Success Stories Transcript
Participants:
Gil Van Bokkelen
Chairmen, President & CEO, Athersys, Inc.
Joe Frolik
Associate Editor of the Editorial Page, Plain Dealer
Joseph P. Keithley
Chairman, President & CEO, Keithley Instruments, Inc.Dr. Olu Lafe
CEO, QuickCAT TechnologiesCarol Latham
President & CEO Thermagon Inc.
Ed Yenni
President, LogiSync CorporationMR. FROLIK: Thank you for joining us today. I'm glad to have you all here. As you look at this region from the standpoint of five individuals who run technology-based or technology-oriented companies, what's the one thing that perhaps makes you the most optimistic about this region's future and under the same token, what's maybe the thing that makes you the most nervous or pessimistic. Joe, let's start with you.
MR. KEITHLEY: I think the thing that makes me the most optimistic is there's a general widespread recognition of the fact that we have to do a lot to strengthen and diversify our regional economic infrastructure. I think that that's something over the past 12 to 18 months that people have really focused a lot of effort and energy on in terms of understanding that there's a real problem that we have to get in front of and I think that that widespread recognition hopefully will lead to some real definitive and tangible steps that can hopefully get us where we want to go or at least get us headed in the right direction.
I think the thing that I'm a little bit pessimistic about is that there's a lot to fix. I think if you look at Ohio's performance and Northeast Ohio as well over the past decade or even longer, we have really slipped in a lot of different ways and I think that we have to take action now and I think in a lot of different areas if we want to do things like reverse the brain draining or the chronic loss of talent from the region and also do more to try and promote growth and development of high quality economic opportunities that are really going to be our foundation for the State's economy for the next few decades to come.
MR. FROLIK: Olu.
MR. LAFE: The potential of the region in terms of resources and the infrastructure and what we call the Midwest value system and the system here in this region I think is great. The thing that makes me nervous is what I'll call an attitude in the region, attitude towards education, attitude towards risks, venture investments and things like that. That makes me very nervous.
MR. FROLIK: Ed.
MR. YENNI. Well, Joe, I would have to agree with Olu and Gil. I think we have strong institutions in the area. I think the quality of life here in Northeastern Ohio is very high. All of us travel, I know, and it's very gratifying to be able to come back to Northeastern Ohio area and not have to put up with a lot of things that people in other cities have to put up with.
By and large, we don't have the traffic problems and things that other areas have. So the quality of life here I think is very high. I think we have strong institutions with our educational institutions, with NASA. There's only ten other places that can lay claim to having a NASA center here in their backyard. I think that that's very important and the role that Patel is playing with NASA as well.
What makes me pessimistic, I guess, is there is a lot to change as was indicated a little bit earlier. A lot of the old line companies that we know and love are going away on us. I mean, we see just in the past year, we've seen LTV Steel go away, TRW, the changes at Nela Park with General Electric, so these are things that are a concern. So there is a lot of work to do.
MR. FROLIK: Joe.
MR. KEITHLEY: Well, I would like to build on what Gil was saying, as well. With respect to what I'm positive about is just that there is a recognition of the need to change in that intellectual property is really where job growth can be. It's having the people here talking about it who are much better equipped than I think people were several years ago and particularly people in public roles like Mayor Campbell or Governor Taft but also people in the universities.
I think when I see someone both like Jim Wagner at Case Western Reserve as well as Ed Hundert and Luis Proenza at University of Akron, just to name two, these are people who have done this before who want to be able to do it here. That, to me, is very positive because it's, really, it's going to be research as well as the entrepreneurs, the young companies that are going to make it go.
From the pessimistic standpoint, it would be that there is so little money being spent on graduate education, spent on research here in the state and I wish the engineering schools were stronger and that we had more going on with research activity.MR. FROLIK: Carol.
