Physics entrepreneurship and innovation

3 March 2014

Innovation and product development tap directly into our knowledge of the sciences, to deliver better products and faster, more robust technologies. Over much of the 20th Century research and development (R&D) shared a close marriage in the American economy, most evidently expressed by the corporate “giants” that housed central research laboratories— such as AT&T Bell Labs, IBM, General Electric, General Motors, and Exxon Mobile. This paradigm has declined in recent decades, as the United States experienced a shift in the way new or improved products are developed and brought to market.

A very low percentage of patents actually make money; most sources report that only one to four percent are commercially viable. As corporations in our increasingly globally based economy looked to “cut the fat” out of their operations, even the once sacrosanct research and development departments were scrutinized for cost cutting. Why take the risk of investing in an R&D springboard when only a fraction of the knowledge results in revenue-generating product launches? Still needing to deliver new products to market, companies shifted the risk elsewhere. Buying specific technologies or products in the early development stage that held the most potential for success seemed a better way to go. AIP began to examine this trend in the early 1990s, particularly with respect to the impact on research involving physics, and it grew into a major study, The History of Physics in Industry (HoPI).  This study documented the decline of corporate research, the shift from knowledge creation to knowledge acquisition, and subsequent impacts to the physics-educated workforce.

Upon conclusion of the HoPI study, it became clear that it was likewise important to understand the research and innovation being carried out at the business startups from which large corporations acquire new technologies. Beyond the question of where/how the physics workforce is employed, understanding more about these fledgling think tanks can provide insight as to where our future products and technologies are born. It can also assist aspiring entrepreneurs to know more about why certain startups fail where others succeed, funding and business models, technology transfer, and more.

The Avenir Foundation and the National Science Foundation provided AIP with a grant to develop an understanding of startups owned by entrepreneurial physicists. Over the past four years, AIP historians/archivists set out to document the History of Physics Entrepreneurship (HoPE). The HoPE study concluded in 2013, and the final report, entitled “Physics Entrepreneurship and Innovation,” is now available to the community. Orville Butler and Joe Anderson of AIP’s Niels Bohr Library and Archives researched and interviewed physicist entrepreneurs at 91 startups throughout the United States. Their efforts revealed some key findings.

HoPE mapFirst, not surprising for the American culture, there is no national system of entrepreneurship and innovation. Regional clusters have their own set of location-specific influences; it’s not evident that clusters elsewhere in the country can be successfully modeled on the well-known successes of Silicon Valley, Boston’s Route 128 Corridor or Research Triangle Park.  In my nearly 30-year experience with technology transfer activities at two national labs, two success factors for start-ups appeared to be universal and often based on location—access to a major research hub (such as MIT or Stanford) and access to capital.  Despite the connectivity of the internet age, location still matters.

Butler and Anderson observed that so-called “market-pull” startups aim to improve upon existing technologies and use existing science in their product development. “Technology-push” companies aim to develop new innovations, usually with university-based fundamental scientific research. For both, access to capital is a critical, very complex factor. The bulk of funding comes from government small business grants, out-of-pocket investments, venture capital, and angel sources. The report examines each of these sources, and their related considerations and frustrations in detail.

HoPE fundingThe entrepreneurs interviewed also reported several other concerns that impact their operations, including immigration policies and International Traffic in Arms Regulations (ITARs) that often force US companies to develop technologies outside of the US, in order to stay globally competitive. The study gained insight into how entrepreneurs seek to retain a skilled workforce, despite lower-than-average salaries—often by granting employees equity share to build company loyalty and maintaining liberal policies for a positive workplace environment.

Being out in the field, interacting with a sizeable sampling of physicist entrepreneurs, our historians were also able to identify potential mechanisms for these business owners to preserve their companies’ historically valuable records. Their ability to document their history will correlate to future researchers’ ability to understand the sources of innovations in today’s economy. 

The report is available online; or you may request a hard copy by contacting Stephanie Jankowski at sjankows [at] aip [dot] org.

I’ll conclude by highlighting an event this week (March 4–6) for the industrial-minded segment of our community. We look forward to joining the APS Forum on Industrial and Applied Physics for the APS/AIP 2014 Industrial Physics Forum, as part of the APS March Meeting. Visit the AIP website  or the APS March Meeting program to see the lineup of speakers presenting on, “Frontiers of Industrial and Applied Physics.” Seven full sessions of programming are planned. All APS March Meeting attendees are welcome.