Following is an interview with Tom-Ivar Bern, Senior Advisor in Innovasjon Norge (IN). Tom-Ivar Bern, who holds a M.Sc. degree in management from BI Norwegian Business School and a Cand. Scient. degree in math from NTNU, is responsible for the maritime sector and the oil and gas sector in IN’s office in Trondheim, Norway’s technology capital. He has since 1999 advised a large number of technology companies and research organizations regarding their applications to various of IN’s funding schemes, he has strong perspectives on what constitutes and what does not constitute a winning application, and he has been eminently positioned over many years to reflect on why technology SMEs succeed or fail in the market.
Innovasjon Norge is the Norwegian Government’s main instrument for innovation and development of Norwegian enterprises and industry. It provides access to a broad range of business support services (incl. advisory services, promotional services and network services) as well as a range of soft and hard funding schemes. For more information about IN, see www.innovasjonnorge.no.
In the interview, Tom-Ivar reflected on the issue of compiling winning applications to IN’s various soft funding schemes, as well as the issue of how technology-SMEs can improve the odds of succeeding in the market place through early focus on sales and business development. The following is an edited transcript of our conversation (translated from Norwegian).
CI: Could you give us an overview over how many applications for funding do you receive every year? How many of those are eventually approved, and what are the main reasons for not approving an application?
Tom-Ivar: I review around 40-50 applications per year from technology companies, for soft funding and loans for innovation projects, and guess I have been involved in around in total 750 applications. Of these, I assess that 85-90% have been approved. We generally try to provide feedback throughout the application process so that neither we nor potential applicants use time on applications that we know in advance will not be approved.
We generally require projects to have good innovation height, global potential at least in the sectors for which I am responsible, a solid business case (incl. good market estimates), a credible financing package, and a team of key people with an ability to execute on the plan. Failure in one or more of these areas will typically result in rejection.
CI: Of these reasons, which one would you assess to be avoidable or fixable, with proper effort?
Tom-Ivar: I would say that in early-phase cases where we have doubts we typically tend to refer potential applicants to our free advisory services: Novelty search in national and international patent bases. Or scheduling meetings with our business planning advisors for a two to three hour session on budgeting and business modelling. In general, we IN are willing to take risks, but it is also our duty to say no to applicants where we have doubts about project viability.
CI: I assume that most of your client companies use a variety of funding mechanisms, from VCs to IN to banks to founders’ private funds. How do you see IN’s role in this mix, and what mix appears particularly conducive for success?
Tom-Ivar: Yes, our clients tend to leverage a mix of financing mechanism, from the traditional three Fs (friends, fools, and family), to various governmental funding schemes (including IFU and ‘Etablererstipend’), to VCs, to in certain cases banks. However in most early-phase cases, we tend to come in earlier than the typical VC.
We generally work well with VC firms, and appreciate their role as competent capital, which generally they represent. A personal reflection is that sometimes they seem to sit on a board, as representatives for their firms, rather than work as board members. This distinction may explain certain instances of sub-optimization and also my slight skepticism to role of VCs for start-ups. It also leads into the general discussion about the value-generating board, in which I have a personal interest.
CI: What is also the general engagement model that IN seeks to implement for a typical technology company-type of client?
Tom-Ivar: Our model clients tend to use the full range of our services, from soft funding, to risk loans, to low-risk loans, to advisory services, to our international network, and to joint stands or pavilions at major conferences and tradeshows. In practice, though, most clients leverage only a subset of our full range of offerings.
CI: We have over the last decades seen the emergence of new players in the innovation system. I am here thinking of various incubator concepts as well as application consultants. Is this a good or bad thing, and how will you advise your clients to make effective use of such assistance?
Tom-Ivar: Let us start with the application consultants, about which there has been quite a lot of press coverage over the last few weeks. IN has no perspective on this matter, as long as we receive quality applications for innovative projects, and as long as applications are well anchored within the submitting organizations. However, we do think that it should be perfectly doable to submit a funding application to IN without external assistance and without excessive use of time.
About incubators, I have personally a number of clients that sit in various incubator concepts. Such incubators seem to provide a good social context for smaller start-ups, in the sense of coffee machine, fax machine, reception, and meeting rooms. However, they don’t really seem to deliver on their stated claim to provide entrepreneurial competence to their lessees. As such they are just slightly more advanced lessors.