MS. LATHAM: Yes. I agree with all of your comments, certainly, and I could be a little more specific as it relates to Thermodyne itself. For us, when we started our company, we needed a ready work force and a physical plant that could make sense for us and that's one thing that Cleveland offers in terms of a manufacturing company where it is not just a design center, where we need a group of people to help us make our products, that has worked very well for us in Cleveland as well as the space to renovate and to put into working order for a manufacturing facility. Those were positive things that have occurred that are a little more specific than just the other comments that have been made about the awareness of the problems here which I'm certainly well aware of, as well.
The things that I'm very concerned about have been pretty much mentioned before, the brain drain, the young people, the young adult culture here, that we are losing our people for I think technical as well as social reasons and the fact that we've lost so many of our corporate headquarters and those kinds of companies, even though many of the jobs do come from small companies do support the arts which have been such a valuable resource to Cleveland. So that is a real concern because I think it's that culture, and the whole thing is a package that must work together, not only technology but with all the other aspects of making our quality of life, as Ed had mentioned, what we want it to be.
MR. FROLIK: Okay. We're going to come back, I think, over the course of the next hour to a lot of those topics. So first why don't we go to the first segment which is about Ed's firm, about LogiSync.
All right. Thank you. Now, Ed, I was struck by the experience of how you learned to become an entrepreneur, going to the library and getting books. Even if I read this book, I don't think I could probably become an entrepreneur. Somehow I don't feel that it's in me. What is it that makes someone an entrepreneur? Do you think it's something that you are born with or that you can be trained for? How do you know that it's in you to start and run a company?
MR. YENNI: I think there are a few different types of entrepreneurs, at least that I have met. I think there are those that feel they have maybe a better mouse trap. They are working for their company and maybe have an idea and try and advance that idea and it gets shot down for whatever reason and so there are the better mouse trap type of entrepreneurs. They then leave their job and go off into the marketplace on their own.
I think there's a second type that would be considered more of an opportunist and I think I fell into that category where I saw a trend that was occurring in our industry, a trend moving away from what's known as centralized controls to distributed controls and I saw that that trend was going to occur over the next 10 to 15 years and so I wanted to seize that opportunity.
The third type, I think, of entrepreneur there is is really what I refer to as an operator, someone that just loves to operate a business and they don't necessarily care whether they are selling ice cream or involved in the electronics industry. They just like to operate businesses, and so I think it really depends on the individual person.
MR. FROLIK: Carol, like Ed, you were in a major corporation. You were at Sohio which became BP and was it Rockwell. How do you know when you're in that environment that you need something different for you to thrive as a person?
MS. LATHAM: I think that you need a vision, for one thing. I think vision is very, very important and that you believe in the vision and I think there is no way in a large corporate environment to carry out any type of a vision. And as Ed referred to, I saw a market need. I saw heat becoming a greater and greater problem in the electronics industry and set out to find a way to help solve that problem and really did some of the basic research in the large corporation with really very little interest. And so I then moved forward without having the necessary physical things that you think you would need to run a business.
You need to have the vision and I think that you need to be willing to not need instant gratification and you need to be willing to take risks and you need to be willing to sacrifice in some cases to really take a step back in your lifestyle and what you're doing, if need be, in order to carry out the vision which you really need to believe in and believe that it's sound. And I guess last but not least, I think that you probably need to have a lot of perseverance.
MR. YENNI: There is nothing like living without income that will test your vision.
MS. LATHAM: For ten and a half years.
MR. FROLIK: Now, you have an undergraduate degree in economics or two degrees, one of them in economics. So you have the closest -- I don't think we have an MBA around the table, so the closest to someone with a business background. When did you know that what you wanted to do was to found a business and start a business.
MR. VAN BOKKELEN: I actually came to that realization when I was at Berkley and actually began studying molecular biology which was the other degree that I earned when I was at Cal and along the way -- initially, I sort of intended to go to medical school and that's what I was going to pursue as my professional career, but I began taking business econ. courses and I discovered that I had a real passion for it and a knack for it, as well. And along the way, I began looking at the emerging opportunities in the biotechnology industry and I realized that this was an area that was going to reshape the world that we live in in a very fundamental way and it was going to change the way that medical care is delivered to all of us and for generations to come.
