBook

with the QWERTY layout very confusing. Luckily she had her own machine

with her, so all the assets were hurriedly copied to her hard disk. In the

8N. Gregory Mankiw, Principles of Economics (Independence, KY: Cengage Learning, 2008).

Chapter 3 | What Does It Mean to Be a Startup Entrepreneur?

transfer to her laptop, which had a different software version and was

missing some fonts, settings in the file were changed. The layout template

looked completely different from what we imagined. That was the moment

when it became apparent that the designer was much less proficient in work-

ing with the layout software than expected. Sure, she had done motion design

and stunning Photoshop and Illustrator work, but laying out a brochure was a

first. With 20 hours to go until the deadline, it dawned on us that this would

be anything but smooth sailing.

On Friday morning at 11 am (one hour before the deadline), the file was still

unfinished. Working around the clock, the designer was in no shape to spot

errors and typos. One of the founders sort of knew his way around the layout

program, so he troubleshot the most blatant issues right in the printing com-

pany’s office. With everybody hunched around the computer screen, pointing

out a missing image credit here or a wrong description for a graph there, the

file finally went to print. Five hours later, we picked up the bound brochures.

They looked like a million bucks and were soon on their way to Europe. The

goal was accomplished, just in the nick of time. Nobody who saw the final

product would ever know that it was up in the air until the last second and

only came together thanks to lucky circumstances.

Do you believe this would have worked out if the founders had concentrated

on the high-value task of concepts and product development, and let the

designer deal with the supposedly low-value task of the layout job? For the

entrepreneur, the high-value task is getting the job done, whatever it takes. In

this case, it meant knowing how to use that layout software and staying up to

motivate the designer to keep the pace. Finishing what must be done takes

the mindset of a generalist, and entrepreneurs must put on more than one

hat. From this viewpoint, the notion of outsourcing everything but the tasks

with the highest payoff is terrible advice for a startup. If you care about noth-

ing else than your one area of expertise, you will be at a disadvantage when

things veer off course, as they often do.

It is difficult to identify which tasks are of high or low value in the first place. Is

touch-typing low or high value? I have seen too many C-level executives des-

perately trying to knock out a 100-word letter with two fingers when their

speech recognition software refused to work. How about basic web design

and using WordPress? When an important potential joint venture partner asks

you to forward your online documentation to her team, it may be impossible

to hire someone to set up a web site for you in an hour. Make sure you know

your way around more than one thing. Diverse skills can help you directly and

can create considerable goodwill for you when you get others out of a tight

spot. This is why constant learning and reading are so important. Become 80%

specialist and 20% generalist. You will rarely need your generalist knowledge

every day, but it may come in handy when you expect it least.

University Startups and Spin-Offs 49

How to Learn Something New

Did you learn something new in the last month? A few words of a new language,

juggling, or how to stay under water for more than 60 seconds? Life is learn-

ing, so the saying goes. If you think learning stops after your graduate degree,

then you are missing many opportunities right in front of you. Curiosity and

an open mind are indispensable for entrepreneurs. You should make it a habit

to acquire new skills at all times. This benefits you personally—plus you never

know when you can help somebody out of a bind with a skill you possess.

A splendid example of an easy-to-learn skill is touch-typing. Most people believe

this is unimportant, because they can always hack their way through a paper

using two fingers. Speech-to-text software is also often used, and it makes the

keyboard unnecessary. As long as the software works, that is. When you can

type fast without errors, you can translate your thoughts into the computer

at such speed that a new world of possibilities opens up for you. You can blog

about your company and your progress, write manuals or reports about MVP

testing you did, or write a book about your trials and tribulations as an entre-

preneur. If typing is a dreaded activity you would rather outsource, then you

will subconsciously try to avoid anything that has to do with it. If rapid new

skill acquisition sounds intriguing to you, and you still type with two fingers,

then I recommend you put touch-typing on the top of your list.

Wait a minute, you say. What about the 10,000-hour rule? Author Malcolm

Gladwell found that experts in their domain practiced an average of 10,000

hours until they achieved world-class levels. Studying prodigies like Bill Gates,

Tiger Woods, famous musicians, and chess grandmasters, Gladwell found that

none of them were geniuses when they started out. Only after about ten

years of single-minded, deliberate practice of their chosen skills did their hard

work pay off. Ten years equate to about 10,000 productive hours. The rule

states that mastery in any field requires 10,000 hours of practice.9

Research has shown that success comes down to deliberate practice much

more than innate talent. Even prodigies like Wolfgang Amadeus Mozart pro-

duced dismal works in their early years. Only after diligent study were they

able to reach the status the world knows them for.10 With this in mind, it

seems as though you could never learn anything new that you would not be

mediocre at. Who has ten years available to engage in single-minded study of

just one skill? At the same time, many people learn languages well into adult-

hood. They pick up a complex game like golf long before they put in 10,000

hours. There is no need to compete with Tiger Woods on the golf course or

with Mozart on the piano—just play well enough to have fun.

9Malcolm Gladwell, Outliers: The Story of Success (New York: Little, Brown and Co., 2008).

10Geoffrey Colvin, Talent Is Overrated: What Really Separates World-Class Performers from

Everybody Else (New York: Portfolio, 2008).

Chapter 3 | What Does It Mean to Be a Startup Entrepreneur?

Author Josh Kaufman found that a minimum of 20 hours of concentrated,

deliberate practice is necessary to feel the first improvements when learning

a new skill.11 By putting aside 1 hour each evening for 20 days for deliberate

practice, you can improve any skill you set your mind to. The word deliberate

is important. Just reading about a subject does not count. Nor does attending

a seminar about it. A passive activity is not deliberate practice and does not

qualify toward those 20 hours. Most of us forget what practice means after

childhood. If you learned to play an instrument well, then you know what

deliberate practice means: endless repetitions of the most difficult part of a

piece of music, under the watchful eyes of a teacher who criticizes your every

mistake.

Applying this kind of practice to new skills is key to becoming good at them.

When you can manage that, you will be able to pick up a new skill with accept-

able results within 20 hours. You will be able to show some ability, but you

will hardly be a master who can compete with the best of the best. For most

of us, this is unnecessary. Being good enough at a skill to avoid frustration is

all we want.

I recently learned touch-typing while I was in Vietnam. I had my own typing

system before, using more than two fingers; but without looking at the key-

board, I failed to produce satisfactory results. Replacing this haphazard system

with professional ten-finger touch-typing was as simple as blocking out one

hour each evening for typing practice for 20 days. Using software to learn typ-

ing, I can now produce 70 words per minute with few errors. Sure, this is a far

cry from the world record of 216 words per minute. However, it is plenty to

write this book without frustration and exhaustion. Touch-typing is the ideal

first skill to learn in 20 hours. I recommend you look into it.

Begin getting into the habit of practicing new skills regularly. As you saw in

the specialist/generalist discussion, there are various useful skills that startup

entrepreneurs should know. These reach beyond intellectual or computer

skills. Also pick up fun skills like riding a unicycle or kickboxing. Make it a

habit to be enterprising and curious, instead of passive and withdrawn. Be

interested, to be interesting. Just like the knowledge you will gain from reading

extensively, your newfound powers will accumulate over time and build on

each other. That takes a while, so you need to start early to reap the benefits

later. You need to practice several years to be an overnight success.

11Josh Kaufman, The First 20 Hours: How to Learn Anything—Fast (New York: Portfolio/

Penguin, 2013).

University Startups and Spin-Offs 51

Who to Turn to for Advice

Entrepreneurship can be a confusing and lonely affair, especially when your

environment consists of people with a strong need for safety and predictabil-

ity. These may be your professors, fellow students and researchers, parents,

friends, and significant others. Asking non-entrepreneurs for their opinion

about your startup and advice to solve certain problems can be frustrating.

Not only do they lack the experience to actually help you, but there is also the

risk that they will (subconsciously) try to dissuade you from your plans. They

have never started their own company and probably have nobody in their

circle who has, so they are hardly the right people to call for advice. Of course,

please keep your old friends. Enjoy their company and have a good time with

them, but look for qualified startup and business advice elsewhere.

The same goes for the experts in commercialization at your university, the

technology transfer or licensing office (TTO or TLO). By definition, they are

thinking about patents when it comes to commercializing research. If your

startup has no patentable assets, they will be at their wits’ end. In the rarest

cases, will they admit that. They may point you toward the grant track and gov-

ernment agency XYZ, which has been set up to guide young entrepreneurs in

the “correct” direction. Someone at the TLO may have taken a crash course

in entrepreneurship at a seminar. However, because that is purely theoretical,

you may as well read a book—you will know just as much. Good intentions

are at the root of most of the current support programs, but startups that

take off have seldom gone through these conventional channels. If it was that

easy and predictable, there would be many more successful companies coming

out of academia and government programs, don’t you think?

When you meet venture capitalists and other investors, inquire about their

practical experience and their track record before you ask them for entre-

preneurship and business advice. Have they ever started their own company?

Has the company achieved profitability? No and no? Then think for your-

self why you should trust their advice. It is perfectly OK to ask direct ques-

tions like these. When a venture capitalist becomes serious about investing in

your company, they will grill you about anything and everything. As a rule of

thumb, ask yourself why people are doing whatever they do. If they could run

their own successful company, they probably had better options than working

somewhere 9–5.

Successful entrepreneurs are much better qualified to guide you than any-

one else. Seek out other successful startup founders in your city or country

and become friends with them. Use the Internet to connect if there are no

networking events or meetups in your city. Make it a point to upgrade your

personal network. Exchanging ideas with other startup founders and estab-

lished entrepreneurs is stimulating and inspiring for you and your team. Most

Chapter 3 | What Does It Mean to Be a Startup Entrepreneur?

entrepreneurs, myself included, are happy to give advice if they feel the per-

son asking for it has drive and motivation. They recognize earlier versions of

themselves in people who ask them questions. Openly approach other entre-

preneurs and ask if they can give you feedback on your ideas. Most of the time

they will accept, and a new friendship may be in the making.

Why Even Bother?

By now, you may have decided that launching a startup is interesting but too

invasive in your life and hardly worth the hassle. Perhaps you hoped you could

somehow start a new business on the side without much effort. Why bother,

if it is so grueling and uncertain? Why not simply take on a cushy position at a

university? After all, that is what everybody else is doing, so it cannot be that

bad.

Sure, the temptation to give up is there. When things are on the rocks, it will

become even stronger. Regardless, be aware that real change always originates

from a determined entrepreneurial mind. Entrepreneurship is pretty much

the only way for anyone to have a chance to change the world. Working as a

researcher may lead to groundbreaking insights, but rarely do they find their

way into the lives and hearts of people. Teaching at a university may instill cer-

tain knowledge in motivated students, but it is by starting your own company

that you can make a real impact. Not everybody has to reach for the sky and

try to make their mark. It is perfectly OK for most people to work a normal

job, enjoy the weekends with their friends and family, and lead a quiet, com-

fortable life. There is nothing wrong with that.

However, you may lie awake some nights with the gnawing feeling there should

be more to your life. You notice the lack of a deeper mission and purpose.

You feel you are on a treadmill, failing to live up to your potential. You wonder

if you are making enough use of your talents and your energy. Your work at

the university never leaves the ivory tower and has no impact in people’s lives

outside academia. Later you fall asleep. The next morning, you have largely

forgotten those silly thoughts, which you blame on insomnia and stress. But

they return—regularly, and at shorter intervals. What to do in this situation is

unclear to you, because the necessary changes seem so sweeping and impos-

sible that you better forget about them. Does this sound at all familiar?

Not everybody asks these questions, but chances are you do, because you

have picked up this book and are still reading it. If you feel you should make

better use of your talents, then launching your own company may be the

answer for you. Your deep understanding of a certain technology can find its

way into a useful product with the power to transform lives. How about giving

your mind the platform to express itself fully and make an impact in the world

at the same time?

University Startups and Spin-Offs 53

There is a whimsical Japanese movie by Akira Kurosawa, called Ikiru (“To

Live”).12 The protagonist, Watanabe, has spent the last few decades in a gov-

ernment agency where he has advanced to the respected position of section

chief. His work consists of little more than stamping papers and shuffling proj-

ect proposals from one desk to the next until they disappear into a drawer.

One day he receives devastating news: he has stomach cancer. He will die

within the next six months. Watanabe wakes up to the fact that he has done

nothing important with his life up to this day. He sets out on a search for mean-

ing and makes it his mission to see through at least one project: a proposal to

turn a festering sewage pond into a park. This proposal has been repeatedly

submitted by residents who suffer from the sewage pond near their homes,

but it is sent from section to section, and the government does not intend to

take action. But this is no longer how Watanabe does his job. He scratches

and claws his way through the bureaucracy, through a thicket of complacency

and corruption, up to the highest positions. Most of his colleagues think he is

crazy and will never prevail. Against all odds and through sheer will, Watanabe

makes it work. He eventually dies a happy man in the park he helped create.

A friend of mine recently confessed that she thought there was nothing left

to discover. All the important and fun adventures had taken place already.

The discovery of new continents, the flight to the Moon, were all checked

off the list. Of course, she would quit her job as a stockbroker and become

an entrepreneur, if she could only find a satisfactory field for her startup to

venture into. Clearly, this person had set her sights on the Hollywood version

of entrepreneurship.

Most people think the status quo is how things are and should be for eternity.

When the world was flat, there was no need to sail past a certain point in

the ocean. Yet somebody did and induced a paradigm shift that set a whole

new ideology in motion. None of these discoveries were fun and games. The

voyages of Christopher Columbus took many years of preparation, tedious

politics, and fundraising alone. Not only did the monarchs to whom he sent

his plans to discover the western route to India believe them to be impracti-

cal, but they also doubted Columbus could possibly succeed. Many had tried

before, so why should it work this time? When he finally secured permission

and funding for his expedition, the dangerous part of the endeavor began.

Three days into his first journey in 1492, the rudder of his vessel broke—

a potential act of sabotage. Then his crew allegedly grew so homesick that

they threatened to sail back to Spain. It was unclear whether the indigenous

people Columbus might encounter would be friendly toward foreign visitors.

Had Columbus’s primary motivation been the fun and potential honor of the

project, he would have given up after the first few weeks.

12Ikiru (生きる, “To Live”), directed by Akira Kurosawa (Toho Studios, 1953).

Chapter 3 | What Does It Mean to Be a Startup Entrepreneur?

Fun and prestige are weak motivations to launch a startup. You should feel

a burning desire to explore, learn, and make an impact in the lives of people

who find your startup’s product or service useful. This is often little more than

a feeling deep down that this idea could potentially be big. When you have this

feeling, I encourage you to follow it, using the list in Figure 3-2 as a guideline.

You can rationalize for as long as you want whether the idea will be successful.

But if you have an inexplicable drive to make it work, chances are high that it

will. Setting the wheels in motion without much deliberating is the best policy.

Overcome analysis paralysis, and boldly step forward. The recommendations

in this book will allow you to do just that.

Imagine yourself spending more time on management than creative

tasks.

Warm up to succeeding turtle-style, not kamikaze-style.

Use your willpower to implement positive habits in your life.

Learn to manage your time and eliminate distractions.

Upgrade your behavior from student/researcher to businessperson.

Leave your comfort zone once in a while by taking small, calculated

risks.

Read a nonfiction book for 30 minutes daily to learn something

new.

Make a goal of learning new general business skills that may help you

later.

Figure 3-2. Checklist for a startup entrepreneur mindset

CHAPTER

Engaging Others

with Actionable

Next Steps

How many times has this happened to you? A businessperson you meet at a

networking event finds your research project interesting and wants to learn

more about it. You exchange cards and set up a meeting in the coming week.

The person comes to your lab, signs the NDA, and approvingly nods at your

technology, which you present in much detail. When the hour is up, your guest

thanks you for the time and suggests keeping in touch, especially when you

have advanced the technology more and it is closer to implementation. The

person then departs, never to be heard from again. You assume this person

was not all that interested after all and chalk it up as one more pointless

meeting.

In reality, you failed to engage the visitor properly. You were most likely

unclear about what you wanted from the interaction in the first place. You

showed your work, but you missed the chance to gain insight into the business

of your visitor and the person’s challenges, expansion plans, or product

innovations. When making a new contact, most people never research who

that person really is, let alone read up on their present and past job history or

personal interests. Every person has a valuable network, and when you meet

someone, you can get access to their network. It may not be the initial con-

tact you do business with, but rather someone on the edge of that person’s

network. Entrepreneurs must know how to use others to advance their cause.

This is a cornerstone of entrepreneurship.

Chapter 4 | Engaging Others with Actionable Next Steps

In your dealings with those outside your university, you should begin thinking

about engaging them with actionable next steps. They may be government

agencies, financiers, insurance companies, businesspeople, successful entre-

preneurs, or others. At a large public university I worked with, several banks

scheduled visits to show the impressive infrastructure of the world-renowned

institution to their C-level staff and wealthy clients. After the first few tours,

the managing director decided to stop the visits with the argument that his

facility was not a zoo. With this only half-joking statement, he and his staff got

rid of the annoying visitors, but they threw out the baby with the bathwater.

Imagine what a good relationship with banks and their wealthy clients could

have done for the university’s startups. Many other universities and public

companies act the same way every day. Few people know how to engage oth-

ers with actionable next steps to gain leverage.

By means of “build, measure, learn,” you already know that frequent market

testing is required in order to get feedback about your products and services

so you can incrementally improve them. You can use interactions with the real

world for the same purpose. Instead of giving visitors a feature-laden lecture,

why not engage them in a fun experiment that helps your startup collect data

about its product or service? Why not ask them questions to learn more

about their opinions and interests? It is often possible to turn the situation

around and derive a constructive learning session from engagements that at

first seem dull and boring.

Know What You Want

You have gained clarity about your startup, your process, some of your first

MVPs, and other insights. Now you have a good picture of who to engage for

the cause of your startup. In the world of the startup entrepreneur, everybody

becomes a potential MVP tester, client, partner, or advisor. Is someone telling

you about their children at a networking event? If your startup works on an

electric scooter, ask them to bring the kids to the lab to test how it feels to

be the underage copilot. Are you programming software for traffic flow, and

someone mentions that they know an operator at the transport authority?

Ask them to set up a meeting so you can MVP test your prototype. Even

if your MVP is still under construction when you set the meeting, whip up

something overnight. Has a bank announced a visit to show high-net-worth

individuals (HNWIs) around the campus? Design a questionnaire for them

relating to your project, and make sure you’re the center of attention dur-

ing the visit. Does a government agency want to see in action some of your

university’s technology that holds promise for the future? Engage them in the

discussion, and get as much feedback as you can. Don’t resort to simply giving

them the old shtick of your academic, top-down presentation, leaving them

with nothing to act on after the visit. Engage them wherever you can. Collect

University Startups and Spin-Offs 57

their business cards, ask for referrals to other agencies, and ask for one-on-

one sessions to gain a better understanding of their problems. You will learn

invaluable lessons this way.

All this may sound grossly opportunistic and slightly crazy. It is not, when you

begin thinking like a startup entrepreneur who has to make do with whatever

presents itself. You will learn that you can be quite aggressive with your ideas

and questions before anyone turns you down. As a startup entrepreneur, the

world is your MVP testing lab.

The One-Page Proposal

A more formal approach to engaging people with actionable next steps is the

one-page proposal, as described by author Patrick Riley.1 It spells out a target

or goal, background information about your request, financial details, status quo,

and next actions. Thinking in terms of one-page proposals is a helpful exercise

to approach business with others. If you know exactly what you want, you can

test how serious the other party is about collaborating with you. It is in your

interest as an entrepreneur to find those who can help you get your venture

off the ground and avoid wasting time with those who cannot or will not.

Here are the individual elements of the one-page proposal:

Title•

Target•

Secondary targets•

Rationale (the pitch)•

Financial•

Status•

Action•

Name and date•

Let’s go through each of them, one by one.

Title

Obviously, this is what your proposal is about. Make sure the title fits on one

line. Make it bold, a few points bigger than the other type. “Proposal of XYZ

for [ company ] to investigate potential for joint venture” is a workable title.

1Patrick Riley, The One-Page Proposal: How to Get Your Business Pitch onto One Persuasive Page

(New York: HarperBusiness, 2002).

Chapter 4 | Engaging Others with Actionable Next Steps

Target

The target is what you want—the outcome of what you propose. For exam-

ple, “Merging synergies with XYZ, complementing product line Z, establishing

cost leadership in market X”.

Secondary Targets

These are other effects of the outcome you propose: increasing market share

over competitors, a first-of-its-kind project or product, opening the door to a

new customer group, and so on. List three secondary targets in bullet form.

Rationale

This section is slightly longer—one or two paragraphs. It outlines your back-

ground, some history, how you got started, what you are seeking to do, and

some biographical information about the founders and their expertise.

Financial

If you ask for money, or if any other cost is involved (for example, to put on

a special event or conference), list what you need. You can also break down

the cost of components or anything else that may be relevant to finances in

the proposal.

Status

Describe the project’s status quo. For instance, “The concept phase of project

X is complete, and the project is ready to go. Prototype X is 80% complete

and expected to be ready for testing next week”.

Action

This is the call to action to the other party. For example, “For company XYZ

to internally discuss possibilities of a joint venture, then to schedule a follow-

up meeting for clarification and questions about the road ahead.”

Name and Date

Print the proposal, and sign and date it at the bottom. This is important and

introduces some urgency. All your contact data, including e-mail and phone

numbers, goes in the footer of the page.

University Startups and Spin-Offs 59

An Example Proposal

This may all sound abstract. To clarify, Figure 4-1 shows a sample proposal by

a fictitious research startup for a joint venture.

Figure 4-1. Sample of a one-page proposal

In general, proposals are more convincing when you deliver them in person

instead of via e-mail. Make an appointment, and say that you would like to

schedule a meeting to talk about a proposal for a project. Then go to the

appointment and take the printed proposal with you, neatly stored in a clear

folder. If the recipient insists that you send it, or if they are located in another

Chapter 4 | Engaging Others with Actionable Next Steps

country, still steer clear of sending a pdf via e-mail. Print it on good paper

stock, sign it, and send it to the company via FedEx, addressed to the office of

the CEO. This is too significant to be sitting in an e-mail inbox, next to unim-

portant spam. Make your proposals special.

It may look short and simple, but such a document can take a week to com-

plete. Remember that this is a one-pager, not a one-and-a-half pager. Keep

it to one page not only because it is more accessible and elegant, but also

because it forces you to strip all the bulk from your presentation and express

it concisely. The font size should be at least 10 or 11, and the page should not

look cramped.

Getting used to asking directly what you want takes a little while. At first sight

it often seems too straightforward, especially to those in academia, where

interactions are informal but hesitant. In business, people appreciate your get-

ting to the point and putting your cards on the table. Working with written,

actionable proposals shows that you are sincere in your undertaking. Even

when you meet potential partners informally, you will sharpen your thinking

toward engaging them in your process, rather than just providing entertain-

ment or a good show in the lab.

Prepare a few proposals for mundane things, as practice. Perhaps even write

one for the managing director of the university where you conduct your

research, proposing certain actions to help you with your startup. Get into the

habit of presenting the proposal, and learn as you go.

To begin engaging others with actionable next steps, use the checklist in

Figure 4-2.

Have a clear idea of who your potential clients are.

Think of ways to get them to give feedback on your minimum viable

product.

When you have a meeting, have a clear list of goals.

Prepare a one-page proposal today.

Figure 4-2. Checklist for actionable next steps

CHAPTER

Benefits vs.

Features

A venture capitalist has read about your technology and has shown interest

in learning more about your startup. When he and his associate come to the

lab, you show them the research you have carried out in the last year. With

your 200-slide strong PowerPoint presentation, you explain the features of

the different technologies. This includes how you have improved on them by

doing X, Y, and Z; an extensive list of software you used; and why most of it is

no good to measure data with the precision you need. You show the statistical

data that proves with confidence that this and that ratio have changed. Data

from other tests is still waiting for processing, but once it is available, you can

work on improving this and that ratio by so and so many percent. The venture

capitalist and his associate both nod and say they find your work very interest-

ing. They promise to stay in touch, and they leave. Since that day, you have not

heard from them, and your e-mails to them remain unanswered.

Such an interaction is most frustrating. Yet it is clear why it happens: research-

ers are by nature deeply involved in a topic. They are experts in the fea-

tures of a technology, how they interact, and how they have improved. On the

other hand, consumers only care about the benefits of a technology. As Peter

Drucker says, you don’t buy a product, but what that product does for you.

This thinking is relatively alien to scientists, yet it is vital when making the jump

into the free market. It no longer works to just present a technology and then

let the other party figure out how to draw a benefit from it, let alone create

a product. Academic entrepreneurs must make this step clear when speaking

with non-academics.

Chapter 5 | Benefits vs. Features

The SPIN Technique

Author Neil Rackham devised a simple process called SPIN to move the dis-

cussion from features toward benefits.1 SPIN is an acronym for

Situation•

Problem•

Implication•

Need-payoff•

With this in mind, you can shift the discussion with external parties from a

feature-laden presentation to an actual dialogue, where you match the ben-

efits of a technology with the needs of the other party.

To do this, let’s recap the fictitious example from the Lean Startup method:

Simon has been building an electric scooter and now wants to take it to mar-

ket with a startup. He is trying to confirm the growth hypothesis (will people

buy the product?). His scooter costs around $2,000, which is above the price

of similar models on the market. Features of the scooter include a futuris-

tic design with several innovations (mainly the technology of the wheels),

a closed body, new accelerator technology, and regenerative braking. Let’s

see how Simon could conduct an interview to discover whether the market

would buy this product. He has identified a potential buyer and asks her a few

questions.

Simon: Hi, and thanks for coming to this interview. This here is our scooter. It

has a cool design with numerous innovations. The wheels are 15% lighter than

comparable wheels. The same goes for the closed body. Because it consists

of carbon fiber, the scooter has the identical weight of other scooters with

an open body in the mid range. Crash tests have shown that our closed body

reduces driver injuries by at least 50% when a car hits you full frontal. The

accelerator is also a novelty. We managed to optimize the air/fuel mix with a

special jet that we patented. The technology is very exciting; I can show you

how it works in more detail if you want. The scooter also has regenerative

braking, which extends the battery charge by 9.5%.

Potential buyer: OK.

Simon: Would you buy it?

Potential buyer: Well, what does it cost?

Simon: About $2,000.

1Neil Rackham, SPIN Selling (New York: McGraw-Hill, 1988).

University Startups and Spin-Offs 63

Potential buyer: Wow, that is beyond my price range. But it sure looks inter-

esting. Well, thanks for showing it to me. Keep up the good work. All the best

with your project!

Did Simon learn anything about the market in this interview? No—nothing

at all. He only concluded that the potential buyer will not buy the scooter.

Was his growth hypothesis validated? No, because the buyer said the scooter

was too expensive for her. This may be the case, but this answer had a lot to

do with how Simon bombarded her with the features of the scooter. Buyers

never think in features but in benefits, and the only one that Simon mentioned

(50% fewer injuries in a full-frontal crash) hardly registered with the buyer.

This interview was a complete waste of time, largely because Simon neglected

to ask the potential buyer about her real needs. Let’s rewind and see what

Simon could have done better.

Simon: Hi, and thanks for coming to this interview. Please tell me how you

currently commute to work.

Potential buyer: I mainly take a bicycle.

Simon: OK. Every day, even when it rains?

Potential buyer: No, if it rains I take the MRT (a rapid commuter train in

Singapore).

Simon: How does taking the MRT compare with the bicycle for you?

Potential buyer: The MRT is a drag. I live quite far from the station, and my

office is also a 15-minute walk away from the next stop. This takes me about

three times as long as taking the bicycle.

Simon: Have you tried wearing a raincoat on the bicycle when it rains? Or

have you tried any other way to still be able to use the bicycle?

Potential buyer: Of course, I have tried everything! The thing is, I usually have

my son with me, who sits in front in a child seat. I have to drop him off at

kindergarten on the way and get him on the way home. When it rains, this is

very cumbersome, and it is easier if we take the MRT.

Simon: OK, I see. So how often a week do you have to take the MRT then?

Potential buyer: About once or twice.

Simon: And how much time do you lose?

Potential buyer: About an hour per day. But it’s not only that. If there is no

rain in the morning, I take the bicycle. But when the rain starts in the evening

on my way back home, I am soaked, and so is the work I take home, and my

child. The weather has become unpredictable lately. I have considered taking

the MRT each day, but that would cost me 5 hours per week in commuting

time, 20 hours per month. What a waste!

Chapter 5 | Benefits vs. Features

Simon: What about a car?

Potential buyer: No way. I can’t be seen in a vehicle that destroys the planet.

Simon: I meant an electric car.

Potential buyer: Yes, but those things don’t work reliably yet. And they are ugly.

And they cost a fortune.

Simon: Would you consider a different vehicle, perhaps a scooter or electric

bicycle that had an enclosure to shield against the rain?

Potential buyer: I never thought about that … Yes, that may be an alternative.

But what about reliability and cost?

Simon: We’re working on a scooter that is very reliable and not that expen-

sive. There are two seats, and it has an enclosed body. This would protect you

and your son from the rain and is very safe.

Potential buyer: Interesting … What does it cost?

Simon: About $2,000.

Potential buyer. Wow, that is beyond my price range.

Simon: Yes, it’s not cheap. But before, you said you would be wasting 20 hours

per month by taking the MRT. That is 240 hours per year. If your time is worth

at least $8 per hour, the scooter pays for itself in one year.

Potential buyer: When you look at it this way, you’re right. Can I take a test

drive?

Do you see how this works? Simon fully engaged the potential buyer. He let

her talk about the situation and frame the problem. Then he let her discover

that she should do something to address that problem. Finally, Simon brought

up the scooter as a natural solution. In the previous example, when Simon

told the potential buyer about all the features—regenerative braking, inno-

vative design, and the accelerator—he left her to figure out the benefit for

herself. When he used SPIN, the benefit became obvious. The herself buyer

gave all the arguments that the scooter could indeed be a solution. Without

any sleaze or hard sell, Simon presented the scooter as the answer to her

problem. Unless the buyer strongly dislikes the test drive, chances are high

Simon sold his first unit.

Let’s analyze the interview in more detail:

The potential buyer’s • situation and problem is that she can-

not use her preferred mode of transport when it rains.

The • implication is that she is losing time because she has

to use the MRT. If she let’s this slide, she keeps on wasting

20 hours each month on commuting.

University Startups and Spin-Offs 65

The • payoff of Simon’s solution is that she can save time

while still keeping her carbon footprint low and her

finances intact.

Her actual need is not regenerative braking and fancy design, but a safe and

reliable way to transport herself and her child around the city in any weather.

These are benefits of the scooter, not features.

Simon was also smart to frame the discussion about the price in a different

light. Because the potential buyer will make more than $8 per hour at her

job, in just one year the scooter will have paid for itself because it saves over

240 hours annually. This is a solid benefit, and it seems that this buyer may

confirm the growth hypothesis. The only thing that changed was how Simon

approached the interview, and it made all the difference.

These answers gave Simon a good picture of how this particular buyer thinks

and what is important to her. In any event, he has learned a lot in this inter-

view. He can use the feedback he collected from this potential buyer in the

next interview, and he can come up with a product that matches the needs

of his market.

Listen and Learn

When you shape discussions with the SPIN mindset, people will tell you about

their needs. You will learn whether your product meets them. If it does, great.

If not, then you can adjust the product or find a different market. Had Simon

asked the potential buyer directly about her needs, she might have given him a

different answer than what he found out. Most people are unclear about what

they want, so asking them directly rarely gives you the correct answers. It’s

better to read between the lines and find out for yourself. Then test whether

your findings are correct.

Once you have framed the discussion around the value that your product can

bring to clients, then all you need to do is show your ability to deliver that

value. If they trust that you are competent, they will want to make a deal. The

last step is simply getting the commitment to move forward from the other

party. That’s the whole secret of making a sale.

Validating the growth hypothesis is similar to making a sale. Unless you have

clearly established the benefits of the product, trying to show your compe-

tency will fall on deaf ears. Unless people see you as competent, they will

never buy. This is the difference between validating the hypothesis and not

doing so. There is nothing more annoying than a salesman who drones on

about their product or company, while the client is oblivious. Getting commit-

ment is impossible if the other party has no need for the benefit of your prod-

uct. If that’s the case, why should they make a deal with you? But it is perfectly

Chapter 5 | Benefits vs. Features

possible that you can help a client to discover his need to address a lingering

problem. This is where SPIN comes in to guide you. Practice to break your

communications into several steps. It gives you a proper framework to vali-

date your growth hypotheses and sell your products or services.

Make it a habit to think in terms of benefits in your startup. When engaging

in discussion with others, begin by asking questions about their situations,

their problems, and the implications of these problems, and then think of how

your technology could help. This is an effective strategy to frame the dialogue

around benefits, away from academic facts and technology features.

When you leave the building and engage with others while testing your MVPs,

you will find that you can gain much insight from listening and watching. If you

guide the discussion toward needs and benefits, as shown in the interview and

outlined in Figure 5-1, people will voluntarily tell you the best reasons why

your product is valuable. It is then just a matter of keeping the dialogue going

and taking notes. Practice asking questions rather than beaming down infor-

mation. Practice listening and collecting feedback about your business model,

financial model, product, or any other ideas.

Turn the features of a product or technology into benefits.

Think about the problems that your product may solve.

Think about the consequences for potential customers if the

problem persists.

Explain how your product helps reduce those negative

consequences.

Learn to listen when people give you feedback.

Figure 5-1. Checklist for benefits vs. features

CHAPTER

Simple

Strategies to Get

Unstuck

Jumping off the cliff into the unknown murky waters of entrepreneurship

can be frightening. You have exposed yourself by proposing a bold idea and

offered yourself up to criticism from those who follow a more conventional

path. Because you have no successful entrepreneurs in your circle of friends

who could guide you, it is your responsibility to master each challenge on

your own. What do you do when your product is too expensive for the

market, but you already stripped it down to the bare minimum? How should

you react when a joint-venture partner calls with an offer that is too good to

refuse but will take your company on a new, unfamiliar path?

Because it is impossible to have a detailed manual for every challenge, it is bet-

ter for entrepreneurs to learn a few strategies that help them tackle a wide

array of situations. With those in your toolkit, you will be ready to master

situations on your own. You should always be able to come up with several

solutions to a challenge by yourself. When you rely on outside counsel to

solve problems for you too often, you need to step up your game. It’s better

to ask others what they think about your own ideas and hear their feedback

than expecting them to do the work for you.

This chapter presents a few simple strategies that can help startups get an

extra boost when they are stuck. These approaches are split into two main

categories: those that help you take action and those that help you think.

Chapter 6 | Simple Strategies to Get Unstuck

They build on each other. You may already be familiar with some of them;

others may sound new. As always, see which ones you find useful, not only to

get unstuck, but to achieve better results in your startup in general.

Strategies to Take Action

Another analysis, another SWOT, another research paper, another workshop,

or another brainstorming session will rarely help you get your startup off

the ground. Usually, what is lacking is taking action. Have you tested your

prototype in the market yet? Do you believe you need funding before you do

so? And how will you get funding—by writing a clever grant proposal? The

current practice of entrepreneurship at universities centers on analysis: think-

ing about fictitious products and how the market may or may not respond

to them. The most important step of carrying out ambitious visions is miss-

ing in the curriculum. As a result, most students and researchers experience

entrepreneurship in a bubble. There is no shortage of innovation policy that

mandates the government should do this and that, and that universities should

hold workshops and programs to promote more startup activity. In such a

cocoon, entrepreneurs feel little pressure to make things happen for them-

selves. University entrepreneurship is in many ways still a theoretical exercise

and much less a practical one. This is a pity, because it makes it OK for start-

ups to spend time writing proposals and brainstorming instead of leaving the

building and collecting accurate market intelligence about their assumptions.

As long as this continues, university startups will not be in the game. And not

being in the game is worse than not being good enough. When I propose to

software startup teams that they create a mockup frontend for their nonex-

istent software as the first order of business, they often discount this as “BS.”

They think they first need to complete the full backend programming over

several months. Yet who knows if what they are coding will hit a nerve in the

market? If it does, who knows if there will be enough clients who will buy the

product? They can only find out by testing their hypotheses. If the product is

software and there is no backend yet, you can create a faux user experience

in a mockup program and fake the backend. This is the only way to get timely

feedback on ideas.

As expected, such suggestions raise eyebrows at university startups. They

go against everything a self-respecting scientist stands for. Scientific research

by nature goes deep into an issue, and releasing half-baked ideas can have

dire consequences. When results of academic research stand ready to be

published, panels of experts review them and either approve or reject them.

If a publication is turned down, then it is back to the drawing board. More

research is carried out, and the paper is resubmitted. In startup land, it is quite

the opposite. You had an idea this morning in the shower. By lunch, you have

mocked up a minimum viable product (MVP) that you test with real potential

University Startups and Spin-Offs 69

clients in the afternoon. Come suppertime, you know whether your idea has

legs. MVPs are shallow, buggy, unfinished, and have very little to do with your

final product. But if the market gives signals that it would like to see more and

is ready to pay for it, then you can tinker with the product and test it again

until it reaches the stage where you believe it can launch.

Imagine an iceberg with a small visible tip above the waterline and a huge

invisible part in the water (see Figure 6-1). The researcher first builds the

huge invisible part. This symbolizes the research and data collected over many

years, sometimes decades. If researchers decide to launch a startup, they build

the small visible part on top of the large block of ice at the very end of the

process. This small visible part represents the product that sells in the market.

Startup entrepreneurs approach the issue from the other side. First they cre-

ate the visible part and make it look as if there is a huge invisible part in the

water. Only when the market flocks to the imaginary iceberg does the entre-

preneur build out the entire block of ice under the water.

Figure 6-1. Difference in business approach between researchers (left) and entrepreneurs

(right)

Scientists think that their product is the logical extension of all the research

they have undertaken so far. This would be the ideal case, but they may have to

adjust their expectations about what the market wants. They will have to tweak

their product or come up with a different one. When the market speaks, all

meticulous planning goes out the window. It is only through taking action that

this process begins. How can entrepreneurs force themselves to take more

action? Following are some strategies that have worked well for my startups.

One Action per Day

Avoid getting caught up in analysis paralysis. Most likely, you do not need more

information, you need more action. Make it a point to take one action each

day that moves your startup forward. Is it picking up the phone and setting

up a lunch meeting with that potential industry partner you recently met at

a networking event? Or is it finishing the one missing part of the MVP to test

with a group of prospects? Draw up a list of such actions, and then spread

them over the week. Pick one per day, and by the end of the week you will

have completed seven. Instead of actions, you can also write down goals; this

is entirely up to you.

Chapter 6 | Simple Strategies to Get Unstuck

Forcing yourself to take one action each day helps to take your mind off

analysis and shift it into action. Avoid overloading yourself with tasks on one

day. Spread them evenly over a longer period of time. When you have com-

pleted your daily tasks, resist the temptation to add more tasks to your list

for the day. Instead, reward yourself for following through. Over time, you will

form a habit of continually moving your projects forward in frequent small

steps. This is much more helpful than only focusing on giant leaps, which are

notoriously difficult to complete.

The Deadline Is Your Friend

Set deadlines for specific tasks, and publicly announce them. Set up interviews

for your MVP tests before you have finished your MVPs. Promise to deliver

reports by the end of the week that do not exist yet. Such commitments

force you toward action. More often than not, you will finish your deliverables

in a short time under such pressure. Parkinson’s Law puts this empirical find-

ing in words: “Work expands to fill the time available for completion” (see

Figure 6-2).1 Author Northcote Parkinson studied how the increasing num-

ber of civil servants stands in relation to their workload. We would expect

the government to hire more staff to deal with its increasing workload. This

increases the time public servants have available to complete their tasks, so

they should get more done in a given amount of time. But the opposite is the

case: when they have more staff and therefore more time available, it takes

government employees far longer to complete their work.2

Time available for a task

Effort made to complete a task

Figure 6-2. Parkinson’s Law

1C. Northcote Parkinson, Parkinson’s Law, and Other Studies in Administration (Boston:

Houghton Mifflin, 1957).

