Seven years ago this week, I declared IT dead and moved from Silicon Valley to Houston. Of course, it didn’t happen that suddenly. I’d come to the conclusion in the months following 9/11 that Silicon Valley wasn’t producing anything worthwhile, [...]]]>

What luck! My anniversary post coincides with a discussion about Houston’s startup culture. — Graham Randall

Seven years ago this week, I declared IT dead and moved from Silicon Valley to Houston. Of course, it didn’t happen that suddenly. I’d come to the conclusion in the months following 9/11 that Silicon Valley wasn’t producing anything worthwhile, anything of any value at all. That was, perhaps, an overly harsh assessment, but looking back at what Silicon Valley has produced in the intervening years, I don’t think I was that far off.

Mind you, what I’m really talking about here is startups and when I talk about value I mean contributing to GDP, increasing productivity, and improving the human condition. The old guard in Silicon Valley are doing plenty to create value. Apple has vastly exceeded my expectations for innovation; it’s products, especially the iPhone, contribute directly to GDP and increased productivity, and, at least for me, the iPhone has improved the human condition.

The Silicon Valley startups, however, like Facebook, Twitter, YouTube, etc., haven’t done anything of the sort. Sure they’ve attracted millions of users, and billions in investment. Facebook is even making respectable revenues off of advertising. But advertising isn’t a final good or service. It doesn’t increase productivity, and it sure as hell doesn’t improve the human condition*. Of course, not every business needs to meet these three criteria to be worthwhile, but Silicon Valley holds itself out as the idea factory for America. It has a history of fostering enormously valuable companies: Apple, Hewlett-Packard, Intel, and Fairchild Semiconductor to list a few. Of all places, Silicon Valley should know better.

Instead, one could argue that the social media trend has been nothing but a massive jobs program for Silicon Valley. In the vacuum of ideas created by the bursting of the last bubble, social media was one of the few ideas to gain any traction with consumers. This attracted investment dollars, which, in turn, spurred the creation of more companies. Like an uncontrolled positive feedback loop, everyone in Silicon Valley has a vested interest in seeing these bubbles inflate, and few ask the question, “Does this make business sense?” It’s an astounding example of groupthink on a massive scale, and it’s happening over and over again. The first dotcom bubble was borne out of a similar idea vacuum, and as the old saying goes, “once is a data point, twice is a trend.”

What does this mean for Houston?

We waste a lot of time in Houston worrying about how to become the next Silicon Valley, and I’ll argue that we need to stop focusing on imitating Silicon Valley and start working on creating value. We also need to stop trying to acquire the resources Silicon Valley has, and start taking advantage of the resources we do have. There are plenty of industries with major presences in Houston that aren’t taking full advantage of IT and need solutions that will increase revenues or decrease costs.

Healthcare is a perfect example. Although the government’s involvement in healthcare IT is making for some quirky market dynamics, I get excited about the potential of healthcare IT. Most doctors today using paper records can’t do something as simple as notify their patients when the labeling on their medication changes. And hospitals are only just now getting the capability to determine if one glue used in surgery has a higher failure rate than another. Reducing failure rates can have a huge effect on costs.

You might be surprised to learn that Houston has had some impressive successes with guys who applied IT to solve problems in the oil industry, airline industry, etc. These guys wound up millionaires, but you haven’t heard their stories because they aren’t hanging out at OpenCoffee. We need more collaborations like these between the established industries in town and the startup community. Small companies need mentorship to become big companies, and bureaucratic inertia too often inhibits big companies from innovating. Both constituencies could benefit from better cross-pollination of ideas.

Conclusion

Building an electronic medical record company or a technology that helps make energy production more efficient isn’t as sexy, cool, or fun as building the next Twitter, but sometimes you just have to be a grown up. Silicon Valley didn’t start with Twitter. It started with companies that created value, and only then lost sight of the reasons why those companies were successful. Houston can avoid that same mistake by remembering that value creation is the basis of every sustainable business model.

graham randall, ph.d, mba

* If you compare the quality of relationships you had before and after social media, you will find that today you are closer to people you didn’t care enough about to keep in touch with before Facebook, and, without face-to-face interactions, your relationships with your closest friends aren’t much more intimate than your relationship with every other friend on your buddy list. In the past, we had a range of associations from close friends to acquaintances. Facebook is narrowing that distribution to the least common denominator.

Hope to see y’all there!

