Entrepreneurialism and knowledge transfer: a personal view
Viewpoint: David Milne OBE FREng FRSE, founder and former CEO of Wolfson Microelectronics plc…
Entrepreneurialism and knowledge transfer: a personal view
Commercialisation is essential to our economic future, but David Milne argues that Scotland-based entrepreneurs and investors should be raising their game – deciding at the start-up stage whether they want to develop exciting new technology or build successful companies able to compete in the global arena and contribute to society at large...
New ideas in science and technology will always be welcome, but governments and funding bodies today increasingly focus on commercialisation – and the need for economic benefit. That is why research grant applications demand routes to market and researchers are encouraged to exploit their results commercially through licensing or direct company formation.
This transfer of knowledge to the market place and consequently to the public at large is inherently good and should be encouraged. Not all research, of course, is or should be near market, and it is a measure of the sophistication of a society how much of the economic cake is spent on ‘blue sky’ research. When it was first invented, the laser was a good example of a solution looking for a problem, but society now would be much the poorer without the many applications that have subsequently followed.
We are, however, at a different time in our understanding of the physical world and the balance between pure research and applied research should be tilted well towards the applied end of the spectrum. As can be seen from the small sample of activities described in the remainder of this publication, there is a healthy level of commercialisation of scientific ideas in Scotland, but it does not yet make a significant contribution to the country's GDP.
One of the issues concerning the Scottish economy is the dramatic decline over many decades of the manufacturing sector. After heavy industry moved overseas, mainly to the Asia Pacific, employment was supported by the introduction of electronics manufacturing in the second half of the 20th Century. This certainly helped with employment, but the reality was that the companies in general were simply building products to specifications provided by the creative centres in the USA, Japan and elsewhere. There was no product ownership locally with the notable exception of Hewlett Packard) and so when lower-cost countries developed the necessary manufacturing infrastructure, the factories departed again.
It had been hoped that the introduction of these electronics companies would have produced spin-offs and generated a healthy indigenous high-technology environment. However, the companies were never able to do this because they were focused on manufacturing, not on innovation. Management’s task was to turn out the products as cheaply as possible, not to generate new products. What we manufactured here was based on codified knowledge from elsewhere, which did not lend itself to entrepreneurial activity or innovation.
Although much of the investment in high-tech Scotland has been in multinational manufacturers, there has been an awareness in the universities and among a small number of entrepreneurs of the opportunities for developing high-tech companies based on indigenous research and technology. As expected, Heriot-Watt and Strathclyde Universities, with their engineering backgrounds, had strong technology transfer offices, Edinburgh University developed close links with the semiconductor industry, while Glasgow University, with a focus on optics, and Dundee University in pharmaceuticals, were active in trying to commercialise their research. Most of this activity took place through centralised Technology Transfer offices which had successes licensing to major corporations but were often criticised for their bureaucratisation of the process when it came to start-ups and interaction with smaller companies. Interminable IPR and investment value negotiations often killed the entrepreneurial spirit and with it the success of many potentially successful ventures. Protecting intellectual property is important, but it has little value until it gets to the market – and this usually takes far more investment than was made in the original research.
In spite of the difficulties, successful high-tech companies have been created. As a result, there is now a much better understanding of the dynamics of the process and more appreciation of the importance of this activity to the economy. Universities in Scotland have embraced the challenge, embedding commercialisation activities in appropriate departments such as Infomatics, Engineering and Biotechnology. This has led to a blossoming of company start-ups on a par with or even ahead of the most active places anywhere in the world.
True success, however, is not measured by the number of companies created but by the growth and impact of these companies in the widest economic context: revenues, profit, employment, international presence, societal contribution, etc. It is regrettable that to date only a handful of companies, among which Wolfson Microelectronics plc is perhaps the most notable, have achieved this. The company spun out of the University of Edinburgh in 1985 and honed its technology through design contracts before transitioning into a semiconductor product company with a global presence that now employs over 400 people. It went for its Initial Public Offering (IPO) in 2003 on the main London Exchange and reached a market capitalisation in excess of $1 billion in 2006. Its “passion for great audio” has generated a brand that is appreciated worldwide and its products provide the audio in most of the leading consumer electronics products.
As the desire to create more indigenous companies of scale in Scotland has grown, efforts have been directed at providing a supportive ecosystem to nurture start-ups. At the earliest stages, students and researchers are sensitised to the possibility of company formation and the dynamics of commercialisation. The Business Schools are increasingly spreading their expertise across the universities, aiming to help budding entrepreneurs grasp the basics of business. And in a more formal programme, the Entrepreneurial Fellowship scheme funds researchers to commit a year to explore commercialising their research in a new company and get training in business skills. Specific organisations, such as Infomatics Ventures in Edinburgh, are also providing support to software and electronic company start-ups, with a host of events, advice and incubator space next door to the research activities of the university. This close association of academic and commercial activity provides, in my view, the best environment for the initial stages of company formation.
The big issue, however, is the development of companies of scale from the initial stages with one or two people to an organisation focused on expanding their service or developing their product towards commercial reality. This usually needs some outside money, although I would always encourage entrepreneurs initially to bootstrap their activities from friends and family. Outside money in Scotland usually means ‘Angel’ investment, which is exceptionally vibrant here. There are many syndicates with well developed channels and significant experience. They are, in fact, collections of high-net-worth individuals who often have personal business experience and can help companies in more ways than simply providing finance. While Angel finance provides the basis for the development of the technology, deeper pockets are often required for the real growth of a company with its own products, sales and marketing activities on a global scale. This will usually involve the Venture Capital community and there is plenty of scope for conflict of interests with the Angels. Entrepreneurs need to be clear whether they are developing technology and hoping to sell out to another company – which is the realm of the Angels – or really interested in developing a profitable and sustainable company. If it is the latter, the challenge is formidable, but the journey is more exciting and eventually more rewarding.
The thrill of the IPO and recognition of the company by the public at large is, in my view, an experience worth striving for and I would thoroughly recommend it. The choice for the entrepreneur will be influenced by many things and it is not simply one of logic – it is visceral. The ambitions of the founder and the management are what should drive the decision, treating the finance as the means to an end and not, as is often the case, the driving force. We need more leadership companies in Scotland with the capability and ambition to compete internationally and I am encouraged by the level of activity highlighted in this and other editions of Science Scotland.