2Ibid.

University Startups and Spin-Offs 71

I often work with timers and alarm clocks. A specific task—for example,

writing a report about the meetings that took place during the month—gets

90 minutes. I cannot go over time, but I also cannot do anything else during

these 90 minutes. Author Roy Baumeister calls this the Nothing Alternative.3

The strategy is powerful to focus your attention on one thing and one thing

only. Looking at the timer counting down is a compelling reminder to com-

plete the task instead of letting it drag on. Try it the next time you are writing

a report. The traditional way, this can take several days. With the Nothing

Alternative, you will surprise yourself when you complete the report in a few

hours, or perhaps even in 45 minutes.

Once I asked a contractor when I could expect the finished product from him.

“It is finished when it is finished,” he replied. Obviously, this guy had no clue

how to speed up his work. Parkinson’s Law allowed the task to mushroom

because he had set no deadline. This was greatly to his disadvantage because he

was paid a fixed fee for his work, regardless of whether he completed it today

or in a month. If you are a startup entrepreneur, this approach is not for you.

Set clear deadlines, make them short, make them public, and stick to them.

Mastermind Groups

Sitting in your office or lab, surrounded by sceptics of free markets or those

who have firmly subscribed to the security of 9-5 employment, will hardly

stimulate you to make moves as an entrepreneur. Frequent contact with other

entrepreneurs who are in the same boat as you can encourage you to get

off your chair. Get their advice and feedback about how they tackle certain

issues. See the way they are doing things, and copy it. Get together and discuss

the specific actions you have taken this week and where they led your team.

Discuss your successes and mishaps, and learn how others address the same

challenges.

Going at it alone is much more difficult than approaching entrepreneurship

in a group of like-minded individuals. They can inspire a healthy competition

where they will call you out if you keep deliberating instead of testing in the

market. Ensure that you have action-oriented people around you. A good net-

work can have a major impact, not only on shifting your focus toward taking

action, but in all stages of entrepreneurship.

Author Napoleon Hill created Mastermind Groups over 75 years ago.4 How

do masterminds work? A group of like-minded people meet regularly to

talk about specific challenges. They provide advice, share connections, and

3Roy F. Baumeister and John Tierny, Willpower: Rediscovering the Greatest Human Strength

(New York: Penguin, 2011).

4Napoleon Hill, Think and Grow Rich (Meriden, CT: The Ralston Society, 1937).

Chapter 6 | Simple Strategies to Get Unstuck

collaborate when appropriate. This practice is comparable to peer-to-peer

mentoring. Mastermind groups are often invite-only. If no group exists in your

environment, simply set up your own. Invite other startup entrepreneurs from

your university to your new mastermind. Connect with entrepreneurs on

the Internet or LinkedIn. Contact industry interest groups and ask them to

introduce established businesspeople to you. It is essential that all members of

the group are on the same wavelength. Do not include people who have only

theoretical knowledge or no experience. Treat your mastermind group as an

exclusive club. Not only will you add powerful contacts to your network, but

the opportunities to learn firsthand from others and get in the habit of think-

ing big are worth the effort.

Strategies to Think

Despite what you just learned about taking action, there are of course many

occasions that require you to plan and analyze the facts before jumping in. I

have said that writing a business plan is unnecessary when you are running

your startup lean. But this does not imply that you should never write down

a word about how you plan for your business to unfold. The analysis part is

important, but it should never overtake and dominate the action part. If you

remember that, then the following strategies will help you tackle certain chal-

lenges in your startup from a fresh angle.

Mind Storming: The Twenty Idea Method

Author Earl Nightingale originally put forward the Twenty Idea Method.5 In a

somewhat spiritual context, he noted that when a person engages in “mind

storming,” the person’s consciousness expands and taps into ideas that were

previously out of reach. In essence, the Twenty Idea Method comes down to

putting together a list of possible solutions to a challenge you are struggling

with. However, instead of just writing down 3 or 4 ideas, you force yourself

to find 20 ideas in a short amount of time. The final few are often those that

yield surprising insight. Repeating this practice each day for a week will help

you come up with astounding solutions to problems that are unavailable if you

simply try to deal with them rationally. I find this method excellent for coming

up with unconventional ideas. If your entire team brainstorms together, you

will have an efficient process to look at problems in a new light. How does it

work? Let’s look at a basic example.

5Earl Nightingale, Lead the Field (Wheeling, IL: Simon & Schuster Audio/Nightingale-Conant,

1986).

University Startups and Spin-Offs 73

Let’s say you are struggling with your business model. You have a patent that

you could let the technology licensing office (TLO) deal with on your behalf,

but you want to start your own company with your intellectual property. As a

business, should you sell a service, a product, or a license to manufacture the

product? What are possible applications of the IP? This is a classic case for

mind storming. Take out a blank piece of paper. Use pen and paper instead of

a laptop, tablet, or phone—the process of writing down the 20 solutions has

to be fast, so writing by hand is best. Something magical happens if you write

with a pen on paper. Fiddling with a keyboard will only interfere. At the top

of the piece of paper, write down the problem. In your case, this is: “What is a

good business model for company X?” On the left side of the page, write the

numbers 1 to 20. If there is not enough space, halve the page with a vertical

line and split the numbers into two columns of 10. All the ideas should be on

one page so you can always see them during the mind-storming process.

The trick is to rush yourself through this exercise. Take no more than 5 min-

utes to complete all 20 solutions. Set up a timer for this purpose. You begin

with solution 1, which will be the most obvious one that comes to mind first.

Perhaps you discussed this idea repeatedly with your co-founders, so it is

nothing new. Regardless, write it down. Then advance to number 2. Same here.

Number 3. And so on. Around number 10, the obvious ideas will run out. This

is where the magic begins to happen. Whatever comes to mind from here on,

write it down quickly. Some ideas may seem silly, but this is OK. Keep going

until you have come up with 20 ideas. Then review them, and choose the three

that you like best. They may be hybrid ideas, cobbled together from several

different ideas. Elaborate further on those three, and find out in more detail

whether they are feasible and how they apply to your startup situation.

Mind storming can be on your daily agenda for a while. You will be surprised

by the strange ideas you and your team can produce. It can help to involve an

outsider without domain knowledge when mind storming. Outsiders often

see a problem from a completely different angle and may bring an unexpected

viewpoint to your process.

Think on Paper

Never begin the day until you have finished it on paper, wrote business phi-

losopher Jim Rohn. In a seminar on business strategy in the 21st century, he

detailed his suggested practice of making several lists to guide you through

the day, the week, the month, and the entire year.6 After all, a successful week

consists of successful days, a successful month of successful weeks, and a suc-

cessful year of successful months. If you have a written outline of what you

6Jim Rohn, The Weekend Seminar (Lake Dallas, TX: Jim Rohn International, 1999).

Chapter 6 | Simple Strategies to Get Unstuck

wish to achieve each day, you will have a higher chance of staying on course.

There is far less danger of losing focus when unexpected distractions come

up. You do not have to go to extremes and obey your day planner without

any autonomous thinking or spontaneity. However, writing your thoughts and

tasks on to-do lists is a good idea.

In addition to doing daily planning, make other short lists for everything that

is important. Writing it down clears your mind and frees up brain power for

other tasks. If you call someone about business, make a brief outline of what

you would like to talk about and what the next steps are. If you go to a meet-

ing, make a list of the items you want solved and how they will be addressed

with the next steps. You can discard these lists immediately after you have

completed them. They simply serve the purpose of organizing and structuring

your ideas before you discuss them with other people.

I often make a list in the evening on which I write down things to do the

next day. I also have a weekly list with three larger goals or milestones for

the week. If there are still items on the daily to-do list in the evening, I make

a concerted effort to complete them or move them to the next day. This is

OK as long as it still allows reaching the three weekly milestones. Another list

I have is the not-to-do list.7 These are actions to avoid, mostly time wasters

and distractions. This list is a great reminder to put up next to your computer.

Experiment with what works well for you. There is no one-size-fits-all recipe

for thinking on paper.

Mind Maps

You have probably heard of mind maps, popularized by author Tony Buzan.8

You may already be an avid mind mapper, or you may hardly use them at all. I

find them helpful at times to summarize processes or books and bring them

into a larger context. For brainstorming, however, I rarely use mind maps. For

that purpose, I prefer the linear format of the Twenty Idea Method. Mind maps

work better for me as a context tool. Figure 6-3 shows a mind map of the

book The Innovator’s DNA.9

7Dan S. Kennedy, No B.S. Time Management for Entrepreneurs (Irvine, CA: Entrepreneur

Press, 2004).

8Tony Buzan, The Mind Map Book (New York: The Penguin Group, 1993).

9Jeff Dyer, Hal Gregersen, and Clayton M. Christensen, The Innovator’s DNA: Mastering the

Five Skills of Disruptive Innovators (Boston: Harvard Business Press, 2011).

University Startups and Spin-Offs 75

Everybody has their own mind-mapping technique. I organize mind maps

of books by chapters. Each of the chapters contains other nodes that I can

expand with a click. Such a summary can be intuitive and straightforward for

presenting the book’s highlights to others.

Mind mapping is not for everyone, though. Some people find it cumbersome

and prefer to write summaries with bullet points. I use both, depending on

my mood. Try it to see whether it works for you. Plenty of free software is

available that allows you to experiment with mind mapping and determine

its usefulness for you. You can of course also use old-fashioned paper, but I

prefer software for mind mapping because it permits painless archiving and

retrieval even years later. The digital format also makes it easy to share mind

maps with others.

Just Ten More Minutes

This is not a strategy by itself; it is more an add-on to give you a quick boost.

When you are exhausted and have about had it with a task or problem, make

it a point to spend just ten more minutes on it before you wrap up. Set a timer

or alarm, and then give it all you’ve got. This will focus your thinking and assure

you that after ten minutes, you can let it go.

It is surprising what this approach can do for you. There are projects where

close to 80% of my good ideas happened in these last ten minutes. Try it, and

see if it works for you.

Figure 6-3. Mind map of the book The Innovator’s DNA

Chapter 6 | Simple Strategies to Get Unstuck

Limiting the time remaining can also motivate your team. For example, if you

are at the end of a two-hour brainstorming session that has failed to produce

any good results, instead of finishing up and rescheduling the entire session,

just give it ten more minutes. If you buckle down, you may think of your best

ideas right then and there.

Visualize

Most successful people I know visualize in one way or another. This simply

means thinking in pictures. Successful golfers and tennis players do it. So do

actors and singers, hedge-fund managers and CEOs. They see an action or

event step by step many times in their mind and imagine the perfect execution

and result. If Roger Federer uses visualization, why shouldn’t you?

Assume that tomorrow you will give an important presentation about your

research startup to a government delegation. As the team lead, you will have

the honor of introducing the project in a five-minute speech that explains

how your technology is useful in infrastructure planning. For a week, you have

chiseled your speech, memorized it, practiced it in front of the mirror, and

annoyed your friends and family with its details. Now, on the eve of the criti-

cal day, you lie awake in bed and fret about all that could possibly go wrong.

Should you have prepared differently? Should you rewrite the entire speech

again? It will hardly do anything for you to say the speech out loud from mem-

ory one more time. There is also nobody left to give you further feedback on

it. It is your responsibility now to make it work.

In a situation like this, visualization can instill great confidence and calm. Make

sure nobody disturbs you for a while. Close your eyes, and imagine walking

up to the podium. You tap the microphone, welcome the audience, and give

a speech that would have made John F. Kennedy envious. There is a standing

ovation at the end, and the government delegation commissions a large proj-

ect from your startup on the spot. You go celebrate with a magnum bottle

of champagne, and then … The rest is for you to imagine. You see how this

works: imagine the perfect outcome for about five minutes with great inten-

sity. If you are nervous right before the speech, briefly visualizing everything

going perfectly can also help you calm down. It may feel silly the first few times,

but visualization has helped countless successful people master sticky situa-

tions with bravado.

Many more productivity and time-management techniques exist in the lit-

erature. The ones outlined in this chapter are among those that I use daily.

Of course, I am not proposing that you practice them compulsively in every

situation. But when you are stuck, they may help get you and your team

moving forward again.

Troubleshooting

Inevitably, there will be times when everything seems to go wrong in your

startup. It is 2 a m , your third MVP still pleases hardly anyone, and you ran out

of ideas a long time ago. Troubles are brewing on your team: they doubt your

abilities as the CEO and think they should get real jobs and forget about this

crazy entrepreneurship idea. The university is breathing down your neck to

vacate its premises, and your personal bankroll is reduced to triple digits.

The joint venture you aimed for has fallen through, while a competitor from

another university has gotten exactly the terms you wanted with the company

you targeted.

There are low points on every entrepreneur’s journey—you cannot escape

them. What matters most is the way you deal with them. Bumps in the road

can always occur, but no problem is too large to straighten out.

Wherever there is trouble, growth is just around the corner. “Calm you shall

keep and carry on you must,” as Grand Master Yoda reminds us. The problems

I just mentioned are not all that grave. Nobody has been seriously wounded

by your product. Everyone is still alive. Stressed and grumpy, but alive.

Whenever there are conflicts, you should write them down on paper, so you

get them out of your head. Never to go to bed before writing down your

problems. Once they are on paper, you can organize them by importance and

cross out the ones that are less significant. Solutions may arise as soon as you

begin writing.

At your wit’s end with the MVP? Look at your results. Make it a priority for

the entire team to do nothing else until you have found a solid, testable case.

Hold brainstorming sessions. Ask others for advice—even your competitors.

Going for a walk or playing sports can help take your mind off an issue. An

extended bike ride can generate many ideas. Give yourself a few hours to let

your subconscious do the job for you.

CHAPTER

Chapter 7 | Troubleshooting

The team lost faith in you? Get them together in a meeting and discuss the

matter. What could you do better? What could they do better? Do they

want to exit the startup? Perhaps you can find a compromise where everybody

stays on board until a certain date and decides then. Until that date, every-

body does their best to make the company work. Compromises are much

better than a potential calamity that could break loose any second. It is

simply a matter of addressing the issue and dealing with it like adults. In a

quiet moment, ask yourself: What is the worst case that could happen in

this situation? Imagine what that would mean for you, and begin living with

the idea that it may become reality. Once you accept the worst possible

outcome, you will no longer unreasonably defend a losing position. You will

think much more clearly when attacking the problem head on.

What if the university keeps asking when you will get your own office? Make

a deal with the university, and promise to deliver X until a specified date rolls

around. Perhaps you can rally other stakeholders in the university who will let

you use another, smaller office on a more permanent basis.

Money is running low? Bootstrap. Make Top Ramen the cornerstone of your

diet. One way to have more money is to spend less. Otherwise, find a part-time

job to restock your war chest.

Joint venture plans fell apart? Look for other candidates. When something

fails, it may turn out to be a blessing down the road. Keep an open mind, and

actively find new opportunities.

As an entrepreneur, you are a maverick who cannot please everybody. It may

sound harsh, but you need to surround yourself with people who are on the

same wavelength. You need a good, encouraging network and other entre-

preneurs around you to keep you going. When a maverick made his or her

mark, everyone is proud. Unless you ruffle a few feathers, it will be hard to

find a way out of the mainstream and achieve success on your own terms.

Prioritize

When issues arise in your startup, avoid letting them linger. Step forward and

address them. Open communication is key here, but refuse to hold yourself up

with minor issues. Address the most important problems first, and some of the

smaller ones may turn out to be less urgent. With “build, measure, learn,” you

have a powerful toolkit that teaches constant incremental improvement. Use

this for your MVP and also for your general skills as a startup entrepreneur.

If an idea fails to work, try something else. Keep moving constantly.

University Startups and Spin-Offs 79

In general, thinking on paper is a great ally for problem-solving. You may make

an old-fashioned list or draw a mind map to address certain issues. When

you see problems laid out in front of you on paper, they become manage-

able. You can bring them into context with each other. You may brainstorm

how to address them or what will happen if you let them linger. Get into the

habit of carrying pen and paper around with you. This is valuable not only for

problem-solving, but for all other facets of entrepreneurship as well.

An Outsider’s View

Sometimes it can be useful to enlist outside help. If your startup is only two

weeks old and you already find yourself at the brink of disaster, then there may

be matters that need more thorough investigation. A startup coach may help

you solve them. When all else fails, you have the option of hiring a so-called

interim CEO to see the startup through a rough patch. This may be worth

considering and in the long-term interest of the university’s startup track,

especially when the stakes are high and a breakthrough or joint venture is

just around the corner. Many well-known businesses were at some point on

the brink of bankruptcy. An executive change often helped declutter their

business model and bring them back onto the path to profitability. When

things get hairy, that is where entrepreneurial experience comes in. You can-

not learn this by reading a book—only from living entrepreneurship firsthand

for years, through its ups and downs.

Throughout this book, you have repeatedly read my recommendation to tap

into the experience of an established entrepreneur to assist university startup

teams. This can be an alumnus of the university who has achieved great busi-

ness success. Instead of hiring an alum to make a keynote speech, the univer-

sity could ask him or her to work with their startups as an advisor. This can

also be a person in a related field whom the team has identified as some-

one they would like to have on their board to offer ideas and criticism. The

university cannot reasonably expect a startup team made up of students or

researchers to learn the ropes of entrepreneurship overnight. Of course, they

should know some management basics when they run their own company, but

navigating real problems successfully is a rare skill.

Access to an outsider’s opinion for a few hours, focused on a specific chal-

lenge that a startup is struggling with, can make all the difference. I have seen

this firsthand several times. The startup team was at their wit’s end and ready

to give up, but a few tweaks in their product and business model brought them

back to their intended trajectory. The input that an established entrepreneur

may give can seem trite in retrospect; it is often not sweeping changes but

sticking to the basics that provides a startup with an extra boost. Subtracting

something is frequently more powerful than adding more to the mix. When

Chapter 7 | Troubleshooting

the journey gets rough, the founding team is often too close to the problem

to see what they should do. Together with an outsider, they can shed light on

a challenge from a new angle and solve it in an unexpected way.

Whenever you experience headwinds with your startup, use the checklist in

Figure 7-1 to help you navigate.

When there are problems, write them down.

Think about the worst case, and accept that it may happen.

Address the most pressing problem first. The others may disappear.

Get an outsider’s view.

nk about the worst case, and accept that

t ma

happen.

ddress the most press

ng problem

rst. The others ma

sappear.

’

Figure 7-1. Checklist for troubleshooting

CHAPTER

The Financial

Model

Although researchers are generally comfortable talking about their technology

and its features at length, they are often much less well-versed in the business

and financial aspects of their undertaking. Entrepreneurs need to be in a posi-

tion to answer a few key financial questions about their venture. What are we

producing that has a value in the market? Will the market pay us enough to be

profitable? How exactly are we transferring money from customers into our

bank account? The business-model canvas answers the first question, but the

other ones require a financial model made with spreadsheet software.

When you sit across the table from venture capitalists, they will grill you about

your financial model. You should know the size of your potential market, your

expected market share, how long you believe it will take you to sell a product

in this market, and how you plan to turn your market share into profit for

your company. If you cannot answer a few basic financial questions, no one will

take you seriously as a startup entrepreneur.

That being said, there is one thing investors know with certainty about your

financial model: the model will be wrong. Investors are well aware of that, so

they want to see the assumptions that underlie your forecast, much more

than the forecast itself. Putting together your financial model will give you an

impression of the time it will take for your startup to achieve some level of

profitability. You will also have worked out your own overhead and capital

needs, often called the burn rate. All this is what investors look at, not the

hockey-stick revenue-growth chart that all other startups have in their mod-

els as well. How you put together your financial model is more informative

than the individual numbers.

Chapter 8 | The Financial Model

Financial models and projections can be simple, but there are some pitfalls to

avoid. I once made the mistake of proudly announcing that “If we sell widget

X to 1% of the people in China for $1 each year, we will make $10 million

in revenue.” The venture capitalist had of course heard this lame pitch many

times before, and responded, “You expect just 1% market share? What kind

of small-minded company is this? I only invest in companies with 80% market

share.” With that, the discussion was over. A $10 million market seemed big

for me at the time, but less so for anyone who has been in the business longer.

A good market starts at about $100 million per year in sales revenue.

Basics of Financial Business Modeling

If you are already familiar with accounting and building financial models for

startups, feel free to skip this chapter. If not, then here is a quick primer on

the most important terms in a financial model. This is my personal approach,

and I realize there are many different opinions about how to do it right. The

procedure I explain in this chapter is one that I find workable without know-

ing much about corporate finance. It helps jumpstart the discussion about

a startup’s finances without much spreadsheet programming. If you prefer

another modeling technique, that’s fine. As long as you can explain what you

are doing and why you are doing it, all roads lead to Rome.

The important terms in your financial model are revenue, cost, profit, and

profit margin. Their formulas are as follows:

Revenue = number of units sold × price charged per unit

Cost = fixed cost + variable cost

= fixed cost + (number of units sold × cost per unit)

Profit = revenue - cost

Profit margin profit

revenue

Let’s look at each of these in a little more detail:

• Revenue means the total proceeds from sales. It is the

money brought into the company by its business activi-

ties. You calculate this amount by multiplying the number

of units sold by the price per unit. The term revenue is

sometimes used interchangeably with sales, and the two

mean the same thing. Many people confuse the revenue

with profit. Even though your company may have $100

million in revenue per year, its profit may still be zero or

negative.

University Startups and Spin-Offs 83

• Profit is the money left in your account after you pay

all costs incurred by the company. When calculating

profit in your spreadsheet, also make a clear distinc-

tion between pre-tax profit and after-tax profit. Because

taxes are a percentage of profit, you simply multiply the

corporate tax rate by the pre-tax profit. Startup entre-

preneurs often forget to make this distinction, but it can

make a big difference, especially if your tax rate is high.

The percentage of revenue that you keep as profit is •

called the profit margin. This number shows how profit-

able your company is. Because it is a ratio, you can use it

to compare the profitability of different companies.

• Costs consist of fixed costs and variable costs. Fixed costs

are the overhead of the company that stays the same

regardless of the number of units sold. Rent paid for

offices, support services, all salaries, and so on, are fixed

costs. Variable costs change with the number of units

sold. For example, if you are producing a car, then these

include the metal, plastics, engine, tires, and so on. If you

pay licensing fees for patents per car sold, then these fees

are also part of the variable costs.

These are the most important terms. There are of course many more formu-

las in financial accounting, but these should be enough for a simple financial

model for a startup. If you think accounting is exciting, then feel free to pick

up any book on the subject to learn more.

It often takes entrepreneurs by surprise to hear that the most vital parts

of their model are the costs and the assumptions that underlie the revenue

projection. Revenue and profit projections in themselves are less important,

because you cannot predict them accurately. Regardless, you should set up

your business model so that your startup can achieve high revenues. If a com-

pany has high revenue, it can improve its profit by reducing fixed and variable

costs, courtesy of economies of scale. Building 1 item results in a higher cost

per item compared to producing 100 items. A bigger factory can often turn

out a product at a lower cost than a small one.

When you begin building the financial model, first fill in the parts that you

know already. These may be the fixed cost and variable cost per unit sold. You

may have a validated assumption about the price charged per unit. With this,

you already have half the model. The tricky part is the speculation about how

many units you can sell each year. I discuss some guidelines for this later in

this chapter.

Chapter 8 | The Financial Model

How Investing in Startups Works

When investors give you money, they obviously expect something in return.

Where does this return come from? Not from revenue, but from the profit

your company makes in the future. With their money, investors buy a certain

number of shares in your company. This number of shares, as a percentage of

the total shares in the company, controls the percentage of profit each inves-

tor is entitled to receive.

Let’s say you can make the case that your company will turn a profit of

$10 million in year 3, $11 million in year 4, and $12 million in year 5, as shown

in Table 8-1. Before year 3, profit was negative. This projection enables you

to make a ballpark assumption about the value of your company today. There

are many ways to arrive at such a value, and to explain them all here would

be outside the scope of this book. A straightforward procedure to arrive at

a speculative number for the value of your company is to discount the pro-

jected future cash flows by their probability and sum them up, as follows:

Company value = 1×(-$100,000)+1×(-$200,000)

+ 0.5×$10,000,000+0.4×$11,000,000+0.3×$12,000,000

= $12,700,000

Table 8-1. Projected Future Cash Flows

Revenue ($) Cost ($) Profit ($) Probability

Year 1 0 100,000 -100,000 100%

Year 2 0 200,000 -200,000 100%

Year 3 11,000,000 1,000,000 10,000,000 50%

Year 4 13,000,000 2,000,000 11,000,000 40%

Year 5 15,000,000 3,000,000 12,000,000 30%

This is an example to illustrate how the numbers in your financial model work

in context. Of course, it is an extreme simplification, and specialists in finance

will cringe when they see me advocate this technique. Venture capitalists will

look at your underlying assumptions and come up with a valuation of their

own. As a quick hack, the probability method is workable without going back

to school and learning about corporate finance. Most important, this number

will put into perspective investment offers you may be receiving.

Let’s say you have arrived at the projections just outlined. The big jump in

revenue in year 3 results from talks you had with a potential joint venture

partner. He wrote you a letter of intent saying that if you can develop your

technology to a certain point, he will be willing to form a joint venture with

you. Because this partner is a leading multinational, you can expect better

University Startups and Spin-Offs 85

distribution channels, instant economies of scale, and larger projects. Your

own costs will increase, but because your profit margin is high, you can rea-

sonably expect high profits. Now a venture capitalist visits your startup and

offers you $250,000 for 10% of the company. Does this sound like a good

deal? Let’s see: if 10% of your company cost $250,000, then 100% are worth

$2,500,000. The numbers you calculated paint a different picture: your com-

pany value at the current time is $12,700,000, so 10% equals $1,270,000.

Based on your own numbers, you should expect a much better offer from

the venture capitalist. According to your calculation, she should get roughly

2% equity in your company, not 10%, for her $250,000 investment.

With the assumptions gained in putting together your financial model, you

can begin a negotiation without flying blind. The number you calculate as the

present value for your company is either too high or too low. You need to

check and update it often and get feedback from others about it. But now you

see how your startup’s numbers work. They are not rocket science, but they

also are not immediately obvious. An entrepreneur who has no clue about the

value of his company will be taken advantage of by shrewd investors. Most of

all, they will doubt he is genuine in his efforts if he comes across as financially

illiterate. As soon as you can lead a qualified discussion about your financial

model, investors will take you more seriously.

It is unnecessary to hire an MBA or a financial advisor to program the financial

model for you. Much more important is that you understand the drivers and

underlying assumptions of the model and what they mean for your business.

You should be able to modify the model yourself.

A joint venture partner will often value your company differently than a ven-

ture capitalist—for example, in terms of costs the partner can save by buy-

ing your R&D, or in terms of the IP advantage gained over a competitor.

Nevertheless, it is useful to have your own model at hand. Most likely you will

need it only when you speak with investors or potential partners.

Identify Your Market

Previously I skipped the discussion of how to arrive at the number of units

sold in your startup. Before I address this, you first need to understand the

different kinds of markets. Author Steve Blank summarizes them in the fol-

lowing manner: 1

• Existing market: A new entrant is stealing a slice of a market.

Users abandon competitor products when they start using

yours. Instead of increasing the pie, you just take a slice.

1Steven G. Blank, The Four Steps to the Epiphany: Successful Strategies for Products That Win

(K&S Ranch, 2007).

Chapter 8 | The Financial Model

• Re-segmented market: You increase the pie by selling to

customers who otherwise would not buy at all—for

example, by introducing a less-expensive product that

adds price-conscious customers to the market.

• New market: Your technology is new, and by definition

you own 100% of the market. You must explain to the

market what the product is and how to use it. Customers

will still use other products when they start using yours.

The most important thing to show in your financial model is what Steve Blank

calls Product/Market Fit.2 Netscape founder Marc Andreessen describes this as

“being in a good market with a product that can satisfy that market.”3 Most

companies are re-segmenting markets in one way or another. A rule of thumb

for achieving Product/Market Fit is that at least 40% of users should say they

would be “very disappointed” without your product.4

What does this mean for your financial model? Most important, you need

to demonstrate that you can sell to at least 40% of the market. If yours is

an existing market, then you can find out its size relatively easily courtesy of

Google. Perhaps there is even a market study available. Or an academic paper

or trade journal in your library. Or a footnote in the quarterly report of the

industry leader.

Re-segmented markets are more complicated to assess, because you have to

make some assumptions about the size of the slice you are adding. Calculate

several scenarios, starting from 10% up to 50%. In either case, your projected

annual revenue should land somewhere around $100 million and upward. As

I said before, investors know that this number is mostly fiction, but it should

be achievable with your startup if everything goes well.

Let’s forget about new markets for now, because they are rare and the most

speculative to assess.

The number-one thing not to do is to conjure up hockey-stick growth, where

in the first years you have no sales, and then, magically, in year 3 the business

takes off like a rocket, doubling or tripling its income year after year. If you

have real commitments, like the joint venture discussed in the example of

company value, then your financial projections are much stronger, and you can

explain the underlying assumptions for hockey-stick growth. But if you cannot,

then the hockey stick will look silly. Future revenue projections are not all

2Steven G. Blank and Bob Dorf, The Startup Owner’s Manual: The Step-By-Step Guide for

Building a Great Company (K&S Ranch, 2012).

3Marc Andreessen, “Product/Market Fit,” Stanford University, June 25, 2007,

www.stanford.edu/class/ee204/ProductMarketFit.html.

4Brant Cooper and Patrick Vlaskovits, The Entrepreneur’s Guide to Customer Development: Cheat

Sheet to The Four Steps to the Epiphany (Newport Beach, CA: Cooper-Vlaskovits, 2010).

University Startups and Spin-Offs 87

that important. What counts is a strong business model that harvests demand

today and in the next few years from existing markets. At the end of the day,

everything else is fiction. Unless you have a classic business model, such as a

real-estate investment with a large sunk cost of several hundred million and

rental revenue over the next 20 years, projections into the future make little

sense. For a tech or hardware startup in the early stages, they are little more

than wishful thinking. Just show the size of the market, the share you aim to

achieve eventually, and how your pricing strategy fits into that equation.

When you know the market size and your market share, then you have to fit

that around your pricing model for your product or service. Many eye open-

ers along the way will show you either that you need to charge an enormous

sum for your product or that your market is simply too small to allow you

explosive growth. When that is the case, you can use this new insight in your

future MVP testing. Look for other products and services, and other markets,

and test those. Your costs may also be too high to let your startup achieve

profitability, in which case you need to reduce them. The lean canvas and the

financial model are like sparring partners that can help you do so.

The Story Matters More Than the Numbers

Every serious investor knows that financial projections for a startup are rarely

going to come true, so you must prepare to answer questions about the

underlying assumptions that led to your projections. Don’t get me wrong: you

still need the financial model; it is an essential tool to help you form useful

assumptions about your market, your business model, and your strategy. But it

is key to be clear about the story that explains how the financial model came

about. How did you discover the market your product is serving? How did

you come up with the market share your company is aiming to achieve? Can

you make a credible case about exactly how your company will turn a profit?

How did you arrive at the timeline? All this information is more helpful for

investors than an upward-sloping revenue curve. They will form their own

opinion of you as an entrepreneur and combine that with their assumptions

about the product and the market. If they see that you are smart and have

come up with a good idea to commercialize a certain technology with profit,

they will be more likely to invest in you. The financial model will be the plat-

form on which this discussion takes place.

Make sure the output of the model fits on one page, where you also explain

all the underlying assumptions. With this and the lean canvas, you will have

condensed your entire business proposition onto a few sheets of paper. When

you meet with investors or potential partners, present your business with

both the business-model canvas and the financial model. See what they gravi-

tate toward and what they remark. Then incorporate those new findings into

the next version of your documents.

Chapter 8 | The Financial Model

These are the basics you should be familiar with when building financial mod-

els. If you have heard enough about finance and economics, feel free to skip

the rest of this chapter. Otherwise, read on to see how economic theory is

not all that useful in startup entrepreneurship.

A Word about Economic Theory

As you already learned, becoming an expert in economics or corporate

finance is unnecessary to create your financial model. More often than not,

it may even be a disadvantage. It is good to know some basics of economics,

because they are helpful for explaining things in hindsight. But when you are

putting together your financial model, it is better to be blissfully ignorant. Let’s

find out why.

The discipline of modern economics is a strange conglomeration of sociology,

psychology, and philosophy. On the basic level, it splits into two main sections:

microeconomics and macroeconomics. The former concerns itself with the

theory of individual firms and addresses supply and demand for products,

price theory, market structures, and so on. Macroeconomics applies itself to

the workings of all companies together in an economy as a whole, and the

interrelationships with other economies. How the size of a company affects

its production costs is a matter of microeconomics, whereas the amount of

money in circulation and the effect on a country’s GDP is part of macroeco-

nomics. When talking about individual companies, we are operating in the

domain of microeconomics. The most basic model in this discipline is the

so-called supply-and-demand model, which you may be familiar with from

Economics 101 (see Figure 8-1).

Supply

Price (p)

Quantity (q)

Demand

Figure 8-1. Classical supply and demand model

What does this model express? Look at the demand curve first. This shows

how much of a product people buy in relationship to its price. When the price

of a product is high, such as at point A, the quantity demanded is low. Fewer

people are able to afford the high price, or people may be unwilling to pay

University Startups and Spin-Offs 89

more than a certain amount for a certain product. At point B, the price is low,

and the quantity of products demanded is higher. This is assumed to be the

case because people can buy more of the good with $100 when the price is

low than when the price is high.

The supply curve works in a similar way. This curve shows the relationship

of price and quantity supplied from the manufacturer’s point of view. How

much of a certain product does the company produce and make available in

the market in relationship to the price it can charge? Assume the price is high,

such as at point C. The supplier has an incentive to flood the market with

product, because the company has the potential to make much more profit

when it sells the product at a high price. But when the price is low, as at point

D, the supplier is not interested in producing much, because overall profit is

lower in a low-price environment. At the point where the supply curve and

the demand curve intersect, the market is in equilibrium.

This is the story of the supply-and-demand model. Does it make sense to you?

Most likely it does. But let’s look at an example that flies in the face of this neat

model and relegates it straight to the garbage bin.

In the last decade, there was a huge boom in real-estate prices. Many investors

doubled their investment with real-estate speculation in the United States,

China, and other parts of the world. When prices were low, real estate was

not that attractive, because most people could not imagine that a sizable

return would ever come to pass. But when things picked up and prices soared,

more and more people became interested in real estate and began speculat-

ing. Demand increased as soon as prices increased. Is this what the supply-

and-demand model would predict? No—quite the opposite. Figure 8-2 shows

how the real-estate boom looks in the supply-and-demand model.

FSupply

Price (p)

Quantity (q)

Demand

Figure 8-2. Supply-and-demand model in a real-estate boom

Chapter 8 | The Financial Model

There are now two possible prices for each quantity. One is in the low-price

environment, where those with little money can purchase a house (E). When

prices go up, fewer of those people can afford a house, and demand declines.

Then comes an inflection point (G), where rising prices spur a real-estate

boom and speculative buying. This designates the beginning of the high-price

environment. Everybody who can piles into real estate, and demand increases.

More and more speculators are attracted to the market. They buy second

and third homes. Demand goes up, and prices go up in tandem (F). In such a

market, do high prices lead to fewer or more units sold? It depends. There

may be fewer units sold in a low-price environment, but more units sold in a

high-price environment. You will not find this supply-and-demand model in an

introductory economics book, but you may have witnessed the dynamics of

a real-estate boom firsthand. Would you say the classical supply-and-demand

model is useful to analyze such a boom, or other transactions in the real

economy? In this light, probably not. It would lead you to the wrong assump-

tions and might cost you a lot of money. Uncertainty and complexity have no

place is most economic models.

This goes to show that economists hardly have all the answers, even though

they like to think they do. If you hire an MBA or economist to work out your

financial model, the danger is that they will tell you with much authority how

this has to be done. More often than not, their knowledge is firmly rooted in

theory, which has proven to be precisely wrong more than once in history.

Much better than basing your financial model on economic theory is to look

at the real numbers and comparable firms already active in the market. Pair

this information with your own assumptions about the future, and make your

own scenarios.

When I started my first company, I had no idea about economic theory. It felt

intuitively right to charge the highest price possible for my services. And it

was clear that I would have to decrease my overhead to increase my profit.

I knew that I had to cold-call hundreds of potential clients in order to get a

foot in the door. In your early 20s, you have many things on your mind other

than cold-calling prospects. How I wanted to destroy that phone at times. Yet

it was clear that there was no way around it, and the 189 remaining names

on the list were a stark reminder. No slick business strategy could have saved

me from doing the real work. Because I knew nobody who would bankroll

my startup, hiring someone to do the dirty work was out of the picture. Like

many other entrepreneurs, I had to make do with limited means. Knowledge

of economic theory would have been nothing more than a distraction. It was

unnecessary at the time.

Years later, when I actually studied economics at the London School of

Economics, many “aha!” moments occurred. It was satisfying to know the the-

ory to explain in hindsight why some of my businesses had worked and others

University Startups and Spin-Offs 91

had not. But I still find economic theory and business school knowledge to be

of little use for startup entrepreneurs. This is true not only for the simplest

of all models, the supply-and-demand model we just looked at. Porter’s Five

Forces to formulate competitive strategy,5 Christensen’s Innovator’s Dilemma,6

and many other theoretical concepts are nice to know but by no means nec-

essary for startup success. A business consultant for a multinational company

may benefit from being familiar with some of these concepts, but startup

entrepreneurs should focus on the tasks at hand with “build, measure, learn”

and many other practical strategies explained in this book. If you are seriously

interested in learning more about economics later down the road, then it may

be worth looking into in more detail. But avoid distracting yourself in your

first startup. Make all your brain power available for things that really matter.

Never Rely on Specialists

Some entrepreneurs are deeply averse to anything that has to do with finance

or business modeling. They feel they should focus on the core of their tech-

nology and prefer that someone else handle the rest. Students and research-

ers are not immune to this. Somebody may suggest including an MBA student

on the founding team to bring in expertise about running a company and

leading interactions with the world outside the university. I think this is the

wrong approach. It is like hiring somebody else to go on a holiday for you and

report back to you in detail about their adventures while you sit on the couch

at home. Startup entrepreneurship is a learning experience that encompasses

disciplines outside of your domain. It is a mindset, not a job. With that mindset,

you should embrace the opportunity to integrate new skills into your life. You

may discover a talent that you never knew you had.

Luckily, the financial part of a startup is relatively small, so all you have to learn

are the basic functions of Excel to put together your financial model. More

than that is not necessary. Nobody expects you to know about depreciation

schedules and the Double Irish with a Dutch Sandwich. Your tax accounting

should be outsourced to an accountant. They can file your taxes for a few

hundred dollars. But the financial model cannot be outsourced. It is one of the

core building blocks of your company that the founders must understand. Each

time new findings emerge, you should be able to adjust the financial model

yourself. Handing this off will be a disadvantage for your startup. Figure 8-3

provides a recap for using financial models effectively.

5Michael E. Porter, Competitive Strategy: Techniques for Analyzing Industries and Competitors

(New York: Free Press, 1980).

6Clayton M. Christensen, The Innovator’s Dilemma: When New Technologies Cause Great Firms

to Fail (Boston: Harvard Business School Press, 1997).

Chapter 8 | The Financial Model

Sales and marketing are a similar story. Learning how to interact with others

professionally will be a huge asset to you as an entrepreneur. Engaging third

parties with a proposition that is in their own best interest applies to more

than sales and marketing. Giving them actionable next steps to obtain the ben-

efits of your product or service will be at the heart of your startup’s success.

Forget the cliché of the vacuum salesman who shuffles from door to door

trying to sell a gadget that nobody needs. Getting others to buy something is

mostly a communication skill. It has little to do with spending millions of mar-

keting dollars to push your product in front of clients. If they see no obvious

benefit, they will not buy—it’s as simple as that.

Just as basic finance skills, communication skills need to be native to the start-

up’s original founders; they should not be purchased from an external source.

As the saying goes, business has only two functions: marketing and innovation.

