Searching for the next Google
- 18 October 2011
- From the section Magazine
Analysts suggest supporting innovative start-up companies to increase hiring. For the second part in a series on job creation in the US, a look at incubators designed to turn great ideas into huge corporations.
Massachusetts Institute of Technology's Entrepreneurship Center is located equidistant from the university's business school, its media and architecture school and engineering wing, in an area managing director Bill Aulet calls the "demilitarised zone."
"The geeks can come over and the suits can come over and they can all work together to build a company," says Mr Aulet.
Inside, it has everything a young entrepreneur might need to start a business: soundproof phone booths for private calls with investors.
Cozy cubicles with whiteboard walls for meetings with business partners.
And boxes of boxes of Ramen noodles for strivers who can't spare the cash or the time for a proper meal.
In one room, MBA student Birju Shah is hunched over a laptop.
He is the founder of MDBug, a medical transcription and electronic medical records company, and Sugar Crew, a social networking site for people with diabetes.
Next door, three 20-something men in jeans and T-shirts write formulas on the wall.
They run Ubiquitous Energy, a company that has developed a way to make light, flexible solar cells that can conform to almost any material.
Outside the building, an entrepreneurial "walk of fame" salutes giants like Thomas Edison, Steve Jobs, William Hewlett and David Packard, as well as MIT alumni Mitch Kapor, founder of Lotus Software, and Robert Swanson, founder of Genentech.
The implication is that the students working from dawn to dusk inside the centre aren't that different from the industry titans memorialised outside, and that they too could go on to create some of the most successful companies in the world.
In a time when unemployment hovers at 9.1% - with unofficial estimates coming in at much higher - most new companies created are those that only employ one person: so called "jobless entrepreneurship".
But those companies supported by the Entrepreneurship Center have the potential to help usher in a new era of job growth and economic stimulation.
In a report published last week by the presidential jobs council, "nurture the high-growth enterprises that create new jobs" was listed as one of five common-sense solutions to help reduce unemployment.
"If the United States is going to grow its labour force and sustain that growth over the long term, government must foster an environment in which entrepreneurs can create high-growth companies that succeed in a global economy," the report says.
That work is already being done at MIT and other university-backed programmes that seek to turn the intellectual capital produced on campus into successful companies.
America's schools pump out some of the best-trained, most motivated students, with the potential to make huge advancements in biotech, information systems, engineering, energy, and medicine.
But current fiscal conditions make it difficult for those types of projects to launch. Unlike smaller ventures, such as starting a law firm or a cleaning company, nascent innovation-based businesses need a large influx of cash for research and development and can take years to develop and bring their product to the market.
"Those are capital-intense markets, with all the capital still sitting in the sidelines," says Thom Ruhe, director of entrepreneurship at the Kauffman Foundation.
"Banks are flush with cash and they're not lending it. Investors and hedges are flush with cash, and they're not investing like they used to," he says.
"It's been this way for a couple years, and nothing we're looking into shows that's going to change anytime soon."
Building global brands
Incubators like the MIT Entrepreneurship Center help in multiple ways - cutting down on overheads by providing meeting space and infrastructure support like wifi and computers, and helping to connect worthy projects with interested investors.
"This centre is absolutely central to the success of our operation," says Ubiquitous Energy co-founder Erdin Beshimov.
'We want to build a fantastically successful company that's a great place to work for, that has a global brand and a tremendous social impact world wide," says Mr Beshimov. "It's a good goal, but it's not an easily achievable goal."
For companies that dream big, institutional support is critical.
Having a fabulous technical mind or an amazing biotech product doesn't mean much without the ability to navigate loans, patents, and investor relations.
And unlike other small businesses, highly innovative companies can't often get started in an empty garage or rented office space.
"You can't create a biotech startup at a Starbucks table with a notebook," says Douglas Crawford, associate director of the California Institute for Quantitative Biosciences (QB3), an entrepreneurial support programme at the University of California.
"Starbucks frowns on doing biological experiments on their tables."
Founded in 2000 and active for about six years, the state-supported programme hopes to turn technology created at the University of California into companies that can create jobs for the rest of the state.
"We have a mandate to support the sort of science that can lay the foundation for whole new industries, then ensure that the fruit of that work gets to market as quickly as possible," says Mr Crawford.
That includes renting single benches in hi-tech labs at a price that "even a grad student could finance on a credit card", he says.
Four of the six companies that originally rented lab space in that lab received venture capital funding, while another was purchased by a larger company for $50m (£32m).
But not all companies started through these incubators will succeed, and even those that do won't restore America to its industrial glory days.
Ubiquitous Energy's Mr Beshimov says that his company's main staffing needs will be engineers with advanced degrees.
Though Mr Crawford notes that many of the biotech manufacturing jobs can be done by employees without advanced degrees and trained on the job, the output is small.
The 45 companies successfully aided by QB3 currently boast about 180 employees - impressive by biotech standards, but barely a dent in California's 12.1% unemployment rate.
On the other hand, HubSpot - a marketing software company founded in 2006 by MIT's current entrepreneur-in-residence - has over 300 employees, and is hiring across several departments.
Supporting innovation can't be done in academic settings alone.
Government funding, immigration reform, and corporate co-operation are just some of the things needed to help foster new companies that will create new jobs.
But for the young entrepreneurs currently at work, there's no time to wait.
Their big idea might just be the next big success.