So I began to think about how I would like to best use my interests, talents and capabilities in terms of pursuing a professional career and I realized that biotechnology was a unique opportunity. It gave me an opportunity to take advantage of my scientific and technical inclinations along with my economic and business inclinations and combine them in a way that would give me a unique, I think, career opportunity, so that's what I decided to do.
It was after that that I was offered a research position at Berkeley where I stayed for several years and went to Stanford to do my graduate work and earned my Ph.D. in the genetics department. But it was really at Berkley that I decided I was going to pursue a career as an entrepreneur in the biotechnology industry. A lot of the details had to be filled in over time, but I had a pretty precise idea what it was I wanted to go after even as far back as that.
MR. FROLIK: Now, Olu, when you came to the United States, you were a graduate student; is that right?
MR. LAFE: Yes.
MR. FROLIK: Was the idea at that point, did you think you would end up running a company or starting your own business, or when did that appear on your horizon?
MR. LAFE: Well, I think I was born into this, as you can see from my Northeast Ohio accent. I grew up in Africa. I was born in Africa. I was born and my mother raised me. She was a business woman by every standard of the word, so I was born into risks. We took risks. It was very dangerous to live in Africa, even though it was 50 years ago.
I grew up taking risks, living risks, facing risks every day to survive every day. To go from day to day is a major risk, so by the time I got to the United States and was in Ivy League, it was a piece of cake for me, the education and all that.
So after my Ph.D. At Cornell, I went into academics and became a professor at a number of universities where I knew all along that I was going to get into business one way or another because I wanted an environment where I could combine business with academics, and so I needed a research and development environment to do that where I could do what I wanted to do and solve problems that I felt needed to be solved and be able to live in doing that.
So there is cause there, the interest was there, so everything came together for me.
MR. FROLIK: So you're one of the born entrepreneurs.
Now, Joe, you're in a different thing. You took over a company that had been an established company, publicly-traded company yet there were some -- you went through some difficult times when you became head of the company and you had to sort of change the culture and sort of introduce entrepreneurs perhaps as sort of a cultural aspect of your company. Can you talk a little bit about that and how you do that in an established company where you have stockholders and many, many employees depending on what changes you wanted to make?MR. KEITHLEY: Sure. We think entrepreneurialism as a behavior. You want people to be empowered. You want people to be passionate. You want people to get results and you need to have them focused and that's really what the President does is get people lined up in terms of what you want to get done and they know it in their head and they know it in their heart, as well and this is kind of what we sorted out.
The reason high tech is so wonderful is because there are so many opportunities to make a contribution and to grow. So what we were able to do then was to sort out, when we were having some tough times, what it was that we were doing well and what was happening that was around us that we would also have to adjust to. And the approach that we took was to gather a team of eight or nine people from within the company and talk amongst themselves and then engage the entire work force as well as do some outside research work on it.
It's -- clearly, it's a journey, whether you are an entrepreneurial organization of 5 people, 500 people or 5,000 people, and to me, that's one of the most fun and rewarding parts is carrying on the journey, learning new things, bringing in new people, watching them develop, watching them grow and watching your contribution move forward. And that's what we've been able to show people, and as it's occurred, we've created energy.
MR. FROLIK: Great. Why don't we go from that, let's move on to our second segment which is on QuickCAT.
Okay. I believe when we chatted before today, before today's taping, you mentioned to me that when you were leaving Case Western Reserve, you talked to a colleague there when you were going to start the company. To basically paraphrase it, he said don't do it, it's too risky. You hear a lot of people suggest that, that Northeast Ohio for a long time thrived with pretty much a managerial mindset. Now we need to do more entrepreneurial, more risk taking.
How can you go about changing that culture. What are the kind of things that need to be done to change the culture in this community so that it is more -- it is less risk adversive, more willing to take chances on companies like yours and those of folks around the table and your colleagues out there across this region doing interesting and innovative stuff?
