Chasing innovation

Marketplace Staff May 23, 2006

Chasing innovation

Marketplace Staff May 23, 2006

SCOTT JAGOW: Once upon a time the ideas percolating in research and development labs were once guarded like state secrets. But not these days. Big business has learned they can’t hire enough R&D people to fend off global competition. So companies are chasing small entrepreneurs for new products and ideas. From the Marketplace entrepreneurship desk, Steve Tripoli has the story.

STEVE TRIPOLI: Procter & Gamble has 9,000 researchers in its R&D unit. Sounds pretty formidable. But worldwide 200 times that number are researching the sciences that go into P&G products.

Every one of them’s a potential rival. P&G Vice President Larry Huston says if you can’t beat ’em, sign ’em up.

LARRY HUSTON:“What we’ve come to recognize is that we really need to be thinking about all the terrific people that are outside, be they individual entrepreneurs and frankly even our competitors.”

So P&G launched a program called “Connect and Develop” to corral outside thinking. The company will buy ideas and market-ready products. They’ll share their secrets if you’ll share yours. Both sides get a chance to use ideas that can further their own research. And profits.

And this isn’t just about P&G. Tech giant Intel sunk $265 million into startups last year. Microsoft, Nokia and others are also on a buying, backing and partnering binge. So are drug companies.

[ Sound of robotic arm ]

A big winner on the small company end is Millennium Pharmaceuticals outside Boston. On a recent visit a robotic arm was shuttling potential cancer drugs between tests.

Millennium was a four-person startup just 13 years ago. Its strength was hard science not business. So the founders married their brains to big drug companies’ bucks and clout. Now Millennium has 1,100 workers and loads of research, marketing and distribution partnerships.

Research and development head Bob Tepper says the giants gave his startup critical tools for growth.

BOB TEPPER:“First obviously they’ve provided us with revenue. In addition, pharmaceutical companies also helped us by teaching us about the processes that were important in this regulated environment. So we can use their might all over the world, with some of our precision, and that’s a great combination.”

This kind of matchmaking almost demands a prenuptial agreement.

Small businesspeople especially might be tempted to give away the store in exchange for that shot with a big partner.

Henry Chesbrough of UC Berkeley’s Center for Open Innovation says entrepreneurs need to hold their cards close.

HENRY CHESBROUGH:“The small company has to be realistic about the motivations of the large company. Don’t show everything that you know, show a little bit, until you can actually craft an agreement that does protect some of your interests.”

Chesbrough says big companies do have incentives to play fair. If they get a reputation for hogging the profits no one will partner with them.

And even giants are afraid of relying on just their own R&D shops for future growth.

I’m Steve Tripoli for Marketplace.

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