Spend a few weeks learning the ropes yourself. Learn to lead engaging discus-

sions with others, and you will lay the centerpiece for your startup success.

Turning the discussion away from features to the benefits of a technology is

the first step, and this is a skill best acquired by doing. An MBA (or any other

degree) has very little to do with sales and marketing success, or business

success in general. Make yourself a smart and likable person, and sales and

marketing will become a natural communication process for you.

Explain the underlying assumptions for all numbers in the model.

Explain how you will achieve $100 million in revenues in three to

five years.

Explain how you will achieve 40% market share.

Is the price you need to charge in line with what customers will pay?

Explain when your company will be profitable.

Think about reducing your fixed and variable costseven more.

Compare your pricing and profit margin to those of competitors.

Figure 8-3. Checklist for financial models

CHAPTER

The Legal Setup

of Your Startup

Startups are distinct from research projects. They are businesses, not projects.

For example, different minimum viable products are projects of your startup:

each may have a budget and a deadline. Thinking of your venture this way

helps put things into perspective and approach it more professionally.

When you engage people outside the university, they need to perceive your

startup as a business. Part of this is having the proper legal setup and financial

structure. However, most university startups are never properly incorporated;

they put this off until an investor or venture capitalist knocks on the door

with an investment proposal. This is a classic catch-22. Startups wait to set

up their business structure until they have interest from an investor; but to

attract this interest, a professional business structure has to be in place. As

long as entrepreneurs see their venture as a project they can abandon any-

time, how can they expect serious investors to jump in?

To get out of this feedback loop, the startup’s structure should enter the

founders’ minds as soon as they decide to launch their company. Until there

is a business entity, the startup does not exist. It is just a research project and

an idea.

So far, this book has focused more on the practical aspects of entrepreneur-

ship than the organizational ones. The main goal of the book is to give you

an outline of how to move your venture forward and engage others who can

help you develop it in the best way possible. Legal proceedings of company

foundation, such as agreements between founders and licensing contracts, are

discussed at length in the business literature. One thing you cannot ignore,

Chapter 9 | The Legal Setup of Your Startup

though, is how you set up your startup as a legal entity. You should make the

move from a research project to a company as soon as possible after you

decide to become an entrepreneur.

This is particularly important if you plan to scale quickly and want to attract

joint venture investment or venture capital. If you do not have a proper cor-

porate structure and a corporate bank account, how can a venture capitalist

invest in your startup? It will be impossible. Change the way your startup is

perceived by yourself and others by professionally incorporating it. Doing so

will move you in a new direction when you establish contact with other busi-

nesses and investors.

When I speak about the legal setup of your startup, this does not necessarily

mean registering a company in your country of residence. Some jurisdictions

put up high barriers for new businesses, especially those with high taxes or a

shaky court system. There are many ways to gain legal status with an entity

incorporated abroad. No investor wants to see their capital eroded by taxes

and other fees, so be aware that there may be offshore options to consider.

Explaining them here goes beyond the scope of this book. If you feel you need

a more complex solution, you should consult a trusted advisor. I only cover

basic questions of incorporation in this chapter.

In America, several legal entities to conduct business exist. These occur in

similar forms all around the world. I chose the American jurisdiction because

it is straightforward to lead the discussion about startup incorporation. The

terms for legal entities may be different in your particular country, but at

heart, they will be similar. Let’s now look at the most common structures for

small and medium enterprises.

Sole Proprietorship

This is the simplest legal form a company can take. It is basically a one-person

business with a self-employed founder. You may conduct business under your

own name, or you can file a DBA (doing business as), which allows you to

legally use a fictitious company name. Examples are a web designer, a painter,

a tax consultant, and an ice cream stand. There is no distinction between the

entrepreneur and the business, so as a sole proprietor you are fully liable for

all your actions. If you cause damage through the business, you have to pay

from your personal bank account.

Registration and administrative costs are minimal. Outside investment is

not straightforward, because a sole proprietorship has no shares to sell.

Investments are personal loans to the sole proprietor.

University Startups and Spin-Offs 95

Partnership

A legal partnership is a sole proprietorship including more than one person.

Small ventures are often partnerships. An example would be a group of friends

buying a house and fixing it up for resale. Again, there is no distinction between

the owners and the business, so they are fully liable with their personal assets.

Registration and administrative costs are minimal. Outsiders cannot readily

invest in partnerships. Just as a sole proprietorship, investments are personal

loans to the partners. Likewise, a partnership does not sell shares.

Limited Liability Company (LLC)

The LLC is a common form of business in America. It can have one or several

owners and can issue shares. In contrast to the sole proprietorship and the

partnership, the LLC is considered a separate entity from the owners. There

is therefore a firewall between the company’s assets and the owners’ assets.

This is great because you as the founder cannot be held responsible for any

damages your business or your employees may cause. If the startup incurs any

cost that it cannot pay back, then creditors will be unable to sue you person-

ally and repossess your TV and your bicycle.

Registration costs range from a few hundred to a thousand dollars, depending

on the state in which you incorporate. The LLC also comes with some admin-

istrative costs, but these are small. Investment by outsiders is straightforward:

they simply buy shares in the company from the founders. Loans are also pos-

sible. All in all, this is the legal setup recommended for startups.

Corporation

There are several kinds of corporations: S corporation, C corporation, and so

on. I will not go into detailed descriptions here. The corporation is one step up

from the LLC: you could float this company in the stock market and sell shares

to the public in an IPO. Registration is expensive, and so is administration. You

also need a unique form of accounting for a corporation, which can be costly.

Investing in a corporation is clear-cut and simply involves buying shares from

the shareholders. The legal structure of the corporation makes sense for big-

ger companies. For example, Microsoft and Apple are corporations.

Which Legal Form Should You Choose?

The best form for a startup is often the LLC or a local variation of it. Two

things are crucial: ease of investment and clarity about ownership. Because

the distribution of shares in the LLC reflects ownership, one glance at the

capitalization table explains the whole story.

Chapter 9 | The Legal Setup of Your Startup

This discussion about incorporation is nowhere near exhaustive. Find out if

the university can hire an attorney who will explain the different legal entities

to you in detail and help you select the right one for your purpose. Have an

attorney write the incorporation agreements for you. If the university covers

this cost, then accept it as a generous gift. If not, then pay the bill yourself.

Incorporation is standard legal practice and will seldom cost more than a few

hundred dollars. Taking this step makes you a real business. The sooner you

address this with your team and the university, the better.

Avoid Ambiguity About Ownership

More than once, I have met with startup entrepreneurs who were months into

product development and asked them about their legal structure. A puzzled

look appeared on their faces. They believed I was asking about their informal

agreements with the university regarding ownership of the product, so they

answered something like, “All the founders together own 70% of the inven-

tion, university X owns 20%, and professor Y owns 10%.” Did they put this in

writing? Of course not. What happens if one founder quits? No idea. What if

a venture capitalist wishes to invest? Silence.

Once the discussion about setting up an LLC has begun, confusion about

ownership and investment becomes a thing of the past. There can be vest-

ing agreements about shares, so if founders leave before a certain time, their

ownership will be reduced, often to zero. If outsiders wish to invest in the

company, which involves nothing more than buying shares from the existing

shareholders, they can complete the transaction in an afternoon without a

headache. Entrepreneurs need to have clarity about possible issues related to

their company before they arise. Ownership of the startup and its assets are

problem zones that proper legal setup helps clear up.

Make Your Startup Investible as Early as

Possible

Here’s another philosophy: money is like water. When you make space for it,

that’s where it will flow and accumulate. Put another way, if you make no space

for it, money cannot flow to you. You think that is absurd? Bear with me for a

minute, and let’s look at an example.

Assume you are currently working on a research project at your university.

In your PhD, you study a certain application of Li-ion battery technology. You

publish some of your findings and eventually submit your thesis. Would ven-

ture capitalists invest in this PhD project? Most likely not, because there is no

way for them to do so. Investing in something means buying shares in it or

University Startups and Spin-Offs 97

making a loan with interest. The research project has no corporate structure

as an independent entity. It is just a line item in your university’s annual budget.

Unless your startup is a proper legal entity, it is a research project.

On the other hand, assume you are working on the same PhD, and you have

decided to set up a startup based on some of your findings. Your startup exists

in form of an LLC, where ownership and share distributions are clear. Now

venture capitalists can invest easily. They know what percentage of revenue

they will receive, according to the number of shares they buy in your company

with their investment. Does this mean a venture capitalist will invest? No, of

course not. But the potential for money to flow to you is there. Without the

LLC, it is not and never will be.

Never Spend Money to Make Money

You know why rich people have money? Because they keep it and don’t spend

it. Duh, you may say. That was my reaction when I heard this piece of time-

less wisdom from a neighbor at the age of eight. But three decades later, his

words still ring in my ears. What will you do if you find a hundred dollars in

the street? Buy fireworks, or lottery tickets for everyone? Or will you save it

in the bank at 0.01% interest because you are afraid to be robbed? Whatever

your answer, your attitude toward money will largely determine your wealth

and the success of your startup.

Most people complain about money and their lack of it. A tennis partner of

mine had a film production company. When I asked him how business was, he

made a sour face and started off on his usual rant. The shrinking margins in the

business. The new kids on the block who lured away his clients. And the new

technology that turned everybody and their cousin into filmmakers. Without

a miracle, he said, he may have to close shop soon. After our tennis match,

we took out our calendars to set up the next one. This would have to wait a

few weeks, my friend announced. He would be on another continent, on a golf

holiday with his wife. When we walked to the parking garage, I couldn’t help

but notice his brand-new Range Rover. Nice toy, eh? Yes, he always wanted the

new model XYZ, and because he could trade in his Jaguar, it was a steal. His

reasoning for driving luxury cars was that he needed to project an aura of suc-

cess to his clients—spending money to make money. What attitude toward

money does this man have? Not one that is helpful to launch a startup or stay

in business when times are rough.

A misconception about launching your own company is that it is expensive.

You need to pay your suppliers, buy computers, rent an office, hire staff, pay

for expensive advertising and marketing, and so on. Nevertheless, if you are

launching your startup straight out of university, none of these costs applies to

you. Even if you cannot fall back on an existing infrastructure, you do not need

to break the bank. Work out of your house or apartment, attract another

Chapter 9 | The Legal Setup of Your Startup

founder with skills that complement yours, and launch the company as a team.

Test your product in the market before you have it mass-produced. And, of

course, lower your own bills as much as possible.

Even though you may not plan to go on a golf holiday or buy a new luxury car,

there are still many ways to rein in your monthly bills. Do you really need that

data plan that sets you back $50 per month? How about HBO and DirecTV

for another $100 per month? Is the old iPhone really not good enough any-

more? And do you need to take a taxi to the university for $20 each day when

the train only costs $2? With a few simple adjustments, you may be able to

save several thousand dollars each year. This can make or break your startup

in the early phases. As a startup entrepreneur, get used to bootstrapping with

little or nothing as early as possible. Forget about spending money to make

money. Even if you have funding, make it a point to use as little as possible and

spend only when necessary. Use all the synergies and free infrastructure you

can, as long as possible.

The checklist in figure 9-1 sums up what you need to know about moving

your startup up a notch.

Did you already incorporate your startup?

Figure 9-1. Checklist for a startup’s legal structure

CHAPTER

Communication

Skills and

Meetings

Talking about their project with outsiders is an important skill that entre-

preneurs often overlook. How difficult can it be to present something to a

visitor? Presentation skills are often taken for granted, but in reality, good

communication is the lifeblood of entrepreneurship. Because startups rarely

take off in isolation, it is worth spending some time mastering communication

skills. Students and researchers may find tactics related to communication

too salesy or otherwise unfit for academics. Overcoming that hurdle is one

of the points of this book: leave the ivory tower, and get feedback from the

real market. The sooner university entrepreneurs warm up to this concept,

the better.

PowerPoint

Researchers are used to presenting their findings to other academics, so they

naturally assume that they already know how to give talks to third parties. What

they fail to consider is that non-academics are used to a different presentation

style and format than academics. A startup entrepreneur should avoid address-

ing potential partners and investors as if they were faculty. I have sat through

hour-long presentations of 200 mostly unreadable PowerPoint slides, most

of which the presenter skipped with the remark “I don’t have enough time

to show this here.” Many of the slides were brimming with justified 12-point

Chapter 10 | Communication Skills and Meetings

100

type, intricate diagrams, and tables of even smaller type. In addition to being

utterly boring, such feature-laden demonstrations lack any actionable steps to

engage the audience. Presenters simply beam data down to the listener, and

when the time or the information runs out, they stop. This may be OK when

you are presenting to a specialist who has an interest in such detail, or anyone

unfamiliar with a better presentation style. However, when pitching a potential

joint venture partner or investor, such a practice may reflect badly on you. It

shows that you are going through the motions with little understanding of how

the business and investing world works.

To be fair, it is not only individuals from universities who lack presentation

skills. Most presentations given by startups and multinational corporations are

rather dismal. There is a lot room for improvement in all domains. Effective

communication is never a one-way street. It is not just a question of telling but

also of listening. Entrepreneurs are hardly the only people who must learn this.

So how can a startup make its presentations more palatable? Let’s establish a

few ground rules and technical parameters that make it much easier to tailor

your presentations to diverse audiences and applications.

The 10/20/30 Rule

A framework often used in Silicon Valley is the 10/20/30 rule put forward by

author Guy Kawasaki: 10 slides, 20 minutes, minimum font size of 30 points.1

This technique is daunting for most people on first sight. However, it works. You

must fit all the essential information on ten slides, excluding the title slide. What

information, you ask? Most third parties want to see the following points:

1. Problem

2. Your solution

3. Sales and business model

4. Technology

5. Marketing and sales

6. Competition

7. Team

8. Projections and milestones

9. Status and timeline

10. Short summary and call to action (next steps)

1Guy Kawasaki, The Art of the Start: The Time-Tested, Battle-Hardened Guide for Anyone Starting

Anything (New York: Portfolio, 2004).

University Startups and Spin-Offs 101

When you pitch to a joint venture partner, you may adjust some of the slides.

Instead of a sales and business model, at point 3, you may put the partner-

ship model that you imagine. You may omit point 5, marketing and sales, and

replace it with distribution channels. 10/20/30 is open and malleable, as long

as you follow the iron rule of a maximum of 10 slides with a minimum font

size of 30.

The most important slide is number 10: the call to action. Only with this last

step will you engage your audience. Never leave your audience with the task

of coming up with the next steps to take. If lunchtime is five minutes away,

they will rarely spend much effort on this. As an entrepreneur, you need to

do the thinking for other people and tell them what you want them to do for

you. This is also where your one-page proposal fits, as an extension of this

final slide.

The large font size is paramount for several reasons. First, when you present

with a projector, the contrast in the room may be weak, and small fonts will

be unreadable. You could darken the room, but then people will fall asleep. It is

best to avoid this problem by using at least a 30-point font size. Second, when

you print a presentation and show it on paper, the people you are presenting

to may have bad eyesight. Most of them will skip unreadable tiny print and will

politely nod, so you will never know that most of the information went over

their head. And finally, because a large font acutely limits the space available

per slide, it forces you to condense. Cut out anything that is unnecessary.

Producing a lot of text is easy; the magic lies in making your presentation

concise. People have gotten used to reading 140-character Twitter messages

that include a lot of information, so you will be at an advantage if you master

the skill of keeping it short. (By the way: the same goes for e-mails and any

other written documents. The shorter, the better.) You can still make a long

version and include links to your in-depth publications, should anyone ask for

them. Most people have little time and just want to find out the overall gist of

your project.

What about tables, which need to use a much smaller font size to fit on the

slide? What does not fit has to go. Simply omit anything that is incompat-

ible with the 10/20/30 framework. You can always convey the same infor-

mation with fewer words. Figure 10-1 is an example from an actual project

I was working on: this is the original slide with some names obscured. It con-

tains information about the benefits of a certain platform for patent-licensing

offices. The 15-point font is difficult to read, especially from a distance. The

colored table format provided by PowerPoint looks good in print, but the

contrast is too weak for an overhead presentation. The audience starts read-

ing at top left, makes their way down to the second line, and then gives up.

You may be talking or explaining what you mean to say with this table, but the

slide and your words will be incongruent. As you may have guessed, this slide

is unpresentable.

Chapter 10 | Communication Skills and Meetings

102

Figure 10-2 shows how to improve this slide. Even though it contains more

or less the same information, this version looks clean and makes sense at a

glance. There is no fancy formatting: just clear information. On the left you see

the beneficiaries, and on the right, the benefits. The columns for the motiva-

tion and contribution of each party are unnecessary to drive home the point

that the platform has value, so you eliminate them.

Omit all information that confuses the story or makes it difficult to under-

stand. If anyone has specific questions, they can ask after your presentation,

which only lasts 20 minutes. This leaves the audience with enough energy

to follow up if something is important. If the missing details are key for the

overall story, you can print the table and make it available to those who wish

to know more.

Assume you are in a day-long workshop to hammer out the terms of a poten-

tial project. Each speaker has one hour to make a presentation. Instead of

fretting about how to fit your 200 slides into 60 minutes, stick to the 10/20/30

rule. Speak for 20 minutes, and then get feedback from the other attendees.

What exactly is their problem? How have they addressed it in the past? Has

this worked for them? Why or why not? What happens if they keep doing

what they have been doing? How could your solution better solve their prob-

lem? Use the SPIN technique described in Chapter 5 to link the benefits you

Figure 10-1. PowerPoint slide before applying 10/20/30

University Startups and Spin-Offs 103

can bring to the table to the needs of the other parties. Your presentation

becomes a platform for discussion, and you engage others in your project.

Communication about your startup goes far beyond PowerPoint. It is a skill

and a mindset that applies to all your interactions with others. Once you have

internalized a few ground rules, you can apply them to various situations.

Have a Backup Plan Ready

It goes without saying that if you need to hook your computer to a projector,

you should do this before the presentation to make sure everything works. If

the projector fails to link up with your laptop, have the presentation available

on a USB stick and use another machine. As a last resort, bring a printout of

the presentation that you can photocopy if all else fails. When the presenta-

tion begins, you should have checked that everything works and should have

taken all possible steps to make it work. Blaming the technology or the techni-

cian and shrugging your shoulders will only reflect badly on you, so do not go

there. It is your full responsibility to make your presentation work.

Elevator Pitch and Micro-Scripts

It can always happen that you meet someone in the proverbial elevator, and

they ask you what you are currently working on. As a startup entrepreneur, be

ready to pitch your project at all times. Who knows? Perhaps the other person

Figure 10-2. PowerPoint slide after applying 10/20/30

Chapter 10 | Communication Skills and Meetings

104

can help you with something, or works on a similar project, or can introduce

you to an influential contact. This is when your elevator pitch comes in handy.

It is a highly condensed synopsis of what your startup is about and why it

matters. This pitch should come across naturally without sounding rehearsed.

Keep it simple, and focus on the most prominent points of your venture.

The following practice to craft your elevator pitch comes from advertising. Yes,

you heard right: you are creating an advertising slogan for your university startup.

Before you decide that this is too cheesy and un-scientific, remind yourself that

you are not publishing your elevator pitch in Nature. It is just a brief summary

of the benefits your startup delivers to a client. Businesspeople are used to such

pitches, and when you apply them intelligently, they work great in academia.

Micro-script rules, developed by author Bill Schley, are excellent building blocks

for elevator pitches.2 “It’s not what other people hear, it’s what they want to

repeat,” as he puts it. The following set of simple rules helps create a short,

memorable message that drives home the main point about what you want to

communicate. In creating your micro-script, stick to the following guidelines:

1. One attribute.

2. The narrower your focus, the wider the message goes.

3. Simple always wins. The average length of successful

scripts is less than six words.

4. Be specific.

There are further rules, but these are the ones I find most workable.

Now you have a recipe to cook up your elevator pitch. Let’s see how this works

with an example. For this, we go back to the battery startup from Chapter 2.

What is their product’s one quality? Potential candidates are “rechargeable in

ten minutes” and “biodegradable.” Because “rechargeable” did not make the

cut in MVP testing, this is easy: we focus on “biodegradable.” The narrow focus

means the startup’s first product is a car battery, as they found out in MVP

testing. Specificity means the battery is not just “good for the environment”:

it is so many times better, or it saves so many lives or so much soil or water

from contamination. For illustration purposes, some possible micro-scripts for

the battery startup are as follows:

“The biodegradable car battery that reduces water pollution from heavy met-

als by 50%.”

“Each car battery helps protect one acre of farmland from heavy metal

pollution.”

“The car battery that dissolves to compost.”

2Bill Schley, The Micro-Script Rules (New York: N. W. Widener, 2010).

University Startups and Spin-Offs 105

It is helpful to avoid touting the features of your technology, but rather the

benefits. A feature would be the chemical composition of the battery acid. It’s

better to speak about the benefit of biodegradability, which listeners can then

repeat to other people after they hear the micro-script.

This is just an example to show that you need to be creative with your micro-

scripts. Write down several of them, and test which ones work best. These

short sentences can be the building blocks of your elevator pitch.

So how do you use your elevator pitch? Let’s find out with a fictitious example.

Assume the following situation: Ben and Christine from the battery startup

are waiting at a taxi stand. In line right behind them, Ben notices the CEO of

Big Battery Corporation (BBC) waiting for a cab. Ben recognizes the CEO

from a news article he saved—he wanted to write a letter to BBC about a

potential joint venture. The taxi line is barely moving, and Ben figures he has

three minutes to speak with the CEO. He seizes the opportunity and intro-

duces himself.

Ben: “Hi, Mr. CEO. I recognized you from the article in The Business Post last

month. My name is Ben, and this is Christine. We just founded a battery com-

pany. Here is my card.”

CEO: “OK …”

Ben: “We are working on a biodegradable car battery that can reduce water

pollution from heavy metals by 50%. We’re testing the battery now in the

market with very good results.’

CEO: “Hm.”

Ben: “Yes. I planned to write to your R&D department and introduce our

company. We are currently looking for a joint venture partner to raise some

funding. We are actually raising $250,000 right now, which should be enough

for the next six months to refine the technology, and I would like to ask your

company if …”

CEO: (Interrupting Ben) “Listen, it’s 10 p.m., and I had a busy day. We

already work on similar technology and have no headroom for another joint

venture.”

Ben: “Oh, really!?” (Long pause.) “Uhm, OK. Well, good luck with the technol-

ogy you are working on …”

Did this go well? Not at all. But that happens when you forget to rehearse

your elevator pitch and are unclear about what you want from the other

party as the actionable next step. Even though Ben started out fine with his

micro-script, the rest of his elevator pitch was much too straightforward.

Begging others for money is the last thing that should come across in your

elevator pitch. Instead, focus on what you can do for the other party. Move the

Chapter 10 | Communication Skills and Meetings

106

conversation just one step forward by breaking down your goals into smaller

steps. If you move ahead steadily in interactions with others, you will reach

the goal faster than if you try for a home run every time. Let’s rewind and see

how the situation could have played out better:

Ben: “Hi, Mr. CEO. I recognized you from the article in the The Business Post

last month. My name is Ben, and this is Christine. We just founded a battery

company. Here is my card.”

CEO: “OK …”

Ben: “We are working on a biodegradable car battery that can reduce water

pollution from heavy metals by 50%. We’re testing the battery now in the

market with very good results.”

CEO: “Hm.”

Ben: “Yes. I planned to write to your R&D department and introduce our tech-

nology. It could be in line with your new sustainable product line Z. Would it

be possible for us to make a presentation?”

CEO: “Listen, it’s 10 p.m., and I had a busy day. Why don’t you call the office

and set something up with R&D?”

Ben: “Great, I will do that. Oh, here’s a cab. Why don’t you go ahead of us?

Have a safe drive home, and we’ll be in touch tomorrow.”

Was this interaction successful? I think so. Even though the CEO was still

grumpy, Ben got to the next base. He of course still has a long way to go to

secure funding and a joint venture, but he is one step closer to a potential

partner. The CEO has no reason to reject him. Ben can contact BBC tomor-

row and refer to the CEO’s recommendation to call the office. He may even

send a greeting card to the CEO and thank him for his time and his suggestion

to call. Thereby he has set up a link to a potential partner that may be of much

value to both of them down the road.

Prepare and Rehearse Your Pitch

Your message has to be clear and refined, and this never comes overnight.

Most important, whenever you give your elevator pitch to someone, do not

ramble. This is a sure deal-breaker. Keep it simple and short, and use memo-

rable phrases like your micro-scripts. Make sure you give the other person

enough space to breathe, and take breaks between your sentences. To deliver

your messages with perfection, make sure you have rehearsed them properly.

It is more difficult than you think to bring across your information confidently

and still make it sound unrehearsed. This needs practice. But it is well worth

doing and will go a long way.

University Startups and Spin-Offs 107

Get your team together, and start pitching to each other. See which micro-

scripts work well by testing them frequently in casual conversations. Practice

does not always have to be in front of the mirror. Get in the habit of obtaining

feedback about your ideas everywhere you go. Over time, this prepares you

to get it right and make it sound natural at the same time.

Unless you practice your elevator pitch, the right words will elude you under

stress. As the example of Ben and the CEO shows, always think in terms of

next steps. If you can advance the dialogue, it is successful. Interactions that

linger in indecision are unsuccessful and a huge time waster. If you fail to pay

attention, you may not notice this is the case, with actionable steps postponed

from one meeting to the next. When you are setting up a meeting, clearly

think about what you want from it.

What Is the Actionable Next Step?

Being too straightforward right away is a turnoff. The first contact should just

be about getting to next base, in this case a formal meeting to present your

technology. It could also be MVP testing with a company already active in the

marketplace. Or general feedback about your approach and your assumed

target market. When you meet a person in the elevator, refrain from push-

ing your entire PowerPoint pitch deck on them. The actionable next step is

to organize a meeting where you and your team present the entire pitch.

Whatever it is you want, be clear to approach it in small steps.

With the SPIN questions (situation, problem, implication, need-payoff), it is

much easier to frame the discussion around the benefits of your products

instead of their features. Going into the meeting to “just get to know” the

other party is not enough and will rarely move the interaction forward. With

this, you are depriving yourself and the other party of potential value that

could come out of a potential collaboration down the road.

Note how all the techniques and the work done on your startup so far build

on each other. With MVP testing and the business model canvas, you found

your unique value propositions, which you highlight in your elevator pitch.

With your financial model, you can lead an informed discussion about pricing

and your needs when it comes to forming a joint venture or raising investment.

And the right communication skills tie it all together. Without them, nothing

else would matter because you would be unable to bring it across when you

meet a decision maker. The strategies outlined in this book are straightforward

and may even seem simplistic at times. However, putting them all together, you

will end up with a workable approach to entrepreneurship that has been suc-

cessful for many startups. Only when you have a clear picture of your startup

can you express the exact next steps you want others to take on your behalf.

Chapter 10 | Communication Skills and Meetings

108

Take Control of Unexpected Situations

Have you ever given an interview to the news media? They are usually very

short, sometimes just 30 seconds. The interviewer asks a generic question,

and you answer the best you can until the next question rolls around or the

interview is over. Most people are in a reactive mode during an interview, and

this is not how an entrepreneur should use this opportunity. Instead of nicely

answering the interviewer’s questions, have your pitch ready, and be prepared

with the story that you want the world to know.

Let’s see how this works with another fictitious example. Assume there was

a volcanic eruption in Indonesia yesterday, and a news team is now filming an

interview at your university. As the team lead on the volcanic-eruption mod-

ule, you are slated for the interview. Let’s see how this unfolds:

Interviewer: “As a leading expert in volcanic-eruption modeling, what is your

prediction for future volcanic activity in Indonesia?”

If you are like most people, you will respond the best you can to the ques-

tion about volcanic activity in Indonesia. After all, that’s what the interviewer

wanted to know, right? Perhaps you say that no models could predict what

happened and that we do not know when the next eruption will be. Or per-

haps you speak about the history of eruptions and note that this one was

actually long overdue. You play nice with the interviewer and tell her what she

needs for her news bite. She will politely thank you and move on to the next

news item. This is how most such interviews progress.

Assume, however, that in addition to being a leading expert on volcanic activ-

ity in Indonesia, you are also a startup entrepreneur. The startup you incor-

porated two days ago, let’s call it Seismic Software, already has a tentative joint

venture pact with a multinational sensor company, SensorX. You have worked

on a model that has in lab tests outperformed other models. You feel it has a

wide variety of applications not only in eruption modeling but also for earth-

quakes, tsunamis, terrestrial explosions, and so on. By chance, you find yourself

standing in front of a camera for the national news media, and a reporter asks

you about the volcano in Indonesia. What do you do? You can play along with

the interviewer and give the generic answer that 99% of all other research-

ers would give because they are excited to be on TV. Or you can hijack this

opportunity and take matters into your own hands:

Interviewer: “As a leading expert in volcanic-eruption modeling, what is your

prediction for future volcanic activity in Indonesia?”

You: “Thanks for asking me this question. This latest activity in Indonesia has

been largely a surprise, which is mainly because most models date back ten

years. My team and I at Seismic Software are working on an advanced model

that holds much promise. We predict not only eruptions like the one we

have just seen, but also earthquakes and tsunamis up to ten minutes earlier

University Startups and Spin-Offs 109

than current systems in use. We’re currently testing our model in Japan with

SensorX, our joint venture partner. The first tests are promising, and it will be

exciting to see how we can improve prediction in the future. In fact, this short

simulation video shows how we predict future eruptions with our software.”

(Shows 20-second video clip on a laptop.) “You see here how we get a clear

signal of seismic activity about ten minutes before the felt impact on land. This

is mainly thanks to the way our software communicates with the SensorX

sensors. In this video, you see our team from Seismic Software at a test site in

Indonesia.” (Shows other 20-second video clip.) And so on, and so forth.

What just happened? The interview is now about your company and your

product and not about Indonesia. If the interviewer has time for another ques-

tion, she will most likely follow up on your model, your tests, or your company.

Or she may want to show your videos with the credit of your company in the

news bit. Do not worry about talking too long—the news team can always

edit your interview. The elevator pitch should be short, that’s true. But that

applies when you pitch under time constraints. When you have the chance to

tell your story to the world on the news, you should have a lot of interesting

material to talk about. In the example, you made a powerful pitch that put

your own company and also your joint venture partner in the spotlight on the

national news. Make sure to exchange business cards with the film crew and

anyone else on the set. You could double up and invite the news crew to your

lab to film a special report about prediction software.

You never know what these encounters may lead to. The most important

thing to remember is that entrepreneurs first and foremost have the benefit

of their own company in mind. When there is a chance to get a platform, make

the platform your own. You could not possibly buy the visibility you get from

these opportunities.

A Word about NDAs and Confidentiality

Attorneys advise you to have third parties sign a non-disclosure agreement

(NDA) when you show those parties confidential information about a tech-

nology and want to discourage them from copying or stealing your invention.

If you have a patent (pending), then your invention is somewhat protected

from plagiarism, but you still have to enforce against potential infringement.

This can be time-consuming and expensive. An NDA should, in theory, protect

you from intellectual property theft. The reality is that NDAs are impractical.

Better than relying on NDAs and patent protection is keeping the crucial parts

of your invention under wraps. My experience has shown that an NDA often

frames a discussion in a negative light, because it presupposes the other party

will naturally steal your intellectual property. Many venture capitalists will tell

you straight out that they never sign NDAs. If you insist, the meeting is over.

Chapter 10 | Communication Skills and Meetings

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A better strategy than an NDA is incremental disclosure. First, by focusing

mostly on the benefits of your technology and not the features, you avoid

revealing the secrets behind your invention. In the example of the battery

startup, they should avoid disclosing their product’s chemical composition in

the first meeting. But they should highlight all the benefits it brings: biode-

gradable up to X%, contains no heavy metals, protects water and soil, and so

forth. When the potential joint venture partner asks sensitive questions, you

sidestep with the answer that you can discuss those in a later meeting. If your

invention is obvious—for example, if one glimpse at the battery immediately

tells the other party about the technology behind it—then leave it in your top

secret lab. Bring a mock-up or a diagram with the sensitive parts obscured.

The more the relationship progresses, the more you show. When you have

signed a joint venture agreement, then all the intellectual property is shared,

and there are no more secrets. Only when you think in terms of features, not

benefits, will you be afraid of intellectual property theft.

What Should You Bring to a Meeting?

Let’s say you have a first presentation with a potential joint venture partner. How

do you approach it? Let’s revisit the collateral you have produced so far and see

how they are put to good use. This is what you should bring to a meeting:

1. Short summary for the meeting, with points to discuss

2. PowerPoint presentation on a laptop or printed

3. Business model canvas

4. Financial model

5. One-page proposal, if you have something to propose

6. Additional materials

Let’s look at each item in more detail.

Points to Discuss

When you go to a meeting, make sure you are coming from a position of

preparedness and strength, not from a stance of begging for sponsorship or

capital. The grant track focuses startups exclusively on securing funding from

day one, but capital is hardly the most important asset others can provide.

When you approach others, their experience and the synergies they bring are

the most valuable assets for your startup.

Make it a point to lead the meeting with confidence. As an entrepreneur, you

want to come across as goal-oriented and determined. When you communi-

cate this way and the other party reacts strangely or withdraws, then you may

University Startups and Spin-Offs 111

have found out that they are not up to speed to work with you. Be glad you

recognized this early. Use the meeting to show your worth and to test the

other party regarding their ability and commitment.

Business Model Canvas or Lean Canvas

Whichever canvas you choose (I recommend the lean canvas), you should

tailor it to the other party in each presentation. Parts of the canvas will flow

into your PowerPoint presentation: for example, the slides where you explain

the problem, solution, business model, and so forth. You may bring several

canvases to address specific situations, such as your joint venture partner’s

market and also the global market. Because you open the meeting with the

PowerPoint presentation, the canvases are just backups in case the discussion

progresses beyond the most obvious points.

Financial Model

Even though a joint venture partner will value your company on their own

terms, the financial model is important to show the assumptions under which

you operate. Do you project $1 million in sales or $100 million? Does your

product cost one dollar or one cent? What is the potential profit margin, and

what are the effects of scale economies?

The underlying logic of your startup and the market are more important than

the numbers in the model. They show others how you think and operate.

Make sure you explain your assumptions concisely as well. Bring the financial

model with the output printed on one page for easy discussion.

One-Page Proposal

This document condenses onto a single page the entire discussion about your

proposal for a joint venture or other proposition: your status quo, what you

can do for the other party, and what you want them to do for you. Of course,

never break out a joint venture proposal at the first meeting, before you even

know the other party and have an understanding about how you could work

together. This proposal makes sense when you have met the other party sev-

eral times and are ready to extend or receive an offer. You can also prepare

several different proposals.

In any event, before you go into a meeting, know what you want out of it. In

a first meeting, you should ask for a follow-up meeting to discuss other parts

of the technology, or get feedback on an MVP, or look at the joint venture

partner’s processes to learn something new.

Chapter 10 | Communication Skills and Meetings

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Technical Drawings, Sketches, Photographs

You should bring anything to the meeting that makes the point of your prod-

uct being valuable to the other party, unless it gives away your intellectual

property. If you have photographs of people using the technology, or drawings,

or certain statistics that make a point, then bring those printed on separate

pages. You will rarely need to show everything; just have more material ready

as a backup.

What Should You Leave After the Meeting?

Print out the ten-page PowerPoint presentation and leave it there, unless it

contains confidential information. Do not leave the lean canvas, the financial

model, or any of your technical drawings. If you have presented a one-page

proposal, leave that also, because you want a reply in the next few days regard-

ing the next steps. Other than that, avoid flooding the other party with paper.

You should make a sharp impression with your presentation and leave them

wanting more.

Business Cards

Do you need your own business cards? Well, of course. When you are out

and about as an entrepreneur, avoid giving people the card from your univer-

sity. Print your own business cards at a professional copy center. They should

include the following information:

Your name and degree: for example, Dr. X, MBA.•

Your title at the company: for example, CEO.•

The name of the company.•

The address of the university lab where your startup is •

hopefully based in the beginning.

Your personal mobile phone number.•

Your personal e-mail address. Get your own dot-com •

domain for your startup at a web-hosting company like

Godaddy.com. This costs about $15 per year and comes

with free e-mail accounts. Setting up your page and e-mail

address takes ten minutes. This looks infinitely better

than a faculty e-mail or Gmail address.

Your title is important. First-time entrepreneurs are often unsure about

their role in the company. Are they the founder, the chief executive officer

(CEO), the chief scientist, or all of the above? Avoid using the title Founder.

University Startups and Spin-Offs 113

If you are the boss of your team, then use the title CEO, or Managing Director,

or President. If you are working more in the background on technical issues,

put CTO (chief technical officer) or CIO (chief information officer). Read

about these abbreviations on Wikipedia, and choose the one that best fits

what you are doing. Use only one title, even if you have several roles.

The Business Lunch

A business lunch is distinctly different from getting together with your friends

and family at a restaurant. The focus is on business, not on lunch. Eating together

and sharing food is a gesture of goodwill among humans today just as it was

in ancient times. It is more informal and cordial to meet over pizza than in

a conference room. The topics discussed during the lunch are also different

from those in a meeting, but they are still based on the premise of benefits

over features, asking instead of telling, and actionable next steps.

I discuss the business lunch in a little more detail than the other skills in this

chapter. This is because it is easy to spot a beginner during a business lunch.

A great number of entrepreneurs blunder their way through lunches and lose

much previously gained respect as a result of their amateurish behavior. I have

no intention to micromanage your business lunches; this discussion simply

shows you the moving parts that come together in this meeting ritual that

looks so simple on the surface.

Let’s assume you had a brief meeting at a science summit with the CEO of a

company that you may want to partner with later. You exchange cards, and he

suggests that you get together for lunch sometime. You set up a meeting next

week at a restaurant close to the CEO’s office. How do you make the most of

this meeting (see Figure 10-3)?

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First, be sure you are early. Familiarize yourself with the place, and then wait

for the other party to arrive. Do not arrive at the restaurant starving. Make

sure you ate a good breakfast and perhaps a little snack just before lunch

to avoid arriving at the restaurant undernourished, only thinking about food.

Wolfing down your lunch seldom makes a good impression. In general, let the

other party order first, and then order something similar. If it turns out the

other person is a vegetarian, then refrain from ordering a bloody steak; order

a small soup dish or salad. Always order a small plate so you have more time

to address the issues you would like to discuss. Definitely avoid messy food,

such as crab legs or anything similar, unless the other party orders the same

and insists that you join them.

It is a good practice to stay away from alcohol at lunch, even if the other per-

son orders a beer or glass of wine. You are not drinking buddies just yet. If it

happens that the two of you become friends, then it is of course OK to go

out drinking, but the first lunch meeting is hardly the time to drink together.

Apply common sense. Make sure your lunch does not interfere with the busi-

ness part of the meeting.

When it comes to paying the bill, the CEO will most likely invite you, but

have enough cash on hand to cover your part. Offer to split the check. Be

as persistent as you must, depending on your local customs. When you are

invited, thank the other party for the lunch. However, never assume because

somebody is richer or older than you that they must pay your bill. A sense of

entitlement can be a deal breaker.

You need to have your business agenda planned in your head when you go

to the lunch. Do not bring any paper, such as bound prints of PowerPoint

presentations, unless the other person expressly asked you to bring them.

Remember, you want to move each interaction to the next one. If the CEO

wants to see more, then set up the next meeting where you will show your

full presentation. Most first-time entrepreneurs make the mistake of wanting

to hit a home run right out of the gate. That is hardly how relationship building

Never go to a business lunch hungry.

Have a clear picture of what you want from the other party.

Break that down into smaller, actionable next steps.

The goal is to get a follow-up meeting.

Do not feel entitled to be invited.

Figure 10-3. Checklist for a business lunch

University Startups and Spin-Offs 115

works. Move step by step. The business lunch is a good opportunity to suss

out the other party informally, get to know their opinion, and then present

actionable next steps. What those are should be clear to you before you go

to the lunch.

