March 1, 2004
Failing forward | Lessons learned from a company shutdown bring new direction to the state's R&D efforts
By Sean Donahue
The sudden shutdown of Engineered Materials of Maine in Bangor late last year was an unwelcome development in the state's efforts to use high-tech research and development as an economic stimulus tool.
The company, which used a glue and laminate process to turn low-grade hardwoods into beams and other construction materials, was one of the first high-profile spinoffs from the University of Maine's Advanced Engineered Wood Composites Center, a research facility and testing lab developing new, value-added applications for Maine's most abundant natural resource. As such, EMM's shutdown a little more than a year after its founding was equally high profile, leaving university researchers and wood products industry insiders wondering exactly what went wrong. (For now, while the company is still trying to find a buyer for its technology, executives won't talk about specific operational issues or market factors that contributed to EMM's demise, beyond saying that it could not get the specific type and cuts of wood it needed at an affordable price.)
But Habib Dagher, director of the AEWC, has already begun interviewing the former managers of EMM to see what lessons he can draw from their experience that might help the center successfully commercialize future technologies and patents. And even though Dagher doesn't have a complete picture of what worked and what didn't at EMM, he's already shifting the center's strategy in order to give the fledgling technologies developed there a better chance of surviving the transition to the marketplace.
"One of my major directions now is to work more with established companies in the state to see if they're ready to take on a new business line, rather than working with new startups that haven't proven themselves," says Dagher. "If you don't have the proper capital to begin with, you're entering the market at a disadvantage."
Dagher says the AEWC is currently working with several different established companies on dozens of projects and new technologies ˆ some that are at an early, exploratory stage and some that are much closer to moving into the market. Once a patent or new technology leaves the AEWC, though, it's entirely up to the private licensees to determine the right commercial path. In the case of EMM, for example, the university had no role in designing a business model or operating the company. With no control over how companies choose to build and market products, the AEWC's most important move might be choosing commercial partners with the best combination of resources and expertise to weather the inevitable setbacks that occur during any new business or product's first few years.
Turning R&D projects into companies
Besides offering deeper pockets for startup capital, established companies also bring existing market knowledge, supplier and distributor relationships and marketing expertise to support a new product or business line. Those types of connections and operational experience might have helped EMM survive past its first year, says Scott Ogilvie, president of Portage Lake-based Maine Woods Company and one of EMM's hardwood suppliers. Ogilvie says that from the beginning he thought EMM would have made more sense as a division or subsidiary of a larger, established wood products company, rather than as a stand-alone startup.
That type of collaboration between AEWC researchers and a mature wood products business makes sense to Kevin Hancock, president and CEO of Casco-based Hancock Lumber. Hancock approached the AEWC last year to investigate potential new products using the white pine the company currently saws into boards ˆ as well as by-products from that operation such as sawdust, chips and bark (Hancock prefers not to say exactly what type of products the company is working on). The AEWC staff provides the technical expertise Hancock doesn't have in-house, along with practical assistance such as showing the company how to secure grants to cover research costs; the company brings market experience, as well as direct feedback from its existing customers related to the prototypes being developed.
When the company is ready to launch a new product, it will have the advantage of relying on the income from its existing, successful business lines to help support the often difficult commercialization process, says Hancock. "We have the capacity to fail forward, which is a critical concept," he says. "You rarely come up with an idea that hits it on the head the first time. It's a trial-and-error process, and mature businesses have more capacity to stomach it than an emerging business with no other products and services to sell."
Though working with established companies can remove some of the risks involved with commercializing new technologies, the AEWC still faces the challenge of convincing any potential licensee of the value of its research, according to an industry consultant. "For most innovations today that focus on a raw material or a process, if you don't go through rigorous market studies you're taking a great risk," says Leonard Guss, a forest products consultant and owner of Leonard Guss Associates in Woodinville, Wash. "If the university wants to approach established companies with technology licensing opportunities, somebody still has to provide evidence that there's a real market opportunity."
Dagher admits that finding strong market opportunities for new technologies is difficult, given the nature of research, which can run into dead ends more often than discovering breakthroughs. But while EMM's shutdown was a disappointment, Dagher doesn't see it as a major setback for the center's efforts to turn research investments into sustainable companies here in Maine. In fact, he sees the failure as a strong argument for spending even more money on new technology development. "I think our largest role is to work on getting as many technologies out to as many able commercial partners as we can," says Dagher. "Not everything we turn out is going to turn into a good business, but the more projects we get out there the more chances we have to find a success."