MR. LAFE: I think to use a baseball parlance, we need a few base hits, not a grand slam. Have a few base hits. And what I mean there is if you can have a few companies that have some success that will put the region on the map. Look at Pittsburgh, Carnegie Melon and some of these other universities. They've differentiated themselves in intelligence and some areas in information technology.
If you're talking about sudden areas in AI and IT, people think about Pittsburgh. I think Cleveland needs to differentiate itself there. A few companies need to have some success that will be big, not marginal success that will put the region on the map. That is why it was very important for me to raise money to distribute music over the Internet, because with the Rock Hall of Fame being here, I thought if we came up with digital music distribution, this is going to be the hub, this is going to be the center.
Are people making money in digital music distribution right now? No. But the potential is great, so you need some success there and I think if you can have the people who have the means here, the institutions, like I said, and all that, they should take risks on a number of companies. There's nothing like a hundred percent certainty. You have to take the risk. If you don't venture, you don't gain. That's the way it is.
So I think there needs to be some success stories that will come out of the region, maybe identifying a few sectors and concentrating on them and encouraging companies to develop in that area and have a few successes, have some IPOs and demonstrate that, if people are talking about this technology, they are talking about this sector, this market sector, Cleveland is the place to go. We need a success story. We need to start somewhere. We need to take that first step and demonstrate that we are able to succeed, not talk about it but sure that we are able to succeed.
MR. FROLIK: Do you agree with that, Gil?
MR. VAN BOKKELEN: I do. I think there's a lot of truth in that. One of the things that's a little bit difficult, I think people look at a place like the Bay area and Silicon Valley and they say, we have to try and replicate what's gone on there, and I don't think we need to do that. I think what we need to do is -- I don't think we're ever going to be able to replicate the exact circumstances or the things that came together to create Silicon Valley, but I don't think it's necessary to ensure a long-term growth and prosperity.
I think that, like Olu said, if we can focus on a few anchor type opportunities that grow to be the Fortune 100 companies of tomorrow, that's really where we should be trying to place the emphasis and place our bet, so to speak. I think you're absolutely right, Olu, when you say that we have to learn to tolerate a certain degree of failure because the reality of it is is that high tech entrepreneurial high impact type opportunities are going to have a certain degree of attrition.
Not every company that we invest in or every company that we put our resources behind are going to be successful. Venture capitalists know this. They live, eat and breathe this all the time. It's commonplace in other regions, but here in the Midwest and here in the state of Ohio, I think we have not done a very good job in trying to put our resources and our effort into creating more activity and doing it in a way that's really going to benefit the region. But I think you're right. Let's make it -- let's do it strategically and tactfully and basically put our bets into a few areas that we think are really going to deliver long-term growth and potential for the region as a whole.
MR. FROLIK: Joe, how do you get that? How do you change the mind-set of a region, of an area?
MR. KEITHLEY: Well, I think kind of building on what Olu said as well as Gil, you need a lot of singles. I don't see us as able to have two or three companies that are going to grow to be four to six billion dollars. I see it as lots of companies starting up. I look and think about Taiwan right now as an example, and they seem to have a big brain drain where people are moving from Taiwan to Shanghai, 250,000 people already, and all manufacturing in Taiwan seems to be going to China. So what's that poor country to do?
Well, I bring it up because we're not alone in this. This is an ongoing organic process and, in fact, I think it's tied then in to places like universities and the network of entrepreneurs that can spin off from the universities. So, as an example, at Case Western Reserve, they have a business plan contest and what amounts there is an initiative to have technology that's from within the university or from an alumnus or an alumni of the university, writes a business plan and gets some coaching from people who would know what a successful business start-up might be.
The benefits you get is you get the learning experience from the -- that particular experience. You get the other benefits from the people that are the coaches beginning to network with one another, because these are people not just service providers, they are venture capitalists, they are people who started up companies as well and you get a message that this is very important to do.
