University Startups and Spin-Offs: Guide for Entrepreneurs in Academia (2015)

Part II. Strategies for Universities

Chapter 16. 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 entrepreneurial drive of students and researchers. Although these are all good intentions, they do too little to actually make a startup successful. More firepower 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 business 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 performance 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 multinational 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 convenient 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 entrepreneurship 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 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 running businesses. Advances in IT technology, automation, rapid prototyping, and digitization have made it easier to commercialize research right out of the university 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.  

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 therefore 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 benefit 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 organizations. 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 efficiency.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 entrepreneurship 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 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 synergies that are waiting to empower university startups. With a more competitive 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 company, 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 entrepreneurship: 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 theoretical 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 academic 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 foremost 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: complying with the rules, one eye already on taking a teaching position when the venture inevitably tanks. Hardly a good place to start.

Instead of theory about entrepreneurship, passionate students and researchers 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 anxious 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 standardized 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 commitment. 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 rationalize. 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 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 excitement 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 infrastructure made available by your university: an air-conditioned office, a working 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 entrepreneurship: 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 environments, they indirectly encourage researchers to take the lottery approach 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, expectations, 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.

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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).

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).

5Star Wars Episode V: The Empire Strikes Back, directed by Irvin Kershner (1980).