The company, which used a glue and laminate process to turn low-grade hardwoods into beams and other construction materials, was one of the first high-profile spinoffs from the University of Maine's Advanced Engineered Wood Composites Center, a research facility and testing lab developing new, value-added applications for Maine's most abundant natural resource. As such, EMM's shutdown a little more than a year after its founding was equally high profile, leaving university researchers and wood products industry insiders wondering exactly what went wrong. (For now, while the company is still trying to find a buyer for its technology, executives won't talk about specific operational issues or market factors that contributed to EMM's demise, beyond saying that it could not get the specific type and cuts of wood it needed at an affordable price.)
But Habib Dagher, director of the AEWC, has already begun interviewing the former managers of EMM to see what lessons he can draw from their experience that might help the center successfully commercialize future technologies and patents. And even though Dagher doesn't have a complete picture of what worked and what didn't at EMM, he's already shifting the center's strategy in order to give the fledgling technologies developed there a better chance of surviving the transition to the marketplace.
"One of my major directions now is to work more with established companies in the state to see if they're ready to take on a new business line, rather than working with new startups that haven't proven themselves," says Dagher. "If you don't have the proper capital to begin with, you're entering the market at a disadvantage."
Dagher says the AEWC is currently working with several different established companies on dozens of projects and new technologies ˆ some that are at an early, exploratory stage and some that are much closer to moving into the market. Once a patent or new technology leaves the AEWC, though, it's entirely up to the private licensees to determine the right commercial path. In the case of EMM, for example, the university had no role in designing a business model or operating the company. With no control over how companies choose to build and market products, the AEWC's most important move might be choosing commercial partners with the best combination of resources and expertise to weather the inevitable setbacks that occur during any new business or product's first few years.
Turning R&D projects into companies
Besides offering deeper pockets for startup capital, established companies also bring existing market knowledge, supplier and distributor relationships and marketing expertise to support a new product or business line. Those types of connections and operational experience might have helped EMM survive past its first year, says Scott Ogilvie, president of Portage Lake-based Maine Woods Company and one of EMM's hardwood suppliers. Ogilvie says that from the beginning he thought EMM would have made more sense as a division or subsidiary of a larger, established wood products company, rather than as a stand-alone startup.
That type of collaboration between AEWC researchers and a mature wood products business makes sense to Kevin Hancock, president and CEO of Casco-based Hancock Lumber. Hancock approached the AEWC last year to investigate potential new products using the white pine the company currently saws into boards ˆ as well as by-products from that operation such as sawdust, chips and bark (Hancock prefers not to say exactly what type of products the company is working on). The AEWC staff provides the technical expertise Hancock doesn't have in-house, along with practical assistance such as showing the company how to secure grants to cover research costs; the company brings market experience, as well as direct feedback from its existing customers related to the prototypes being developed.
When the company is ready to launch a new product, it will have the advantage of relying on the income from its existing, successful business lines to help support the often difficult commercialization process, says Hancock. "We have the capacity to fail forward, which is a critical concept," he says. "You rarely come up with an idea that hits it on the head the first time. It's a trial-and-error process, and mature businesses have more capacity to stomach it than an emerging business with no other products and services to sell."
Though working with established companies can remove some of the risks involved with commercializing new technologies, the AEWC still faces the challenge of convincing any potential licensee of the value of its research, according to an industry consultant. "For most innovations today that focus on a raw material or a process, if you don't go through rigorous market studies you're taking a great risk," says Leonard Guss, a forest products consultant and owner of Leonard Guss Associates in Woodinville, Wash. "If the university wants to approach established companies with technology licensing opportunities, somebody still has to provide evidence that there's a real market opportunity."
Dagher admits that finding strong market opportunities for new technologies is difficult, given the nature of research, which can run into dead ends more often than discovering breakthroughs. But while EMM's shutdown was a disappointment, Dagher doesn't see it as a major setback for the center's efforts to turn research investments into sustainable companies here in Maine. In fact, he sees the failure as a strong argument for spending even more money on new technology development. "I think our largest role is to work on getting as many technologies out to as many able commercial partners as we can," says Dagher. "Not everything we turn out is going to turn into a good business, but the more projects we get out there the more chances we have to find a success."
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