When you’re pitching to investors, [...]]]> Over the last couple of weeks, I’ve had the chance to see and critique a lot of early-stage company presentations. One criticism that comes up again and again is that scientist-entrepreneurs waste too much time talking about the details of their discovery and not enough time on the business opportunity.

When you’re pitching to investors, don’t spend more than a quarter of the time describing the science.

In one presentation I saw, the title slide was something like, “Inhibition of Protein X by blah blah blah.” I groaned. I knew what was coming. In a ten minute talk, the presenter spent 13 minutes discussing the details of his technology and 2 minutes on the market potential. The scientist felt that it was important for his audience to understand his technology and to convince them that it works.

Scientists, pay attention. Raising money from investors isn’t like raising grant money. When raising grant money, the quality of the science is the whole game. You have to convince the reviewers that your methods are sound and your findings are correct. Reviewers care about the details of your protocols and your publication history. But the reason things work this way is because the only return granting organizations are looking for is more high quality science.

Investors are interested in a different kind of return. They’re interested in economic returns. Thus, in your initial conversations with investors, you’ll find that they’re willing to assume that the science works, in order to dive in on questions of market size, IP protection, and management. As one of the VCs at last week’s Texas Life Science Conference put it, “I’ll spot you the science, now how am I going to make money?”

That’s not to say that investors don’t care at all if the science works or not. They’re just filtering out opportunities in a different order. Due diligence on the technology comes after considering the market potential and the talent of team.

Look, I know that the science is the interesting part. I understand that it’s your life’s work and the most important thing in the world to you. But nobody is going to invest in your idea if you don’t tell them how it’s valuable to them.

Do you need a Ph.D. to be a Biotech Entrepreneur? This seems to be a popular question these days, even though I think the answer is pretty obvious: No.

There are lots of biotech entrepreneurs out there without Ph.Ds. [...]]]> Graham Randall is a regular contributor to Startup Houston on the topics of biotech, life sciences and entrepreneurship.

Do you need a Ph.D. to be a Biotech Entrepreneur? This seems to be a popular question these days, even though I think the answer is pretty obvious: No.

There are lots of biotech entrepreneurs out there without Ph.Ds. What really matters is what role you want to play in your startup company. If you want to found a company and be its lead scientist, then obviously a Ph.D. will be required. Not just for the credential, but because it’ll take you several years to acquire the knowledge necessary to do the kind of research that yields results with commercial potential.

But if your intent is to be the founder and general manager of a biotech company, then the value of a Ph.D. is diminished.

Why would you need a Ph.D.?

The knowledge you gain from earning a Ph.D. will help you evaluate technologies. Even when you’re evaluating technologies that aren’t directly in your field of expertise, the critical and analytical skills you learn in acquiring a Ph.D. will help you quickly get up to speed and start asking the right questions.

You’ll also learn some leadership skills while doing your Ph.D. You’ll gain experience giving lectures and communicating your ideas. You’ll learn how to think on your feet and handle tough questions. And from these experiences, you’ll gain some confidence.

The Ph.D. is also a credential that will allow you to apply for grants on your own. Even so, if you’re not the inventor of your technology, then your partner, the inventor, will probably have a Ph.D.

Why don’t you need a Ph.D.?

If your goal isn’t to be the Chief Scientist of a biotech company, then the 4-7 years you spend in a lab trying to get a Ph.D. would be better spent working at a biotech company gaining practical business experience. Working in a company will not only teach you a lot of technical business skills like finance and accounting, you’ll also be exposed to a variety of management styles, team work, project management, quality assurance, manufacturing, regulatory approval, and sales and marketing. This is the experience you’re probably not going to get in the lab, but it’s crucial to starting a company.

Conclusion

No, I don’t think a Ph.D. is required. Getting a Ph.D. is a personal decision. If you feel passionately about science, or if you have a strong personal compulsion to “phinish”, then go get your Ph.D. But if you think it’s only a means to an end, I think your time is better spent getting real world experience. Maybe even get an MBA (which will be the subject of a future post).

Newt Gingrich recently wrote an editorial in the WSJ [subscription required] calling for greater use of prizes to solve the world’s problems. Regardless of what you think about Newt’s politics, it’s difficult to deny that the current grants-based [...]]]> Graham Randall is a regular contributor to Startup Houston on the topics of biotech, life sciences and entrepreneurship.

