In my business, I work with both large companies and entrepreneurs in creating and managing 'open innovation' initiatives and ventures. I've recently dealt with two very similar situations with different entrepreneurs, and I believe they illustrate an important point for both corporate executives and inventors or technology entrepreneurs. That point is the need to recognize and proactively address the differences in perceived risk as entrepreneurs and large companies begin the 'open innovation' dance.
(Note: Neither of these entrepreneurs is a client, nor am I revealing any company names or confidential information).
This technology entrepreneur has invented a breakthrough wearable device for measuring caloric burn during activities. It's an area where the market is ripe for solutions that help consumers understand their energy balance (calories in minus calories out equals weight gain/loss). The technology actually works, even for resistance/weight training, and more importantly it can be developed at a low cost and allow for a compelling price point. It passes my key 'tests' for marketable innovation: 1) It addresses a true unmet consumer need; 2) It's an innovative, unique solution and; 3) the marketplace opportunity is there (timing, price point, business model, etc.).
Yet in spite of this, the entrepreneur's company has languished for years, even though they reached the negotiation stages with numerous large branded companies for licensing and/or acquisition. So why no deals? The entrepreneur is insulted by companies trying to 'steal' the idea away with little to nothing upfront. Companies likely view this entrepreneur as naive and without an understanding of business (he wants a seven figure number for an advance and a seven figure annual minimum royalty). He views it it as a reasonable request, given the millions that he has invested in the company to date, and the size of the long term market opportunity.
The reality: each side is 'valuing' the opportunity from their own assessment of the risk. Large companies have much less tolerance for risk than entrepreneurs. This may be obvious, but I see too many situations where both sides are not facing that reality -- nor looking for creative ways around the disconnect.
This technology entrepreneur has a breakthrough brushless motor/control technology that delivers the benefits of brushless motors (smaller size, higher efficiency, higher power/weight) at a compellingly low cost relative to existing brushless technologies (the cost is not much higher than traditional universal motors).
Same storyline as the previous one. The entrepreneur has been 'in negotiations' with large companies for years, yet continues to struggle to get the technology into the market and into products. There are other issues with this situation -- for example, the lack of focus and parallel efforts across many target markets and applications (I'll save this discussion for another post). The entrepreneur wants significant upfront cash, and is unwilling to offer more than very limited category exclusivity (so as not to limit the growth of these motors).
Well, as you can imagine, companies that might be interested in this disruptive technology see a potential opportunity, but want to see some success in the market and want to limit their investment and risk. High minimums, the investment and resource commitment to designing these unique motors into their products and the lack of longer term category exclusivity doesn't sit well with them.
What to do?
My advice is the same advice to both of these entrepreneurs. Get it into the market in a small way. Prove out the opportunity from a product standpoint and from a consumer benefit standpoint. Create a demand and establish viability -- then find large partners to apply brands and broader distribution in order to scale up the business. I wouldn't advise this in all situations. Often, licensing the I/P is the absolute right approach and allows everyone do what they do best -- inventors invent and large companies develop and market. But in cases where there is both high technology and market risk, someone needs to build and develop the market in a smaller way as a first step. This might mean taking it to market directly (as the inventors of the Dr. Johns Spin Brush did prior to approaching P&G) or finding smaller, more entrepreneurial partners initially (instead of focusing on large companies).
My advice to large companies in these situations is to look for creative ways that minimize their risk, while not losing the opportunity. Solutions such as limited upfront fees, licensing initially only for a narrow segment, or even licensing out the brand (of course only if this makes sense) are all avenues for minimizing risk while leveraging external sources of innovation.
No one's view of risk is "wrong". The mistake, as in these cases, is in not recognizing and addressing others' perceptions of risk. Remember, your potential partner's perception of risk is not just a perception, it's their reality -- and yours.