Building Strategic Partnerships

Engineering schools are banking on entrepreneur programs to help students cash in on their ideas.

By Dan McGraw

Back in 1995, when Erik Selberg started work on a new Internet search engine that would become MetaCrawler, thoughts of licensing and stock options never crossed his mind. The University of Washington computer science doctoral candidate was merely reacting to his own frustration at having to sift through the screenfuls of useless or defunct Web sites that standard search engines delivered to him. So he did what engineers do-he built a better mousetrap, in this case a software robot that links to other search engines to provide one-stop Web searching.

Working with Oren Etzioni, a University of Washington computer science and engineering professor, Selberg perfected MetaCrawler and, as is the case with many better mousetraps, they found commercial demand for the product. MetaCrawler became one of several software applications held by Netbot, Inc., a holding company founded by Etzioni and his UW colleague Daniel Weld to market software developed at the university. And as is common in the furious and fast-paced world of high-tech companies, Netbot was eventually purchased by Excite, Inc., which recently merged with @Home Network.

The university, the professors, and Selberg all profited from the software deals through licensing agreements, royalties, and stock options. But for Selberg, 27, who was not well versed in the world of venture capital and business plans, the experience was jolting and humbling. He saw others make substantially more money from his invention than he did, and though he is happy with how things turned out-when he graduates this spring he’ll have a small nest egg from his stock options-he realizes now that he was unprepared to handle the business side of software development.

For Selberg, his choices for getting MetaCrawler to the public came down to either starting his own company or using the university infrastructure. From the beginning, the task of forming his own company was something he ruled out. “I learned quickly there were amazing problems with getting a company going,” Selberg says. “You need to find capital, you need to hire the right mix of marketing and technical people. At the time, I didn’t know how to do all that, and I also wanted to stay and finish my education.”

New Skills for a New Workplace

For many engineering students-particularly those in computer sciences-a practical knowledge of business is becoming almost as important as the technical disciplines in their education. With so many engineers involved in start-up companies, university engineering schools are developing programs that teach entrepreneurial skills, such as how to deal with venture capitalists and how to write a basic business plan. And a strong entrepreneurial education program is now a drawing card to recruit the best engineering students.

Tom Byers, an associate professor in the Stanford School of Engineering and director of the Stanford Technology Ventures Program, says engineering schools are heeding the call for more business skills. “You don’t want to turn an engineering school into a business school. At the same time, you can’t deny this need for skill development,” Byers explains. “These entrepreneurial skills are now considered vital, alongside the understanding of the technology and the science. The economy and the speed at which business operates is making entrepreneurial approaches very important, whether you’re working at a Fortune 500 company or a start-up.”

The technology-heavy Nasdaq Index closed 1998 up 39.6 percent – its fourth consecutive year with gains over 20 percent.

By launching these programs, engineering schools are reacting to changes in the marketplace and the structure of the economy. Companies are facing tremendous cost pressures, and it is now cheaper to buy technology rather than develop it in-house. In fact, many companies are restructuring so that the vice-president of research is now the vice-president of technology acquisition. And the old business model where engineers create in the back shop, salespeople deal with customers, and management types oversee the process is being razed as fast as new technologies are being developed.

According to U.S. Census data, 10.5 million workers were self-employed in 1997, up from 7 million in 1970, and according to some estimates 20 percent of the workforce could be self-employed within the next decade. Also, according to Census reports, the number of businesses with fewer than 500 employees has grown by a third since 1980, while the number of companies with more than 500 workers has remained virtually unchanged.

In this new economy, it is likely that at some point in their careers, engineers will be self-employed and be involved in marketing and sales, quite a change from engineers’ career experiences of even a decade ago. And the ability to earn a higher salary will depend on their ability to master the many facets of business life. So not only will they be responsible for marketing their inventions and product upgrades, they will need to market a much more important commodity-themselves.

How Do You Add Business?

How engineering schools go about meeting these student needs is at the center of great debate in the field. How much responsibility does an engineering school have for providing its students with information on how to write a business plan? Does an emphasis on the commercial aspects of engineering naturally cause the pure science education to suffer? Are engineering schools in danger of becoming more like M.B.A. programs, or even worse, trade schools?