Let’s assume you want to ask the CEO if he can sponsor your product devel-

opment with hardware. In a first meeting, such a commitment might be a

stretch. What would the CEO get out of it: perhaps access to your other

testing data, or insight you gained in developing prototypes? Present some-

thing of value before you ask for anything. Try to find out whether the CEO

already has the data you collected. See if it would be helpful if you shared your

findings. Ask him how his team approached a certain problem that you are

struggling with. Offer the insight you gained from solving a similar problem.

As the actionable next step, offer to show him some of your results directly

at his company’s R&D lab. In that next meeting, you can begin inquiring about

the possibility of potentially working together, perhaps by using their lab or

some of their hardware.

Every meeting exists to lay the groundwork for the next one. Look at your

meetings this way, and you will see them in a whole new light.

You Can Always Ask

As an entrepreneur, you must let go of your fear of asking other people to do

things for you. Of course, I am not suggesting you bum out your friends with

silly requests to buy dinner for you or let you crash on their couch for free

with no end in sight. Those kinds of favors only go so far and end up alienating

everyone around you. I mean well-researched requests that you may want to

ask others to fulfill.

Let’s assume you want to meet the CEO of a company with which you would

eventually like to form a joint venture. You have no personal connection to

this CEO yet, nor does anyone in your network. At the same time, you think

it would be good to get on the radar of her firm and hear her feedback about

your MVP. What do you do? You should make contact with the CEO and ask

her for a meeting to get her feedback about your early-stage product. Most

people are open to giving their opinion about your work. They want to help

others, especially if they can identify with them in one form or another. But

remember that all relationships are give and take.

How do you contact somebody you have never met? Luckily, there is the

Internet, which solves many of our problems. Most CEOs have an account on

LinkedIn; make sure you connect there first. But a hurdle comes up: to con-

nect with a person on LinkedIn, you often need to know their e-mail address

or show that you have some other connection with them.

Chapter 10 | Communication Skills and Meetings

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You can often guess e-mail addresses from the URL of a company. Most of

them use the format first-name.last-name@company.com. Try that and see if it

works. You can also say that you are a friend of the CEO. Sometimes you can

choose a LinkedIn group that you are both a member of: join the same group

as the CEO, and off you go. Try a few times, and see what happens. Eventually

it will be possible to connect.

Why not simply send an e-mail to the company? E-mails from strangers fall

by the wayside: most decision-makers receive hundreds of them each day. It is

better to use alternative channels, if they are available.

Of course, you can also call the company and ask for a meeting. I recommend

this only if you are well advanced on the path of MVP testing and can make

the case for providing value to the company. Only go into a meeting if you are

prepared and ready with actionable next steps for the other party. Never go

“just to get to know them.” This will annoy the other party and make the next

meeting more difficult to get when you need it.

With that in mind, you can meet anybody you desire in this world. Celebrities,

billionaires, Nobel laureates—they are all just people in the end. If you appre-

ciate their time and engage them in the right way with something they per-

ceive to be of value, you will eventually prevail.

I once wanted to meet a famed investor to get his feedback on a project of

mine in Asia. Because he ran several investment funds that had been active

in Southeast Asia and China for over two decades, I was sure he would have

some insight about these markets based on his experience. He often appears

on CNBC and Bloomberg TV, speaks at various investment conferences, and

is generally perceived as a jet setter, so chances were slim that this man would

ever lend his time to me. So how did I approach this challenge?

First I sent an e-mail to his investment company in Hong Kong, not sure

whether an executive assistant would screen them. For three weeks, I sent

an e-mail each Tuesday morning with the request for a meeting in either of

the two locations where he has homes. These e-mails went unanswered. So

I switched to LinkedIn, as mentioned earlier. But there were several accounts

with his name, some obviously fake. I connected with the two that looked real.

To do that, I used the Classmate feature with my alma mater, for lack of a bet-

ter alternative. Surprisingly, a few days later, both connection requests were

approved. Once you connect on LinkedIn, you can see your new friend’s full

profile and send them messages. That is what I did:

Dear X,

I would like to introduce myself in person to you. Would you be available for

ten minutes this or next week by phone or in person? I am happy to meet you

either in Y or in Z, at your leisure.

University Startups and Spin-Offs 117

Notice that my first message contained no flattery about that person’s achieve-

ments. There was no word about admiring his work. Such statements put you

in the position of a fan. Nobody wants to be friends with a fan. They only

want to be friends with people on the same wavelength. There was also no

time lost explaining who I was. That information was visible on my LinkedIn

profile. Keep these introductory e-mails as short as you possibly can. Omit

all fluff, and get right to the point. What did I want as the first action? I could

have written that I wanted feedback about an idea, but this would have been

an immediate turn-off. I just wanted to get face time. Afterward, I could bring

forth my request for a follow-up meeting to present my project. You cannot

force others to interact with you, but you can lead them gently with patience

and persistence.

The answer I received was brief:

Sorry, I’m traveling.

At least there was a direct line now. What do you do when someone obvi-

ously has no time and no motivation to meet with you? Do you become a

nuisance and pepper them with requests until they give in? They never will.

You will brand yourself a spammer and will end up on their blocked list.

Or do you put the ball in their court, sending your phone number and

asking them to connect when they have time? You will never hear from them.

Instead, be politely persistent, yet respectful of their time. You can always

ask—but ask the right thing at the right time. This is a delicate skill that takes

time to master.

It took two months until my first meeting with the investor came to pass. The

first meeting took place in a “gentlemen’s bar.” I introduced myself and told

the investor that I was an entrepreneur, and that some of my ventures had

been in the Internet space. Before the meeting, I had prepared several sug-

gestions for the investor’s personal blog, which could have used a makeover.

I had also mapped out a strategy for a mobile app and a podcast that he might

consider to reach a wider audience. All this I gave away without asking any-

thing in return. This was about providing value to the other party and estab-

lishing the notion that this was not to be a one-sided interaction. I noticed

that he relaxed slightly. He had probably expected an investment proposal,

or a request for advice. Instead, most of this discussion circled around digital

strategy and how he could use it to his advantage. This meeting was engaging

and lasted several hours.

After that first meeting, it took another two months to set up the next. This

time I asked for the investor’s opinion about an idea I had been working on.

About five one-sentence e-mails later, mostly stating that he had no time or

was abroad, the get-together was finally organized. Printed PowerPoint pre-

sentation in hand, I arrived at that same bar. Two hours later, all the bar girls

had introduced themselves to me, but the investor had not shown himself.

Chapter 10 | Communication Skills and Meetings

118

It dawned on me that this would most likely not happen today. When I returned

to the hotel, I wrote a short e-mail asking whether everything was OK and

whether a meeting in the next few days might be more convenient. The temp-

tation to give up is strong in such a situation, and so is the danger of choosing

the wrong words. Never write an e-mail when you’re angry or disappointed.

Keeping it simple and to the point is the way to go.

Long story short, I eventually got what I wanted. The investor gave valuable

feedback about the idea and even introduced a contact of his to help develop

it further. This interaction was two-sided, and that is why it was productive.

Few startup entrepreneurs I meet are thinking about first providing value to

others. You can of course only provide value to others if you have something

to say that cannot be read in a book. This is another reason to develop skills

beyond your area of expertise: you never know when you or something else

can use them.

Figure 10-4 sums up the most important points about meetings and commu-

nication skills.

Rewrite your PowerPoint presentation in the 10/20/30 format.

Rehearse it and make sure it is shorter than 20 minutes.

Create micro-scripts and an elevator pitch. Rehearse them.

Create lean canvasses, one for each situation of your startup.

Make sure your financial model is ready and that you can explain the

assumptions.

Make a short list of points to discuss at each meeting.

Frame your value in terms of benefits, not features.

Prepare a one-page proposal for each meeting.

Know what you want from the other party, and articulate the next

steps.

Figure 10-4. Checklist for communication skills

CHAPTER

Startup Grants:

Can Government

Programs

Stimulate

Entrepreneurship?

A discussion about startup entrepreneurship out of universities would be

incomplete without touching on the subject of grant funding. Many first-time

entrepreneurs believe the initial order of business is to get a grant. Obviously,

entrepreneurs need to pay bills and have to eat, and product development

requires capital. All this makes it necessary to spend some time writing a good

proposal, then submit it, and hopefully impress a panel of experts enough to

receive some money. This tides over the startup team for the early months

while they labor in their lab on a better mousetrap. This is the mainstream view

under which most people operate, because most have never started a business

and see this adventure through the lens of the employee. Nobody would show

up at their job if they were not paid, so why should the entrepreneur? A result

of this thinking is that first-time entrepreneurs are often more concerned

about paying for their health insurance than market-testing their product.

Chapter 11 | Startup Grants:Can Government Programs Stimulate

Entrepreneurship?

120

This, unfortunately, is exactly the wrong approach to entrepreneurship. A fun-

damental misunderstand about funding and its usefulness lies at the heart of it.

Startups need funding only when they have a validated product, ready to launch

in the market. This is possible only when they have proof that enough people

need this product and are ready and willing to pay for it—after they have

repeatedly tested their ideas directly in the market, confirmed their approach

and business model, and have done much soul-searching about whether they

have the willpower to see their startup through. When a startup stands ready

to launch a validated product, that’s when raising funds makes sense. The

investment is necessary to scale up the startup and help produce its final

product. Any money collected before then dilutes the focus of the startup and

sets it off on the wrong trajectory.

Launching a startup has little to do with asking for permission from a panel or

with sitting quietly at a desk, writing proposals and business plans. True game

changers often go against the grain of what the mainstream accepts as normal

and useful. How often have you read the story of a first-time author who sent

a new book to 100 publishers who all thought it was not worth the paper

it was printed on? The 101st publisher relented and accidentally ended up

making a fortune when the book turned out to be an international bestseller.

Similar stories abound, and it is the same with disruptive startups. They will

never receive grant funding, and the public will rarely deem them worthwhile

until they have launched and proven that their product or service is something

that nobody is willing to live without.

Early Funding Can Be an Early Grave

In my opinion, early funding can be an early grave for a startup. It avoids all

the inconvenient questions that build a foundation for success down the road.

Startup founders should not ask themselves, “Where can I get $50,000?” but

“Do I really need $50,000?” When the government makes startup grants avail-

able, this question is bypassed and drowned in months of concentrated grant-

proposal and business-plan writing. This happens at universities that funnel

their startups into the grant pipeline. Theoretical planning and scrambling for

funding replace firsthand experience in the market. The startup must have an

entrepreneurial fire that puts everything else in second place. If this is absent,

then it will be very difficult to compete with those who have that fire burning

in them, despite any amount of funding.

Grants make sense much later, after the entrepreneurs have undergone some

soul-searching and idea testing and have launched a prototype of their product

or service. Additional capital may even be unnecessary at that point, if the

venture is already profitable or has found a joint venture partner.

University Startups and Spin-Offs 121

During the initial unfunded startup stage, some founders learn that they lack

what it takes to be a startup entrepreneur—they fail to launch a valuable

product or stop much earlier than that. A grant would have just delayed the

inevitable and would have wasted taxpayer money.

Network Effects and Other Government

Programs

There are obviously ways in which a government can assist startups, other than

grant funding. Undoubtedly, entrepreneurship benefits from network effects:

if there are 20 other startups nearby, a new one benefits form existing infra-

structure; support services such as lawyers and patent specialists; inexpensive

co-work spaces; and other positive externalities. Such a setup depends on the

entrepreneurial climate and the ease of conducting business in a country.

Government policy can help lower the boundary to entry for new startups

by making incorporation simple and straightforward. The less bureaucracy

and the fewer roadblocks exist, the better. The environment may even attract

entrepreneurs from abroad. At this point, an entrepreneurial ecosystem may

be in the making, from which additional network effects originate. The first

step of introducing or removing a certain government policy may seem insig-

nificant, but when it starts to take effect, change can occur rapidly.

Unfortunately, governments hardly have the best reputation for helping start-

ups succeed. Author Josh Lerner lists the following examples of government

policies that were meant to boost entrepreneurship but that went wrong1:

When hurriedly rolling out the Small Business Investment •

Company program in the early 1960s, the U.S. Small

Business Administration poured capital into hundreds of

funds whose managers were incompetent or corrupt.

The incubators in Australia’s 1999 Building on Information •

Technology Strengths (BITS) program captured the prin-

cipal share of the subsidies aimed toward entrepreneurs

by forcing startups to buy their overpriced services.

Malaysia opened a vast BioValley complex in 2005 with •

little consideration about whether there would be

demand for the premises. BioValley became known as the

“Valley of the Bio-Ghosts.”

1Joshua Lerner, Boulevard of Broken Dreams: Why Public Efforts to Boost Entrepreneurship and

Venture Capital Have Failed, and What to Do About It (Princeton: Princeton University Press,

2009).

Chapter 11 | Startup Grants:Can Government Programs Stimulate

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122

Britain’s Labor and Conservative governments heavily •

subsidized and gave exclusive rights in the 1980s to the

biotechnology firm Celltech, whose management team

turned out to be inept at exploiting those resources.

Norway wasted much of its oil wealth in the 1970s and •

80s by propping up failing companies and funding new

businesses that were badly planned by relatives of parlia-

mentarians and bureaucrats.

Money Cannot Buy Entrepreneurship

Grant funding is a great idea in theory, and it made some sense when it was

much more expensive to start a company. With today’s advances in IT and

rapid prototyping, entrepreneurs can test their assumptions much more

quickly without spending $50,000, $10,000, or even $5,000. This applies not

just to Internet startups, but to any other project as well. Once they have

proof that the market is ready to pay money for the technology, the startup is

already up and running. If the market has no interest in a product, then there

is no business, and the entrepreneurs have to decide whether they want to go

back to the drawing board or abandon their venture. Money will hardly help

entrepreneurs come up with fantastic new ideas, but internal drive will. Taking

months to write business plans and grant proposals is time spent unwisely. It

will chip away at the internal drive of otherwise motivated entrepreneurs.

When entrepreneurs are pushed down the grant track, they get the wrong

impression of what startup entrepreneurship entails. As in a feudal society, this

approach makes it seem as though entrepreneurship is an exercise in sending

a proposal to an all-knowing entity who gives it the thumbs-up or -down. If

the gatekeepers like what they see, startups may proceed. Otherwise, their

ideas need further research. This is more akin to school than the reality of

launching a company.

Furthermore, the silliest-sounding ideas are often the best ones. Those ideas

are like the book that fell through 100 times before it became a bestseller.

They have the power to become blockbusters, not the ones that everyone

agrees on. Entrepreneurship is about taking matters into your own hands and

staking a claim, regardless of what a bureaucrat or professor thinks.

Grants Crowd Out Investors and Advisors

At the 21st Singapore Economic Roundtable, organized by the Institute

of Policy Studies and The Business Times in 2014, an angel investor raised

the issue that grant funding made it harder for angel investors to invest in

startups. He also argued that early support from the government enabled

University Startups and Spin-Offs 123

less-innovative companies to survive.2 This investor brought up an issue

that many others were aware of but hesitated to mention in the open. And

its relevance is not limited to Singapore. The revolving door from incubator

to incubator has created a situation where startups rely on the government

to cover their overhead without coming up with innovative products.

Authors Paul Miller and Kirsten Bound make a comparable point: they suggest

that startup accelerators may be more attractive for B-grade companies. In

their opinion, if a business finds an accelerator or incubator attractive, it prob-

ably will be less successful than a company that does not need support.3

When startup entrepreneurs land early government grant funding, all their

problems seem to have come to an end. They often stop seeking advice and

keep working on their challenges with the logic they have always applied.

Working with investors with extensive startup experience is the better choice.

Their support goes beyond money and includes advice from seasoned experts

in the field. This is useful, especially when things are not going smoothly; as the

saying goes, “It’s too late to make friends when you need them.” Startups can

benefit greatly from having experienced investors or entrepreneurs on their

side, but they get crowded out by easily accessible grants.

But Startups Need Funding, Right?

How can we fund all these university startups, if not through grants? As already

mentioned, funding makes sense only when a startup is ready to hit the mar-

ket with a validated product. If the bar was higher for startups to collect grant

money, much less of it would be necessary. Talented students and research-

ers would launch products and attract joint venture partners, and those with

weak motivation to get their ventures off the ground would give up before

they qualified for grants. Still, many startups collect grants as the first order of

business, because such funding is often extremely easy to get.

Let’s look at exactly what is being funded with all this government grant money.

Is it groundbreaking technology that needs a large investment to get off the

ground? Is it a drug with the potential to save millions of lives that requires

expensive trials to get to market? Or a special device aimed at improving living

conditions in developing countries that can only be produced inexpensively

in huge amounts? None of the above. The lion’s share of grant money goes

toward the high salaries of startup entrepreneurs and the bills of external

advisors and specialists. Conversely, high salaries and reliance on external spe-

cialists are outrages for private investors. When a startup raises seed-round

2Kelly Tay, “Government Grants Seen Crowding Out Angel Investors,” Business Times

(June 9, 2014).

3Paul Miller and Kirsten Bound, The Startup Factories: The Rise of Accelerator Programmes to

Support New Technology Ventures (London: Nesta, 2011).

Chapter 11 | Startup Grants:Can Government Programs Stimulate

Entrepreneurship?

124

funding in Silicon Valley, the salaries for the entrepreneurs should be zero or

low; and they must be able to do the core work in-house, because they are

the brains behind the operation. If entrepreneurs cannot do with little money,

how can they reign in the finances of their startup?

I know an entrepreneur who received a grant of about $200,000 for his soft-

ware startup. As they always do, the grant came with strings attached: for

example, how much of the grant could be paid in salary to the founders. The

entrepreneur’s first and foremost concern was how to double his salary allot-

ment through subterfuge. The next step was finding a foreign contractor who

would do all the work for the remaining amount of the capital. Did taxpayers

fund innovation with this grant? It all went toward someone’s salary and a

foreign programming firm. The product was derivative and untested in the

marketplace, and it has not yet seen the light of day.

Sadly, early grant funding props up businesses that have not undergone a single

test in the market. In most cases, considerable money and time are spent

building a better mousetrap, only to find out that the market is largely oblivi-

ous to the expensive prototype. Taxpayers should see their money put to

better use.

The issue is that researchers often approach startup entrepreneurship as an

afterthought. This may be because they are unaware that a startup is an avail-

able choice early in their career. Or it may be that when their research project

ends, they scramble for a way to stay on board and stumble on the possibility

of a startup, which then becomes their lifesaver to stay at the university a little

longer. Whatever the case, the motivation to become an entrepreneur should

never be entitlement or complacency, but an unquenchable drive and desire

to make an impact in the world with your ideas. If this is the case, then you will

find a way to begin the startup process in your free time while still being on

salary with the university, so no further capital is necessary. You can also lever-

age your research work and infrastructure directly into the startup, removing

overhead costs for offices, a workshop, and materials. If your technology is

patentable, then take advantage of the university’s invention-disclosure pro-

cess to pay for the patent. If you need a certain person’s expertise, try to get

them on your startup team as a co-founder. Before you know it, your startup

costs will be close to zero. This is the true power of a university as a launch

pad, not the availability of easy government grants. Make do with less. Recycle

and leverage, instead of turning on the faucet and trying to fill a bucket that

is full of holes.

CHAPTER

Venture Capital

and Angel

Investors

Students and researchers often misunderstand the function of investors, even

if they have a business or finance background; they see them as a source of

capital only. Entrepreneurs should consider investors in broader terms than

that. Expertise, network, and influence are much more important than paying

the next round of salaries. This chapter explains the most common sources

of early-stage capital: venture capital firms and angel investors. It describes

which other benefits these investors may have for startups and at what stage

of development entrepreneurs should approach them (hint: much later than

most people think).

Venture Capital

Venture capital is funding invested in startups and small companies with the goal

of long-term capital appreciation. It bears high risk, but the promise of large

returns in the future compensates for the possibility of total loss. When a ven-

ture capital firm invests in a startup, this often entails more than just money.

Because venture capitalists (VCs) often have an entrepreneurial background

themselves, they can provide worthwhile advice to startups—for example,

about how to negotiate partnerships or how to scale the business when it

achieves certain milestones. Strong networks with well-connected law firms

and investment bankers add to the lure of venture capital.

Chapter 12 | Venture Capital and Angel Investors

126

This model of investment is nothing new. In fact, it has been around since the

end of the World War II. In 1946, the first two venture capital firms were

founded in America.1 Yet it was not until the first dot.com boom in the 1990s

that VCs made a foray into mainstream consciousness. Venture capital sounds

very good in theory. But when I speak to startups with venture funding, a

slightly different picture emerges. I often get the impression that there are

two kinds of startups: those that desperately want venture capital, and those

that want to get out of the deal they have with a venture capitalist. Let’s dis-

cuss this in a little more detail.

Venture capital firms often visit universities to look for technology and early-

stage startups to invest in. More often than not, they leave without writing a

check. This is largely because VCs look for low-hanging fruit: investible start-

ups with capable management teams and promise in attractive markets, in

which they can buy equity relatively inexpensively. Most university startups are

too early stage for VCs. They lack business models and financial models, and

often they are still unsure themselves what exactly they will do and whether

they even want to do it. Venture capital firms look for a relatively painless 10X

return. Unless your company can make a credible case that high returns are

on the horizon, VC funding will go elsewhere.

Students and researchers should understand what venture capitalists are

looking for. Then they will be less disappointed when the next one turns up

and leaves without investing. Startups can save a lot of time if they learn to

first develop their businesses ideas without any outside funding. Then all the

VC visits could take place later, when their contribution makes sense.

Venture capital is a fantastic tool when a startup company already has a proven

business model and a product the market wants. Capital then serves as an

accelerator to expand the business and help it grow rapidly. The goal of this

expansion is achieving higher revenue in the market, which results in a higher

value of the company and a higher payoff for the invested capital. The Holy

Grail is an initial public offering (IPO), where VCs can sell their shares to the

public with a high multiple. This is the ideal scenario. But unfortunately, things

seldom turn out this way in the real world. When the business underperforms

or the founders have no desire to go down the path the venture capitalist

suggests, problems begin. The once-friendly VC turns into a micromanaging

control freak. More often than not, the original founders lose control of their

own company, and the venture capital firm installs a new CEO at the helm.

Contrary to public opinion, venture capitalists rarely invest their own money.

Just like any other investment fund, they raise capital from private high-net-

worth individuals (HNWIs) and institutional investors. A venture capitalist

1Spencer Ante, Creative Capital: Georges Doriot and the Birth of Venture Capital (Boston:

Harvard Business School Press, 2008).

University Startups and Spin-Offs 127

with a sound track record can raise several hundred million dollars this way,

which the VC then divides over several portfolio investments. The few block-

busters in the portfolio more than compensate for the failed investments,

or so the story goes. In the tech boom running up to 2000, venture activity

increased at a pace that was unsustainable. Institutional and individual inves-

tors—attracted by the returns enjoyed by venture funds—poured money

into the industry at unprecedented rates. Many venture capitalist firms stag-

gered under the weight of capital. As always happens in boom times, groups

that should have not raised capital garnered considerable funds.2 We all know

how it ended. After the boom came doom and many paper millionaires ended

up with nothing.

The media only reports about the big winners in the venture game—the

Googles, Facebooks, and Tesla Motors. This has imbued startup founders with

the Hollywood version of venture capital. In reality, many small and medium

funds implode and result in a total loss of investment. Successful portfolio

companies usually go public with huge returns, so calculating a meaningful

average return on investment (ROI) in venture capital funds is biased toward

these rare blockbusters.

Looking at the actual numbers, venture capital returns have been less than

stellar in the last decade. With selection-bias correction, the mean log return

of venture capital during the first dot.com boom has been found to be about

7% with a -2% intercept and a standard deviation of close to 100%.3 This and

the fact that some entrepreneurs have expressed frustration with the man-

agement style of their venture capital firms have earned them the unflattering

nickname “vulture capitalists.”

Angel Investors

Angel investors have the reputation of being the better VCs: less greedy; less

complicated when it comes to due diligence, deal terms, and checking on

progress; and altogether more willing to open their wallets. In contrast to

venture capitalists, they invest their own money in startups: usually smaller

sums, around $50,000 for a seed investment. Some successful entrepreneurs

become angels after they sold their first company. Celebrities may become

angels. Wealthy local business people may become angels. They often do this

to remain connected with young entrepreneurs for image or networking

2Joshua Lerner, Boulevard of Broken Dreams: Why Public Efforts to Boost Entrepreneurship and

Venture Capital Have Failed, and What to Do About It, (Princeton: Princeton University Press,

2009), 41.

3John H. Cochrane, The Risk and Return of Venture Capital (Cambridge, MA: National Bureau

of Economic Research, 2001). http://www.nber.org/papers/w8066?

Chapter 12 | Venture Capital and Angel Investors

128

purposes. Some also invest purely for the fun of it so they get to coach startups

and help them avoid rookie mistakes. Angels would love to see a profit on

their investment, but a large part of angel investing is giving back to society.

Conversely, venture capital investing always aims at a financial payoff.

The link between angel networks and universities is weak. This may have

something to do with the fact that university startups usually operate behind

closed doors. Often they only enter the public light after they have collected

grant funding. Because government grants are competing with seed invest-

ments, angels are being crowded out of the university startup game.4 This

is not the situation with independent startups, and angel investing thrives in

innovation hubs all around the world. Angels are often very engaged with the

startups they invest in. If they have relevant experience, they can be valuable,

trusted advisors in the early and later stages of a company.

Most recipients of angel capital are first-time entrepreneurs with no proven

track record. They have exhausted the FFF round (capital from friends, family,

and fools), but the project is still too small to be interesting to venture capi-

talists. Tech hubs in the United States, such as San Francisco and Austin, have

large angel networks that entrepreneurs can tap into to get a small amount

of cash to start. Smaller angel networks are sprouting up all around the globe.

This is an alternative to grant funding: less bureaucratic and with less time

between the first meeting and the investment.

However, just as grant funding gives a false impression of what entrepreneur-

ship is all about, so does early angel and venture capital. When you have raised

your first investment round, it will look to the outside world as if you have

already made it. This is a cool feeling, no doubt. But reality will catch up with

you, because the funding removes constraints from your startup. Constraints

on both time and capital (human and financial) are the lifeblood of innovation.

They focus entrepreneurs on profitability early on and cut out all the fluff that

is contributing little to the creation of a sustainable business. If you cannot

achieve some level of profitability on your own without external funding, you

may have to shut down the business and move on to the next idea. It’s often

as simple as that.

In a nutshell, entrepreneurs have to reach “Ramen profitability” before start-

ing to fret about raising any outside capital. It is more comfortable to have

funding than to work in a garage on a shoestring. But much more time will

be available for the founders to work on their idea if they forget about rais-

ing capital. Dealing with a micromanaging investor can be a nightmare. Many

profitable businesses you never heard of have been built without any funding.

4Kelly Tay, “Government Grants Seen Crowding Out Angel Investors,” Business Times

( June 9, 2014).

University Startups and Spin-Offs 129

When you are just starting out on your entrepreneurial journey, stop thinking

about venture and angel capital. Begin building a prototype today, and you will

be in good company.

The Fallacy of Failing Fast

“Failing fast” is a paradigm loosely associated with the Lean Startup method.5

I mention this here with venture capital and angel investment because you

should have some reservations before wholeheartedly embracing the notion

of failing fast. They are related to the fact that a failed startup is completely at

odds with the expectations of investors.

The idea that entrepreneurs learn just as much from failures as from suc-

cesses is nothing new. Failing fast stipulates that the sooner entrepreneurs

get business failures under their belt, the better. This will lead to faster learn-

ing and better entrepreneurship in the future, so the reasoning goes. I can

second this, because my failures have always yielded bigger lessons than my

successes. Still, there exists a fundamental misunderstanding regarding failing

fast. Embraced by a prominent Stanford professor in her creativity class, failing

fast has become a means to justify when a startup has gone belly-up after its

fleeting life. “Celebrate your failures, and move on to the next idea,” is the way

she puts it.6

The mindset of welcoming failure into your life is problematic. Suddenly, first-

time entrepreneurs are urged to fail, as a means for them to graduate on

their journey. If things in a startup become difficult, the first reaction is to fold

the venture and celebrate, writing it off as a learning experience. However,

here’s something that I find to be an even better learning experience: pulling

a startup from the brink and getting it back on track to turn a profit. This

process may often be far from elegant, but investors prefer it any time. Folding

a startup at the first sight of stormy weather may be fine in an in vitro school

experiment, but the real world works differently.

For every investor in their right mind, failure is not an option. To frame the

total loss of capital as collateral damage on the startup founder’s learning

path is not OK. If entrepreneurs like to celebrate their failing experiences on

their own dime, that’s fine. Unfortunately, all too often, investors or the tax

payer end up paying the bill for the entrepreneur’s education. Personally, I am

wondering how failing fast can help create a sustainable track record of suc-

cess and execution at universities. What looks like a failure at the beginning

5Eric Ries, The Lean Startup: How Today’s Entrepreneurs Use Continuous Innovation to Create

Radically Successful Businesses (New York: Crown Business, 2011).

6Tina L. Selig, What I Wish I Knew When I Was 20: A Crash Course on Making Your Place in the

World (New York: HarperCollins, 2009).

Chapter 12 | Venture Capital and Angel Investors

130

occasionally ends up being a massive success, if the entrepreneur can weather

the storm. But if failing fast is an available choice, entrepreneurs will never dig

deep enough to eventually strike gold.

About half of my own projects went under, some of them with a bang. In one

case, external capital suffered; but in most cases I hurt the most of all the

participants involved. Pivoting the business model can sometimes help avert a

calamity, but still, every time a project fails, I feel miserable.

When a failure occurs, you need to analyze it thoroughly. Once you under-

stand what happened, you can step up a notch to take measures and be sure

it will not happen again. Lifelong learning to succeed is the goal, not looking

for experiences to fail fast.

Investors and angels should screen diligently for the fail-fast mindset. As a

founder, better avoid writing it on your flag that you are looking for oppor-

tunities to fail fast, just because you picked up the term in a startup book.

When you become an entrepreneur, it is time to grow up. You need to use

your creativity to pivot business and revenue models until they work, and

never give up before you have tried everything to avert disaster. If you play

with other people’s money, failure is not an option you can embrace under

any circumstances—even if a professor from Stanford University tells you it’s

OK to do so.

CHAPTER

Incubators and

Accelerators

Both incubators and accelerators provide startup aid in the form of advice

and services. In comparison to venture capital firms, which focus on invest-

ment capital, incubators and accelerators house startups at their offices and

are in daily contact with them about challenges at hand.

Both may have what they call an intake, which marks the term of a new batch

of startups admitted to enter a program. These programs begin at certain

times during the year, similar to university semesters. When a program has

run its course, the startups are often shopped to first-round investors on a

demo day.

Most people use the terms incubator and accelerator interchangeably, but there

are some small distinctions between them. This chapter explores these modern

forms of startup support and their usefulness for university entrepreneurs.

Incubators

In contrast to research and technology parks, which provide business infra-

structure for established companies and government agencies, incubators

firmly concentrate on companies in the startup stage. Many research and

technology parks house incubation programs, but they are not incubators

themselves. Incubators provide offices and other real estate, along with vari-

ous business support services, to fledgling companies in a wide variety of

fields. Resources provided include help with business basics; networking activ-

ities; help with accounting and financial management; access to bank loans,

Chapter 13 | Incubators and Accelerators

132

loan funds, and guarantee programs; links to strategic partners; access to angel

investors or venture capital; advisory boards and mentors; intellectual prop-

erty management; and more.

As author Linda Knoop mentions, about one-third of business incubation pro-

grams are sponsored by economic development organizations. Government

entities (such as cities or counties) account for 21% of program sponsors.

Another 20% are sponsored by academic institutions, including two- and four-

year colleges, universities, and technical colleges. In the United States, most

incubation programs are sponsored privately. About 25% of all incubation

programs take equity in the companies they hatch. The others provide a ser-

vice as nonprofits that they hope will create jobs, improve the community’s

entrepreneurial climate, or kick-start community revitalization.1

Unlike with many freely available business support programs, entrepreneurs

who wish to enter a business incubation program must apply for admission.

Acceptance criteria vary from program to program, but in general only those

with feasible business ideas and a workable business plan may join.

Accelerators

Accelerators (also called seed accelerators) are comparable to incubators. A

clear distinction between the two is seldom made, but you could say that

accelerators are for-profit versions of incubators. They are also more com-

mon in the technology and software space. Authors Paul Miller and Kristen

Bound identify the following criteria that distinguish accelerators from busi-

ness incubators: the application process is open to all and competitive, they

give a pre-seed investment in exchange for equity, the focus is on small teams

rather than individual founders, support is time-limited (around 90 days), and

cohorts or classes of startups exist rather than individual companies.2 The

business model of accelerators consists of producing venture-capital-style

returns. The first seed accelerator was Y Combinator. Started in Cambridge,

Massachusetts, it moved to Silicon Valley in 2005. In short succession, Techstars,

located in Boulder, Colorado, followed in 2007. Seedcamp, calling London its

home, opened its doors in 2008. There are now many incubators in startup

hubs around the world, some of them with billions of dollars of funding on

the backend. New startup hubs are seeing an increasing number of privately

funded accelerators pop up. The accelerator model seems to work not only

for the accelerators themselves, but also for startup entrepreneurs.

1Linda Knoop, 2006 State of the Business Incubation Industry (National Business Incubation

Agency [NBIA], 2008).

2Paul Miller and Kirsten Bound, The Startup Factories: The Rise of Accelerator Programmes to

Support New Technology Ventures (London: Nesta, 2011).

University Startups and Spin-Offs 133

One of the most established seed accelerators, Y Combinator, had an accep-

tance rate of around 2% in 2012.3 The primary value for the entrepreneur

consists of world-class mentoring, connections, and the recognition of being

part of the accelerator. Gaining access to a high-powered network of entre-

preneurs consisting of Y Combinator alumni and the who’s who of the Silicon

Valley billionaire club is clearly a huge advantage for startups. Famous examples

out of Y Combinator include Dropbox and Airbnb.4 The accelerator likes to

describe itself as a “new college for entrepreneurs.”5 Such seed accelerators

can be a pre-filtering mechanism for later-stage funding.

There may be an incubator or accelerator in your city. Someone from an accel-

erator may even have reached out to you and wants to find out whether you

would consider joining them. Should you? Here are some things to consider.

Shortcomings of Accelerators

It is important to remember that accelerator programs are not free govern-

ment programs, but for-profit operations that need to produce a return with

the startups they seed. Prominent venture capital firms often fund them with

massive backing. They are mostly focused on software and technology start-

ups, and technology firms may support these programs because they see addi-

tional business for the startups using their technology. Facebook, for example,

ran its own accelerator for a while to encourage startups to use its platform.

Because startup costs for software companies have shrunk in the past decade,

with prices for server space and computing power rapidly racing to the bot-

tom, software startups can be lifted off the ground with small investments.

This is where accelerators shine. However, programs geared toward hardware

startups—for example, in the field of robotics, material science, or transport

technology—are relatively rare. If you are a tech startup, great; accelerators

cater to your needs. But if you are a hardware startup, an accelerator may not

work for you.

3Ryan Lawler, “With a 50% Increase in Applications, the Next Y Combinator Class Will

Be 80 Strong,” TechCrunch, May 22, 2012, http://techcrunch.com/2012/05/22/

ycombinator-80-strong/.

4Y Combinator company list, www.yclist.com.

5Tomio Geron, “Top Startup Incubators and Accelerators: Y Combinator Tops with $7.8

Billion in Value,” Forbes, April 30, 2012, www.forbes.com/sites/tomiogeron/2012/04/30/

top-tech-incubators-as-ranked-by-forbes-y-combinator-tops-with-7-

billion-in-value.

Chapter 13 | Incubators and Accelerators

134

There are a few criticisms of accelerators, as Miller and Bound point out, both

for the startups they seed and the investors who fund the programs6:

They focus on smaller companies. It is highly unlikely that •

an accelerator could help build a Facebook or a Google.

They concentrate on companies that already have a busi-

ness model and that a bigger fish can buy soon after

launch. Only then will the 10X or 100X gain the accel-

erator is looking for become reality.

Useful companies may fail after accelerator programs. •

Because the program’s support is brief, companies still

have much to learn about how the actual market works.

The hype around the accelerator program may dull their

senses and lead to complacency about how hard it is to

establish a successful business.

Startup founders may feel exploited. Some startup entre-•

preneurs have publicly expressed anger about “rich guys

starting a startup accelerator so they can rip off found-

ers.”7 Some of the seed capital to startups exists in the

form of loans that startups have to pay back—yet accel-

erators still demand an equity stake of around 7% in the

company. This may be marginally acceptable when the

value of the alumni network is significant and the accel-

erator’s support is large. But if an inexperienced group

has started an accelerator as a profit center, then the

practice of demanding a high equity share for a small loan

is questionable.

Accelerators have a reputation for being more attractive •

for B-grade companies. This point is up for debate, but

it can be argued that if a business finds an accelerator

or incubator attractive, it probably will be less profitable

than a company that needs no support.

Accelerators are creating bubbles. Although many small •

companies are bought each year, the market for acquisi-

tions is still only in the hundreds. If many more accelera-

tors pop up and begin turning out new companies in the

thousands, then a crisis of confidence in the sector may

develop, because most of the new companies will go under.

Accelerators subscribe to a “spray and pray” approach to

6Miller and Bound.

7“Let’s Mug a Startup Founder,” Treehouse Blog, May 10, 2011, http://blog.

teamtreehouse.com/lets-mug-a-startup-founder.

University Startups and Spin-Offs 135

investing, where they make many small investments in the

hopes that the tide will lift all boats. Some investors have

the opinion that targeted investments would be a better

and more sustainable use of investors’ money.

Accelerators are just startup schools. Some see accel-•

erators simply as a reaction to the defects of the univer-

sity system in creating sustainable businesses out of their

research. They doubt the benefit to the investors whose

money is invested in the startups, because many found-

ers see the accelerator track as an experience worth

mentioning in their CV more than a serious try at build-

ing a business. This may undermine the ecosystem of

accelerators in the long run, when sustainable success

stories dry up.

Here is another damper for you: 93% of companies backed by Y Combinator

fail, despite the best efforts of the accelerator and the entrepreneurs them-

selves.8 The venture capital model focuses mainly on quick-turnaround equity

funding. Scalability with the potential to monetize 100 million users rela-

tively soon is also one of the cornerstones of tech accelerators. It is unclear

whether this model makes sense for smaller-scale startups that need longer-

term development, or for startups in non-tech fields.

Long story short: the incubator and accelerator model is promising. For tech

startups, it is an alternative to going it alone. The alumni and founder networks

of some accelerators are excellent and can help build synergies for founders

early on. However, not all accelerators are created equal. The superstars may

be valuable to their portfolio companies, but there are many second- and

third-tier accelerators. These may have limited benefits for entrepreneurs past

the usual advice and a little funding, in exchange for a large chunk of equity.

Can Universities Benefit from Accelerators?

Unless accelerators have a proven track record of success with strong net-

works that can provide real value, they may add little to what the university as

a platform already has to offer its startups. Universities have many synergies

available, most of which currently evaporate, unused. It is a matter of reactivat-

ing them and directing them toward adding value to the university’s startups. I

address approaches to achieve this in the second part of this book.

8Henry Blodget, “Dear Entrepreneurs: Here’s How Bad Your Odds of Success Really

Are,” Business Insider, May 28, 2013, www.businessinsider.com/startup-odds-of-

success-2013-5.

Chapter 13 | Incubators and Accelerators

136

As soon as accelerators have expanded their focus to sectors outside of tech,

they may become interesting platforms for startup founders from university

research labs. In either case, startup entrepreneurs should never rely on some-

one else to carry out their work. First and foremost, they need drive and an

open mind. They need the right presentation and communication skills with

which they can actively seek out synergies and potential industry partners to

give them feedback about their processes and minimum viable products. As

soon as they know how to develop their value propositions, engage third par-

ties, and move interactions forward with goal-oriented next steps, they can

begin building their own networks on the platform of the university. With the

right mindset, a strong startup environment can add a lot of value. Without it,

even the perfect ecosystem will only make a small difference.