Newt Gingrich recently wrote an editorial in the WSJ [subscription required] calling for greater use of prizes to solve the world’s problems. Regardless of what you think about Newt’s politics, it’s difficult to deny that the current grants-based process of funding science isn’t meeting our needs. Grants are too risk-averse and too time-consuming. As a result, the visionary, but risky, experiments that lead to major breakthroughs have difficulty getting funded, and many future scientists are turned off by the prospect of spending a career writing grant applications. The success of the first X-Prize shows that prizes can work and can be much more cost-effective than the grants system.

Gates Dissatisfied With the Conduct of Science

Derek Lowe commented a while back on the dissatisfaction of the Bill & Melinda Gates foundation with the results of their Grand Challenges. These were grants awarded in 2005 to researchers to try to solve the biggest public health problems. Unfortunately, these grants produced no major scientific breakthroughs. So, the Gates Foundation is reissuing the grants, but this time ignoring the so-called “experts” and looking to other fields for ideas.

Derek isn’t surprised that the grants produced no results since the practice of science is so unpredictable. You can’t do science the same way you would build an operating system–set some deadlines, allocate resources, and draw up a Gantt chart.

Still, I’m not certain that the conduct of science wouldn’t benefit from somebody like Bill Gates throwing some money around and imposing some discipline. Science, and in particular academic science, is woefully inefficient. Part of this is because in academia, the worker bees (graduate students) are still learning their craft. But it’s also because, having accepted that science is unpredictable, hardly anyone puts any thought into managing the project. Few scientists even have training in project management. Experiments get done when they get done, and then the scientists move on to the next experiment. Science, today, is too much like a drunk man’s stagger.

What is generally missing is a project manager–someone to drive the schedule and hold the team accountable for meeting deadlines. By deadlines, I’m not suggesting “cure cancer by the end of the semester.” I’m thinking of shorter-term, measurable goals. What can be accomplished this week, this month, and this semester, and how do the results contribute to the ultimate goal? Nobody’s keeping an eye on these little details in an academic lab. Days turn into months which turn into semesters. Graduate students bang their heads against walls pursuing deadends because nobody set a deadline for pulling the plug.

All of this is allowed to go on in academic science because the focus is on the proposals and the subsequent publications, not the actual, real-world-affecting results. Come review time, anybody can say “Look at how productive we were, we published all these articles!” What Gates is realizing is that publications don’t cure diseases.

Prizes would bring the focus back to results–real-world-affecting results.

Gingrich’s Prizes

In Newt’s article, he suggest seven prizes with $2 billion awards for accomplishing the first three and $1 billion for the rest:

1) A low-cost vaccine or preventive intervention for malaria — possibly the single biggest potential improvement in the quality of life in poor tropical countries.

2) A modestly priced, mass-manufacturable hydrogen engine for cars, which would be the biggest single contribution to reducing carbon loading of the atmosphere and reducing subsidies through high oil prices to dictatorships.

3) A cheap method for turning large quantities of seawater into fresh water.

4) A reusable system that could get people into space at 10% of the current cost, thus enabling genuine space tourism and launching an age of exploration.

5) The first privately financed permanent lunar base.

6) A method for reusing nuclear waste to make Yucca Mountain, Nevada unnecessary as a repository.

7) A method of learning math and science that kids like, and that enables us to leapfrog India and China by breaking out of our unionized, bureaucratic curriculum. This would enable us to replace “No Child Left Behind” with a more effective education model that could be called “Every American Gets Ahead.”

This is a good starting point for further discussion, and I’m sure everybody has their own pet cause they believe is worthy of the list. I’d rather see more prizes for addressing disease. I also think Newt’s prizes are too big. There’s no doubt that the person who invents a mass-manufacturable hydrogen engine will make a lot of money just by licensing the technology to automobile manufacturers. So does that challenge also merit a $2 billion award? For $10 million, the X-Prize found a solution to fly us into space, so why should we spend $1 billion to reduce the cost of that trip by 10%?

We should differentiate between the two uses for prizes:

1. Spur innovation in a potential commercial market. Compel innovators and entrepreneurs to take the next step to commercialize the technology.
2. Incentivize innovators to develop solutions to problems for which there is no significant ROI. The mainly applies to orphan diseases, like malaria.

and then adjust the size of the prizes accordingly. Curing orphan diseases is going to require big prizes, but prizes designed to spur innovation in a potential commercial market should be just large enough to motivate people to get started–like the $10 million offered for the X-Prize.

So what do you all think? What causes do you think merit prizes? How big should those prizes be? Please leave your ideas in the comments.