Having been a part of several startups that failed, I think I can speak credibly about aspects of the startup phenomenon.  My friend Bill who lives in a state shaped like an oven mit sent a link to a blog written by a venture capitalist (VC). The long and short of it is that, according to this VC, too many discoveries reported in the biotech literature are based on very slender threads of experimental evidence and often have been performed by a limited number of people.  He ges on to lament that the nature of grant funding may contribute to an R&D style that focuses on reporting only the best looking data that supports the hypothesis forming the basis of the grant.  The basis of his commentary is his experience funding biotechstartups.

Based on my life experiences I have no doubt that his comments are reasonable.

The unspoken rule is that at least 50% of the studies published even in top tier academic journals – Science, Nature, Cell, PNAS, etc… – can’t be repeated with the same conclusions by an industrial lab. In particular, key animal models often don’t reproduce.  This 50% failure rate isn’t a data free assertion: it’s backed up by dozens of experienced R&D professionals who’ve participated in the (re)testing of academic findings. This is a huge problem for translational research and one that won’t go away until we address it head on.     –Bruce Booth, Life Sci VC.

The thing is, this phenomenon doesn’t have to be based on dishonesty, though sometimes it is.  It is in the nature of entrepreneurs to be extremely (or rabidly) optimistic about the value of their ideas.  Entrepeneurs who are specialists with some kind of standing in their field, ie., minimally having tenure or a tenure track slot at a reputable institution, can produce very convincing PowerPoint presentations and handwaving arguments to support their assertions. Especially in front of viewers and investors who are desperate to find the “next big thing”.  Finding investors is a numbers game. You simply have to go out in the big, big world and talk to a great many people. Eventually you will find people who want to invest in a startup.  It is a form of enchantment. And charismatic entrepreneurs learn early on that they can do this.

If you thought that this is limited to biotech or to academic entrepreneurs, you’d be wrong.  I’ve seen this kind of thing up close in other areas of technology. I can say that the prospect of riches just over the horizon can move otherwise sober individuals to commit significant resources to the startup wagon train. 

Especially dangerous is the entrepreneur with a patent or even a portfolio of them.  Having a patent amounts to an endorsement by the US government, or so it would appear to the unwary.  I’ve witnessed entrepreneurs collect and spend millions of dollars of investors money on nothing more than a patent based on handwaving. Remember, patent examiners do not require that you trot out a working model and run it for a while.  Before you invest, I would recommend that you demand to be shown a working model or some other hard evidence of proof of concept.

There are several ways to set up shop in the world economy. One is to steal market share. This is the better mousetrap world of “market pull”.  You develop a product or service that is superior in some way and compels customers to abandon their loyalties. You depend on taking someone else’s share of the pie.

The other way to set up shop is a bit harder. And riskier.  It is the “technology push” domain and consists of introducing new capability through goods and services.  It is more than taking a share of the pie- it is baking a new kind of pie.  This is the realm of the paradigm shift. Examples are the introduction of petroleum, electricity, vacuum tube electronics, synthetic chemistry, semiconductors, and the internet to name some of the really big ones. 

But not all technology push history is so grand. Most technology push is incremental.  Marketing products that create new capability requires early  investors and early adopters. And not everyone wants to be an early to the show.  The trick for purveyors of technology push is to get the cash flow going by selling to early adopters.

I would offer this to those who want to be involved in a startup.  Demand results from a marketing study and examine them as closely as you might the technology. If the entrepreneurs are hazy on how the sales part will look, then watch out.  If they have not included money people and marketing people early in their adventure, then the investor or employee should beware. It’s not all about the technology in the startup.  The entrepreneurs should be as focused on sales and marketing as the tech package. This is where academic entrepreneurs can be extremely weak.