Moving Past

the Startup

Stage

The prospect of having to micromanage their company’s taxes, accounting,

payroll, and sales calls and handle all the other unpleasant byproducts of entre-

preneurship is often a turnoff for students and researchers. Whether they are

good multitaskers is another question. A world-class entrepreneur should not

waste time filling out a tax return that an accountant could complete for $100.

But to reach the point that you can delegate all the support tasks, you need

to understand what it takes. The first stages of entrepreneurship are yours

and yours alone. Doing everything in the beginning does not mean things will

always be that way. It is important to realize that your venture will graduate

from bootstrapping and MVP testing mode at some point. In order to be a

business, it must eventually launch a final product and take off.

I have discussed the most important three analytical tools in your startup

toolkit: the lean canvas, the financial model, and the one-page proposal. You

have learned many approaches that can help you leave the building and get real

feedback about your product. You know how to incrementally develop prod-

ucts the market wants, using “build, measure, learn.” And you have become

acquainted with several techniques to engage others with next steps and

improve communications so they see a benefit in what you offer. Your startup

may be in MVP testing mode or may have launched products. You may be

bootstrapping, or you may have made sales. In any case, you have taken the

first steps and are now an entrepreneur. That’s the most important thing, and

CHAPTER

Chapter 14 | Moving Past the Startup Stage

138

I applaud you for following through. You cannot skip the first stages of startup

entrepreneurship discussed in this book so far. They lay the foundation for

everything that follows.

After being a startup entrepreneur for a while, you understand what it takes.

There will be a time when you are ready to pull the trigger and move past

the startup stage. Then you can decide if you want to continue running the

business yourself. Perhaps you have found your entrepreneurial stride and

are fully comfortable managing your company from here forward. This is an

exciting endeavor, and when your startup has taken off, the hardest part is

often behind you.

Alternatively, you may begin to look for synergies from the outside. Once

you have tested various MVPs and confirmed your value and your growth

hypotheses, you have armed yourself with enough knowledge to engage a

joint venture partner or raise capital from a venture capital firm. If you do, you

will no longer be responsible for everything and will integrate an established

company in your operations. This is a viable option that could help you tap

into a larger network and scale your operations.

The legalities of entering a joint venture deal or signing a term sheet with a

venture capital firm are complex, and other sources discuss them at length.

This chapter gives you an overview of what to expect when going down

either path.

Seeking a Joint Venture

Small and medium enterprises (SMEs) and multinational companies may

approach universities for collaborations with research projects. These collab-

orations are often limited, with a knowledge transfer in favor of the company.

Because most universities are far from being startup hubs, companies cannot

be blamed for that. Startups that currently launch out of universities have

little traction in the market and little conviction about their business models

and future direction. Naturally, they cannot make many demands on industrial

partners. As a result, they frame discussions with established companies not

as being about real joint ventures between startups and industry, but rather as

being about sponsored research partnerships.

R&D can be costly for companies, but by sponsoring research teams and

tapping the knowledge of a university, they can save millions of dollars.

With more and more university startups on the horizon, the focus of such

partnerships is beginning to shift. Students and researchers have more strat-

egies available to develop products that satisfy a genuine need in the market.

When market testing shows that enough people are willing to pay for their

products, university startups are standing on stronger footing. They are viable

companies, often with existing revenue and a sizable present value. This opens the

University Startups and Spin-Offs 139

gateway to an entirely new value proposition: instead of a collaboration between a

company and a university research team, a joint venture is a collaboration between

two companies. The expectation is a two-way knowledge exchange where the

startup entrepreneurs learn as much about doing business as the joint venture

partner learns about technology—a win-win situation for both parties. University

startups should begin to lead the discussion in this different light.

Unless someone on your team is a natural born manager, I recommend you

look for a joint venture partner around the time when you are ready to launch

your final product. There is of course no surefire way to land the joint venture

of your dreams. The only certain thing is that the collaboration should benefit

both parties. After you have validated your value and growth hypotheses, you

will be in a good position to approach potential joint venture partners. You

may already be in contact with companies that service the same market as

you. Investigate whether they can bring synergies to your venture: scale, better

distribution, or access to better manufacturing technology. At the same time,

the feedback from your MVP tests, along with your financial model, should make

the case that your company is a decent business worth considering as an invest-

ment. You may still have no revenue, but if your final product and outlook are a

match for them, joint venture partners may want to collaborate with you.

You will rarely convince a joint venture partner with numbers and logic alone.

Chemistry and mutual trust are often more important than anything else.

Unless your company already makes millions of dollars a year, you should

look for a joint venture partner who likes and appreciates your team, your

history, and your effort. If you have developed a product with MVP testing and

have validated your hypotheses, this entrepreneurial achievement may be the

deciding factor that causes a company to partner with your startup instead of

another one that is still deliberating how to get started.

SMEs can be very good joint venture partners. The founders of these com-

panies are often still at the helm as CEO, so they may sympathize with young

entrepreneurs who have made something out of nothing. Conversely, in a mul-

tinational, daily business is dictated by shareholder demands. In such top-down

bureaucracies, the human factor is less prevalent; thus it may be more difficult

to start a discussion with a partner who is a giant in a market.

Let’s say you identify a few potential joint venture partners. How do you approach

them and open the discussion? As you may have guessed, you apply the same

communication tools you used to get your startup off the ground. The world has

not changed much in the meantime. Third parties still want to see the benefits

of your product; they want to know how those benefits relate to solving their

current challenges, and you must engage them with actionable next steps.

Show them the test results from your MVP testing and your incremental

product development. Introduce the final product that you determined is

desired by the market. Your lean canvas should summarize how this relates

Chapter 14 | Moving Past the Startup Stage

140

to the potential joint venture partner. The assumptions behind your financial

model will open the discussion about pricing and cost structure. Then move

the discussion along with one-page proposals. This involves several steps, with

the ultimate goal of selling shares of your startup to the joint venture partner

and becoming part of their network.

A joint venture is simply an offer to another businessperson that they see as

valuable. You should already have learned how to do that several times over

in this book. The exact structure and terms of your joint venture is outside

the scope of what we are discussing here. When you reach the point that

negotiations and legal agreements enter the picture, I recommend you work

with your lawyer.

Raising Venture Capital

I have previously talked about venture capitalists and how they can help your

startup with capital and expertise. Although I said that early venture funding

may be a disadvantage for a first-time entrepreneur, it can make sense when

a company has developed far enough to launch a final product. This product

should have solid, confirmed market demand. Revenues are therefore on the

horizon. With this value proposition, your startup becomes interesting for a

venture capital firm as an investment.

Before you sign the investment agreement with a VC, you should have a clear

idea of what raising venture capital entails. Other books sufficiently explore

the legal side of this. I will simply present an overview of the process of

entering into business with an investment firm in case your startup chooses

to go down that road. Note that this is a different proposition than passively

meeting venture capitalists who approach your university. You will see later

in this chapter that your active participation is paramount to identify the right

venture capital firm.

Before reaching out to investors, develop a clear idea of what your company

needs; only then can you scan the venture capital landscape and pick a firm

that matches your vision. Do your own due diligence on these firms. There is

a great variety out there, each with a distinct focus and track record. Study all

the information you can find, and think about whether this firm can bring you

value other than money alone. Firms that randomly approach your university

most likely will not make that shortlist.

University Startups and Spin-Offs 141

Venture capitalists Brad Feld and Jason Mendelson give a good outline of the

process of raising venture capital from the perspective of startup entrepre-

neurs.1 Their recommendations include some the points explained in the rest

of this chapter.

Determine the Amount of Capital You Need

The amount of capital you need tells you which venture capital firms to

approach. VCs specialize in terms of the stage they fund. A firm focused on

later-stage funding will hardly consider a startup that incorporated yesterday,

just as an early-stage fund will not invest in a company that aims to raise

funds pre-IPO. A smaller firm or angel investor may seed amounts up to

$500,000. If your startup is raising $10 million, then a larger VC firm will be

a better partner.

Have a clear idea of the number you are aiming for. Never offer a range of,

say, $4 million to $6 million. You must know whether you need $4 million or

$6 million. Instead of letting the other party figure out what is best for you,

work it out for yourself, and then confidently ask for it.

Have Your Fundraising Materials Ready

The materials you need include the following:

Executive summary, compiled with the saying “less is •

more” in mind. Fit as much information as you pos-

sibly can on one page. Avoid any fluff. Fancy design is

unnecessary.

PowerPoint presentation in 10/20/30 format.•

Elevator pitch with your micro-scripts.•

Lean canvas. You may have several, according to different •

scenarios.

Financial model. As I said before, more important than •

impressive numbers are the underlying assumptions of

your financial model. Be able to explain how you arrived

at the numbers in your model.

1Brad Feld and Jason Mendelson, Venture Deals: Be Smarter Than Your lawyer and Venture

Capitalist (Hoboken, NJ: John Wiley & Sons, 2011).

Chapter 14 | Moving Past the Startup Stage

142

Demo or prototype. This may be more important than •

all the other documents together. Even if it is still in early

development, a demo shows the VC what you are working

on. If you already have your final product, then bring that.

If it is too big, bring a video, or invite the VC to your lab.

Having a prototype available shows that you are serious

with your startup and ready to move to the next stage.

Due-diligence materials. When a venture capital firm is •

ready to sign a term sheet with you, it will ask for capi-

talization tables (how the shares of your company are

distributed), contracts and material agreements, employ-

ment agreements, licensing agreements, board meeting

minutes, and so on. You do not need them in the first

meeting with a VC. Regardless, make it a point to assem-

ble these materials early so you can easily access them

when needed. You should never hide anything unpleasant,

such as a current dispute or similar issues. It is better to

bring those up right away and be clear in the future.

Despite what anyone else may advise, forget about writing a business plan.

Most VCs have not read one in years. The same goes for what is called a

private placement memorandum (PPC). This is necessary only when your

negotiations have progressed significantly. Bringing one with you to the first

meeting is overkill and will only raise red flags. A venture capitalist will most

likely ask you to e-mail something first, so make sure your documents are

light enough to be attachments.

Finding the Right VC

Hopefully by now you have a sizable network of fellow entrepreneurs in your

city and beyond. Ask them about their experiences with VCs and which ones

they recommend. It is much more powerful to be introduced by another

entrepreneur who already knows the venture capital firm than to cold-call

them. A good VC firm receives thousands of submissions per year. You need

to cut through the clutter any way you can, and personal introductions go a

long way.

Research the different firms on the Internet. Carefully study which other

companies they have invested in. Examine their track record. Google whether

there are any lawsuits against this venture capital firm or any of its partners.

Just as VCs investigate your startup, you have the right to know what they are

doing. Ask for a list of entrepreneurs the VC has worked with and startups it

has funded. Call some of those startups and ask what their relationship with

the venture firm was like. The best VCs will give you this list. If not, feel free

to ask. If a firm balks at providing references, then ask yourself whether you

want to work with an nontransparent partner.

University Startups and Spin-Offs 143

As mentioned before, most VC firms will not sign an NDA with you. This is

less alarming than it may seem. Reputable venture capitalists are busy and have

no time to steal your ideas. You should have weeded out untrustworthy firms

long ago with your own due diligence.

Of course, a meeting with a venture capital firm is no guarantee that it will

invest in you. Even after prolonged due diligence, the firm may pass on the

deal. This can happen directly or indirectly, when the VC simply stops return-

ing your e-mails. If a firm turns you down, you should try to find out what

happened and why it chose not to invest. This information is important for

your path ahead. Persistently probe until you find out.

If everything goes well and both the VC and you feel that working together is

in your mutual interest, a deal will come to pass. This stage is often split into

two separate activities. Part one is signing the so-called term sheet, a document

that outlines the final deal structure. As Feld and Mendelson explain, the most

important aspects of the term sheet are economics and control. Economics

relates to how the venture capital firm will share in profits, through either a

sale of the company or an initial public offering (IPO). Control refers to how

the VC can influence the direction of the company either directly or by veto-

ing certain decisions of the CEO.

Without going into more detail about joint ventures or raising venture

capital, your startup is well on its way when you have reached this stage.

Serious contact with established companies or investors will seldom take

place early in the life of your startup. As you have seen, you must have vali-

dated assumptions about your product and your market before you can move

on. You should have a clear picture of your business model and what your

startup can provide to others. And, most important, you must have explored

whether entrepreneurship is for you. As much as you may want to, these

steps cannot be skipped. They are necessary to build a strong foundation for

your startup.

Strategies for

Universities

Congratulations—you made it through the first part of this book. Maybe you

are an entrepreneur, or perhaps you think about how your university could

enable more startup success. Either way, you have seen by now what it means

to launch a company out of a university. It may have surprised you that little

theory is necessary for that purpose. That a startup has more to do with

tinkering and incremental product development than careful grant-proposal

writing may also have been news to you. With a fresh approach to commu-

nicate ideas, startups engage third parties with actionable next steps to build

on synergies for their success. The most important part of the process is to

begin and to collect individual experiences and feedback as soon as possible.

Just as launching a startup has a great deal to do with experimentation, so

does setting up a startup track at a university. Think about the process of

building the entrepreneurship program at your university as a startup in itself.

You will need the very same skills to make it work.

Universities are magnets for smart people. Traditionally, they have educated

students in specialized domains and critical thinking. However, graduates and

researchers often struggle to apply their knowledge in their first job in the

real world. All the way up to the doctorate level, they have acquired deep

theoretical knowledge that makes them stand out. Entrepreneurial experience

in their own startups can greatly improve their skill sets. In light of stricter

requirements in the job market today, universities may want to think about

extending their role. They can prepare graduates with the full spectrum of

skills that help them become more successful, both in the workforce and in

their own companies. Establishing a stronger foundation for entrepreneurship

is an effective way to do so. The most important building blocks exist already;

they are just waiting to be assembled.

P A R T

Universities enjoy a privileged position. Governments, businesses, and other

organizations love to collaborate with them, either on research projects or

via in-house R&D. Academia provides a walled garden for acquiring knowl-

edge and going about your affairs undisturbed. This safe-haven function should

extend to launching startups as well. Building a bridge to the market and

people outside of academia will expand the reach of university research. The

motivation for launching a startup out of a university should be the desire to

make a measurable impact on peoples’ lives. Through the mechanism of the

market, this is possible. It will allow promising technology to influence the lives

of people where it matters most. Giving you a better understanding of what

it takes to access this mechanism is the goal of this book.

To quote Peter Drucker, this means “if you want something new, you have

to stop doing something old.” There will be setbacks along the way. Experts

inside and outside of your university will tell you with considerable authority

how you should set up your startup program. Some people may fear for their

jobs. Others may feel threatened by the new wind that is suddenly blowing

through the institution. Much confusion will ensue, and staying the course will

require strong conviction. With persistence, you will eventually uncover an

individual setup that works for your university. Set out on the path to find

what works best for you with the mindset of an entrepreneur.

In the long run, universities need to integrate entrepreneurship one way or

another. It will no longer suffice to try to launch startups. Success must be

measurable. When that time comes, it will be too late for some institutions,

and they will miss the boat. If this is not the fate you have in mind for your

university, then please read on. The suggestions in this part of the book may

stimulate your thinking along the path of introducing entrepreneurship at

both the degree level and the research level. Some of the things I suggest may

already be in place at your university. Others may seem too simplistic, too

cumbersome, impractical, unrealistic, or not feasible. Remember, this part of

the book is a collection of thoughts to keep the dialogue going about univer-

sity entrepreneurship. There is no definitive answer of how to do it. One thing

is certain, though: doing nothing will never enable more startup success.

Many universities already have some startups and talk about the numerous

spin-offs that have launched out of their institution in the past. They may

have an entrepreneurship class and refer to grant X and startup program

Y, which is supported by the government. But how is the success of these

initiatives measured? By the number of students attending a specific program?

By the number of startups collecting grant funding? Or by the number of

startups registered as companies? Unfortunately, most of these metrics are

vanity metrics. They may result in good-looking statistics, but the real impact

disappoints. After all, does grant funding guarantee startup success? Of course

not. Just wanting to be an entrepreneur hardly means you will have entrepre-

neurial success.

Despite their best efforts, most startups fail. Focusing on good-looking num-

bers may deliver satisfaction in the short run, but when attention shifts to the

bottom line, things will get uncomfortable. How many customers have your

startups reached? How much revenue have they earned in their first, second,

and third year? I am not saying that universities and governments deliberately

close their eyes to the real numbers behind their current startup support; but

when it becomes common practice to show measurable impact, they will be

forced to catch up fast.

Your university may have to achieve certain key performance indicators

(KPIs), which is why you are reading this book. Or more researchers and

students may be asking for advice for their startup ideas. Or it may interest

you personally to make this complex property called entrepreneurship work.

Just as in part 1, where we looked at strategies for startup entrepreneurs,

part 2 collects approaches that have worked for other organizations when

creating a favorable startup environment. These are not only universities, but

also private organizations and corporations. When it comes to commercial-

izing innovation, the private sector has a leg up on universities. We’ll take a

look at their playbook and see what we can borrow to power up university

entrepreneurship.

As you may have guessed, the task of setting up a startup track and measuring

its success hardly happens over night. If a change agent comes up with ideas

that “break all the rules,” the people responsible for things running smoothly

may put up a defense. To avoid such a fate, it is often best to avoid proclaim-

ing that you have all the answers. Prescribing sweeping reforms is the wrong

way. Don’t be the bull in the china shop. An entrepreneurship program needs

to grow incrementally, just like a startup. With this in mind, the Lean Startup

method can be used to set up the program in phases. Think in terms of

minimum viable products: carry out a small change, test it, review it, and adapt

it. Do this repeatedly, and you will achieve more than going for a home run

right from the start.

Some of the ideas in the following chapters come from the world of venture

capital, and some from corporate R&D. Universities use some of them today,

whereas others are new to academia. Wherever you are on the path of

integrating more entrepreneurship in your institution, I encourage you to

keep an open mind.

Should Universities Care About Startup Success?

Historically, most universities had little motivation to compete in the market,

and by their own admission, they still are not all that interested in the com-

mercial success of their research. There is no urgency to change, at least in

universities with access to ample state funding. Framing the startup debate

purely in terms of money ignores the fact that more than profit encourages

founders to launch companies. Real-world impact beyond academia is equally

important for many entrepreneurs. If a technology can make a difference, it

should be available as a product or service. If it has the potential to save lives,

then even more so.

Academic research often addresses pressing issues of developing countries

that are in desperate need of innovative solutions. However, when a PhD or

postdoc program ends, research teams disband and their intellectual property

evaporates. In the best case, the university has patented their technology and

makes it available for licensing through the technology licensing office (TLO).

Universities’ passive approach toward commercialization leaves it up to the

private sector to find the proverbial needle in a haystack, so most academic

research has a small impact and therefore no relevance to most people

outside universities. Framing the discussion about startups purely in commer-

cial terms therefore misses the point.

When stepping off the well-trodden path, universities often fear that startup

initiatives may pose a risk to the institutions’ good reputation if they fail. Will

universities become the subject of ridicule if it turns out they promised too

much with their entrepreneurship initiatives? Will their reputation suffer if they

launch a startup program that fails to bring forth the next Mark Zuckerberg?

To make matters worse, unexpected success brings its own problems, because

high market returns can cannibalize a university’s government funding. The

budget should show a deficit at the end of the year to justify an increase

the next year. Massive startup success is therefore disruptive to those with

an interest in preserving the status quo. At the same time, university KPIs

are beginning to demand a certain number of startups to justify research

funds spent, which puts universities in a bind. They must find a compromise

between incorporating more entrepreneurship and keeping their funding

from the public sector as high as possible. In any event, universities have a lot

of catching up to do with their startup initiatives. They are becoming more

open to advice on how to set up startup programs and incorporate more

entrepreneurship into their operations.

The amount of money sunk into research at universities is staggering, with

some annual university budgets in the billions of dollars. In Europe, universi-

ties have traditionally relied on state funding almost exclusively and have had a

tendency to look down on commercial ideas and efforts to commercialize their

technology themselves. But their American counterparts have a long history of

seeking links to the private sector and their own successful alumni and are

therefore more entrepreneurial, with a track record as startup hubs. Modern

Asian campuses are also more open to commercializing their research and

seeking a return on investment, but they often lack the flat, democratic struc-

ture and independent critical thinking that help startups achieve momentum.

In addition, they are often more bureaucratic and risk-averse than other

universities, despite their stated goals of aiming for high-impact commercial-

ization and aggressive monetization of research. But again, their KPIs demand

a certain number of startups or spin-off companies per year, so they need to

satisfy their statistics one way or another.

It is important to reiterate that it is not the intention of this book to reform

universities and the way they work now. I respect the current system and see

its many benefits. Nevertheless, when presenting commercialization ideas to

universities, I have heard statements like, “I think these are good ideas, but the

board will never approve.” And, “The university is not a hedge fund.” As much

as I understand these concerns, thinking about how university startups could

launch in a better way is important. If more successful startups came out of

universities, everyone would benefit. Their research can make a measurable

impact on people’s lives, and the university can gain new network effects in

addition to those it already enjoys. It is in the best interest of universities

to care about their startups and take the necessary steps to improve their

chances at success.

CHAPTER

How Do

Universities

Measure the

Impact of Their

Research?

University startups have existed for a while, but it has become easier in

recent years for students and researchers to launch a company. Startup

grants, entrepreneurship programs, a drastic decrease in the cost of IT tech-

nology, and rapid prototyping beckon researchers to take the plunge into

startup life. Students and researchers are beginning to take advantage of lean

methods. I applaud this trend and think it paves the way for a promising

future. At present, however, the startup initiatives of most universities still

amount to little measurable impact in the market. How much relevance does

university research have outside academia? How many university startups

launch products and achieve profitability in the real world? Universities rarely

collect impact-driven metrics, and it is still the revenue from patent licensing

that validates a technology as a commercial success.

Chapter 15 | How Do Universities Measure the Impact of Their Research?

152

This overlooks a whole new breed of lean startups composed of fluid teams

who never even think of patenting their ideas. Facebook launched out of a

university dorm room but bypassed all existing infrastructure aimed at startup

support. It licensed no technology, applied for no grant, and sought no permis-

sion. The environment of the university enabled the founders to test their

ideas in the walled garden of Harvard University. Yet Facebook is hardly a

poster child for the success story of a Harvard startup.

Author Melba Kurman recommends that universities update their perfor-

mance metrics and include the following measures (among others)1:

Ability to turn research into public benefit•

Impact on industry—that is, ability to add value to the •

industry

Commercialization impact•

Such upgraded metrics should paint a more realistic picture of how exactly

research translates into public goods. Lord Kelvin sums up the entire debate:

“When you can measure what you are speaking about, and express it in num-

bers, you know something about it; but when you cannot express it in num-

bers, your knowledge is of a meagre and unsatisfactory kind.”2

Most research projects never have an effect on the taxpayers who funded

them. They never attempt to solve the challenges they study in the developing

countries where they could make a difference. This is a serious matter, and the

managing directors of some university research centers have taken notice that

the status quo of commercialization lacks measurable impact. The first step

is to upgrade their metrics and get a clearer picture about where research

projects stand on the impact scale. This will simplify the discussion in moving

toward a more entrepreneurial ecosystem at universities.

Patents and Tech Transfer

Without talking about patents and technology transfer, a discussion of the

impact of research would be incomplete. Traditionally, universities have thought

in terms of patents to commercialize their research. After all, research is expen-

sive, and there should be a means to recoup at least part of the cost. If a technol-

ogy is patentable, the university hires an attorney to file for patent protection.

The in-house technology transfer office (TTO) or technology licensing office

(TLO)—both names are used interchangeably—licenses pending and granted

1Melba Kurman, Tech Transfer 2.0 (Ithica, NY: Triple Helix Press, 2013), 103.

2Sir William Thompson (1st Baron Kelvin), Popular Lectures and Addresses Vol. 1: Lecture on

Electrical Units of Measurement (London: Macmillan and Co., 1889), p. 73.

University Startups and Spin-Offs 153

patents to those who are interested. Protected intellectual property is acces-

sible to industrial companies that can license the technology and integrate it in

their product lines.

Alternatively, the research team that invented a patented technology gets a

license from the university for its own use and ventures into business by

itself. This model works for university entrepreneurs if they have the where-

withal to transform the technology into a real business. Because most aca-

demic spin-offs of the past centered on patents, the TLOs of many universities

became the overseers of startup and entrepreneurship programs. And that is

where the problems begin. Licensing is seldom the main issue with startups;

rather, the issues are time to market and approaching the venture from a solid

business standpoint. When the TLO is in charge of startups, entrepreneurial

advice is often limited to workshops or theoretical support by the TLO staff

or the business faculty. As a result, commercialization efforts fall short of

expectations. Lack of mission of the TLO is the core problem. It is unclear

what it means to achieve “effective university technology transfer.”3 As long as

the TLO can make the point that they are within historical benchmarks, then

any extra effort introduces risk into their daily business. The bar is set low at

1% of all patents ever finding a licensee, in the best case.4 Leaving startup pro-

grams to those in charge of patents can be counterproductive. Filing a patent

has little to do with innovation, let alone entrepreneurship.

Despite the fact that they cost money and perform poorly, universities are

proud of their patent portfolios. The number of patents filed sometimes even

stands in as a synonym for innovation. This appears to be a trend especially in

Asia. For example, with the goal to declare Singapore the IP Hub of Asia,5 the

government of the city state pointed to the many patent filings by domestic

universities. This seems to make the point for Singapore as hotbed for intel-

lectual property, as long as nobody is asking about the amount of licensing

revenue or the quality of the patents. The liberal approach taken by the intel-

lectual property office in Singapore has led to rapid growth in the number of

granted patents over the last ten years, including patents with little or no real

merit.6 Certain key performance indicators (KPIs) for universities and the

government may check out, but it is doubtful that such portfolios will ever

attract the interest of potential licensees. The patent revenue could be exactly

zero—nobody knows for sure. Realizing the flaw of mistaking the number of

3Ibid., 34.

4Ibid., 46.

5IP Steering Committee, Intellectual Property (IP) Hub Master Plan (Intellectual Property

Office of Singapore [IPOS], 2013).

6Lau Kok Keng, “S’pore’s New IP Regime a Boost for Businesses,” The Business Times,

June 20, 2014, www.businesstimes.com.sg/premium/editorial-opinion/opinion/

spores-new-ip-regime-boost-businesses-20140620.

Chapter 15 | How Do Universities Measure the Impact of Their Research?

154

patent filings for innovation, Singapore vowed to improve patent quality with

a “positive grant” system at the beginning of 2014 that requires a positive,

substantive examination report before a patent is granted.7

Singapore is no outlier when it comes to patents with low commercial value.

Research shows that university patent portfolios are performing poorly. A

report from the Brookings Institution makes recommendations for increasing

support for startup formation but implies that most university TTOs are not

self-supporting through patent-licensing income. As Brookings shows, univer-

sities spend most their licensing revenues rewarding inventors or funding new

research, not supporting technology transfer.8 An older study came to similar

conclusions, arguing that most American research universities lose money on

patenting and licensing technologies.9 Almost 75% of universities in America

and Canada with TTOs have difficulties to cover the costs of filing patents and

their own operations with licensing revenue. About 15% barely break even,

recouping less than 4% of university research spending, and an estimated 99%

of patents never make any money.10

To boost their performance, TTOs often ask for additional funds. If only they

had more funding, they could hire new staff who would undergo entrepre-

neurial training to coach students and researchers about launching a startup.

I doubt this approach will solve the problem, because a larger bureaucracy

will hardly spawn more entrepreneurial success. Only a mind shift can get the

debate about university research’s lack of impact out of its rut.

Open IP

Open IP promises to replace the drive to patent by making technology freely

accessible. Under this notion, researchers immediately publish their findings

and thereby release any intellectual property into the public domain. This so-

called bazaar approach, a term borrowed from open source software develop-

ment, should spawn more collaborations between industry and research teams

and therefore hopefully improve market impact.11 In the software world, open

source has become a huge success. Some open source projects like Linux are

competing head to head with industry giants.

7Ibid.

8Walter D. Valdivia, University Start-Ups: Critical for Improving Technology Transfer (Washington

DC: Center for Technology Innovation at Brookings, 2013). http://www.brookings.

edu/~/media/research/files/papers/2013/11/start-ups-tech-transfer-

valdivia/valdivia_tech-transfer_v29_no-embargo.pdf

9Dianne Rahm, “Academic Perceptions of University-Firm Technology-Transfer,” Policy

Studies Journal 22, no. 2 (1994).

10Kurman, 46.

11Eric S. Raymond, The Cathedral and the Bazaar: Musings on Linux and Open Source by an

Accidental Revolutionary (Cambridge, MA: O’Reilly, 1999).

University Startups and Spin-Offs 155

Whether open source has resulted in a larger impact by university research

is up for debate. When universities talk about open IP, the term comes with

strings attached. Ownership of projects is often unclear, with several research

parties claiming that a certain technology was invented by their faculty.

If open IP were on the rise, then the number of patent filings per year should

be decreasing. But the opposite is happening, both in industry and at universi-

ties. According to a report by the World Intellectual Property Organization

(WIPO), international patent applications filed through the Patent Cooperation

Treaty (PCT) have rebounded strongly since the global economic crisis. Growth

in the number of filings has picked up by 5.7% in 2010, 11% in 2011, and 7.1%

in 2012. The total number of filings made via the PCT system amounted to

195,308 in 2012, which is more than double the figure recorded in 2000.12

Data from the U.S. National Research Foundation (NSF) shows the same

trend. U.S. universities filed 18,163 patent applications in 2009, with a positive

annual growth rate between 0.10% and 12.25% between 1999 and 2009 (see

Figure 15-1).13 This is hadly proof of fewer patents, nor is it a case for open IP

taking off on a large scale. There is no evidence that this trend will reverse in

the coming years.

2,000

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

4,000

6,000

8,000

10,000

12,000

Number of patents

New U.S. patent

applications filed

by universities

U.S. patents

granted to

universities

Figure 15-1. Number of university patents filed (data source: U.S. National Research

Foundation)

Open IP is a noble idea in theory, but many universities are less open with

their intellectual property than they could be.

12World Intellectual Property Organization (WIPO), World Intellectual Property Indicators –

2013 Edition (Geneva, Switzerland: WIPO, 2013), www.wipo.int/ipstats/en/wipi/.

13National Science Board, Science and Engineering Indicators 2012: Patent-Related Activities and

Income (Arlington, VA: National Science Foundation, 2012), www.nsf.gov/statistics/

seind12/c5/c5s4.htm#s5.

Why Are

University

Startups Not

Taking Off?

This chapter looks at the gaps that exist in the entrepreneurial ecosystem,

which we encountered in part 1 of this book. To overcome those gaps and

improve the startup launch pad, both entrepreneurs and universities need to

make a concerted effort. Dabbling in entrepreneurship will not work—you

either do it or you don’t. Dabbling always results in mediocrity, not only in

entrepreneurship, but in everything you do in life.

A university may have startup initiatives in place. Grants and workshops about

entrepreneurship may exist. The library may carry copies of The Four Steps to

the Epiphany1 and The Lean Startup.2 business-plan competition and exchanges

with the university’s MBA program may be carried out to stimulate the entre-

preneurial drive of students and researchers. Although these are all good

CHAPTER

1Steven G. Blank, The Four Steps to the Epiphany: Successful Strategies for Products That Win

(K&S Ranch, 2007).

2Eric Ries, The Lean Startup (Ne. York: Crown Publishing Group, 2011).

Chapter 16 | Why Are University Startups Not Taking Off?

158

intentions, they do too little to actually make a startup successful. More fire-

power is required to get startups off the ground. With this I mean more than

massive funding. Despite large government grants, most universities are still

uncertain about how to build an ecosystem for entrepreneurship.

Thinking About Startups in Terms of

Opportunity Cost

A good approach to think about startups is in terms of opportunity cost.

What if technology keeps lingering in patent portfolios without ever making

an impact. What will happen if universities fail to build the bridge to the busi-

ness world? Cost is measured in terms of more than money. The loss of a

much-needed public good or social change may be as painful as losing millions

of dollars.

Because startups are beginning to make inroads in universities’ key perfor-

mance indicators, it is only a matter of time until someone looks at the impact

of these startups. It will no longer be sufficient to have startups on paper that

never gain any real traction. University research can be extremely valuable, but

only if it is available as a product or service in the real world. Roadblocks to

startup success result in great losses for humanity. Forgoing the opportunity

to make an impact with its research and to foster a success story costs the

university prestige and future funding.

Jumpstarting Knowledge Exchange

Most universities have only weak ties to established companies and multina-

tional corporations. Hold on, you say. There is plenty of interaction between

the business community and university research. Yes, companies do sponsor

research modules and work directly with research scientists. This is a conve-

nient practice for corporations to outsource their R&D and save money and

human resources by hiring researchers inexpensively to do work for them.

This results in maximum knowledge transfer to the corporation and zero

knowledge transfer to the university about how business and entrepreneur-

ship work. Hardly a prestigious arrangement for the university, if you look at

it in this light.

Universities and their startups often set the bar too low regarding what

they expect from corporate joint venture partners. They are often delighted

that a multinational even talks with them. They ask for a small allowance to

buy materials, a few months of overhead, and free use of certain machinery.

Nonetheless, the multinational will save millions in R&D that it would

University Startups and Spin-Offs 159

otherwise have to spend. Universities overlook this part of the bargain. Such

practices have created a strange dynamic between corporate partners and

research teams—one that is unsustainable for startups in the long run. I

believe it would be much more helpful for universities to engage with industry

earlier and with the more targeted goal of forming genuine joint ventures with

researchers. Not only would this create more of an entrepreneurial dynamic

for the university’s startup track, but it would also transfer valuable business

skills from corporations to the startups. This two-way knowledge transfer is

currently lacking. It may exist in short workshops, but rarely in true business

interactions.

In a nutshell, the current environment in most universities fails to foster

startup success. Ingredients that could make a real difference are missing. As

a consequence, universities’ current commercialization efforts fall short of

expectations and promises. Entrepreneurship initiatives are well-intentioned,

but they are far removed from the reality of how startups thrive. Startup

entrepreneurs often have the wrong impression of what it is like to run their

own company. They also have minimal incentives to make their startups work,

because they can go back to the safe haven of the university and take on a paid

position. Contemporary relationships with the business community are one-

sided and tilted toward the benefit of corporations that let taxpayer-funded

research teams do their R&D. As a consequence, close to zero university

startups ever make an impact in the market. This is quite a dire summary, but

there is hope on the horizon.

University research is very valuable. Countless inventions used today in the

market originated from university research. But research institutions need to

catch up with the new model of startups and entrepreneurship. In the last

decade, there have been tectonic shifts in the practice of launching and run-

ning businesses. Advances in IT technology, automation, rapid prototyping, and

digitization have made it easier to commercialize research right out of the uni-

versity lab. Entrepreneurship is a skill that is becoming increasingly important.

Students and researchers should learn this skill to compete on a global scale.

Universities are still on the vanguard of relevant research. They have noticed

that they should include more entrepreneurial thinking in their structure, but

they still need to find the right approach. Startups and universities should get

used to the fact that they need to go all the way to make a measurable impact.

A Ferrari without gas in the tank will not get you anywhere. Holding one

more brainstorming session or inviting an expert for a morning workshop will

barely move the needle. To have true success stories that can compete on a

global scale, both startup entrepreneurs and universities must take extra steps

beyond the obvious and beyond their current efforts. To bring about change,

they must leave their comfort zones.

Chapter 16 | Why Are University Startups Not Taking Off?

160

Stronger Entrepreneurship Networks

A peculiar trait of university entrepreneurs is that few of them know anyone

who has launched a profitable startup. The same is true for universities, which

are rarely in contact with experienced businesspeople or startup veterans.

Yes, there are many business-plan competitions, but few of them ever result in

profitable businesses that last beyond the semester. University startups there-

fore often have zero firsthand insight into what it means to start a company.

They have nobody to turn to for hands-on advice.

Being in contact with experienced entrepreneurs would be most helpful to

students and researchers. If they can tackle challenges together and actively

work on their own startup process with a startup veteran, they can ben-

efit greatly. The impact of such direct knowledge goes far beyond weekend

workshops in business-plan writing. An entrepreneur-in-residence program

(EIR), described in chapter 20, can be a step in this direction. Such a program

requires planning and administration by the university and will not come to

pass overnight. Until stronger networks and connections to entrepreneurs

exist, students and researchers should know that they cannot rely on the

university or the government to build connections for them. Once more, they

have to learn how to do this themselves.

Hands-Off Approach

Noncompetitive thinking plagues not only universities but most large orga-

nizations. For employees who are going through the motions until 5:00 p.m.

rolls around, entrepreneurship and learning have no mindshare. Most large

organizations focus not on innovation but on continuing operation and effi-

ciency.3 They are on the declining end of the industry life cycle. A strategy to

escape their certain downfall is to buy new companies with fresh ideas, who

then help the aging giants reinvent their business model. Entrepreneurship and

innovation rarely originate in these large institutions: they develop elsewhere

and find their way into the existing framework through takeovers or joint

ventures.4

Even though there may be voices in a university who speak for more entre-

preneurship at all levels, initiatives that yield measurable impacts are far and

few between. When the rubber hits the road, startups cannot launch passively

with a hands-off approach. This applies to students, researchers, and university

staff alike. In the startup game, competition has to enter the minds of those

3Vijay Govindarajan and Chris Trimble, The Other Side of Innovation: Solving the Execution

Challenge (Boston: Harvard Business Press, 2010).

4Kathryn Rudie Harrigan and Michael E. Porter, “End-Game Strategies for Declining

Industries,” Harvard Business Review (July 1983).

University Startups and Spin-Offs 161

who want to play. This is at odds with the present-day model of universities.

They prefer to do the research, publish a paper, and then let someone else

commercialize. This surrender is unfortunate and wastes the natural syner-

gies that are waiting to empower university startups. With a more competi-

tive approach to entrepreneurship, universities could learn to take advantage

of all the energy that is right in front of them.

Limited Startup Expertise at Universities

Few people at a university or tech-transfer office have ever launched a com-

pany, so they cannot be blamed for not being startup experts. Yet they are the

ones coaching and guiding entrepreneurs, firmly anchored in theory without

applied experience. At the end of the year, the university may have achieved

its key performance indicators of X startups or spin-off companies, but the

impact in the real world still hovers around zero. All this reinforces the notion

that entrepreneurship requires great effort and a huge body of knowledge to

get right. The conclusion is often that somebody else should deal with it.

Roughly speaking, there are two schools of thought about entrepreneur-

ship: that an MBA degree and advanced business skills are required to have a

real shot, and that entrepreneurship is simple and requires little more than a

10-step program (or 20-step, depending on which book you read). Depending

on which ideology your university subscribes to, it will either focus on theo-

retical knowledge and procedures that need to be followed, or it will take

a laissez-faire approach. As you may expect, the reality lies somewhere in

between. Startups require certain business skills that are not native to aca-

demic life. They should also be free of rules, processes, and theory, with

enough room to experiment and explore which approach works best for

them. Just like students and researchers, startup advisors at universities and

the government should understand that entrepreneurship is first and fore-

most a mindset. A startup can succeed with no theory but the right attitude.

If a team lacks motivation and an open mind, the best advice and coaching will

fall on infertile ground.

Most researchers I work with are passionate about their plans but lack the

entrepreneurial mindset and the tools that only first-hand experience can

bring. Because they were researchers their whole life up to this point, they

often lack the know-how to take their ideas from the lab to the market. To

make matters worse, university startups are often given the run-around by a

system designed by bureaucrats who are more concerned with statistics than

startup success. Unnecessary politics and requirements for lengthy proposals

to apply for this or that grant can break the creative flow of startups and sap

their energy. This leaves them resorting to the path of least resistance: com-

plying with the rules, one eye already on taking a teaching position when the

venture inevitably tanks. Hardly a good place to start.

Chapter 16 | Why Are University Startups Not Taking Off?

162

Instead of theory about entrepreneurship, passionate students and research-

ers interested in launching a startup need to learn first what it means to run

a company, warts and all. Most workshops at universities focus a particular

strategy, with too much focus on a single piece of the equation. Somebody

may recount their own startup success story, using a specific approach. In this

light, a startup seems like a fun ride that students and researchers are anx-

ious to try right after the workshop. But the entire picture is often missing.

