Real Progress

Here’s what we told you we would do this period and here’s what we delivered. We over-delivered.

Yes but what about this major opportunity you didn’t pursue? You know the rules of the game.

We were in the middle of a major breakthrough when that opportunity surfaced. It was a feeding frenzy. Couldn’t pull people away from the breakthrough activities even if I wanted to.

Yes but that frenzy died down a few months ago. And the opportunity?

We needed to consolidate the breakthrough. Much of the data wasn’t analyzed, still sitting in the lab books. You know you have to consolidate findings while they’re still fresh in the minds of the researchers.

Yes, so that’s why the entire team went off to the conference in Bermuda?

The team was working 24x7 and were starting to make stupid mistakes and to work mechanically. I thought a break was needed to clear their minds. I needed them to step back from the data and see how the big picture was taking shape. We left a few of the fresher faces behind to tend to the instruments. But I needed most of the team to decompress.

And the opportunity? Your breakthrough may lead to a blockbuster+ product, but then it may not. The opportunity might turn out to be even greater. Are you saying the opportunity was less urgent?

We captured the opportunity on our leads list. We captured and protected all the material samples we’ll need for our investigations. We lined up protection of the intellectual property. We started the literature searches to make sure it was indeed new. Once we consolidate the findings from this last breakthrough we will go back and check it out. It looks promising, and perhaps will exceed our breakthrough in significance. It is merely a matter of timing. When folks uncover a true breakthrough like the one we just finished, one we’ve been seeking for years, I’m not going to interrupt Big Mo’+ just because we uncover other promising leads along the way. It takes time, and frankly it’s distracting, to ramp up a team and get all the ducks-in-a-row, to suddenly change direction like that. We’ll get to it. After a big breakthrough like that there’s always a lot of going back and mopping up. That opportunity is at the top of our list.

Progress is measured by what we set out to do, by overcoming unforeseen obstacles, and by taking advantage of unexpected opportunities. Eighteen months earlier we put a lot of effort into our work-plan. But we acknowledged even then it was a strawman. We know science often advances, even industrial science, by doing studies just to be able to ask the right questions. It includes hunches, tacit knowledge+, and trial and error+. In a blockbuster pursuit we rarely measure progress against a predefined yardstick. But results can be measured objectively, and we can determine if results were purposeful or merely academic.

Of the 5 P’s, progress is king. Lack of Progress is only rarely offset by achievements in the other P’s (i.e., we may allow some slack for 1st or 2nd year members). Progress is measured in advancement+ toward a blockbuster product: it is not goal-oriented in that we do not pre-define the specifics of the product beyond its blockbuster potential. But it does expect real results toward a blockbuster. Below are the proposed measures of progress:

  1. Blockbuster potential for the research endeavor
  2. Products graduated into commercialization+
  3. A scientific competitive edge+
  4. Self-funding of R&D operations

We seek both concrete results toward a blockbuster product (1), and the means to ensure this progress continues over the long term (2, 3, 4). We need long term stability in order to succeed at discontinuous discovery+. As a cheap heuristic+, we seek a 40-20-20-20 weighting of the measures. Blockbuster potential is the ultimate deciding factor on whether or not the research continues at all. Lacking this, we don’t need stability.

The blockbuster pursuit is discussed everywhere on the website. Below are discussions of the other measures of Progress.

Products graduated into commercialization

The 2nd measure of progress, Products graduated, provides commercial (the corporation) with way too many sub blockbuster+ products, so they instead have to find ways to delay revenues, rather than fabricate revenues. We deliver sub-blockbuster products on a regular schedule to feed corporate forecasts and to assuage investor anxieties. We keep the commercialization and commercial operations+ robust and active so they’ll be there for us when we’re ready to launch that next blockbuster.

I no longer go to the investors and tell them which particular named project will succeed (e.g., prototype+ XL34). Rather I tell them we will meet growth objectives across many investments in which I only have a dim view as to the inner workings. This will be a true statement (and not much different than today) but reduces the temptation on the part of the funding agent+ to meddle. But if I, as the corporation, make this statement and do not back it up with a steady stream of sub-blockbuster products, I will reasonably be tempted to conflate that next blockbuster into my forecasts to hide the shortfall. I need predictable interim growth, and will grasp the unpredictable, the bonanza, if I need it to assuage the investors. I meddle. When this happens, the entire discontinuous approach is jeopardized.

Scientific Competitive Edge

Why do I the funder care that you the researcher maintain a scientific competitive edge? I can’t sell this edge (unless I sell the company). It contributes to the blockbuster pursuit, but I already measure you on your progress towards the blockbuster, so this argument is redundant. You, as a researcher, will be naturally drawn toward this activity, and I risk you being diverted from the core commercial focus of my investment.

The reason is the franchise. Our members are the best of the best, and this includes their science. You join our franchise because we allow you to push your science, your child, to be all that it can be. We don’t take your protegee and immediately push it for an easy win. Instead we nurture it so it can develop a career filled with many wins. Other ‘parents’ see this and want the same for their children. And they want their children in a ‘school’ with similarly-minded parents. We push you to build and maintain a scientific competitive edge because it builds the exclusivity of our franchise.

Superior science drives superior service from our corporate technology and business providers. Our franchise service providers are the best because they routinely work at the edge of the known sciences. This is not a service that follows a script. They work with you to solve problems never before solved. If today 65% of our technical service is routine, tomorrow 75% of our technical service will involved new science. Our scientific competitive edge in the research units redounds to a competitive edge in our franchise service offerings. See here for more.

Self-Funding of R&D Operations

The research team contributes research efforts. The funding agent contributes business, technical and commercial efforts. The financing is structured to ensure both parties put forth best efforts (i.e., avoid the principal-agent problem+). One tool we use for this purpose is the financing instrument. We finance our research using convertible debt: see Houden. The interest rate on the debt and the conversion trigger are set to ensure high levels of effort by both parties. Researchers put forth best effort in their quest to be debt- and interest-free. Funding agents put forth best effort in their quest to convert debt positions into common shares – to share in the windfall+ profits of a blockbuster discovery. The conversion trigger, which both parties seek, doesn’t happen without blockbuster success.

Corporate attempts at across-the-board cost cutting of their contribution, i.e., a unilateral reduction in effort on the part of the funding agent, pushes off or endangers the trigger point. Blockbusters are delayed and the corporation risks being left holding unsecured debt. Worse, research units will likely dip into their guaranteed line-of-credit to offset services lost as a result of corporate cuts, further poisoning the passion and enthusiasm of the researchers. Corporate across-the-board cost cutting opens up excuses.

We avoid excuses through self-funding of R&D Operations. We give you a pile of money at the beginning, and you pay back a portion of that money monthly to defray the cost of running the franchise. Even though it’s the same money, you’ll feel greater ownership in the franchise. This motivates corporate denizens to be their best. We’ll also be better able to protect franchise services from arbitrary across-the-board cost cutting exercises. We structure the franchise agreement in such a way that every dollar cut is offset by a reduction in franchise fees and franchisee+ labor contributions, making arbitrary cuts self-defeating as a budgetary move. See here for more details.

There are many other avenues toward self-funding of the R&D pursuit. See here for examples.

Along progress in our blockbuster pursuit, these three items constitute what we measure for interim progress results. Just a reminder that Progress looks backward, to results already achieved. We’re just as interested in Promise: what the future holds. Progress is just one of the 5 P’s, albeit a most important one, for how we judge whether or not to continue funding of an Investible Unit+.

Home Page July 2010