My year-long industrial leave from UC Berkeley to Teknekron
in 1969-70, which I described
last month, whetted my appetite for a continuous liaison with industry. It was largely sated by my
quarter-century relationship with that company.
Shortly after its founding and my involvement with its
first project, Teknekron became a unique platform for
entrepreneurship. The concept, as
envisioned by its CEO, was to find young would-be entrepreneurs who needed more
than just capital, those who could also benefit from the entrepreneurial
training the company had to offer and from its connections to the market and to
research institutions. The
process, as it unfolded, became known as guided entrepreneurship. That may seem like an oxymoron, since
entrepreneurs are not thought to be easily guided. Teknekron showed otherwise. Although the company is now inactive (all of its principals
retired in 1995), its methodology is still worth chronicling, for it increases
the chance of entrepreneurial success.
Guided entrepreneurship is very different from other start-up
strategies. Venture capital
concentrates on discovering inventors who already have a product in mind and
primarily need capital to develop it and bring it to market. Corporate spin-outs attempt to enhance
and market products invented within an existing company through a newly formed
enterprise. Incubators provide a
bevy of facilities to entrepreneurs: space; infrastructure such as
communication and computer equipment; legal, accounting and other support; and
often a modicum of capital, business advice and market access.
Teknekron's methodology differed markedly by concentrating
not on products but on entrepreneurial minds. It sought smart young people who weren't bent on retreating
to a back room to develop a product from an idea, or—if they were—could be
persuaded to drop that focus.
Those it brought into the company after careful screening were
go-getters who at the very outset would be willing, with the company's
guidance, to address prospective clients in the marketplace—in our case, large
corporations—to find needs that could be filled by the broad knowledge they
had.
The novelty in Teknekron's "market first" approach
is encapsulated in the difference between the motifs "Sell, Design,
Build" (SDB) and "Design, Build, Sell" (DBS). All other start-up models take the DBS
path—money and other resources are poured into turning an idea into a finished
product and then trying to sell it into a preconceived market, which might not
have been there after all.
Teknekron's SDB approach instead insisted that if an idea has enough
worth, that worth could be established by finding a client which would be
willing to fund its development for the client's business. Its entrepreneurs weren't allowed to
develop products in a vacuum, assuming that a market for them would somehow be
forthcoming
Teknekron's program hence trained entrepreneurs to go first to the market in search of problems that needed
solving; sell a proposed solution to a problem thus discovered; develop that
solution into client-specific hardware, software, and operational procedures;
and only then consider generalizing the technology into a more broadly
applicable product. The company
brought value to the process not only by providing financial, marketing, infrastructure and
professional support to the entrepreneurs, but most importantly by enforcing a
market-oriented and profit discipline..
Knowing the general area of expertise of new entrepreneurs,
Teknekron would introduce them to prospective clients and teach them above all
to listen for needs, not to advocate technologies. They might play an
opening gambit like "I have an idea for a better mousetrap," but if
the response was, "I have no mice, but I do have foxes that are invading
my henhouses," Teknekron's training would lead them to segue seamlessly
into attacking the fox problem.
The immediate effort—with Teknekron's negotiating and legal help—would
be to sell a contract for solving that problem (usually series of phases, starting with
a feasibility study). It was
expected that, in solving the particular problem, a more-generic technology for
solving other problems would emerge.
Teknekron always insisted that its contracts reserve to itself the
rights for those other applications of the developed technology, giving the
client royalties from other sales of the original application.
The new entrepreneurs were initially employees of
Teknekron. Once they had built up
sufficient revenues and profitability, they got their own corporation, which would
be a subsidiary of Teknekron in which they and their colleagues owned
shares. After a subsequent stage
of growth to another benchmark of revenues and profitability, the new
corporation would be spun out by public or private sale, yielding the payout
that both Teknekron and the entrepreneurs sought. When successful, the time from a one- or two-person start-up
to its public or private sale averaged about ten years. Teknekron's profit discipline was
strict: if a new venture did not reach the first benchmark of sales and
profitability within a year or at most two, it was terminated; most reaching
that benchmark subsequently achieved the second.
All of Teknekron's start-up companies addressed
information-technology issues, in such varied industries as energy utilities,
commercial and investment banking, transportation, communications and
insurance. It is hard to precisely
assess the success rate the company had, since one tends to forget the
businesses that were shut down early, but my educated guess is that some 35-40%
of start-ups jumped both hurdles, reaching the sale stage. The success rate was thus a significant
multiple of that expected of venture capital, although the time to final payout
was longer. Teknekron considered
itself more of a marathon runner than a sprinter.
I was privileged to participate in many roles in the
guided-entrepreneurship program for a quarter century, mostly while I was on
the faculty at UC. I brought a
number of my academic colleagues into new ventures as technical advisors; I was
able to bring some of the brightest students in my department into those
ventures upon their graduation; I participated both in the work of technology
development and in the process of guiding the entrepreneurs; and I continued
consulting for companies that had spun out of Teknekron by public or private
sale. After I retired from the
University, I spent the final seven years of my career full time at the
company.
As I said in describing that first year of industrial leave,
the tripartite relationship I maintained with Teknekron and the university
became indispensable to my professional career, for it enabled me to keep one
foot in research and one in market applications. I like to think that the interplay between those
complementary roles brought value to the economy as a whole by helping the
process of technology transfer from universities and other research
institutions. I believe that
engaging in that interplay is a valuable model for engineering and science
faculty members.