Inevitably, they get stuck because they lack the know-how to proceed after

the initial enthusiasm has worn off.

Startups Defy Standardization

There is no all-purpose approach to launch successful startups. Just as their

technology, products, and business models are all unique, the personalities

and tempers of their founding teams are diverse. And that is good: otherwise,

entrepreneurship would no longer be innovative. Trying to press all startups

into the same cookie-cutter schema may homogenize them and make them

easier to manage, but it will do little for their success. Unfortunately, the

best entrepreneurs are put off by the bureaucracy of a standardized system

and may give up if it is the only way to launch a startup at their university.

Entrepreneurship is an individual affair. It goes against the grain of any stan-

dardized process that a university or government puts in place for startups.

More important than fixed procedures is the freedom to experiment. There

must be room for this freedom in one form or another, to let entrepreneurs

find their stride.

Many universities say they want to advance their startups, create a more

entrepreneurial culture, and enable their students and researchers with the

know-how to start a spin-off company from their research assignments.

Putting these words into practice is often another story, and doing so is

much more complex than the university imagined when it made the com-

mitment. Entrepreneurship is not a neat thing that can be put in a box, which

results in confusion and frustration for many students and researchers who

give it a shot. When the startup team has had enough of their lack of success,

they throw in the towel, return to their research positions, and chalk up the

experience as an interesting experiment. At least they tried, they rational-

ize. Grand Maste. Yoda once more has the perfect answer: “Do. Or do not.

There is no try.”5 However, what exactly to do is the question, and there are

no standard answers.

What worked for this startup may not work for that startup. What was

gospel yesterday may find itself in the garbage bin today, only to reemerge

tomorrow. The one thing that stays consistent is that entrepreneurs need the

5Star Wars Episode V: The Empire Strikes Back, directed by Irvin Kershner (1980).

University Startups and Spin-Offs 163

right attitude to achieve success. Setbacks are unavoidable, and entrepreneurs

need to be able to face them effectively. A simple set of techniques that help

develop a marketable idea quickly and incrementally is the starting point. From

there on, startups have a real chance to get feedback in the market and engage

with others. By writing their own manual, they find out how to bridge the gap

between being a student or researcher and a startup entrepreneur. Then can

they decide whether this journey is something they wish to embark on.

Entrepreneurship as a Job

The tenure track is less appealing than it used to be for many researchers.

Lifetime positions at universities have become rarer, and the lure of excite-

ment at a startup has caused many PhDs and postdocs to think about the road

to entrepreneurship.

If your research finds a solution to a pressing problem that enough people

struggle with, the university is the ideal springboard for a startup. It is far

harder to launch on your own. Imagine if you had to reproduce all the infra-

structure made available by your university: an air-conditioned office, a work-

ing high-speed Internet connection, a print room, IT, tech support, expensive

machines and tools, workshops, and so forth. On your own, the cost of this

infrastructure would quickly amount to thousands, if not tens of thousands,

of dollars per month. But most important, universities provide other benefits

for startups. They are platforms on which different parties come together,

including governments, intergovernmental organizations, NGOs, the business

community, and the financial sector. All this can help startups succeed, given

the right approach. None of it is available to startups outside of universities.

You should seize this huge advantage if you can.

However, there is a flip side to the wealth of resources readily available for

startups at universities. Researchers sometimes see a startup as a convenient

way to extend their university assignment, without having a genuine interest

in making their company work. They take the lottery approach to entrepre-

neurship: writing a business plan, applying for a government grant, and hoping

they win. When they do, they breathe a sigh of relief because their salary and

overhead at the university are secure for a few more months. They dabble in

entrepreneurship, in effect doing the same work they were already doing on

their research assignment. Despite their lack of a sellable product, they hope

to hit the jackpot when a venture capitalist or joint venture partner comes

along and invests millions of dollars in them.

This approach has little to do with the reality of successful entrepreneurship.

At the root of it, once more, is a false notion of what a startup is and how it

comes about. As long as this thinking prevails, university startups will struggle

to achieve results in the real world. Because universities are comfortable envi-

ronments, they indirectly encourage researchers to take the lottery approach

Chapter 16 | Why Are University Startups Not Taking Off?

164

to entrepreneurship. If they hit the jackpot, great. If they don’t, nothing changes.

Most of these startups inevitably fail. Unfortunately, the verdict is often that

these failures are the result of insufficient funding for startups. In reality, the

opposite is true: too much funding exists, providing life support for students

and researchers who lack the motivation to make their startups succeed.

Launching a startup and a job at a university are two different animals.

Entrepreneurs and employees have completely different motivations, expecta-

tions, and schedules. Students and researchers should understand this as early

as possible. Otherwise, they might confuse a startup with a paid position at a

university.

How Universities

Can Support

Their Startups

Today

Many universities are adventurous when it comes to research and new tech-

nology in a lab setting. But when the conversation turns to commercializing

this research, academics often remain on the sidelines. There is still a chasm

between academia, the business community, and the financial world. However,

many decision-makers at universities I had the pleasure working welcome

new ideas for entrepreneurship and commercialization. They have shown

great interest and support, and I wish to thank them for their openness.

Clearly, no institution of higher learning can or should reform overnight and

become a business school or an investment bank. Suggesting sweeping changes

will therefore fall on dumb ears and will be more counterproductive than

anything else. It’s better to focus first on a few simple guidelines that can

make it easier for new startups to embark on the entrepreneurial path. I

discuss some of these in this second part of the book. All of them require

active participation by the startups. If a team lacks genuine interest in learning

about practical entrepreneurship, then it will be very difficult to help them

succeed. Let’s therefore assume that all entrepreneurs are keen to learn and

are hell-bent on making their startup work.

CHAPTER

Chapter 17 | How Universities Can Support Their Startups Today

166

Give Guidelines, but Don’t Micromanage

Universities should stop treating their startups with a one-size-fits-all

approach. As this book explored earlier, universities should refrain from

forcing entrepreneurs down the grant track as the first order of business.

Writing lengthy documentation, proposals, or, even worse, business plans

make little sense for startup entrepreneurs. Universities should let them

experiment without doing much planning. Just as the grant track paints a false

picture in young entrepreneurs’ minds of what it means to launch a startup,

so do micromanagement and over protectiveness. All parents must at some

point let their children make mistakes on their own. This process may be hard

for advisors and professors who have been working closely with students and

researchers, but it is essential for a startup to collect personal experiences

in the real world. Without the opportunity to fail from time to time, startups

will never learn to fly.

Universities can clear roadblocks and make resources available. This can enable

students to develop their startups without hassles and help them to take

the first steps towards entrepreneurship. They will have the best chance to

succeed if non-entrepreneurial duties burden them as little as possible.

Testing minimum viable products, putting together business models and finan-

cial plans, and engaging non-academics with potential partnerships are quite

different tasks from the daily business of other academics. Make sure startups

can do their work uninterrupted, at least part of the time. Research team

members may still have other important roles to perform at the university,

such as finishing their PhD or postdoc, and the team may be pursuing entre-

preneurship on their own schedule. In this case, see that they fulfill their duties,

and then let them run.

A startup mentor may also help set up certain guidelines to help the university

understand what startup entrepreneurship entails over the first few months.

Most faculty will be just as confused as the founders.

Mentors vs. Workshops

At a university I worked with, several students and researchers had the oppor-

tunity to attend workshops on Lean Startup and business modeling, one of

which was conducted by author Alex Osterwalder, who invented the Business

Model Canvas.1 That weekend workshop was exciting; but the results for the

individual startups were mixed, as I learned in one of my follow-up consulting

sessions. The participants’ PowerPoint presentations were less academic and

1Alexander Osterwalder and Yves Pigneur, Business Model Generation: A Handbook for

Visionaries, Game Changers, and Challengers (Hoboken, NJ: Wiley, 2010).

University Startups and Spin-Offs 167

had been tuned up with more business speak. Nonetheless, fundamental inse-

curities about the journey ahead still prevailed. Teams were now aware that

there was a thing called the “business model canvas,” but few had completed

one for their startup. Those who did were staring at a piece of paper that

made certain statements about their company and their market, with no idea

what to do next.

When learning about the Lean Startup method, several of its concepts are far

from intuitive at first sight. The main issues have to do with the business model

canvas and the minimum viable product (MVP). If you are unsure what these

are, then look them up in Chapter 2, where they were introduced. But let’s

first go back to that workshop. Over the weekend, the startups learned about

the need to collect feedback from the market about their product as soon

as possible. In a consulting session the week after the workshop, I asked one

of the teams, a software startup, about their next steps. They did not know

how to respond. Using the business model canvas, they had completed several

questions about their product, their potential market, and how to serve that

market. However, the most important part was missing: the startup team was

unaware that they should be making a test version of their software. How

could they get any feedback from the market if they had nothing to test?

A software startup without software is like a restaurant without food.

The team had always assumed that a large software firm would come along,

start a joint venture with them, and then do the product testing and develop-

ment on its own. They saw their strength in their sophisticated algorithm and

therefore never bothered with a user interface for the software. But estab-

lished companies are unlikely to flock to a startup with an invisible product

and no feedback from potential users. Teams have to test their MVP to under-

stand whether anyone in the market even wants what they produce. If they

do, then the next question is whether consumers are ready to spend enough

money so the startup can become profitable. With this first-hand intelligence,

they can later approach a joint venture partner.

The software startup without software found itself stuck in a loop: they needed

to get feedback from the market about their product, but to do that, they first

needed a joint venture partner to help them make the product. And to attract

a joint venture partner, they needed to get feedback from the market.

I am not trying to poke fun at these entrepreneurs. They are smart individuals.

Analysis paralysis is common if you have been working on a project for a long

time. Even though the solution may seem obvious in hindsight, a workshop

rarely solves current challenges. It can therefore be advantageous to get the

perspective of a mentor. This should be an entrepreneur who can offer a fresh

look at things. The mentor can help the team solve challenges as they arise. If

a seasoned entrepreneur is made available during a startup’s initial stages, the

difference can be like night and day.

Chapter 17 | How Universities Can Support Their Startups Today

168

Another team I worked with wanted to create language learning materials

based on certain academic research. Under “key resoruces” in their business

model canvas, they listed the need to raise six-digit funding to complete a line

of several books and audio programs in different languages. They would then

sell this material to schools and universities. They were struggling to raise the

funding at the time I got involved. A few simple questions turned up major

flaws in their approach. Did they ever test a lesson with potential clients? Did

it make sense to roll out the entire product line at the same time? What about

testing which languages would have the deepest market? Stuck with planning

and brainstorming their product line, the startup had never thought about

proof of concept with real market testing. They assumed they would first have

to complete the entire product line to be a real company. “Build, measure,

learn” is not a household concept, and it may take some time to get the hang

of it. Having a qualified outsider available for advice can make all the difference

between success and giving up.

When getting feedback from potential clients, you need to be creative. In

my own startups, we sometimes made software mockups in Microsoft Excel,

dressed up to look like a web site (more or less). Clicking a button (nothing

more than a colored cell) linked to a new sheet in the workbook to simulate

the next page. Mockups can be messy; they contain bugs and often have just

a tiny set of the features. But putting a simple mockup of your idea in front of

people should be the first order of business. Most of the time, these take less

than 24 hours to produce and require zero funding. Endless deliberating about

how to start leads nowhere—the most important thing is taking the first step

as soon as possible.

Creating an overall atmosphere of entrepreneurship at a university is a laudable

goal, but it often leaves would-be entrepreneurs without workable strategies

to achieve success. Most university staff and faculty have never started their

own venture and can therefore provide only limited guidance when a startup

hits the ground running. Working with a mentor one-on-one on specific

challenges is infinitely more helpful. This will hardly break the bank of the

university, but the benefits for the startups will be more powerful than the

best business model workshop.

Integrate Startups in Management Activities

University research teams and management staff exist in parallel worlds.

Startups can benefit from taking part in the everyday fabric of university life.

Managing a university involves many activities in which startups could share.

No sweeping changes are necessary; simply thinking of entrepreneurial students

and researchers when planning events and receptions. Suppose there is a

conference in town where the university has a booth. How about offering

some space to startup entrepreneurs to conduct further MVP testing,

University Startups and Spin-Offs 169

interview prospects, and get feedback about their business models? Startups

can profit from leaving the building to see how a tradeshow works. Make it

known when such events take place, and give students and researchers the

opportunity to take part.

Instead of giving visitors a general tour of the facilities, propose that they

drop in on one of the startup labs that is showcasing an experiment with an

MVP. When the government comes by, ask startups to pitch instead of having

a professor give a lecture. Many possibilities exist to integrate startups in the

everyday hustle and bustle of the university management and support.

Startup entrepreneurs can volunteer to guide certain visitors around the

facility, all the while getting feedback about the problems they are working on.

Because startups are learning to shift the discussion from features to benefits,

every chance to reach out to test subjects can be used as practice to engage

them for feedback. This creates knowledge about potential partners and clients

that will move the startups further along with their business models and

market studies.

Enable Industry Networking

Entrepreneurs must try to leverage everything at the university for their

benefit. If your university is a certain size, it may take part in a conference or

technology fair. Many small and medium enterprises (SMEs) and multination-

als also attend these events. They provide an ideal platform for startups to

network with potential clients, future joint venture partners, investors, and

competitors right on the battlefield. Teams can collect business cards and

begin a list of e-mail addresses and phone numbers that they can use in their

evolution down the road. Startup entrepreneurs can never have too many

contacts in their networks.

Attending university networking functions gets a new meaning for startups

with a solid business model and the mindset of engaging others with action-

able next steps. Because they have discovered the importance of a strong

network, startup entrepreneurs know better than standing around with peers

they already know, or wish they had never attended in the first place. They

actively pitch their startup and engage contacts with actionable next steps.

Luck favors the prepared: a single conversation or new contact can change the

trajectory of a startup and give it a turbo boost.

This is all great, you may say, but our university rarely participates in such

events. In this case, how can startups make more frequent contact with indus-

try? One idea is to establish your own networking events. Hold on, you say;

networking events we already have. Yes, companies may contact the university

and tour the premises and labs to watch demonstrations and hear lectures

about certain technologies. But are several companies ever invited together?

Chapter 17 | How Universities Can Support Their Startups Today

170

How about an entire sector? What about a full industry group or trade orga-

nization? Interaction may exist one-on-one, but this lacks the scale to enable

a vivid exchange of ideas and true networking. The university could offer a

platform to make that happen. It would also be interesting for companies

to network with each other. How about reaching out to industry groups or

trade organizations and inviting them for an afternoon of networking, with

refreshments? Instead of lecturing them on research and technology, startup

teams can ask their opinion of MVPs and market assumptions. They can use

the networking event to gain as much intelligence as possible without having

to leave the building. Rather than startups reaching out to companies on their

own, bring companies to them once in a while.

Fail Smart and Collect Data

Of course, it is never fun to admit that an undertaking failed. Most people feel

uncomfortable with the notion of failure. As a result, they frame all of their

efforts as successes. Even if a team failed to achieve certain results, they learned

something in the process—at least they tried to do something. Unfortunately,

this mindset allows failure to become an accepted, everyday event. If you

frame failures as successes, startups will lose their edge. If they think that

burning through $250,000 in grant money without launching a product is OK,

then they are on the wrong track from day one.

In retrospect, however, even such failures can provide valuable data for the

university and startups that will follow. They should review failed startup

together with the team and register their findings. How did the entrepreneurs

attack the endeavor? How long were they at it? When did they declare defeat

and wind down the company? How many MVPs did they test? How many

potential joint venture partners did they engage? What did they ask from

those potential partners? Did they launch a product in the market? And so on.

Myriad questions are possible.

If a university has a startup track, it can gain insight by recording all the steps

its startups take. This makes it easier to spot patterns. Then startups can

be tracked and gently nudged toward taking reasonable actions when they

become confused or veer off course.

What you cannot measure, you cannot improve. Having more data to mine

will hardly make the university a new entrepreneurship hub over night. Even

when droves of data exist, not every startup will succeed. There is no fail-safe

procedure that ensures hundreds of millions of dollars in revenue within a

few short years. But learning what contributes to startup failure will result in

a helpful tool that makes your university’s startup program smarter over time.

It will take a while and several startups to arrive at a workable database. If

failing smart sounds interesting to you, then you should begin collecting data as

soon as possible. This may even become part of a course at a related business

school.

CHAPTER

Building a

Bridge to

the Market

Currently, few links exist between universities and the business community.

This makes sense, because both work differently. State-funded universities

largely run as not-for-profit entities, whereas businesses with shareholders are

at home in the capitalist paradigm. Regardless, universities often declare that

they benefit from established links to the business community. These exist

mainly in research, where corporations sponsor certain projects. However,

when examined more closely, such connections do little for university start-

ups—as I have mentioned, they are often nothing more than a convenient

strategy for corporations to let researchers do their R&D inexpensively. Such

links are not particularly valuable for universities, and the knowledge exchange

is lopsided. Corporations extract know-how from university research teams,

but universities gain no insight about how entrepreneurship works and how

they could better commercialize research in the market. This is unfortunate,

and some universities have begun to realize there is room for improvement.

Most important, it would be good if universities integrated market-oriented

thinking in areas beyond the research level with their PhD and postdoc pro-

grams. On the degree level, know-how about applying academic research in

the market is almost entirely missing.

The rest of this chapter presents some general assumptions about why a pivot

toward more entrepreneurship may be difficult for some universities. I also

offer recommendations about how to address these difficulties.

Chapter 18 | Building a Bridge to the Market

172

Focus on Small and Medium Enterprises

(SMEs), Not Large Multinationals

Universities often try to attract large multinational corporations to sponsor

research projects or collaborate in other ways. The corporations shoulder

the financial risk by underwriting a part of the research. In reality, the amounts

they contribute to these projects are small fry compared to their overall profits.

Plus, large corporations are tax optimized, often reside in Switzerland, and

pass most of the tax burden to their employees. If they hit upon a goldmine

with a product developed in a joint research program, the windfall will rarely

benefit the university or the researchers.

On the other hand, small and medium enterprises (SMEs) are the real drivers

of economies. Companies with fewer than 99 employees are comparable to

large firms in their contribution to aggregate employment.1 They are important

engines of job creation and GDP growth in developed and emerging markets.

Most universities treat SMEs as an afterthought. It is of course much more

prestigious to announce joint projects with multinationals than with smaller,

local companies, but this practice should change. If governments want to sup-

port the economy, they should give SMEs better access to universities: for

example, in the form of tax breaks, guarantees, or risk sharing. Giving SMEs

more access to inexpensive research would help make a larger impact in

society. This could go hand in hand with establishing practices for a more

balanced knowledge exchange that would actually help universities become

more entrepreneurial.

Is the Current System Up to the Task?

Startups are inherently hands-on. Little know-how about rolling up one’s sleeves

and turning research into marketable products currently exists in universities.

This makes universities less than ideal experts on the topic of entrepreneur-

ship and stipulates the need for knowledge transfer from sources outside of

academia. The market is by definition the battlefield on which entrepreneur-

ship takes place. Why not tap into this source to glean some insight about

how to commercialize innovation? Later, this chapter investigates how univer-

sities can build stronger bridges to the market to help their startups become

more entrepreneurial and compete with businesses in the real world.

1Meghana Ayyagari, Asli Demirguc-Kunt, and Vojislav Maksimovic, “Small vs. Young Firms

across the World: Contribution to Employment, Job Creation, and Growth,” Policy

Research Working Paper, The World Bank, April 2011, www-wds.worldbank.org/

external/default/WDSContentServer/WDSP/IB/2012/11/06/000158349_20121106

091157/Rendered/PDF/WPS5631.pdf.

University Startups and Spin-Offs 173

Can universities reinvent themselves and suddenly become startup hubs?

Most of them lack the capacity to reproduce Stanford University in Silicon

Valley. Laying the foundation for successful startups will take a while. A cultural

shift will need to take place, and this needs time and patience. Unfortunately, a

mind shift is impossible while continuing to do more of the same—more grant

funding, more lectures by MBAs, and more business plan competitions. These

will be of little help in the long run. If universities want to promote startup

success, they need a deeper understanding of how entrepreneurship comes

into being: how they can enable it from the bottom up, not try to force it into

existence from the top down.

Because universities need a radical paradigm shift, their current advisors may

not be up to the task. Government officials are hardly startup entrepreneurs.

Neither are MBA students, professors in economics and finance, or the tech-

nology licensing office (TLO). Considerable trust is placed in those with strong

incentives to stick with the status quo. A fundamental mind shift must occur

to put universities on the right track. The longer universities put off change,

the harder it will be to bring about a course correction later.

Learning from the Market

A pivot toward entrepreneurship can be achieved better by learning by doing

than by lecturing. To learn more about this field, universities need to build a

stronger bridge to the market. Just as launching a startup is an experiment,

universities need to test different approaches and find the ones that yield the

best measurable results for them. They should do this by integrating applied

business knowledge much earlier than in the research stage of academic edu-

cation. If degree students have regular contact with market practitioners who

have walked the walk and can tell war stories about their trials and tribu-

lations, those students can gain considerable insight. When they reach the

research level in their PhD or postdoc, they will already understand how the

market works. This will be a huge advantage over those living in the ivory

tower of academia who are exposed to business for the first time at age 35.

Universities should be concerned with empowering their students and

researchers with the know-how to launch businesses in the twenty-first cen-

tury. If they achieve that, many more university startups can make a difference

in the lives of people who benefit from the innovative products the startups

bring to the market. To make an impact, startups should gather this knowl-

edge right at the source.

Chapter 18 | Building a Bridge to the Market

174

Industry Links

Entrepreneurial students and researchers profit in many ways from stronger

links to industry. Universities should seek and welcome connections not only

with large multinationals but also with SMEs. The latter may be appreciative

and loyal partners for university startups, especially when a two-way informa-

tion exchange takes place.

At present, university startups often feel that they have to go the entire dis-

tance alone. The founders take management and accounting courses and think

about how to sell products and distribute them in the market. It is good to

understand as many aspects of business as possible in the early stages of a

startup. However, when entrepreneurs are ready to launch their final product,

they need to focus their energy. They need a more effective way to manage

the moving parts in their operations than doing everything by themselves.

Management and sales skills seldom come overnight, and it can be worth-

while for a startup to join forces with an established company to shoulder

these tasks. Nowadays, a joint venture is often an afterthought for a univer-

sity startup. If it exists, as you’ve seen, it is often an outsourced R&D lab of

an industrial partner, who perhaps sponsors some equipment and materi-

als and in return extracts the intellectual property the researchers create.

Unfortunately, this arrangement will never allow startups to make a splash.

They will remain small, tethered R&D labs forever.

Instead, startups should find a way to get joint-venture partners to form com-

panies with them. This will take industry partners out of the pattern of seeing

universities as a free technology platform from which they can cherry-pick the

most promising morsels at a discount. When a company is part of a university

startup earlier in the process, it can help create an entrepreneurial ecosystem

from which the university’s other startups can profit. Management, distribu-

tion, sales, support—all these functions will be part of the startup’s daily busi-

ness under the tutelage of an experienced joint-venture partner. He helps

with recruiting operative personnel and support services, and from this link

with professional managers, entrepreneurs gain knowledge about other fields

of business that they never knew existed. Successful startups will maintain a

connection with the university, and having joint ventures in the network will

provide major future benefits.

Entrepreneur Alumni Networks

It is common for the founders of a successful company to exit it at some point

to start a new firm. This is often the case in finance, where successful teams

of managers work at a large investment fund for a few years and then split off

to start their own fund. Technology and Internet firms are other examples

where this occurs frequently. These accomplished founding entrepreneurs are

University Startups and Spin-Offs 175

often excellent partners for future startups launched from the university. Not

only can they form a joint venture with new startups, but they may buy entire

units and integrate them into new enterprises, which kick-starts an active

knowledge exchange between the market and university startup entrepre-

neurs. Fostering entrepreneurial success and maintaining a link to alumni who

have achieved it will enable network effects for the university’s entire startup

track. Universities should be open to harnessing this source of knowledge.

With this in mind, it becomes obvious that enabling entrepreneurial success at

a university is a multigeneration task. It will rely on establishing a mechanism

that launches startups, keeps strong links with the founders and joint-venture

partners, and engages them in the future with attractive opportunities and

applied research. Some universities may need to rethink some of their pro-

grams in this new light. If there is a choice between offering a PhD program

that is doing research that is easy to commercialize and one that is not, which

one should the university choose? This thinking is less relevant to universities

today, but it may play a bigger role when a startup track is in place.

Platform

Thinking for

Startup Success

The first part of this book explored what individual startups can do to improve

their chances in the market: how they can communicate more effectively with

outside partners, and how they can organize their business model and finan-

cial model around easy-to-understand principles with which they can engage

others and kick-start synergies. So far, support from the university only

includes providing a framework for startups with its existing infrastructure

and occasional assistance such as hiring a startup coach.

There are also universities that want to take a more active role in entrepre-

neurship. They feel the technology they develop should have a bigger impact

on people’s lives, or they may be falling short on their key performance indicators

(KPIs). They organize startup workshops with entrepreneurs and consultants,

improve interaction with government agencies for technology transfer, and

support their startups when applying for grants. They may even have a dedi-

cated startup program with a financial matching scheme, where startup teams

put money into their endeavors that someone else matches. These efforts

are commendable. But there remains room for improvement, and by that

I mean other things than adding more of the same. We need a mind shift to

foster entrepreneurship from a fundamentally different angle at universities.

This chapter explores what that could look like.

CHAPTER

Chapter 19 | Platform Thinking for Startup Success

178

The strategies outlined so far in this book are bottom-up. They originate

directly with startups, and the entrepreneurs do most of the work, plugging

in to the university platform only occasionally. Currently, this is the way start-

ups become successful. It is rarely the ones that play by the rules and run the

length of the grant track that spin off into the market as self-sustaining entities.

Rather, it is the mavericks that make the real impact.

Author Josh Lerner points out the link between innovation and growth.

Innovation and new firms are strongly correlated, but public intervention to

boost venture capital and innovation is largely ineffective.1 This is a thorny

issue. For a startup to succeed in the current system, it has to avoid taking

part in public entrepreneurship initiatives. This may sound harsh, but it is fre-

quently true. Few of the launch strategies discussed in this book are included

in current support programs for startups. This does not have to be the case:

universities could adapt to the new reality of lean models and guide their

startups much earlier along that course. This part of the book addresses uni-

versities that want to apply more leverage of their existing platform to boost

their startup initiatives.

Building Startup Platforms

Universities are platforms. Many diverse fields and opinions come together

under one roof and mingle with each other in interdisciplinary research. An

active exchange of ideas takes place between students and scientists of distinct

faculties. Largely supported by the public sector, universities also interact with

the government and its agencies, and even with intergovernmental organiza-

tions such as the World Bank and the Asian Development Bank. Occasionally,

the business community sponsors events or holds job fairs at universities.

Banks may finance research projects through university foundations. Many dif-

ferent stakeholders exchange ideas and energy with universities daily, creating

vast potential resources that are sitting there, unused.

Platform thinking is an innovative approach to maximize these resources. Author

Sangeet Paul Choudary contrasts this practice with two other paradigms that

he calls the stuff approach and the optimization approach.2 The stuff approach is

the current practice of trying to solve a problem by doing more of the same.

In the context of supporting university startups, this means more grants, more

workshops, more business-plan competitions, and more technology licensing

office (TLO) staff. You may already suspect that this will create some jobs and

1Josh Lerner, Boulevard of Broken Dreams: Why Public Efforts to Boost Entrepreneurship and Venture

Capital Have Failed, and What to Do About It (Princeton: Princeton University Press, 2010).

2Sangeet Paul Choudary, “A Platform-Thinking Approach to Innovation,” Wired (Jaunary 31,

2014), www.wired.com/2014/01/platform-thinking-approach-innovation.

University Startups and Spin-Offs 179

increase the available budgets, but fail to deliver the results for startups that

you are after in this book. Slightly better is the optimization approach, which

adds algorithms to the equation. After collecting all available information, you

match it with the needs of specific startup entrepreneurs. This avoids pushing

them into a one-size-fits-all format, but addresses them individually with the

contacts and information they need at a given time. This is an improvement,

but it neglects the potential synergy effects that lie dormant at universities.

Enter platform thinking. It goes one step further beyond just collecting and

matching the available assets: it creates more by tapping into synergies. When

you apply leverage to all the activities and interactions of which universities

are a part, a startup ecosystem emerges and grows, powered by network

effects. Figures 1-1 and 1-2 in Chapter I show what the ideal university ecosys-

tem and the startup launch pad in look like. On a strong platform, the whole

is greater than the sum of its parts. This sounds intriguing, but how can you

apply platform thinking at your university? This chapter examines some ideas

and examples.

The Government Visit

Instead of addressing each stakeholder independently and catering to their

individual agendas, universities can turn on network effects to help their

startups. When a government agency visits, what does the university usually

do? It rolls out the red carpet for the officials, who visit a certain lab where a

professor makes a presentation about the research of his team on technology

X. There may then be a lunch or Q&A about that technology with students

and researchers. Photographers take some pictures. Perhaps there is even a

TV crew. There may be a public commitment to funding this or that research

in the future, and another commitment to working together on a certain chal-

lenge. Then the delegation leaves. The university is delighted that the govern-

ment has shown some interest, but students and researchers hardly engaged

the delegation at all. The visitors had a great field trip and are already looking

forward to a similar excursion to another university next week.

I suspect that universities are often insecure when the government wishes to

visit. This is the proverbial rich uncle who pays the bills, so they need to be on

their best behavior. They breathe a sigh of relief when the visit is over, and the

last thing on their mind is engaging the government more deeply regarding

their platform. This is where a mind shift has to occur.

Let’s say a university has five startups. The team working on technology X

is the furthest advanced, but the other four are also promising. How about

having all the startups hold short presentations for the delegation? You may

object that the government agency expressly wanted to see technology X.

Sure, that’s what they said they wanted, because they were unaware of the

Chapter 19 | Platform Thinking for Startup Success

180

other four startups. Why not take matters into your own hands and set a new

agenda for the delegation? Show them something unexpected—something

out of the box. Framing the visit as a demonstration of your startup track.

Governments love startups because they create jobs. Whenever someone

takes that initiative in job creation, it looks good for the government to be

part of it. The delegation will seldom get all the technical details in the presen-

tation about technology X, nor will they take much interest in them. But they

will definitely understand when you say that technology X could potentially

provide 100 jobs in the next 2 years. Benefits trump features. If you have

5 startups, that may be 500 jobs in the next 2 years. Don’t you think it would

be possible to engage the government to a greater extent with the prospect

of 500 additional high-profile jobs created by your startups?

Now suppose these startups address problems in environmental sustainabil-

ity. Doesn’t the government have to reach certain targets, perhaps related to

Millennium Development Goals (MDGs)?3 Let’s say some of your startups are

already leading joint-venture discussions with large multinationals. How about

asking the delegation about public tenders for which these joint ventures

could put in offers?

There are many other ways to engage the government in this particular exam-

ple, but I will stop here. It is about switching from a passive stance to an

active role where you engage external stakeholders and ask them to assist

you. Media coverage of the visit will now be different. Instead of reporting

the same old story of government officials visiting a research lab, it will tell

about your university potentially providing 500 new jobs with startups that

address problems in environmental sustainability. That’s free advertising, and

it provides leverage for your startups to reach out to the private sector with

a tailwind.

For this to be possible, your startups need to move up a gear or two. Teams

need to be more to the point and use the 10/20/30 structure discussed in

Chapter 10 for their presentations. They need to rehearse their pitches and

presentations so they fit into 10 minutes. Somebody from the university must

ensure that startups are up to speed and will not embarrass themselves or the

university when it matters.

The logistics of such an event will be more challenging than the run-of-the-mill

reception. You need to keep an eye on many more moving parts. You should

provide press kits for each startup. Staff and startup founders must be sharp

and presentable. As always, there is no quick fix to jump to the next level, but

the effect of channeling attention away from single research projects onto

your startup platform will be powerful in the long run.

3United Nations, Millennium Development Goals and Beyond 2015, www.un.org/

millenniumgoals.

University Startups and Spin-Offs 181

The Industry Visit

Visits from small and medium enterprises (SMEs) and multinational corpora-

tions are another great opportunity for startup initiatives. As we have seen,

links to these companies may exist, but they are often rather uninspired. The

knowledge transfer from the university to industry takes place through the

technology transfer or licensing office (TTO or TLO), which makes patented

technology available for licensees. Alternatively, a company may sponsor a

research project and extract intellectual property this way. In both cases,

knowledge flows out of the university into the private sector. Learning more

about commercializing technology had little mindshare for universities in

the past, but this should change when their goal is to build platforms for

their startups.

Turning on knowledge transfer in the opposite direction can help university

startups gain valuable insight and firsthand experience in how the market

works. Joint ventures with industry partners are therefore desirable for startups.

I mean real partnerships between established companies and startups, with

the goal of launching products right in the market trenches. Few students and

researchers are born managers, so joint ventures can provide scale to their

operations in manufacturing and management.

Assume the following scenario: technology X has attracted interest from a

multinational industry giant. The company would like to see the lab and the

technology and may potentially sponsor further development or license the

technology for the company’s own manufacturing processes. The research team

happily obliges and shows the industry representatives around the lab. They

present their work and speak about what they have done so far and the many

problems they still need to solve. They compare their technology with others

already on the market and announce that theirs will be greatly superior when

it is ready for commercial application in five to ten years. They also mention

that they will need additional funding soon to move forward, on the order of

hundreds of thousands of dollars. The team lead, Professor A, gives a presenta-

tion that spans 200 PowerPoint slides, skipping most of them with the remark

that one hour is not enough time. In the Q&A session that follows, the industry

reps ask again about the team’s funding needs. Professor A reiterates that the

number he mentioned is the minimum funding they need, and, of course, hous-

ing costs, cost-of-living adjustments, and business class flights are not part of this

budget. In addition, he will need to hire several additional PhDs and postdocs,

which will take at least six months, if he can find the right candidates.

Put yourself in the shoes of the multinational company. Is this team attractive

for a joint venture? Unless their technology is a blockbuster, probably not.

But this is how such interactions are carried out every day. It’s how univer-

sities work and think. Most large companies know this, because many already

sponsor university research projects. However, if a SME visits a university lab,

Chapter 19 | Platform Thinking for Startup Success

182

it can be taken by surprise when it learns how cumbersome such a collaboration

turns to be. SMEs get the impression that university joint ventures are for big

companies only, which can absorb inefficiency through sheer scale.

When working in partnership with industry, universities usually take a passive

stance. They answer requests the best they can, by showing visitors what

they asked to see. Then they overwhelm companies with information and

details about internal politics, which makes them rather unattractive as equal

partners. Better is a leveraged approach. If a research team has founded a

startup, they should develop themselves to the point that they can use the

synergies of a joint venture partner to achieve specific milestones in their

product development. When startups meet with established companies, they

can address those companies directly for specific feedback to improve their

understanding of the market and ways to interact with it. Such a startup

brings more to a joint venture than just technology. It is more attractive to

partners, who see ways to engage with university startups in a different light.

Of course, not every presentation will result in a joint venture. But over time,

the university can step out of the position of supplier of inexpensive R&D.

University startups can present themselves as equal joint venture partners

and channel know-how about business and the market to the university.

Let’s get back to the earlier example and see how the interaction between

the startup and the company could have unfolded differently. Assume the team

around technology X has decided to launch a startup with their intellectual

property. They have incorporated a company and tested a few theories about

the value of potential products in the marketplace. One product is promising,

and they intend to launch it first. They have a lean canvas for several markets as

well as a financial model, which they improve when new information surfaces.

They also know what they want from different actors: feedback about their

product and assumptions, sponsoring of materials to build more prototypes,

distribution channels, and funding of a precise amount to scale up production.

A multinational industry giant has read a journal article about technology X.

The company would like to visit the lab and see the technology and may

potentially sponsor further development. The company would also like to talk

about licensing the technology for its own manufacturing processes.

Instead of going through the motions of the standard dog-and-pony show, the

startup uses this opportunity to collect direct industry feedback about their

intended first product. Not only do they turn the visit into a testing session,

but they also engage the potential industry partner with actionable next steps.

Team lead Professor A has stripped down his PowerPoint presentation. He

presents the startup in the 10/20/30 format, leaving enough energy and time

for the Q&A session, which he actively guides toward questions that benefit

the startup in MVP testing. Some comments from the corporate visitors are

new to the team. They ask follow-up questions and come up with additional

ideas for MVPs on the spot. This resourceful method of approaching R&D

University Startups and Spin-Offs 183

intrigues the company. The startup team also seems advanced in creating a

marketable product, not just further data about technology X. The subject of

money never comes up. Companies know that good things have their price;

when they really need something, the cost is often unimportant.

Let’s say the Q&A has ended. Fresh insights about MVPs and the market have

emerged. The startup has added several items to its to-do list, which they

are anxious to test. Because the industry representatives have experience in

product development, Professor A asks if his team could conduct some testing

at the company’s lab using its expertise and specialized equipment. The com-

pany would like to discuss this internally and promises to be in touch by the

end of the week to see whether this is possible. The startup has established a

connection to the company from a position of strength, not from a position

where the company has all the money and power and the university is begging

for funds, hat in hand. If the startup can get access to the company’s equip-

ment and personnel to test the MVP in a realistic environment, they will build

a stronger bridge to the market and begin to absorb pragmatic know-how

right then and there.

Instead of waiting for companies to knock on their door, universities should

also actively seek contact. SMEs are in many regards interesting joint venture

partners, perhaps much more so than industry leaders and giant corporations.

A small company can benefit hugely from university R&D. Large corporations

already have multinational R&D operations, and the thrill of setting one up

wore off long ago. Universities and their startup teams should seek more con-

tact with SMEs. They should figure out where they can provide the most value

and bring their intellectual property to market in partnerships.

For this to be effective, they need to streamline the operations of their startups.

An entrepreneurial mindset must replace that of being a government employee

with all expenses paid. Startups need to become skillful at presentations.

Endlessly droning on about features must make way for concise information

about tangible benefits. Presentations must include real, tested products that

could launch in the market. The basic assumptions about the startup’s financial

structure and business model should be clear so they can lead an informed

discussion, as I addressed in Chapter 8. If startups use this information, they

are ready to engage companies with attractive value propositions. It is now up

to universities to enable more conversations with businesses and industry, in

order to build better channels for a two-way knowledge exchange.

The Investor Visit

Large banks and financial institutions visit universities occasionally. In my native

Switzerland, the banking sector generously funds universities by sponsoring

certain infrastructure such as new auditoriums. The American university system

is dependent on endowments, into which wealthy alumni gift small fortunes.

Chapter 19 | Platform Thinking for Startup Success

184

It is natural that sponsors want to showcase their donations to clients or

influential friends. To do this, they ask to set up an event at the university’s

facilities, which may last a few hours to a day, often comprising a speech from

the managing director of the university or a visit to a state-of-the-art research

lab. However, universities often have a mixed opinion about such events.

Let’s see how an investor visit may unfold in the following fictitious example.

A bank has funded an auditorium at a university and would like to conduct

a workshop at the shiny new facility for the college-age children of their

ultra-high-net-worth clients (UHNWI). The workshop includes a tour of the

campus and a Q&A lunch with some students, researchers, and the univer-

sity’s management team. The workshop should acquaint the affluent offspring

with the importance of science and research in today’s society. Because this is

the third such visit this year, the university reluctantly agrees but states that

this is the last time it will free up the researchers. The researchers themselves

have complained about having to give the same presentation repeatedly to

mostly uninterested rich kids. The workshop takes place and is somewhat

interesting for the visitors, but not for the university, which just goes through

the motions. The UHNWI offspring go home and quickly forget about the

excursion and the workshop—there are many more exciting things taking

place in their lives, such as a rocket launch in the Mojave Desert, which celeb-

rities such as Sir Richard Branson also attend. In a nutshell, the university

wasted its time, and the bank feels somewhat unwelcome. Is this a shining

beacon of platform leverage? You already know the answer.