Universities are tackling this problem in a number of ways. The most successful are melding business school courses into the engineering curriculum, and more important, exposing engineering students to the culture and lexicon of business students. At the University of Illinois at Urbana-Champaign, business and engineering undergrads can receive a minor from the Technology and Management Program, where they work in teams on solutions to real-world problems.

In 1998, 273 inital public offerings on the Nasdaq raised just under $14 billion in investment capital.

Russ Jamison, a materials science and engineering professor at the University of Illinois, says they are reacting to the needs of their students. “We’re finding a significant number of our undergrads know that their long-term objective is to work for themselves as entrepreneurs,” Jamison says. “We really need to prepare them so that they understand how a company starts. We are trying to prepare them to think outside their own discipline.”

At Stanford, the emphasis is not on providing a hybrid business/engineering major, but on providing students the opportunity to take courses in entrepreneurship based on individual need. And the courses are becoming more and more popular, despite crushing engineering course loads. More than 200 students tried to sign up for an entrepreneurial finance course in January; only 60 seats were available.

Byers says a lot of schools are struggling with how far they want to go to meet this demand. “We don’t measure success by how many startups we get going. We see ourselves as a true university and not an incubator,” he explains. “But underlying our approach is to provide the skills we think will result in a successful engineer. Part of those skills is having a basic understanding of business skills and entrepreneurship.”

For the University of Wisconsin-Madison, the Technology Enterprise Cooperative offers students varied courses in entrepreneurial skills and provides co-op opportunities at existing companies. In addition, the university will provide students with seed money-up to $25,000-to get product prototypes developed. Lawrence Casper, assistant dean of engineering and director of the Technology Enterprise Cooperative, says the business school has been doing this for more than a decade. “What we are seeing is a great response from larger companies, who support what we’re doing because they need engineers who understand the basic challenges of the business world,” Casper explains.

Boston University is also responding to the demand for more business-oriented programs in its engineering school. The university, using state, federal, and university funding, created the Center for Photonics, which is developing applications for radiant energy from photons. Entrepreneurs who use the center have access to the university’s business, marketing, and engineering expertise; and engineering students get the chance to work with the center’s entrepreneurs as the new companies are created, explains Clifford Robinson, assistant director for the Photonics Center. “We are teaching our students by plunking them into start-up companies that are very real,” he says. “They are watching and learning about the process of raising capital, the importance of marketing, the very dynamics of a new business.”

A 2.7 billion increase in technology investments in 1998 propelled venture capital to an all-time high of $14.2 billion

But implementing these programs into the rigid world of engineering curricula can be difficult. Denis Nock, director of the Center for Entrepreneurship at the University of Colorado-Boulder, says the major challenge is making it easier for students to fit entrepreneurship electives in with their required engineering course work. Of the 600 students taking courses in the entrepreneurship program this year, most were business students; only about 100 were engineering students.

“The problem right now is the rigid requirements in engineering programs,” Nock says. “But we’re seeing the thinking changing. In the past, an engineering professor who embraced entrepreneurship notions was considered a maverick. Now we’re seeing more and more professors embracing the concept because the student interest is obviously there.”

A New Standard

Business basics are already becoming an important part of an engineering education. Whether it involves understanding the workings of venture capitalists or how to come up with a basic business plan, the need to teach entrepreneurial savvy is gaining acceptance, and schools are modifying their programs to go beyond application and research. No one expects every student to develop the next Microsoft, Yahoo!, or Lycos, but more and more, engineers are going to be required to venture outside of their scientific box and universities must prepare them for the challenge.

As for Erik Selberg, he hopes to work for a company that is in its “adolescent stage” after graduation in June. He says he wants to learn a little more about the business of starting a company before striking out on his own. “You don’t just jump out of school and say, ‘Whoopee, let’s start a company,'” Selberg says. “There are so many things you have to know. Along the way you learn. But the best way to learn is to start being immersed in this knowledge as early as possible. You’ll never know when you’ll come up with something and really need it.”

Dan McGraw is a senior editor at U.S. News & World Report.