Rebuilding Ben Featured

9:52am EDT July 22, 2002

Last year was a bad — some say sad — year for the Ben Franklin Technology Center of Western Pennsylvania, perhaps the worst. That’s when the state-funded program, designed to help companies develop new technologies and, ultimately, jobs, came crashing to an ugly halt, beset by mismanagement, extravagant spending and scandal.

The debacle attracted the attention of the U.S. Postal Service, the state attorney general’s office and others who continue to sort through the sordid mess left by its former executives. It’s a mess that very well could have destroyed the much-needed funding mechanism that was responsible for the development of many a new technology in the region over the past 14 years. But it didn’t.

A new board of directors this past February hired Douglas Goodall, a high-tech entrepreneur and early-stage venture consultant, to fill in as interim president and reconstruct the program. Then he was asked to stay, and he did.

What Goodall, now president, and the board have created is a whole new organization they are calling InnovationWorks. While signs of the old Ben Franklin program’s better qualities still show through, it has a much tighter focus both in scope and audience.

Goodall says the organization, which still is an affiliate of the statewide Ben Franklin Partnership program, is ready to begin investing its $5.7 million of new foundation and state funding in as many as 20 high-tech start-ups in the region this fall. And that’s just the beginning.

In this month’s One on One interview, Goodall shares his Ben Franklin Partnership philosophy in light of the scandal and where he plans to take the resurrected organization that ultimately is designed to help Pittsburgh entrepreneurs create new companies.

How did you wind up in this position?

It was really by chance, as a result of the management problems that erupted at the Ben Franklin Technology center more than a year ago. The fall of last year, the board of directors of that organization resigned and was replaced with a brand new board of directors.

The new board had one person who was a carryover from the prior board, by the name of Bill Hulley, from Adams Capital. I’ve known Bill for a number of years through being involved in the technology community.

I was continuing at that point of time with my consulting business, basically working with young technology companies, such as Vision Systems, to develop their business plans, define their marketing strategies or raise money. Also last summer, I had remarried after losing my first wife to cancer a few years ago.

Then I started looking at what I was going to do and thought this might be a good time to go back into the technology field running another company. I was toying with the idea of leaving the region, because there was an opportunity in San Diego that was chasing me, one in Boston and a couple in Washington, D.C.

Knowing all of that, I got a call in January from Bill Hulley shortly after he had been named chairman of the new InnovationWorks board of directors, which is the replacement for Ben Franklin. He said, “Doug, have you left town yet? Would you consider doing this?”

He said that for 90 days or so, they would like someone to come in, run the organization, work on the cleanup of all the audits and investigations, as well as help the new board write a new strategic plan so they could get the new organization funded.

I thought, that sounds kind of interesting. It’s got that soap opera piece, scandal. It’s got a side of the business I’ve never worked with before, which is government-based organizations, nonprofit funding.

But writing a new plan is what I do for a living, especially for technology companies. So this could be a fun consulting engagement.

What did you find when you got here?

One, the staff that was still here — 14 people who had to live through all the bad press, all of the scandal, and still do their jobs day to day. They were really committed, hard-working people who were just kind of seeing through all of that. But they hadn’t bailed out, they hadn’t caved in, they hadn’t given up. That was pretty impressive to me.

The second thing, which took awhile for me to understand and appreciate, was really a very noble mission. The Ben Franklin mission, which goes back to the early ’80s, when it was formed, was — and is — a good program. And perhaps it’s one that really offered a stepping stone to a new powerful regional economic impact organization. That was positive.

The third thing was this scandal. Indeed, it looked like there was mismanagement, but it wasn’t consuming the center. It was all-consuming in the press, but in reality, steps had been taken internally to address any of the management control problems that existed

There were a lot of — and there still are today — outside investigations going on, and what I discovered was we have no control over those. If the U.S. Postal Inspector or the U.S. attorney general wants to do an investigation, they’re going to do it.

Have they told you how long they think those will take?

No. As best we can gauge it, hopefully they’ll be done this fall. But they move slowly. They’re doing very, very detailed audits, most of which have been completed. But those took months and months because they literally had to go back and look at multiple years of history — every transaction, talk to every person.

In light of where you’re going with this organization and what you’re able to say at this point, what do you think went wrong?

I don’t know what went wrong. Clearly, without speaking in areas that I shouldn’t speak to, management controls in terms of what was done in managing projects that the federal and state governments wanted done appeared to be weak.

Money that was spent on projects probably shouldn’t have been spent or was not managed effectively. From that, it just kind of accumulated over time and kind of imploded on itself. I’ll never be able to figure out what would motivate someone to lose those controls, but it happened.

Define InnovationWorks.

InnovationWorks is still affiliated with the state Ben Franklin program. If you look at the Ben Franklin mandate and charter — you need to understand that to put InnovationWorks in the right context — Ben Franklin was formed by the Commonwealth of Pennsylvania to provide an economic stimulus to new job growth opportunity, specifically new technology companies.