Here is an alternative scenario. The university’s five startups have all been

involved in MVP testing and are incrementally developing their products. Some

venture capitalists have visited, but none have invested, having judged the start-

ups “not ready yet.” The teams have therefore gotten used to making do with

little or no funding and bootstrapping their way through the product-testing

phase. When the university announces that a bank will bring by wealthy visi-

tors, the startups see this as an opportunity to gather additional feedback and

engage the audience with actionable next steps. Knowing that such opportuni-

ties are valuable, the university proposes to formulate the UHNWI workshop

so it is not about research in today’s society, but about startup entrepreneur-

ship. This will seed the visitors’ minds with entrepreneurial thinking rather than

yet another request for trickle-down wealth redistribution. The university asks

the bank to pay for a successful entrepreneur turned billionaire to speak at the

event as a special guest. This is great for the bank and also for the university,

which is putting on quite a show. The event will be fun for university staff,

the in-house entrepreneurs, and other visitors, such as the government and

selected industry representatives who are invited to the speech.

Instead of holding lengthy academic presentations, the startups stick to the

10/20/30 format. Each of the five makes a short presentation during two morning

sessions. After that, the Q&A takes place, and the startups collect feedback

University Startups and Spin-Offs 185

about their products—not one by one, but all five together on a panel with

the special guest. This cross-pollinates the minds of the teams, helps them

understand how others see what they are doing, and gives them ideas for

how to approach current challenges from a different angle. The wealthy kids,

who live an unusual lifestyle, give different feedback than the test subjects the

teams usually interview. Because the MVP testing is still ongoing, some of

the visitors volunteer to spend more time with the teams and promise to

make themselves available for testing and feedback in the future.

The event was a resounding success, the bank asks the university to organize

further similar events, this time for the parents of the UHNWI children and

other institutional clients. When that event takes place, the university’s start-

ups will be well on their way to launching products with joint venture partners

and will need funding to scale up operations. It is a match made in heaven,

because decision-makers regarding potential funding will be present at that

next event. Additional synergies may evolve on the spot. But the story is not

over yet.

One of the workshop attendees boards her private aircraft after the event

and shuttles off to the Mojave Desert in California to attend a rocket launch.

Sir Richard Branson, who is by coincidence the young woman’s godfather, asks

her what she has been up to in the last few days. It is then that Sir Richard

learns about a biodegradable, rechargeable car battery that is currently being

developed by a university startup. As it goes at events like these, just to the

left of Sir Richard stands Elon Musk, founder and CEO of Tesla Motors. He

overhears the conversation and wants to find out more about that battery.

Do you think it could be helpful if Branson and Musk talk about your prod-

uct? Pure fiction, you may say. This never happens. Yes, it does. I have been at

a rocket launch in the Mojave, standing between Sir Richard and Paul Allen,

cofounder of Microsoft. The net worth of the 50 or so people at that event

was higher than the GDP of a small country. People discuss this and that at

such events. Whatever has mindshare with a person at any particular moment

has a good chance of being talked about. This may as well be your product. If

it is valuable to a billionaire, he may call you then and there. When that phone

call comes, startups better be prepared. They may have wondered whether

they really need that business model canvas, that financial model, and that one-

page proposal—well, this is when those things are needed.

Platform Building Takes Effort

Which of the scenarios discussed here do you think made a bigger impression

with the bank and its clients? Which scenario do you think is more supportive

for the university and its startups? The answer is clear. The two scenarios are

like night and day. However, setting up events like these never happens by

accident: it requires a conscious effort from the university and its startups.

Chapter 19 | Platform Thinking for Startup Success

186

It is obviously much easier and safer to go through the motions like any other

university and to deliver just enough that visiting sponsors are not turned off.

Of course, universities are not event agencies, and I am not proposing that

they become one. The examples outlined in this chapter cost nothing more

than a few good ideas and a mind that is open to turning around the exist-

ing situation. To break away from the pack, management and entrepreneurs

need to look beyond the obvious recommendations. Once they have begun

to leverage the existing activities taking place on a university’s platform, they

will uncover synergies that are right in front of their nose.

Like when you are reading a book about mathematics, it is easy to agree with

a formula and the result when you see them written down for you. Coming

up with both yourself is a whole different thing. It is apparent from these

examples that universities can create huge advantages for their startups by

taking advantage of existing stakeholders and hidden synergies. But how

should universities go about raising the bar to engage in more platform think-

ing? Looking at a situation from a fresh angle may steer the university in the

right direction. An active dialogue about platform thinking may yield ideas

from the least expected sources.

In addition to these internal efforts, an outside opinion can once more make

a huge impact. Many successful serial entrepreneurs are open to getting

involved with universities. Several friends of mine had successful exits from

their companies and are in a position where they do not have to work to

pay the bills. Their focus is on making a difference in the world and helping

entrepreneurs get off the ground. They draw satisfaction from the success

stories of startups they have mentored. That does not mean they will work

for free for the university, but their engagement will hardly break the bank.

The ideas that qualified, motivated mentors can introduce are valuable. Just

like startups themselves, universities should take advantage of this readily

available resource if they want to have more success stories with their entre-

preneurship programs.

More Platform

Projects

Leverage Cooperations and Create Network

Effects

We know that universities can take advantage of their interactions with external

allies for the good of their startups. They can do this with an innovative mindset

about launching startups and engaging third parties through actionable next

steps. This chapter describes several initiatives to reroute energy from external

parties into a university’s startup track. They take place on the existing university

platform but require a little more time and effort to establish than the actions

described in Chapter 19.

Communication between universities and external actors creates energy.

The most important thing is to prevent this energy from escaping unused. To

do this, universities need to think more like entrepreneurs themselves. They

should approach third parties as partners for feedback and two-way knowl-

edge exchange. With actionable next steps, universities can move potential

partners toward the specific milestones the universities want to accomplish

with their startups. When something falls short of producing the needed

results, universities need to collect feedback and adjust their approach.

Just as an entrepreneur tries out his MVP with potential clients, a univer-

sity should test its startup platform with its external stakeholders. When it

does this, students and researchers gain access to an organic ecosystem of

entrepreneurship. Startups can then draw on unique practical resources and

knowledge to launch companies with much more momentum.

CHAPTER

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Entrepreneur-in-Residence Program

There are two definitions of an entrepreneur-in-residence (EIR) program. On

the one hand, it can mean that an experienced technologist has the chance to

develop a startup as a so-called intrapreneur within a company.1 On the other

hand, the term describes a situation where an established entrepreneur comes

into an organization to help with the organization’s own startup initiatives. An

EIR might also provide expertise to a portfolio company of a venture capital

firm.2 The entrepreneur may later become part of the portfolio company as a

full-time executive if both feel there is a good match.

Multinationals and even governments have EIR programs. The Mayor’s Office

of San Francisco runs its own program “to explore ways [to] use technology

to make government more accountable, efficient and responsive.”3 Some busi-

ness schools are starting to carry out EIR programs as well. With the goal

of inviting seasoned entrepreneurs to work with their startups, universities

can borrow from the playbook of corporate R&D. The main benefit consists

of bringing entrepreneurial know-how directly into the university to address

specific startup challenges. As you have seen repeatedly in this book, direct

access to seasoned entrepreneurs can be a major asset for startups. The

impact from working hand in hand with an experienced founder trumps any

workshop or entrepreneurship lecture.

At a university, an EIR program could have several modules, each with a different

entrepreneur (see Figure 20-1). Every founder has their own approach and

experience, so a rotation brings many facets of startup entrepreneurship to

light. Each module could last between four weeks and several months, depend-

ing on the university’s resources.

Entrepreneur-in-Residence (EIR) Program

EIR moduleEIR module EIR module

Figure 20-1. EIR program with modules

1Alexander Haislip, Essentials of Venture Capital (Hoboken, NJ: Wiley, 2011).

2Stefan Lindegaard, The Open Innovation Revolution: Essentials, Roadblocks, and Leadership

Skills (Hoboken, NJ: Wiley, 2010).

3The Mayor’s Office of Civic Innovation, Office of Mayor Edwin M. Lee, San Francisco

Entrepreneurship in Residence, http://entrepreneur.sfgov.org.

University Startups and Spin-Offs 189

Let’s say there are three modules per year, and during each one a different

entrepreneur comes in to work with startup teams. The EIR brainstorms

with the teams, looks at their available assets, and tries new applications and

combinations. The EIR works with all teams and thus serves as a connec-

tor and catalyst between diverse ideas and markets. When external parties

visit the university for networking events, the EIR can lead the discussion

about deeper integration of entrepreneurship to unlock synergies between

the existing actions on the university platform.

An EIR program can also be the source of excellent media coverage. The uni-

versity anchors its image not only as a research hub but as a center for applied,

investible innovation, which may be useful when attracting partners from the

business and financial community.

Universities often have an outstanding reputation as research institutes with

dormant potential in entrepreneurship and startup success. When they

proclaim that they would like to adopt entrepreneurship earlier in their

curriculum, they can follow through by jump-starting the process with an EIR

program. An initial four-week module could launch as a pilot program. This

pilot serves as the guide for later modules featuring successful entrepreneurs

from around the world. The risk and cost for the university are minimal. But the

payoff is massive, especially considering the longer-term value of the program.

Toward the end of a module, the EIR and the startups can present directly to

potential joint venture partners and investors in the university’s city.

Even if a module does not directly result in marketable projects or successfully

funded startups, the relationships and insight gained from the EIR program will

benefit the university and its students and researchers. They learn firsthand

how to present projects, assess them, and launch them in the market.

Demo Days

Many ideas from Silicon Valley can be useful for startup programs at universi-

ties. Demo days are just one of them. The seed accelerator Y Combinator

holds two demo days per year.4 Each startup has seven minutes to make a

short presentation. One week before the important day, there is a rehearsal

day when startups can fine-tune their pitches.5

The demo day is a platform where startup founders can present their product

and business model to venture capital firms that may wish to take them to

the next step with an investment. Demo days take place at incubators and

accelerators around the world. Why shouldn’t universities also hold demo

days with their startups?

4Y Combinator, Demo Day, www.ycombinator.com/demoday.

5Jessica Livingston, Founders at Work: Stories of Startups’ Early Days (Berkeley, CA: Apress, 2007).

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Some universities insist that they already have demo days. On closer

inspection, those turn out to be little more than relatively passive showcases

of non-investible ideas to a small group of government officials, industry

representatives, or venture capitalists. Some university showcases I have seen

consisted of a room full of tables with research props on them: here was a

3D-printed dish, there a block of cement, and so on. Some of the unmanned

tables featured tablets with videos about the technology and interviews with

the researchers. This may be OK for presentations of student work on the

degree level, but it is a far cry from a serious startup demo day. Without

professional organization, such events will disappoint. This will confirm the

notion that entrepreneurship is like a lottery: very difficult and better left to

others. The staff who organized the showcase will make a mental note that a

university is not a venture capital firm and go back to business as usual.

As you saw in the examples of platform thinking in Chapter 19, putting startup

teams in front of decision-makers and seeing what happens does hardly cut

it. If startups want to succeed, they need to get their act together and engage

others with attractive value propositions and actionable next steps. Just as on

a demo day at Y Combinator, pitches must be short and to the point. They

should follow the 10/20/30 format and should avoid beaming technology fea-

tures at the audience. As the saying goes, when you need friends, it’s too late

to make them. A demo day that a university puts together out of thin air will

never attract critical mass and will fail to interest the real decision-makers.

Startups and universities must be able to draw from a strong entrepreneurial

network that they should have started to build long before.

Silicon Valley accelerators hold invitation-only demo days as a first opportu-

nity for investors to meet the startups that are part of each intake. These

are full-day events that begin with a breakfast buffet at the accelerator’s

office. They include a series of short presentations from each of the startups,

brief demonstrations of technology and products, and networking and Q&A

sessions with invited industry and customers.

An incubator’s motivation for putting on a demo day is to expose its teams

to the market and give them an opportunity to collect feedback, network, and

engage third parties with actionable next steps. If there is a commitment to

invest in a project, great; but even without it, the demo day itself is a valuable

field test of ideas.

Because accelerators have excellent connections with industry and investors,

the demo days are brimming with energy and are usually highlights for entre-

preneurs and attendees. It is less about putting a monetary value on each

demo day than strengthening the foundation of the startups and the network

for future events. The accelerator made powerful friends from other venture

capital, industry, and finance firms before it ever needed them, and now it can

hand-pick the ones it deems worthwhile to attend the demo day.

University Startups and Spin-Offs 191

In the context of a university, such events can engage research teams with

the business and financial community and serve as a fact-finding mission for

business-model generation. Because demo days include all of a university’s

startups along with university staff not directly involved in entrepreneurship,

they strengthen entrepreneurial idea exchange within the faculty. By inviting

potential industrial users of technology developed at the university and poten-

tial joint venture partners, startup teams gather feedback on products, their

application in the marketplace, and future partnerships. This enables students

and researchers to leave the building and collect real-world data about the

viability of their products. The focus is on inclusive listening to feedback and

opinions, instead of beaming scientific facts at an audience. Such a practice

speeds up the feedback loop to validate business models for technology devel-

oped at the university. It also teaches startup entrepreneurs what it takes to

make a good impression and enables them to see how others are approaching

the same problems they deal with.

To hold a successful demo day, a university needs to have something interest-

ing to demo and relationships with influential partners to demo to. Research

projects that are not actionable for partners and investors may be interest-

ing to see but miss the purpose of a demo day. It only makes sense to invite

potential joint venture partners and investors when startups have evolved

along the path of MVP testing. They should have several business model can-

vases that give a clear idea about their direction, product, and position in the

market. Their financial model should enable discussion with potential inves-

tors. And startups need to have developed a clear idea of what they want

from potential partners and investors. One-page proposals should exist at

least in their minds, if not on paper, so they are ready on demand.

Contacts made at demo days provide superb opportunities for startup teams

to follow up. If entrepreneurs identify potential clients or joint venture part-

ners, they can now approach them for meetings to move the startup along

its trajectory.

Employing simple tools used in entrepreneurship hubs can give universities

an edge with their startup initiatives. Knowing how demo days work puts

a university on equal footing with top universities worldwide and improves

its chances to establish long-term collaborations with industry and investors.

Careful longer-term planning is necessary, as is the case for all initiatives with

platform thinking. The sooner universities get started, the better.

Integrating Intergovernmental Organizations

Intergovernmental organizations (IGOs) are global organizations made up of

member states. They are created by treaty or charter but are not treaties

themselves. The North-American Free Trade Agreement (NAFTA) is not an

organization, but the World Trade Organization (WTO) is. So are the United

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Nations (UN), the International Monetary Fund (IMF), the World Bank, the

Asian Development Bank (ADB), and many more.

IGOs typically have a clearly defined mission. The United Nations, for example,

has the following missions: “To preserve international peace and security, to

develop friendly relations among nations to achieve international co-operation

in solving international problems of an economic, social, cultural, or humani-

tarian character, and to be a center for harmonizing the actions of nations

to reach these common ends.”6 As another example, the Asian Development

Bank has an important mandate: to end extreme poverty in Asia and Pacific.7

Various publications and diligent research map out strategies for reaching that

goal. One example is the ADB’s Strategy 2020, which postulates that mem-

ber countries should focus on critical strategic agendas of inclusive economic

growth, environmental sustainability, and regional integration.8

To make a long story short, many organizations exist with massive funds that

could help university startups. Some universities in Asia meet with the ADB

to look into joint projects, but IGOs are still sleeping giants. That is a pity,

because much university research aims at solving exactly the problems that

many of these organizations have on their agendas: environmentally sustainable

growth, decreasing greenhouse gas emissions, better urban planning, sustain-

able transport, and many more. Few students and researchers know that the

ADB has a Sustainable Transport Initiative (STI) with an allocation of 25% of the

bank’s annual lending (about $10 billion in 2012).9 The STI aims at private sec-

tor development and operations, capacity development, knowledge solutions,

partnerships, and more.10 Many other programs exist, focusing on water safety

and renewable energy. What does this mean for university startups? If their

products address the issues mentioned in these initiatives, they have a direct

link to IGOs, which may turn out to be powerful partners for startups.

Universities usually approach IGOs with funding requests for individual

research projects. A typical request for funding is around $250,000. This may

seem like a lot of money, but it pales compared to the billions of dollars of

an IGO’s annual budget. Therefore, the economic scale and momentum they

could bring to startups lie dormant. To change that, universities could try a

6The United Nations, Charter of the United Nations, www.un.org/en/documents/

charter.

7Asian Development Bank, Overview, www.adb.org/about/overview.

8Asian Development Bank, Strategy 2020: Working for an Asia and Pacific Free of Poverty

(Manila: ADB, 2008), www.adb.org/sites/default/files/Strategy2020-print.pdf.

9Asian Development Bank, Financial Profile 2012 (Manila: ADB, 2012), www.adb.org/sites/

default/files/adb-financial-profile-2012.pdf.

10Asian Development Bank, Sustainable Transport Initiative Operational Plan (Manila: ADB, 2010),

www.adb.org/documents/sustainable-transport-initiative-operational-plan.

University Startups and Spin-Offs 193

new strategy when approaching these organizations. Why not bundle several

startups together and make them investible as a new project for an IGO?

How about becoming an implementation partner (not a research partner)

for an IGO and addressing issues they aim to solve with solutions built with

technology from the university?

Suppose a university has five startups working on biodegradable battery

technology, prediction of seismic activity, robotic manufacturing, an electric

scooter, and a biodegradable glue useful for construction sites. Could they

align with the ADB’s Strategy 2020 or Sustainable Transport Initiative? I believe

so. The university would have to present this idea and find out.

Instead of approaching IGOs with a request for funding alone, startups can use

them as a springboard to finalize their product, gain extra information about

potential markets, and engage the organization for the next steps. IGOs work

on the intersection of many different industries and finance, and they see various

projects every day. They may be able to set powerful network effects in motion.

What about private investors they work with? What about tenders for which

startups could put in offers, perhaps together with joint venture partners?

Platform thinking goes a long way. Channeling the energy created on university

platforms into startups should become a habit. Once it is part of everyday

business, an entrepreneurial ecosystem will grow. As long as startups have

a clear roadmap and can keep potential partners interested with good value

propositions, this ecosystem will be their launch pad.

Presentations for Investors, Funds, and Banks

I have discussed building bridges to the market by engaging companies in joint

ventures with startups. In the example of an investor visit, I talked about turn-

ing an event for a university sponsor into a great learning and networking

experience for startups. What I address here involves actively reaching out to

the financial sector. Except for business schools, universities rarely do this at

the current time. Private equity funds, hedge funds, venture capital firms, invest-

ment banks, sovereign wealth funds, and all the other players in finance have a

dubious connotation for many academics. Since the financial crisis of 2007/8,

the popular press has done its best to slander the sector with stories about

fraud, excess, and ruthless behavior. A famous example is one popular writer

branding the American investment bank Goldman Sachs as “Vampire Squid.”11

This may have hit a nerve with universities, which are by nature risk-averse.

Reputation risk is the last thing a university wants to burden itself with.

11Matt Taibbi, “The Vampire Squid Strikes Again: The Mega Banks' Most Devious Scam Yet,”

Rolling Stone; February 12, 2014, www.rollingstone.com/politics/news/the-vampire-

squid-strikes-again-the-mega-banks-most-devious-scam-yet-20140212.

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The lack of a connection between universities and the financial sector is

unfortunate. Various smart academics work in finance, and a wealth of mar-

ket knowledge could flow back to universities if they began engaging those

individuals. Just like inviting potential joint venture partners and investors to

a demo day, wealthy individuals and their advisors can be an excellent addi-

tion to a university’s network. Ultra-high-net-worth individuals (UHNWIs)

are generally curious about research and science and often support projects

without an immediate financial return. They are strong allies to raise uncon-

ventional financing even for slightly crazy endeavors such asteroid mining12

and private space travel.13

Some universities are in ideal positions at the intersection of research, public

policy, and finance. Singapore, for example, is a melting pot of the world’s wealthi-

est people. Yet there exists a gulf between many of Singapore’s universities and

the bustling financial sector of the city state. Nonetheless, finance professionals

and wealthy individuals are open to learning about what is going on at universi-

ties. Knowledge is power, and UHNWIs very much want to have an edge over

the next guy. Their curiosity could be the spark to ignite their engagement in

a university’s startup track. They could be ideal candidates to ask for feedback

about products and business models. Not only do they bring financial firepower

to the table, but their experiences and networks are also attractive for startups.

With clearer deliverables for investible, validated startups, universities can take

a leadership role in bridging the gap with the financial community.

Whenever I bring this up with startup teams, they say they will get financial

connections later, when they need funding. However, that misses the point

entirely. Entrepreneurs should have a robust network before they ever need

anything. They can engage the financial community today as a sounding board

for their business and financial model and collect feedback from them along the

way. When the entrepreneurs need funding down the road, they can approach

those members of the financial community as existing contacts. Asking for an

introduction to a venture capital firm will be easier then.

Few people have a deca-millionaire in their group of friends, let alone a billion-

aire. When they finally meet one, they are surprised how normal and likable

that person is. Of course they are (most of them); how else could they have

interested enough people to buy their products or services, which made them

rich in the first place?

But what about the evil private equity funds, the vampire squids, the arro-

gant hedge-fund managers, and the insensitive venture capitalists? Surely you

don’t want to deal with them? Granted, there may be unpleasant characters at

certain financial outfits. Some of them, usually lower-level employees, can be

12Planetary Resources, www.planetaryresources.com.

13Virgin Galactic, www.virgingalactic.com.

University Startups and Spin-Offs 195

summed up as having “one inch of power”: this means they have climbed the

ladder just high enough to have an inflated ego. This is hardly who you want to

do business with. As soon as you get higher up the chain of command at funds

and financial institutions, things get interesting. Believe it or not, getting to the

top in finance requires entrepreneurial thinking. Decision-makers at funds and

financial institutions feel at ease with other entrepreneurial, unconventional

types. Many of their investments are bets on special situations, unexpected

economic developments, market shifts, and geopolitical changes that influence

the product line of startups. They can contribute considerable pragmatic

advice to startup teams and their evolution.

Stop thinking about an investment fund as a casino, and see it as an entre-

preneurial think tank. Stop thinking about wealthy individuals as people who

deprived someone else of their fair share, and view them as hard-working folks

who once were and still may be entrepreneurs. UHNWIs live a life of very few

constraints. That opens up the mind. Stop thinking in terms of entitlement—it

is not the duty of wealthy people to give you money. Assume responsibility for

all your actions, because nobody owes you anything. The sooner you adopt

this mindset, the better. A new world will open up to you. A startup may be

the vehicle that will shift your thinking in this direction.

By now, you may have noticed that all these platform initiatives involve the

same deliverables: creating benefit-centered, investible startups; validating

hypotheses about products and the market; adapting communications to be

more inclusive for non-academics; and engaging third parties with actionable

next steps. All of these should be at the top of the agenda for universities

and their startups. You may have also noticed that these initiatives require

the same effort on the part of the university and the startup: keeping an

open mind, engaging third parties early, asking them for feedback about your

products and processes, and including them in your entrepreneurial network.

Once universities have adopted platform thinking as a whole, many startup

initiatives can launch with little extra effort, because they build on each other.

The key is to take the first step and look for leverage. After you have carried

out the first platform project, the next one will be much easier. With platform

projects, your university has the opportunity to transform itself. It just has not

tried hard enough yet.

An Investment Fund as the Master Platform

A final idea is creating a university-led investment fund. I know, red flags go

up immediately. The university is no investment bank, and certainly it is not a

hedge fund. It does not have any interest in short-term gains; only long-term

scientific excellence matters. I have heard all these objections before. I under-

stand them and agree with them. However, they largely stem from misunder-

standing the intentions behind the recommendations in this part of the book.

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If you take these ideas out of context, I admit that some of them may sound

strange. It is the underlying logic that makes the difference. Universities should

keep an open mind and look for unorthodox ways to build and strengthen

their entrepreneurial platform. They should reach out to as many companies

as possible to enable entrepreneurial knowledge transfer back to the university.

Invariably, this includes some unconventional ideas. If you can be enterprising

and receptive, you will make the most of this book.

Ideas about finance are sometimes difficult to understand and often down-

right scary for those outside the financial sector. Besides, embracing capitalism

is rarely a strong point of academics. Whatever your personal convictions,

nobody asks you to convert to capitalism. This is about launching projects to

engage third parties for the good of a university’s startup program. Financial

institutions are such third parties. So are UHNWIs, insurance companies, and

IGOs such as the World Bank and the Asian Development Bank. If interaction

with those financial stakeholders makes sense, then an investment fund could

be the master vehicle to unify all the platform projects described in this chapter.

Let’s examine how universities can do this.

A team around Professor Andrew Lo of MIT popularized the idea of a mega

fund to commercialize research. They published a paper in Nature Biotechnology

that suggested pooling several biomedical research projects aimed at healing

cancer into a multibillion-dollar investment fund.14 Without going into too

much detail, the following paragraph describes how this works.

The risk of investing in an individual biomedical research project is high. The

entire investment can be lost. But if the project proves to be successful, its

payoff is enormous, perhaps 100 times the investment or more. A diversified

stock portfolio invested in several stocks is less risky than investing all your

money in one stock. With the same logic, building a mega fund that invests in

several biomedical research projects is safer than one large investment in an

individual project. With relatively simple financial engineering, Lo showed that

a mega fund could achieve returns of 5% or more with relatively low risk. The

individual projects did not change, just the way the fund structured them and

made them investible.

This approach has the power to attract a large group of institutional and

private investors who would never dream of investing in individual drug-

discovery projects. However, because the fund diversifies away much of the

risk, they may be open to investing in a mega fund if it existed. Put another

way, such a fund is comparable to investments they already know and invest in

14Jose-Maria Fernandez, Roger M. Steinl and Andrew W. Lo, “Commercializing Biomedical

Research through Securitization Techniques,” Nature Biotechnology 30, no. 10 (2012).

University Startups and Spin-Offs 197

with good results. With this reasoning, an ocean of new capital would become

available to finance biomedical research, and the extra capital could speed up

discovery of new drugs.

This sounds intriguing. The same approach could work for research projects

and university startups in general. However, most universities oppose ideas

along those lines. Financial engineering is anathema for many academics and

public servants. Yet private and institutional investors are allocating billions of

dollars to comparable investments and often struggle to find a market deep

enough to absorb all the liquidity available. Market demand from financial inves-

tors exists. With relatively low risk, a university could take the lead and spear-

head the first investment fund made up of research projects and promising

startups.

Of course, this would not be a slush fund to finance university overhead. It

would not be “free money” like the government funding and donations that

many universities receive now. Nevertheless, it would compare to a venture

capital investment in exchange for equity or debt in a startup. In this light, it

becomes obvious that little would change for the startups and the university.

The upside is the fact that they would have a source of funding available from

inside the university. Other than purely monetary benefits, the fund would

serve as a master platform with network effects for all parties. As an inter-

disciplinary vehicle, it would occupy a position at the intersection of science,

international business, and finance. Because it would be a market-oriented

investment fund (not a think tank), interactions and communications on this

platform would have urgency and would need to be action-oriented. This

would break the habit of endless deliberation before making moves in the real

world. An investment fund could be rocket fuel for university startups.

Example: Venture Capital vs. Mega Fund

Suppose a university has the five startups mentioned earlier. Their areas of

expertise are biodegradable batteries, prediction of seismic activity, robotic

manufacturing, an electric scooter, and a glue for construction. Assume that

these startups have progressed through their MVP testing and launched a first

product in the market with good feedback. Each startup has landed a joint

venture partner that holds 51% of the venture; 44% is held by the research

team and 5% by the university. The joint venture partner covers all overhead

of the startup, so there is no immediate need to raise capital to make ends

meet. The joint ventures have validated their products and are now refining

production to cut costs. Several venture capital firms have approached each

startup, offering $1 million to buy a 20% stake in the company (each company

is valued at $5 million). Let’s see what happens if the startups take that offer.

The capitalization table of the startup changes as shown in Table 20-1.

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As you learned previously, venture capital looks great on paper, but it comes

with strings attached. The relationship is a tradeoff. The startup receives cash

and access to the resources and know-how of the VC firm. But it also has

to consider the corporate interests of the new investor, which may conflict

with those of the startup and the university when they have to meet certain

milestones. VCs can and do veto startup team decisions. They invest other

people’s money, so they have to answer to their shareholders. These may

complain if returns from the investment in this particular joint venture fall

short of expectations. And that is where the trouble starts.

A venture capitalist is a bit like a rich uncle who funds your college tuition, only

to feel entitled later to meddle in every decision of your life. When startups

need funds, venture capital may be grand. However, if a startup has another

source of funding available, that may be even better. Who or what could this

other source be? No bank will invest a million dollars in a company with little

or no revenue, regardless of its joint venture partner. But if you had 100 com-

panies, the story might be different. Just as with the mega fund, investing in many

diverse assets is less risky than investing a large sum in a single asset. If univer-

sities structured their startup companies this way, the investment risk would

decrease, and they might gain access to additional sources to raise capital.

In Table 20-1, you see that an investment in a company is a straightforward

transaction. Where the investment comes from has no impact on the transac-

tion. I said it before: investment in a startup is not a question of money alone.

If a venture capital firm supports a startup with positive synergies, it can add a

lot. But if it begins pushing the startup in a direction the entrepreneurs dislike,

then other sources of capital would have been a better choice.

Table 20-1. Capitalization Before and After Investment

Before Investment After Investment

University 5.0% 4.0%

Research team 44.0% 35.2%

Joint venture partner 51.0% 40.8%

Venture capital firm - 20.0%

100.0% 100.0%

University Startups and Spin-Offs 199

Impact Investment

Before I discuss how to put together such a fund, let’s first look at a recent trend

in finance called impact investment.15 (This differs from the slightly more settled

socially responsible investment [SRI], which seeks to minimize negative effects

rather than proactively create positive social change or environmental impact.)

Investors forgo a small portion of returns to ensure that the projects they invest

in make a difference. They should have a positive social impact or must be good

for the environment. An example may be micro loans made by a bank in a

developing country, which could raise $100 million from impact investors. The

loan fund is rated by a renowned rating agency and syndicated on commercial

terms among institutional investors, such as pension funds, in Europe and the

United States. This investment yields financial returns and has a positive impact

on society by making micro loans available for entrepreneurs in a developing

country. However, impact investments also make sense in the developed world.

For example, they may focus on sustainable energy or social causes.

Such investments produce an acceptable return, but it may be slightly lower

than that of a conventional financial product like a corporate bond. Other

popular applications of impact investing are clean technology, public health,

job creation, community development, and more. J.P. Morgan predicts that the

impact investing market has the potential to reach $1 trillion of invested capi-

tal by 2020, with profits of up to $667 billion.16 This is not a blip on the radar,

but a trend on the horizon.

Let’s go back to our five university startups. Would investments in these start-

ups qualify as impact investments? Possibly, if they are businesses with the

intent of making a positive social or environmental impact. The emphasis is on

business, meaning a startup cannot simply be a PhD project with no other goal

than the PhD getting tenure at a university. These must be serious companies

with proven market demand for their products. It must be credible that they

will earn revenues sometime in the future. And their teams must have the

motivation to go the distance.

To clarify, imagine the following fictitious example. The electric scooter startup

has devised a socially responsible business model. Factories of a joint venture

partner located in rural communities in a developing country produce the

scooters from recycled material. The scooters sell for a high price in devel-

oped countries. This allows the company to pay employees a higher wage

and offer free education and entrepreneurship workshops for their families.

15Jessica Freireich and Katherine Fulton, “Investing for Social & Environmental Impact,”

Monitor Institute (2009), http://monitorinstitute.com/downloads/what-we-think/

impact-investing/Impact_Investing.pdf.

16J.P. Morgan Global Research, Impact Investments: An Emerging Asset Class (2010),

www.jpmorgan.com/directdoc/impact_investments_nov2010.pdf.

Chapter 20 | More Platform Projects

200

The Asian Development Bank has decided the startup is in line with its Strategy

2020, aimed at reducing poverty in Asia.17 It has therefore invested on generous

terms that allow the startup to build several schools in the community. To

open factories in additional communities, the startup is now raising more

capital from impact investors. Because it makes a positive impact in the com-

munities and is a force for social change, it qualifies as an impact investment.

When you get into the complexity associated with platform thinking, it should

be clear that it makes sense only for serious, honest efforts of dedicated,

motivated entrepreneurs. When startups have gone through the process

of lean development and have identified strong demand for their product,

they have taken the first step. As soon as they have attracted a joint venture

partner with a mutually beneficial value proposition, they are one step further.

Once they have revenue and a credible growth strategy, they are respectable

businesses that could qualify as an investment by a fund.

Benefits of an Investment Fund

Within this investment fund, all the platform projects described in this chapter

come together. The entrepreneur-in-residence program now takes place on the

level of the fund. An EIR works with portfolio companies and is in contact with

interesting stakeholders on the fund platform. Demo days showcase not only

individual startups, but also portfolio companies and their potential projects, to

attract new investors to the fund. IGOs may also take part on a larger scale; an

impact investment fund is a more promising vehicle for them than an individual

small project. And finally, the discussion with the financial sector takes place on

equal footing. The financial community is no longer a donor but an investor.

This new model of knowledge exchange and interaction has many benefits:

Action-oriented knowledge exchange with SMEs and •

multinational corporations

Action-oriented knowledge exchange with large organi-•

zations such as IGOs, governments, NGOs, and industry

organizations

Better chance for startups to enter into equal joint •

ventures with companies

Potential access to investment capital, if startups and •

spin-offs pass due diligence

Being part of a bold initiative to enable research to make •

a bigger measurable impact

17Asian Development Bank, Strategy 2020.

University Startups and Spin-Offs 201

This fund would be the ideal master platform for a university to fully engage all

available synergies. It could effectively channel energy into launching startups.

When this happens, those startups have the power to reach escape velocity

much faster.

In theory, this approach holds much promise for university startups. My

personal discussions with investment bankers and private equity firms have

shown that interest from the financial sector exists for such an instrument.

Given that sustainable investment and impact investment are growing in impor-

tance each year, many university startups align with the goals of investors once

they achieve traction in the market. These are all favorable developments that

make the case that such a fund could take off.

However, in reality, setting up a fund in the current university structure would

not be a cakewalk. Universities are unprepared to deal with investment capital,

because they are not-for-profit entities, funded by the government. As with all

entrepreneurship initiatives, many incumbents at the university would fear the

changes that these new ideas bring to their doorstep. The terms “structured

finance” and “financial engineering” scare and upset them, and they have no

interest in working with private equity firms and investment bankers. There

would be major debates about the principles necessary before a new entity

within the university could start setting up the fund. The university would

have to hire financial staff to put together the fund and manage its assets.

Questions about liability and reputation risk would need answers. All this

takes patience and time.

Of course, no university wants to be the first to launch a fund with the risk of

a total loss for all investors a few years down the road. But when somebody

cracks these issues and launches the first successful research-backed invest-

ment fund, it will open the door for universities to follow. They will be able

to access large new sources of financing that infuse their startups with rocket

fuel. Network effects will kick in. Students and researchers will realize early

in their university career that a startup is an alternative. They will see that it

is possible because many before them have launched startups that made an

impact in the real world. Young founders will tap into the new entrepreneurial

ecosystem of their university, their startup alumni networks, mentors, and

platform projects. It will be a brave new world for startup entrepreneurship.

Until that happens, much work is necessary.

There is a silver lining on the horizon, and universities have started to take

the first steps. I wish them the courage to keep going and to realize their own

entrepreneurial ambitions and those of their students and researchers.

Additional

Considerations

The following articles and resources are related to startup entrepreneurship

but go beyond the practical steps presented in this book so far. Sometimes

a single sentence can bring about the solution to a specific problem you are

wrestling with. Who knows? Perhaps you’ll find this sentence somewhere in

this appendix.

How Your Startup Could Make a Billion

Dollars

Most entrepreneurs say money is not a motivation for them. I believe this is

true. Financial reward alone is insufficient to instill in you the entrepreneurial

fire that will push you forward in rough times. A paycheck will motivate you

enough to complete a certain task and then leave the office at five o’clock,

but you will rarely compete on a global scale this way. At the same time,

it would be nice if your entrepreneurial efforts paid off as well. If you have

been working 100-hour weeks for several years without much to show for

it, you will undoubtedly ask yourself if this is worth doing. If you have a PhD,

you will wonder whether your friends who took cushy jobs at a university

or consultancy made the better choice. In such cases, you may briefly think

of other entrepreneurs for whom such toil paid off handsomely. The prime

APPENDIX

Appendix A | Additional Considerations

204

example is Mark Zuckerberg, who is now worth about $28 billion.1 Many

others exist, and not only in the tech space. How did they get there? Which

forces did they leverage to attract such massive wealth? Here is an attempt

at an explanation.

Overcome Social Norms

Mark Zuckerberg earned about $3 billion on average each year over the last

ten years. Is this possible by playing nice, obeying all the rules, and making

many friends along the way? Author Martin Fridson finds that the two primary

obstacles to amassing a billion-dollar fortune are the menace of competition

and the obstacle of social conventions. To enter the billion-dollar club, entre-

preneurs must overcome market forces and conventional wisdom. Walmart

founder Sam Walton violated the age-old convention of cordial relationships

with sellers. He went around the wholesalers and bought directly from manu-

facturers. Not only this, but Walton publicly stated that he stole all his good

ideas from competitors. He broke the social norms expected of a business

person, and Walmart pulled away from the pack.2

Social conventions come in many forms. They often brand becoming wealthy

as a crime. Ask anyone if they believe it is ethical to travel by private jet. They

may consider this snobbish and wasteful, which is the expected answer that

most people are comfortable with. But will being compatible with the major-

ity help you if your goal is a billion-dollar company? You will never be able to

attract this kind of money with conventional wisdom. This is by no means a

value judgment about people’s personal opinions, just a simple statement of

the mindset needed to earn a massive fortune.

Do Something Old, and Do It Better

Many startup entrepreneurs think they have to do something no one else

has ever done before. They believe that success comes down to creating an

entirely new product that serves a new market. Coming up with a disruptive

invention may be one path to a billion-dollar company. But Twitter founder

Evan Williams disagrees. He believes that success comes down to fulfilling

age-old needs, but in a better way. In a speech, he mentioned the example

1Forbes, The World’s Billionaires: Mark Zuckerberg Profile, www.forbes.com/profile/

mark-zuckerberg.

2Martin S. Fridson, How to Be a Billionaire: Proven Strategies from the Titans of Wealth

(New York: Wiley, 2009).

University Startups and Spin-Offs 205

of car-sharing service Uber, which is valued at $18 billion at the time of this

writing.3 The need to get from A to B is by no means original, yet the popular

app manages to connect passengers and drivers more effectively. Compared

to hailing a cab the old-fashioned way, Uber took out several steps in the

process and streamlined the experience. In Williams’ view, the Internet is just

a machine that gives people what they want. Instead of a utopian world, it is

simply a tool to do old things in a better way.4

Create Frictionless Markets

Software, technology, and automation have removed much friction from

processes that were previously cumbersome. Authors Eric Brynjolffson and

Andrew McAfee find that the most radical progress in robotics and 3D print-

ing happened in the last few years, after a frustratingly long period of slow

development. The advances are opening the door to near-frictionless markets

in various applications that were previously safe from automation. The authors

point toward middle-class jobs like medical diagnostics and low-skilled manual

labor like picking fruit, which computers and robots could soon automate

away.5 Technology reduces inefficiencies and cost, and increases transparency.

The same goes for the rapid digitization that is taking place today. Sharing digi-

tal files is much easier than distributing physical product. This happens online,

where file sharing disrupted the music industry to the core. The communi-

cation industry also took a hit: worldwide video conferencing is now freely

available to anyone through Skype. When technology takes over, network

effects kick in, and change speeds up even more. This allows the newly emerg-

ing frictionless market to produce more profits than the market it replaced

(see Figure A-1).

