Modern economies rely on entrepreneurs to bring innovations into the marketplace. Many innovations are only modest improvements, but a small number of entrepreneurs pursue “radical” innovations that fundamentally change industries. What does it take to be a radical innovator? The standard answers are a superior technology, and a strong management team, but here is a new one: patience!
Westport Innovations, based in Vancouver, B.C., is a radical innovator with the not-so-modest ambition of replacing standard diesel engines with engines powered by natural gas. Founded in 1996, the company only began to experience commercial success in the last few years. Westport’s technology is based on research dating back to 1982 begun by Dr. Philip Hill at the University of British Columbia.
In other words, it took a quarter of a century for the research idea to be translated into commercial use.
Why did it take so long? Entrepreneurs who grew up in the dotcom era easily forget two fundamental challenges of technology entrepreneurship. First, most scientific and technological breakthroughs have a long way to go before they become commercially usable. Second, even when they become commercially viable, most users are reluctant to embrace them.
Westport Innovations only came into existence after UBC’s University Industry Liaison Office pitched Dr. Hill’s early research to Westport founder and current CEO, David Demers, with the promise “to save the planet with this new clean technology.” But even before the pitch was made, it took Dr. Hill six years to convert his research into a patent application, and six additional years of research before the UILO could approach Mr. Demers to launch the company.
This was only the beginning of the entrepreneurial process. Westport still had to learn how to build a gas-powered engine that could meet the needs of industry. The company learned three important lessons along the way.
First, in industries with complex supply chains, you cannot convince the end user to simply adapt to your technology, even if you think it is superior. Instead, you need to patiently work with established suppliers to gradually win them over. One of Westport’s important breakthroughs came in 2001 when Cummins Inc., one of the largest diesel engine manufacturers in the world, formed a 50/50 joint venture to develop and market low-emissions high performance natural gas engines.
Second, you need patient capital. Venture capital would have been the obvious source of funding, but until a few years ago venture capitalists took little interest in clean engine technologies. Westport aggressively pursued all grant opportunities, and listed the company on the Alberta Stock Exchange. It also renegotiated its licensing agreements with UBC, focusing on a long-term pure equity arrangement. The company also avoided granting preferred shares that would allow investors to liquidate the company. It needed investors who were in it for the long haul.
Third, you need to seize the winds of change. In the mid-2000s, the business world discovered “clean tech,” which is essentially what Westport had been doing for decades. The company quickly seized the opportunity, expanded its product range, added new strategic partners, and landed important engagements, including the Port of Los Angeles, which was desperately looking for cleaner engine technologies.
So here is a recipe for radical innovators. Find a brilliant university researcher with a promising technological idea, add some patient capital, mix in some partnerships with established industry leaders, let it simmer for up to a quarter of a century, and serve hot when the time is ripe.
Thomas Hellmann is the B.I. Ghert Family Foundation Professor in Finance and Policy, and Director of the W. Maurice Young Entrepreneurship and Venture Capital Research Centre at the University of British Columbia’s Sauder School of Business.