In 1998, we had the management blow-up in the Pittsburgh center. One of the positive things that came out of that was that it gave a chance to the community to pause and say, “We’ve got to fix the management problem, and we could just close it down and be done with it. Or is this actually a chance to continue it, but since we paused, trying to reform it a little bit?”

First, there’s clearly a business need. In our region, my observation over the past few years is we have turned the corner, and there are more and more young, entrepreneurial-led technology companies being formed — software companies, robotics companies, biotech companies. Perhaps not anything close to what you’d expect in Austin, Boston or in the Silicon Valley, but definitely a lot more than we’ve seen in the region in the past.

The second thing is that, with those young companies, you start to look at how many of them make it and how many of them fail. Clearly there’s more failure than successes; that’s just nature regardless of the industry. On the other hand, there’s a chance to increase the success rate if those neonatal-state companies are given the appropriate support so they don’t have infant mortality.

Clearly one ingredient that was missing that would increase the success rate of these young companies is the availability of risk capital. The other things that impact a young technology company are, “Great, someone just gave me a little money so I can hire a couple of engineers to build this product, but if it’s successful, then I need to hire staff, I need a building, I may need a lab, I need production, I need a marketing strategy, I need lawyers because I need protection for the property,” on and on and on.

All of those business issues start to become a threat just because they have to be done, but they consume so much time and resources.

Maybe this was a great chance to form not a new organization, but take the existing Ben Franklin and twist it and turn it a little bit and focus it and make it the resource that provides those two things which we’ve now determined this ever-growing group of young start-up companies need to really survive.

Our mission won’t be to create young companies — that’s for the entrepreneurs to do. But we can go, on a very focused basis, and redefine the southwestern Pennsylvania mission for Ben Franklin, and as part of that, we ended up changing the name.

What we want to do is go forward doing one thing only, which is targeting early-stage technology-based companies and working with them to make sure they survive. We’ll let somebody else worry — and there’s some really good organizations out there doing that — about work force development. We’ll work with other organizations like SPIRC, whose mission is to make sure the deployment of technology takes place in small to medium-sized manufacturers.

What kinds of services will you provide as InnovationWorks?

There are only three programs under the new InnovationWorks. One is, we’re going to provide risk capital — but not the way we used to. The way we used to was we would give grants up to $100,000 to develop a specific technology project. When it was done, we were done. So they were very short term.

Also, they had royalty repayment programs tied into them, but rarely did we ever get royalties from them because it was too short term.

So we’ve changed that now and said, “We’re going to provide investments that are actually not going to be grants but true investments. You’re going to have to pay us back. But we’ll do it in three stages.” The first stage is to develop the technology, and we’ll invest $100,000. In fact, we’ll do it up to three times with a young organization if it takes that much time and money to develop ... starting from idea.

Once they get through that stage, they now have something where they can make a product and would like to go get their first customer and maybe complete a business plan. We’ll invest up to $300,000 for that stage. We call it the commercialization investment.

If they’re successful with that, although nature says that not all will be, the next level we could measure is they now have a product they’d like to take to market and need to be building the production capability or the support organization, the sales organization.

We call that the emerging company phase. We’ll invest on a very select basis up to $500,000 at that stage.

So if someone were to start with us with a good idea and survive through the whole process, it’s conceivable we could invest up to $1 million in a company over a long haul. It’s really different from before. Before, we gave relatively small awards for a project.

So really the model we have right now is focusing on very, very young companies and working with them until they are strong enough that they could, on their own go, out and qualify for traditional venture capital or bank financing.

The second program is what we call Enterprise Advocates. When we invest in a company, we’ll assign an enterprise advocate to them. The enterprise advocate’s job is not to manage their company for them.

But it’s to stay with that company for as long as we have an investment and to work with the management of that company to identify other things they need.

In a third program we’re developing [Innovation Network], we’re going to identify all of the business resources that exist in our region that could help a young company grow and help coordinate those services so the young companies have access to those resources.

Now for the money itself — what do people have to do to tap the Innovation Fund?

The plan we have is that all of our investments will be convertible. Basically what that means is that it will be a loan. We want them to be friendly loans, though, because our goal here isn’t to become a bank.

It’s to help the young companies grow, but also to make sure they view this is as an investment, that the entrepreneur realizes this is a very serious endeavor.

Any gains we realize out of that stock, we put back into the Innovation Fund so we can go out and reinvest it in the next young technology company.

If two out of 10 [start-ups] were surviving today and we could get that to three out of 10 or four or five by providing this early-stage capital and these business service support programs, then we will have accomplished our goal, which is, in time, those companies will create jobs.

If we focus our measurement on job creation only, then we’re missing the boat.

How to reach: InnovationWorks at (412) 681-1520

Dan Bates (dbates@sbnnet.com) is editor of SBN.