3Andrew Ross Sorkin, “Why Uber Might Well Be Worth $18 Billion,” New York Times

Dealbook, June 9, 2014, http://dealbook.nytimes.com/2014/06/09/how-uber-pulls-

in-billions-all-via-iphone.

4Ryan Tate, “Twitter Founder Reveals Secret Formula for Getting Rich Online,” Wired,

September 30, 2013, www.wired.com/2013/09/ev-williams-xoxo.

5Eric Brynjolffson and Andrew McAfee, The Second Machine Age: Work, Progress, and

Prosperity in a Time of Brilliant Technologies (New York: W. W. Norton & Company, 2014).

Appendix A | Additional Considerations

206

If your company replaces established processes with new technology, it could

potentially earn billion-dollar revenues. Timing is obviously crucial, because

the old market may be too powerful to suppress the new technology, or

people may be unwilling to give up their established habits. The technology

may also still be on the flat part of the curve, not yet ready to deliver the

promised gains in efficiency. But when you hit the right entry point to launch

a disruptive product in the market just where the exponential curve takes off,

then chances are high you will succeed. Hitting this ideal entry point is prob-

ably more an art than a science, and it is easy to spot in hindsight.

Ride the Market Expansion in a Subsector

Addressing an existing market and riding its current growth rate has a small

chance of making you a billion dollars over night. It may allow your company

to become profitable over a long period of time. But unconventional returns

require massive leverage. Author and venture capitalist Damir Perge reminds

us that in certain subsectors of an existing market, the rate of change is much

higher than in the main market. Just like in frictionless markets, if you catch the

right entry point, your company can surf a large expansion of that subsector,

which happens very quickly.

Compare the social media sector with the mobile social media sector, which

has witnessed an explosion in the past two years. Social media grew rap-

idly, but the newly emerging subsector grew much faster.6 An example is the

mobile social messaging app WhatsApp, which Facebook bought in 2012 for

$19 billion in cash and stock.7

Profit

Frictionless

market

Inefficient

market

Optimal entry point

Figure A-1. Higher profits in technology-enabled frictionless markets

6Damir Perge, “Build a Billion Dollar Startup Almost Overnight,” video series, entrepreneurdex,

July 25, 2013, www.entrepreneurdex.com/video/how-to-build-a-billion-dollar-

startup-almost-overnight-pt-1.

7Facebook, “Facebook to Acquire WhatsApp,” Facebook Newsroom, February 19, 2014,

http://newsroom.fb.com/news/2014/02/facebook-to-acquire-whatsapp.

University Startups and Spin-Offs 207

Tesla Motors is another example. After becoming an innovator in the hybrid

automobile sector, a subsector of the automobile industry, the company went

public and now has a market cap of close to $30 billion (Q3, 2014).8 Riding the

market expansion in a subsector looks something like Figure A-2.

Main sector

Profit

SubsectorProfit in main sector

Profit in subsector

Figure A-2. Comparison of profit in the main sector and a subsector

If your product exists in an established market but serves a newly emerging

subcategory of the existing base of customers, then explosive growth is pos-

sible. This is incredibly hard to engineer and plan but always easy to explain in

retrospect. One thing is certain, though: if you find out your product serves a

declining established market, then the chance for explosive growth is small.

Take Advantage of Disruption

A common case of market disruption takes place when governments privatize

certain sectors. After the Cold War, the energy industry in Russia under-

went rapid privatization, in the process minting many billionaires. Legitimate

or not, the privatization process explains how immense wealth can flow to a

single person. Whenever a legacy market becomes stale and inefficient, after

a sustained decline in profitability, new players come in through deregulation

or privatization. These new players introduce free-market thinking into the

former state-owned enterprise and bring it back up to speed. The follow-

ing recovery of the market is profitable. Market A in Figure A-3 serves as an

example.

8Yahoo Finance, “Tesla Motors, Inc. (TSLA)”, http://finance.yahoo.com/q?s=TSLA.

Appendix A | Additional Considerations

208

A crash is another example of market disruption (market B in Figure A-3).

Prominent market crashes occurred at the beginning of the Great Depression

in 1929, the Asian financial crisis in 1997, and the global financial crisis in

2007/8. In a market crash, a fire sale of distressed assets takes place. Newly

available assets often look unattractive at first sight, because they are run-

down, deep in debt, or otherwise considered worthless. However, what could

be easier than buying an asset that nobody wants, and later selling it when

everybody is clamoring for it? Not every disruption scheme ends in billion-

dollar success. But it is a mechanism that has enough leverage to enable it.

Anyone with sufficient courage and liquid funds can potentially buy low and

sell high when a market crash occurs. If they pick the right assets and play it

smart, they make headlines and the Forbes list a few years later.

Launching a startup in times of crisis is a good strategy. If the venture is agile,

it can take advantage of market disruption and inexpensive assets in the crash.

While everybody else is scrambling to keep their existing operations running,

startup entrepreneurs can build theirs from the ground up. They can incorpo-

rate lean principles and low overhead into the company from day one. When

the economy inevitably picks up again, they are in an ideal position to reap the

rewards with high profit margins.

These concepts explain only a few of the mechanics that underlie billionaire

wealth. It is obvious that becoming a billionaire is no small feat. These exam-

ples make it apparent that there is much more to it than working hard and

paying your dues. Most of all, achieving massive success forces you to become

an extreme individual. A group thinker has never achieved great wealth. Nor

has someone too concerned with what others think about them. Making up

your mind to become successful and super-rich subordinates all else. Whether

this is advisable is another question. It requires intense focus that dominates

your entire life. This will inevitably alienate some of your old friends, and it will

make you a target for envy and ridicule—until, of course, you have achieved

your goal.

Market B

Profit

Market A Recovery

Figure A-3. Disruptions of a market

University Startups and Spin-Offs 209

Where Does Entrepreneurial Success

Come From?

What primes startups for success is a matter of heated debate. There is obvi-

ously no sure-fire recipe, no ten-step plan that makes a fledgling venture the

next Google. Here are some thoughts about what may cause a startup to

gravitate toward success or failure. This may be helpful for entrepreneurs,

universities, and investors alike.

On their journey, successful entrepreneurs need three main ingredients as

fuel in their tank: a wild idea, bold execution, and persistence. These three

ingredients combined make or break the project. By a wild idea, I mean a

slightly controversial hypothesis. If the idea is so mainstream that everyone

will accept it, then chances are high that someone else is already working on it.

As explained by author Derek Sivers, a brilliant idea with weak execution may

still yield profits, as may a weak idea with strong execution.9 To find a super-

star, all three ingredients have to be of top pedigree. The quality of execution

and persistence are in turn influenced by an entrepreneur’s decisions about

how to approach them. As illustrated in Figure A-4, these decisions can be

good (light gray dots) or bad (black dots), and they influence execution and

persistence.

9Derek Sivers, Anything You Want: 40 Lessons for a New Kind of Entrepreneur (The Domino

Project, 2011).

Persistence

Decisions

Bold

execution

Wild idea

Dec

ecision

Figure A-4. Main ingredients of a startup and forces that influence them

Appendix A | Additional Considerations

210

Once an entrepreneur has an idea, they must transform it into reality. This is

where execution and persistence come in. Startup success often boils down

to why and how founders do something, rather than what they are doing. This

book has addressed the what sufficiently up to this point. Instead of locking

onto the words execution and persistence, let’s examine the forces that influ-

ence them (the how and why).

Success Parameters

Startups move along a so-called J-curve, where we expect a return on invest-

ment down the road after early losses. The pace at which they move along

the x-axis depends on a tug-of-war between the entrepreneurs’ good and

bad decisions (along the large arrows in Figure A-5). As described by author

Jeff Olson, a series of small good decisions, followed up persistently, will

yield good results in the long term, whereas small bad decisions, followed up

persistently, will yield weak results.10

Good decisions

vs. bad decisions

ROIJ-curve

Figure A-5. Impact of decisions on return on investment (ROI)

Every entrepreneur and investor will of course prefer good decisions, which

I believe are a result of the following underlying factors: strong intrinsic moti-

vation, an open mind, and a can-do attitude. What exactly does this mean?

10Jeff Olson, The Slight Edge: Turning Simple Disciplines into Massive Success and Happiness

(Atlanta: Success Books, 2005).

University Startups and Spin-Offs 211

Strong Intrinsic Motivation

In contrast to extrinsic motivation, where external factors like reward and

punishment are the driving forces behind taking action, intrinsic motivation

comes from within a person. It is a burning desire to reach a goal, no matter

what it takes. There is a difference between wanting to succeed and committing

yourself to success. If you have the motivation to achieve a goal, there is no

reason you cannot make it happen. A desire to prove yourself or a competitive

drive for excellence may push you to aim for the gold. Entrepreneurs give

themselves every reason to get up in the morning. The desire to do and

achieve always trumps a feeling of obligation or fear.

An Open Mind

Invariably, a startup will encounter roadblocks. The technology on which the

main idea builds may flounder. There may be legal hassles, or blatant flaws in

the original business model may emerge after you work on your startup for a

while. To admit you were wrong and to change your mind is easier said than

done, because most humans feel they must be consistent with whatever rules

they have set up for themselves. But this is definitely not the case for a suc-

cessful entrepreneur: if the entrepreneur has a change of heart, pivoting will

move the startup forward. Resisting the pivot will set the startup on a negative

trajectory. Keeping an open mind will allow you to look past conventions and

strict rules. You will see what others don’t. If you can only get there with a

pivot, then embrace it despite conventions or prior commitments.

Can-Do Attitude

This is the entrepreneur’s hallmark. Strongly related to keeping an open mind,

the can-do attitude takes it one step further. Suppose an employee has vol-

unteered to do a task over the weekend and shows up on Monday with the

task uncompleted. The excuse is that he really tried but simply could not finish.

This is such a normal event in most organizations that it may not even register.

However, this mindset is incompatible with startups and entrepreneurship.

“No” means “maybe,” and “maybe” means “yes”: that is the way entrepreneurs

approach things. If you have been an employee, then this shift may not come

naturally. You must take full responsibility for all your actions. Henry Ford

knew that “Whether you think you can, or you think you can’t—you’re right.”

You are thinking anyway, so it is better to think you can.

Some of these success factors may seem impractical to you on first sight.

Nevertheless, be aware that entrepreneurs compete with other entrepre-

neurs, not with other employees, and not with other university students or

researchers. The two worlds require different mindsets to succeed.

Appendix A | Additional Considerations

212

Regardless, even if you follow the recommendations for the three success

factors, there are still roadblocks that can prevent success from taking place.

You must avoid those. What puts the brakes on startup success? Financial

desperation, analysis paralysis, and a can’t-do attitude.

Financial Desperation

As you already know, intrinsic motivation always trumps extrinsic motivation.

If you desperately need to earn an income fast, this may be to the disadvantage

of your startup. When you have heavy impending overhead or debt payments,

you should find a high-paying job and follow entrepreneurship on the side. The

same goes for partnering with co-founders: if one of them has money woes,

stay clear. This advice may not sound sensible, but ignoring it has led to trouble

for many founders.

A startup needs considerable goodwill along the way to succeed. There is

of course nothing wrong with following a profitable idea just for the sake of

profit. But if a founder displays money-mindedness as their leading motivation,

this will alienate honest backers and attract people with questionable motives.

Here is a simple rule: only if you would trade places with somebody, ask them

for advice or work with them. Those with money woes will automatically fall

through this screen.

Analysis Paralysis

Especially in academic circles, analysis paralysis runs rampant. Have you already

spent so much time analyzing a situation that you have lost sight of what to

do next? How many more PowerPoint presentations and data visualizations

do you need to convince yourself and take action? Academics often confuse

a startup with a thought experiment. However, entrepreneurship has little to

do with writing an academic paper, where at the end of the process a group of

experts either approvingly nod or reject the idea. Startups are often irrational

endeavors whose fate is decided by volatile market forces, not all-knowing

gatekeepers.

Most worthwhile ideas were at some point rejected by experts. If you must

convince others, then let them be people on the same wavelength as you. If

you lack conviction and feel you must convince yourself to the degree that

it hampers your ability to take action, then check whether you are really on

board with the idea. You may find that you hold doubts about it that prevent

you from moving along. However, if your environment has dragged you into a

negative feedback loop, read the next point.

University Startups and Spin-Offs 213

Can’t-Do Attitude

If you think it cannot be done, then you will prove yourself and your peers

right. This belief may have grown in you over the years. Be aware that it is

hard to thrive as an entrepreneur in an unsupportive environment. Influence

is a subtle process: peers are rarely outright hostile. Slight criticism, a raised

eyebrow, or a smug remark here and there when you speak about your ideas

can have enough cumulative abrasive force over the years to grind away your

entrepreneurial spirit. This happens without your knowing it. Be selective

about your associations, and make sure they are encouraging and positive.

If a startup begins working on a wild idea and follows up with strong execu-

tion and dogged persistence, the main ingredients for success are in place. If

an entrepreneur repeatedly makes good decisions, the gears are set in motion

to reach escape velocity. To understand how the entrepreneur is thinking, find

out whether they display a strong intrinsic motivation to make the idea suc-

ceed, an open mind to pivot when necessary, and a can-do attitude to combat

adversity. Look at factors that may hamper success: whether there are extrin-

sic motivators that are misaligned with entrepreneurship, a lack of conviction

to run with the idea, or a negative attitude that turns the entrepreneur into

their own worst enemy.

Use this checklist to assess your own situation. Also be aware that venture

capitalists look at similar factors to assess you and your idea. Of course, mak-

ing better decisions is desirable for more than just startup success. If you can

enable positive forces in your life that automatically guide you toward making

better decisions, both you and your startup will be happier.

Stop Pitching Ideas

In the past, I have heard pitches of “the next big disruptive idea,” “the future

of social networking,” and an idea “ten times better than Facebook” (seri-

ously, I am not making this up). Entrepreneurs seek to attract capital with

these claims (venture capital or angel funding), to make their projects reality.

The point they often miss is that pitching ideas is a waste of time and a huge

turnoff to experienced investors. Pitches may be amusing, but they can shut

investors’ doors before the first MVP has been tested.

By pitching ideas I do not mean talking about a fresh idea with a friend and ask-

ing for their feedback. I mean the belief that an idea alone is enough to attract

investment. You learned throughout this book what it takes to engage third

parties with confirmed value propositions. If you stick to what this book sug-

gests you do, you will never feel compelled to pitch ideas.

Appendix A | Additional Considerations

214

During the dot.com boom ten years ago, the story was a little different: getting

an online presence required making an upfront investment in server infra-

structure, paying database license fees, and hiring an experienced staff that was

hard to find. The initial costs of an Internet startup could amount to $1 million.

Luckily, we face an entirely different reality today: cloud and scalable VPS host-

ing, even designated servers, can be had for less than $100 per month. CMSs

and databases are a dime a dozen; most businesses can pick from a wide

offering of free open source or inexpensive solutions. Relevant experience

is also much easier to find: basic coding and front-end user experience are

simple with WYSIWYG and widget programming. Job fairs like elance.com

and odesk.com offer competitive skills for hire. Rapid prototyping is quickly

becoming the norm, with workable prototypes available for less than $50.

We talked about the importance of the minimum viable product throughout

this book. If you are an entrepreneur, you need a prototype today. If you are

still pitching ideas to attract investment, no matter how sophisticated your

pitch deck and the financials look, it will be hard to obtain funding. More

important than putting together that killer presentation is getting started and

leaving the building to test your hypothesis in the market. Once you have a

couple of prospective clients for your product, you can begin to iterate, tweak,

and jumpstart grassroots marketing efforts. It is not rocket science to put an

idea on the ground and test it, and investors want to see entrepreneurs do

exactly that.

Expertise Is the New Venture Capital

Because almost no investment is required to found a startup, it has become

more critical for young companies to focus on finding advice about prod-

uct development, scalability, and marketing. An experienced entrepreneur or

investor can provide you with a professional network. This is usually more

important than funding. If your MVP shows initial traction, you have much

more leverage to attract qualified advice. To come across as a doer, not a

talker, you must prove you can deliver. And when you do that, you are no

longer pitching ideas. Only then can you engage others to get on board with

you who can help your startup.

Why You Cannot Replicate Silicon Valley

Silicon Valley is the nickname for Santa Clara Valley, the South Bay portion of

the San Francisco Bay area in northern California. In the last years, the term

has become a synonym for innovation. Research parks often dream out loud

of copying Silicon Valley. Occasionally, someone makes the mistake of publicly

declaring that they will take it on head to head, only to silently fade into obliv-

ion a few short years later. Moscow’s Skolkovo innovation center is a legendary

University Startups and Spin-Offs 215

example. Billions of rubles flowed into an entrepreneurship and research hub

dubbed the “Silicon Valley of Moscow,” with little certainty of success.11

Even the residents of Silicon Valley struggle to explain how its success came

about. According to author Deborah Perry Piscione, we have to go back to

the year 1884, when Leland Stanford thought about what a university in his

son’s honor could look like. Piscione goes on to explain several ingredients of

the success story that is Silicon Valley.12 Let’s look at some of them and exam-

ine the three main building blocks that made Silicon Valley what it is today.

Stanford University, the “MIT of the West”

Stanford University, located in the north part of the valley, has been one of

its defining elements. Its founder, Leland Stanford, insisted that “science pro-

vide direct usefulness in life,” which put the university in a league of its own.

Stanford now runs its own industrial park, which over 150 companies call

home. Most other universities ignored the relevance of science at the time,

and, unfortunately, not much has changed in the meantime.

After World War I, the U.S. military granted $450 million (in 1945 dollars) to

weapons R&D. Several universities on the East Coast (such as Harvard and MIT)

shared this money. But only $50,000 found its way to Stanford University, which

at the time lacked the reputation of being a credible research center. Frederick

Terman, then Stanford’s chair of engineering, felt so personally offended that

he vowed to recruit away from East Coast universities the best research talent

available. He transformed Stanford into the “MIT of the West,” as author Steve

Blank puts it. When the Cold War intensified after 1950, Stanford University

became a full partner with the military, the CIA, and the NSA.

Stanford researchers routinely work with industry as paid consultants. This

not only ensures that the latest technological know-how finds its way into

the market, but also channels insight about business and industry trends back

to students and researchers. So far, the university has spawned more than

6,000 companies.13 Some of them include Charles Schwab & Company, Cisco

Systems, Dolby Laboratories, eBay, E*Trade, Electronic Arts, Gap, Google,

Hewlett-Packard, IDEO, Intuit, LinkedIn, Logitech, MathWorks, Netflix, Nike,

NVIDIA, Odwalla, Orbitz, Rambus, Silicon Graphics, Sun Microsystems, Tesla

Motors, Varian, VMware, Yahoo!, Zillow, and Instagram. Together they amount

to hundreds of billions of dollars of market capitalization.

11Isabel Gorst, “Massive Funds for a ‘Silicon Valley’ Lookalike, Financial Times; October 18,

2012, www.ft.com/intl/cms/s/0/67850d9c-1480-11e2-8cf2-00144feabdc0.html.

12Deborah Perry Piscione, Secrets of Silicon Valley: What Everyone Else Can Learn from the

Innovation Capital of the World (New York: Palgrave Macmillan, 2013).

13Stanford University, Wellspring of Innovation, www.stanford.edu/group/wellspring.

Appendix A | Additional Considerations

216

U.S. Military Funding Started a Chain Reaction

Most people believe the United States is leading the technology sector because

of fiercely independent entrepreneurial minds. In reality, the government cre-

ated all these sectors with a heavy hand that had a big influence on the des-

tiny of Silicon Valley. By transforming hundreds of acres of farmland into a hub

of cutting-edge military technology, the U.S. Navy built Moffett Federal Airfield

at the southern tip of San Francisco Bay in the 1930s. Large-scale subsidies

from the military enabled the thriving electronics and semiconductor industry.

The Internet emerged from a military research project. Heavy military funding

started a chain reaction that led to the Silicon Valley we know today.

The electronics industry transformed the valley into a hotbed of innovation

with Hewlett-Packard (HP) and Varian as its biggest success stories. They

went public in 1956 and 1957 as the first Silicon Valley companies in history.

Shockley Labs, set up in the heart of the valley, was the first company to

work on silicon semiconductor devices and gave the region the nickname

Silicon Valley. Its eight leading scientists later left Shockley together to create

a joint venture with Fairchild Semiconductor, which revolutionized the

chip-manufacturing industry. Many of the original founders of Fairchild

Semiconductor set out to start their own companies in Silicon Valley: for

example, Robert Noyce and Gordon Moore started Intel, and Jerry Sanders

and John Carey started Advanced Micro Devices (AMD). These new com-

panies had inclusive cultures with flat hierarchies and in many ways created

a new generation of companies.

The Growth and Profitability of Venture Capital

Wealthy investors became interested in Silicon Valley after the first successful

IPOs in the electronics and semiconductor industry. The passage of the Small

Business Investment Act in 1958 enabled the large-scale financing of small

entrepreneurial businesses in America. Another milestone was the establish-

ment of the limited partnership as a business structure in the 1970s. This pro-

vided an opportunity for general partners of venture capital funds to legally

charge a 1–2.5% management fee of the investment capital raised. In addition,

they charged a 20% fee on all profits of the fund. This is the venture capital

model still in existence today.

It becomes apparent that the birth of Silicon Valley was not an overnight affair.

In fact, it took more than 100 years to transform an area of farmland into the

epicenter of innovation we know today. Not only were large-scale military

funding and government protectionism a big part of it, but much luck and ser-

endipity played into this success story. When a government announces that it

will build “the Silicon Valley of XYZ,” then we must assume they turn a blind

University Startups and Spin-Offs 217

eye on history. Many puzzle pieces fell into place over decades to make it hap-

pen. None of them would have worked out of context in a different environ-

ment to quickly force the same ecosystem into existence.

If you have ever been in Mountain View, you notice that there is a certain

energy in the air. A few millions, even billions, cannot buy this energy. It cannot

be summoned by willpower. No government can legislate it into existence.

And no university can just say it would like to have this energy and make it

magically appear.

Forget about comparing universities or research parks with Silicon Valley. By

aiming at the Sun, you may end up on the Moon, this is true. But there are

other proven ways to make startup entrepreneurship work. Simple, practical

steps have led to success in hundreds of startups, and some of them are out-

lined in this book. Begin applying them one by one, without trying to reinvent

the wheel. Then your university and your startups will succeed.

Accelerators

alumni and founder networks, 135

B-grade companies, 134

business incubators, 132

creating bubbles, 134

focus on smaller companies, 134

hardware startups, 133

profit versions of incubators, 132

software and technology startups, 133

startup founders, 134

startup schools, 135

universities benefit, 135

useful companies, 134

venture capital firms, 133

Y Combinator, 133

Angel investors

and universities, 128

and venture capitalists, 127

celebrities, 127

description, 127

FFF round, 128

profitability, 128

Ramen profitability, 128

tech hubs, 128

Asian Development Banks (ADBs), 192–193

Bazaar approach, 154

Benefits vs. features

academic entrepreneurs, 61

checklist, 66

listen and learn, 65–66

MVPs, 66

SPIN technique, 62–65

venture capitalist, 61

Big Battery Corporation (BBC), 105

Burn rate, 81

Business cards, 112

Business lunch, 113–115

Business model canvas, 167–168

Business model canvas/lean canvas, 111

Chief executive officer (CEO)

and CIO, 113

Big Battery Corporation (BBC), 105

The Business Post, 105

feedback, early-stage product, 115

full presentation, 114

LinkedIn group, 116

R&D, 106

Demo days, 189–191

Economic theory

and business school knowledge, 91

corporate finance, 88

description, 90

disadvantage, 88

high-price environment, 90

Index

London School of Economics, 90

low-price environment, 90

macroeconomics, 88

MBA, 90

microeconomics, 88

real-estate boom, 89

supply-and-demand model, 88–89

Electric scooter startup, 22–23

Elevator pitch, 103–106

Engaging others with actionable next steps

checklist, 60

interaction, 55

MVPs, 56

NDA, 55

one-page proposal, 57–60

public university, 56

with actionable next steps, 56

Entrepreneur alumni networks, 174

Entrepreneur-in-residence (EIR)

program, 160

business schools, 188

definitions, 188

entrepreneurial, 188

intrapreneur, 188

modules, 188–189

multinationals and governments, 188

source of excellent media coverage, 189

Entrepreneurship, learning, 173

Failing fast, 129–130

Financial business model

assumptions, 83

checklist, 91–92

costs, 83

economic theory, 88–91

existing market, 85–86

financial accounting, 83

hockey-stick growth, 86

investing, 84–85

investor, 87

market size and share, 87

MVP testing, 87

new market, 86

potential partners, 87

product/market fit, 86

profit projections, 83

projected future cash flows, 84

real-estate investment, 87

re-segmented market, 86

revenue, 83

serving, 87

specialists, 91–92

venture capitalists, 84

Financial business models

and projections, 82

burn rate, 81

corporate finance, 82

costs, 83

investors, 81

potential market, 81

profit, 83

profit margin, 83

revenue, 82

spreadsheet software, 81

venture capitalist, 82

Financial model, 111

Fundraising materials

demo or prototype, 142

due-diligence materials, 142

financial model, 141

lean canvas, 141

PPC, 142

Government visits, 179–180

High-net-worth individuals

(HNWIs), 56, 126

Ikiru, 53

Impact investment, 199–200

Incremental product development

description, 17

MVP, 17

Incubators

acceptance criteria, 132

business support programs, 132

economic development

organizations, 132

220 Index

Economic theory (cont.)

government entities, 132

research and technology parks house

incubation programs, 131

startup stage, 131

venture capital firms, 131

Industry links, 174

Industry visit

commercializing technology, 181

feedback, 182

intellectual property, 182

leveraged approach, 182

multinational corporations, 181

multinational industry, 182

multinational industry giant, 181

MVP testing, 182

R&D operations, 182–183

real partnerships, 181

small and medium enterprises

(SMEs), 181, 183

technology transfer/licensing office

(TTO/TLO), 181

Initial public offering (IPO), 126, 143

Intergovernmental organizations (IGOs)

Asian Development Bank (ADB), 192

biodegradable battery technology, 193

channeling, 193

economic scale and momentum, 192

electric scooter, 193

funding requests, 192

global organizations, 191mission, 192

prediction of seismic activity, 193

robotic manufacturing, 193

STI, 192

International Monetary Fund (IMF), 192

Intrapreneur, 188

Investment fund

benefits, 200–201

master platform, 195–197

Investor visit, 183–185

IPO. See Initial public offering (IPO)

Joint venture

chemistry and mutual trust, 139

company and university research team,

collaboration, 139

MVP testing, 139

partners, 139

SMEs, 138

startups and industry, 138

Kamikaze-style, 32

Key performance indicators (KPIs), 9,

147–148, 153

Lean product development, 22

The Lean Startup

business plan, 25

description, 15

incremental product development

(see Incremental product

development)

lean canvas and financial model, 27

startup coach, 24

Li-ion battery technology, 96

Limited liability company (LLC), 95

Macroeconomics, 88

Meetings and communication skills

business cards, 112

business lunch, 113, 115

business model canvas/lean

canvas, 111

checklist, 118

confidentiality, 109–110

elevator pitch, 103–106

financial model, 111

micro-scripts, 103–106

MVP testing, 107

NDAs, 109–110

one-page proposal, 111

photographs, 112

points to discuss, 110–111

Powerpoint, 99

10/20/30 rule, 100–103

backup plan, 103

call to action, 101

large font size, 101

potential project, 103

221

Index

PowerPoint slide before

applying, 101–102

Silicon Valley, 100

SPIN technique, 103

third parties, 100

sketches, 112

SPIN, 107

technical drawings, 112

unexpected situations, 108–109

well-researched requests, 115–118

Microeconomics, 88

Micro-script rules, 103–106

Millennium Development Goals (MDGs), 180

Mind maps, 74–75

Mind storming, 72–73

Minimum viable product (MVP), 17, 56, 68,

167–168

checklist, 19

electric scooter, 24

growth hypothesis, 18

testing, 104

process, 18

value hypothesis, 18

Non-disclosure agreement (NDA), 109–110

North-American Free Trade Agreement

(NAFTA), 191

One-page proposal

action, 58

description, 57

financial, 58

name and date, 58

preparation, 60

rationale, 58

sample, 59

secondary targets, 58

status, 58

target, 57

title, 57

Open IP

bazaar approach, 154

intellectual property, 155

NSF, 155

ownership of projects, 155

PCT, 155

WIPO, 155

Optimization approach, 178

P, Q

Parkinson’s Law, 70–71

Patents and technology transfer

Brookings Institution, 154

KPIs, 153

positive grant system, 154

revenue, 153

TLO, 152–153

TTO, 152, 154

universities, 152

Platform projects

banks, 193–195

communication, 187

demo days, 189–191

entrepreneur-in-residence (EIR)

program, 188–189

feedback and two-way knowledge

exchange, 187

funds, 193–195

IGOs, 191–192

impact investment, 199–200

investment fund, 195–197, 200–201

MVP, 187

presentations for investors, 193–195

venture capital vs. mega fund, 197–198

Platform-thinking approach

active exchange of ideas, 178

business model and financial

model, 177

communication, 177

financial matching scheme, 177

government visits, 179–180

industry visit, 181–183

innovation and growth, 178

intergovernmental organizations, 178

internal efforts, 186

investor visit, 183–185

key performance indicators (KPIs), 177

optimization approach, 178

self-sustaining entities, 178

stuff approach, 178

university ecosystem, 179

222 Index

Meetings and communication skills (cont.)

Powerpoint, 99

PPC. See Private placement

memorandum (PPC)

Price differentiation, 46

Private placement memorandum

(PPC), 142

Product/market fit, 86

Return on investment (ROI), 127

Seismic Software, 108

SensorX sensors, 109

Simple strategies

business approach, researchers and

entrepreneurs, 69

deadlines, 70–71

mastermind groups, 71

mind maps, 74–75

mind storming, 72–73

murky waters, entrepreneurship, 67

one action per day, 69–70

spend just ten more minutes, 75

taking action, 68–69

think on paper, 73–74

to think, 72

visualization, 76

Situation problem implication need-payoff

(SPIN) technique, 62–65

Small and medium enterprises

(SMEs), 138, 169, 172

Smartphone battery technology, 20–21

Socially responsible investment (SRI), 199

Startup

attorney, 96

business, 93

checklist, 98

clarity about ownership, 95

corporations, 95

ease of investment, 95

interest, 93

investible, 96

investor/venture capitalist knocks, 93

limited liability company (LLC), 95

never spend money to make

money, 97–98

ownership, 96

partnership, 95

sole proprietorship, 94

Startup entrepreneurship

advice, 51

and stockbroker, 53

big numbers, 45–46

bootstrapping, 36–37

business abroad, 39–40

checklist, 54

comfort zone, 41, 43

creativity, 30–31

dedicating time and resources, 30

20% generalist, 47–48

global stage, 30

good first impression, 37–39

hollywood version, 53

Ikiru, 53

launching own company, 52

learning, 49–50

management, 30–31

mindset, 40–41

mission and purpose, 52

motivations, 29

persistent movement, 30

read and improve, 43–45

scratching and clawing, 30

80% specialist, 47–48

stop being late, 35

teaching, 52

time management, 32–35

turtle-style, 32

willpower vs. self-confidence, 32

working, 52

Startup grants

advisors, 122–123

early funding, 120

entrepreneurs, 119

funding, 123–124

government programs, 121–122

investment, 120

investors, 122–123

money and entrepreneurship, 122

network effects, 121–122

universities, 119

writing proposals and business plans, 120

223

Index

Startup launch process

companies and financial sector, 14

motivation and freedom, 11

network effects, 11

practical strategies, 14

roadblocks, 12

sequence, 10

synergies and ecosystem, 11

Startup stage

entrepreneurship, stages, 137–138

joint venture deal, 138

MVP testing mode, 137

toolkit, analytical tools, 137

Stuff approach, 178

Sustainable transport initiative

(STI), 192–193

Technology licensing office (TLO),

148, 152–153, 173

Technology transfer/licensing office

(TTO/TLO), 51

Thriving business, 4

Time management, 32–35

Troubleshooting

bankruptcy, 79

“build, measure learn”, 78

checklist, 80

conflicts, 77

entrepreneurial experience, 79

interim CEO, 79

joint venture plans, 78

money, 78

network and entrepreneurs, 78

open communication, 78

priority, team, 77

problem-solving, 79

product and business model, 79

quiet moment, 78

stakeholders, 78

startup teams, 79

team lost, 78

Turtle-style, 32

Twenty idea method, 72–73

Ultra-high-net-worth clients

(UHNWI), 184–185

Ultra-high-net-worth individuals

(UHNWIs), 194

United Nations (UN), 191

Universities

academia, 8

American counterparts, 148

Asian campuses, 148

commercial ideas, 148

communicate ideas, 145

ecosystem, 7

entrepreneurial experience, 145

entrepreneurship, 6

entrepreneurship program, 145

entrepreneurship work, 147

Europe, 148

incomplete launch pad, 9

individual experiences and feedback, 145

institutions approach, 9

integrating entrepreneurship, 146

key performance indicators

(KPIs), 9, 147

launching startups, 146

magnets for smart people, 145

network building and cooperations, 6–7

privileged position, 146

startup success, 147–149

students and researchers, 5

synergistic interaction, 9

vanity metrics, 146

Universities, support for startups

fail smart and collect data, 170

guidelines, 166

industry networking, 169–170

management activities, 168–169

mentors vs. workshops, 166–168

new ideas, 165

sweeping changes, 165

University, measurable impact

Facebook, 152

open IP, 154–155

patents and tech transfer, 152–154

performance metrics, 152

224 Index

University startup entrepreneurs

characteristics, 4

conventional advice, 2

desktop computer, 3

external parties, 1

fail-safe system, 1

media stories, 4

own business, 2

paid project, 3

part-time work, 2

trial phase, 3

venture capital, 4

will and common sense, 4

University startups

entrepreneurship networks, 160

grants and workshops,

entrepreneurship, 157

hands-off approach, 160

job, entrepreneurship, 163–164

knowledge exchange

entrepreneurship

initiatives, 159

joint venture partners, 158–159

university research, 158–159

opportunity cost, 158

standardization, 162

startup experts, 161

Venture capitalists (VCs)

firm invests, 125

HNWIs and institutional investors, 126

IPO, 126

lack of business and financial

models, 126

ROI, 127

sound track record, 127

students and researchers, 126

winners, 127

World War II, 126

Venture capital (VC)

amount of capital, 141

best VCs, 142

fundraising materials, 141–142

IPO, 143

startup entrepreneurs, 140–141

startup investigation, 142–143

term sheet, 143

Venture capital vs. mega fund, 197–198

Volcanic-eruption module, 108

W, X, Y, Z

World Trade Organization (WTO), 191

225

Index

UNIVERSITY STARTUPS

AND SPIN-OFFS

GUIDE FOR ENTREPRENEURS IN ACADEMIA

Manuel Stagars

University Startups and Spin-Os: Guide for Entrepreneurs in Academia

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Acknowledgments

I am grateful to all the entrepreneurs who have shaped and tested the ideas

in this book. Their feedback and experiences with launching startups have

helped challenge and improve the approaches and recommendations you are

about to read. Thanks to all the people who believed in my own startups over

the years, whether by co-founding them with me, investing in them, buying

their products, or otherwise guiding them through their launch phases.

I was fortunate to advise Singapore-ETH Centre (SEC) with my ideas,

which Dr. Remo Burkhard made possible. I am grateful for his trust and

his open-mindedness. Heartfelt thanks to his staff and the entire research

and management team at SEC as well. I would also like to thank Dr. Ioannis

Akkizidis for his outstanding remarks and guidance through the writing

and editing process. Many thanks to Dr. Ting Dor Ngi from the National

University of Singapore (NUS) for her excellent feedback and to Nati Sang

for reviewing a very early draft of this book and improving it massively.

At Apress, a brilliant team turned these ideas into the book you are reading.

I would like to thank Robert Hutchinson for believing in this project early

on and the entire editorial board for supporting it. Many thanks to James

Markham, Rita Fernando, Tiffany Taylor, Anna Ishchenko, and everybody

else at Apress who contributed their knowledge and energy to make this

happen.

Preface

Eighteen Years as a Startup Entrepreneur

When I embarked on the path of entrepreneurship 18 years ago, little did

I know exactly where it would lead me and what surprises were in store

along the way. Some of my ideas and projects failed dismally, but luckily,

others were far more successful than I ever dreamed. I learned many lessons

and combined them with some thoughts about launching startups out of

universities. This is what this book is about.

My journey was far from elegant. Always thinking I would be a surgeon,

I enrolled in medical school in my native Zurich/Switzerland. During the ﬁrst

year, it became clear that this was not for me, because my attention mostly

focused on my private projects and experiments. After trying a few other

ﬁelds, including psychology and sociology, I left university at age 21, slightly

confused, with big plans about my own company and a bankroll in the high

three digits. It was the dawn of the ﬁrst Internet boom, and the winds were

fortunate. Within a few short years, my little startup producing multimedia

content for web pages had mushroomed into a respectable enterprise

with several verticals and clients among the largest Swiss banks, insurance

companies, airlines, hotels, automobile companies, and consumer brands.

I proﬁtably exited that business in 2001, six months before the NASDAQ

crash had sunk in as a reality, and emigrated to Los Angeles, where the grass

was greener (or so I thought).

Replicating the business model that had worked back home was my ﬁrst

attempt at American business, which gave me much insight into how well-

protected and transparent the Swiss business environment had been. After

producing a documentary ﬁlm and founding several companies, a fun idea

that had started as a side project eventually took ﬂight and ended in a seven-

ﬁgure joint venture deal with a large Japanese media company. So I moved to

Tokyo. Simultaneously, a software startup I had co-founded in San Francisco

received seed funding from a venture capital ﬁrm. Life was good. A strong

believer in life-long learning, I enrolled in the international program at the

London School of Economics and studied for three post-grad ﬁnance and

private equity designations, all at the same time. Then the software business

missed its milestones for next-round funding in the ﬁnancial crisis of 2007/8.

In the following years, I started a consulting practice in ﬁnance and economics,

into which I integrated my diverse entrepreneurial experience.

Preface

xiv

Is entrepreneurship always fun? Of course not. Nevertheless, startup war

stories are fun to tell. There is often more learning in a failure than in a

success, however painful it is. For example, I remember an epic computer

crash that resulted in the total loss of all the data and backups of an expensive

client project that was ready for delivery. It had taken 6 months to complete,

and the deadline was 24 hours away. With much rhetoric, it was possible

to push it forward 2 days. This left me with exactly 72 hours to produce

everything again from scratch. Fixing the defective hardware. Flying in some

of the experts who had been working on the project. Explaining the crisis,

which made them laugh and me cringe inside. And on top of all that, keeping

everybody on the project happy while pulling a three-nighter myself. Then

the day came to deliver the project to the wary client. I needed all the

goodwill I could possibly get. The principal decision-maker wanted to take a

seat, but an employee accidentally pulled the chair out from underneath him

and he landed hard on the concrete ﬂoor. And I had thought the situation

could not get any worse.

In fact, many entrepreneurs doubt the path they have embarked on when they

speak in private. Not when the million-dollar buyout has just completed, but

when things are not going so well. Entrepreneurship seems in many respects

to be the path of most resistance. It is impossible to know all the answers to

why and how it works. It took me about a decade to wrap my head around

certain successes and failures and to understand why they had happened

and what I could have handled better. However, when the stars align and a

project takes off like a rocket, that makes it all worthwhile. Over time, it

becomes much easier to cope with the volatility of entrepreneurship. After

all, high waves hardly scare those who have seen them before.

Currently I advise several startups on strategy, business development, and

ﬁnancial innovation, integrating the perspective of the serial entrepreneur,

economist, investor, and venture capitalist. One consulting project includes

a research university in Singapore. Launching startups out of academia holds

much promise for the future and is dear to my heart, and so this book came

about.

For your journey to a successful startup, I wish you all the best. If I could do

it, so can you. Just take that ﬁrst step, and never look back.

—Manuel Stagars

Hong Kong, October 2014

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Available at www.apress.com

University Startups And Spin Offs Guide For Entrepreneurs In Academia