Thursday, March 5, 2009

Engineering, Entrepreneurship and Value Creation

Watt's steam engine in the vestibule of the Es...Watt’s steam engine was an example of the many technologies in the Industrial Revolution that satisfied emerging market needs.

The push of technology, not the pull of the market, tends to be the basis for current approaches to technology transfer and the creation of business ventures. However, an overemphasis on technology often leads to failure if there's no understanding of market needs, positioning strategies and fiscally-sound propositions for investors or partners who make the venture possible. That lack of understanding can have disastrous consequences – for every entrepreneurial company that succeeds, there are 100 that fail.

Addressing those key points -- market needs, positioning and investment propositions -- is critical. Fundamentally, it's about rethinking research and technology in light of value creation, which is simply a way to increase the value that consumers place on goods and services. Knowing where, how and why value is created -- within a company and markets -- is the best way to identify what's needed to provide a platform for sustainable and profitable growth. Before research begins, it's necessary to figure out if a problem is even worth solving – there needs to be an understanding of where the pain is. That is, is the technology-based solution one that has the potential to add value along the value chain of a target industry? (A value chain is a sequence of events or processes that needs to be in place to enable the sale of finished products to customers. The chain starts with the raw materials required and then tracks the value added by each step to the final product.)

This isn't an easy question to answer because engineers love creating new technology. But if engineers learn to pull themselves out of the technology space, the concepts of value creation click. One way of doing that involves "teasing out" markets, asking the hard questions to determine if a technology has the right type of value to turn people into customers. For example, researchers might want to pour time and money into accelerating the operational speed of a sensor but, in asking the hard questions, they might discover that the market values a sensor with durability rather than speed. The researchers could then change focus. The final technology would be much different than they had originally planned, but it would have value.

That example shows how technology drives entrepreneurship, and entrepreneurship drives technology. It's important for engineers to understand what they're making, what they're selling and to whom.

Here's an example that I love. You might might pose a question such as, "What kind of company is Google?" Many folks are often surprised to hear that the answer is "an advertising company."' The search engine is free. Google makes its money off ads. This is where the value-capturing opportunity resides.

By layering business basics on technical fundamentals, engineers can examine long-term capital risks to determine whether or not a certain technology or product is worth the capital investment . The worth is based on whether the investment is likely to yield returns for the private investor in a startup company or for corporate investment in research and development.

So... let go of technical bias and marry your love of technology to value creation. If a device isn’t going to sell, then no one’s going to make it. It’s an often discouraging but very important lesson about engineering in the real world. And it’s better to know it sooner than later, after the time and money have been spent




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