On a tangent, I would like to say that I am a strong believer in broad participation in the innovation system, and like to quote the story about the canteen lady of one of Norway’s largest ad agencies, Dinamo, who is rumored to have been the source of the idea underlying one of Dinamo’s most successful campaigns and for a major client.
CI: You have reviewed hundreds of applications with information about strategic plans and financial projections. Of those approved, how many project would fall into the category commercial failure?
Tom-Ivar: We do not in IN systematically follow up project success rates or company survival rates after the fact. However, we believe that with the 19% bankruptcy rate estimate reported in the press (see e24.no/naeringsliv/innovasjonnorge/innovasjon-norge-deler-ut-milliarder-har-ingen-konkurs-oversikt/20337046) and possibly a 40% total rate of failure, also including other failures than bankruptcy, we do significantly better than most VCs. It is also part of our business model to take risk, and the issue is really whether we take enough risk.
I have also a colleague further north in Trøndelag, who has done a detailed study of the bankruptcy rate for participants in a specific IN-program, FRAM, compared with that of a control group of similar non-participants. The bankruptcy rate was 0% for participants compared with around 10% for the control group.
CI What are in your opinion the typical reasons for clear failure?
Tom-Ivar: Again, we do not have available statistics for such purpose to my knowledge. However, a recent case in which I was personally involved was about too long time, too much work, and too much complexity between the successful technical / scientific invention and the subsequent industrial commercialization, probably in combination with owners that were simply not ready for it. I think this was a fairly typical case.
CI: From your experience, do you see systematic differences across industries regarding sales performance and sales culture, and are there industries that perform particularly well / poorly?
Tom-Ivar: I believe that the maritime sector, and the oil and gas sector, of which I have first-hand knowledge, have reasonably strong sales cultures, and consistently so.
One sector where we in IN observe less consistent performance is tourism. However, also here we see examples of stellar sales performance from this industry and I just heard from one of my colleagues a story about a minor operation further north in Trøndelag with 100% occupancy from April to September, and based on extreme sales focus on recreational fishing for Germans (incl. German TV channels and only advertising in German angler magazines).
CI: In sales, I guess we to some extent talk about individual performance. What is the typical profile of individuals with high sales performance? Born or bred? Engineer or dedicated sales person?
Tom-Ivar: I guess it depends. In early-phase companies we often observe that the founder is doing a relatively solid job, but on a few strategic deals, simply based on enthusiasm for whatever he or she is offering to the market. In later-phase companies, there is a need for more process, more consistency, and more volume (of opportunities pursued), typically in the form of a dedicated sales organization. Switching from the first model to the second model is just part of growing up for a technology SME, but may sometimes be painful for the founder.
Regarding the issue of engineer vs. dedicated sales person I believe we are seeing a trend towards engineer-to-engineer marketing in combination with sales and purchasing conducted by highly professional sales and purchasing functions. The professionalization of sales and purchasing functions has probably been driven by the globalization of the markets, pressure from the stock markets, and organizational qualification programs like Achilles.
CI: Can sales performance be developed through training and organizational development programs? What can IN offer in this area?
Tom-Ivar: We definitely think that sales skills can be developed through training, and through essentially good sales processes. IN does not currently have an offering in this area, but in my opinion we should consider such an offering.
CI: Could you describe a couple of success stories to which the services of IN contributed significantly to their successes? Why do you think they succeeded?
Tom-Ivar: Two companies come to mind, and they succeeded for very different reasons. One is Aptomar, which does tactical real-time safety solution for navigation aid, vessel safety and security, environmental monitoring, and SAR. It is now a NOK 68m company with 23 employees, and worldwide presence. I think they have succeeded because of getting the right VCs in, specifically Statoil Technology Invest, in an early phase.
The other one is Cybernetica, which does model-based process control for oil and gas, metallurgical, polymer, and energy management applications. It is now a NOK 12m company with 10 employees. I think they have succeeded because of the way it was formed, as a spin-off from an independent research organization, SINTEF, through essentially an MBO.
CI: Last question, how do you see IN’s role change over the next 10 years, and how could such change increase its ability to promote innovation in and development of Norwegian enterprises and industry.
Tom-Ivar: I think we have been pretty successful because we are a single entity with a broad range of offerings, from funding, to advisory and competence services, to network services, to market information based on our foreign offices and our affiliation with Norwegian embassies abroad. This is a different model than that typically used in larger countries. I am hoping that we will have the same model also in the future. If anything, we will want to become less centralized, more transparent, and better at engaging in relevant dialogues with internal and external parties.