I think another major thrust -- again, it's built around universities -- is they need to have very good tech transfer agents. These are people who are business people like a Gil or an Olu who walk the halls of the university, know what the research activity is and have a sense of where or can it be commercialized and if so, who would be interested, because we aren't going to win with a few start-ups. In fact, Olu, you probably got some -- a reasonable reaction when your friend said to you, oh, that's high risk, because most start-ups don't work, but it shouldn't keep you from doing it, and if you don't do it with the first one, you do it with the second or third.
And what we need are lots of people doing that. We need it both in the formulation process with a new company, but I think in addition it's taking the technology and licensing, if you will, for smaller companies or larger companies, if you will. And I think that's why you can begin, then to work with the region. I think it's like minded people and then it's a major research university or two who have as part of their program commercializing their technology.
MR. FROLIK: Carol, given the mind-set of the area and one hopes it would be changing, when you're starting out, how do you find the people that help you, I guess, keep the faith and keep pushing ahead on something like this?
MS. LATHAM: I think it continues to be a problem, probably not just in Northeast Ohio but here where there are lots of good ideas. I think that was -- part of my vision was to be able to take an idea to market and make it become a reality and to provide something in the world and in the marketplace that was useful. But I find in trying to work with and help new companies even ten years later, it's still very difficult for these companies to get the funding, the seed capital, like Olu talked that he didn't get the money in time.
And I'm working with a company now that I have the same concern for where they may not get the support where they have a lot of large corporations interested in their technology. These are the kinds of things that worry me about Northeast Ohio and the sort of old guard resistance to risk and how we can engage, I think, the young people at the university level on up to understand and to sort of help. I think it's on them to change, to help change this culture and to have people be very receptive and be excited about new ideas.
It's true, they won't all work, they won't all succeed, but I think that's what, if we want to duplicate someone from Silicon Valley, no, we'll never be that. There's this excitement of new ideas there that we don't seem to have here and that's what concerns me.
MR. FROLIK: Now, Ed, you've been working with her and working even more closely with GLIDE at Lorain County Community College. Are you finding perhaps that support for your vision that you really need to grow your company? Is that a source for perhaps you and other entrepreneurs?
MR. YENNI: It is and I think what's happening at GLIDE and Lorain Community College is wonderful. I think it's exactly what our company needed at the right time. From the entrepreneurs I've know, they will take the risk, independent of whatever support mechanisms are out there, they will take the risk and so it's very important to make sure that there are groups like the Northeast Ohio Software Association, GLIDE and the other groups out there that can help.
I guess during the first probably seven and a half or eight years of our company, we pretty much put our heads down and went to work, did the things that we knew we needed to do to achieve our vision and it was only about a year and a half ago that we stepped back and realized that, okay, we've done some things that we're very proud of, but now to get to the next level, we are going to need to pull in some people from the local community and we are very pleased that we did.
I think there is a key issue to finding people that you work with that are compatible not only with your vision and your idea but with your risk profile, as well. That's very important. I think this bubble of the past several years where it was possible for a company to not have revenues and not have profits or no clear plan to profitability and to be able to do an IPO for atrocious amounts of money, I think those days are over and we'll probably be getting back to things people always paid attention to in business and that's revenues and profits.
MR. FROLIK: Great. Why don't we go to the next segment which is about Athersys.
Okay. Gil, you obviously are somebody who has done well in this region and is v ery enthused about the region and its potential. How do you get the words out both to people or would be entrepreneurs here as well as in other parts of the country that this is a good place to start, build and develop a technology based company.
MR. VAN BOKKELEN: Well, I think that's a great question and it's a big challenge. I think really we have to take a number of different approaches to actually getting the word out, so to speak. In my mind, there are a couple of big things we can do to try and promote the concept and the reality actually that Northeast Ohio is a great place to grow your business.
One of the things I think we can do, as Carol and Joe and several people actually have mentioned here is trying to connect with the young people that attend schools at the region's academic institutions and research institutions. I think that one of the things that many people have focused on, especially over the last few months is trying to promote entirely new approach to establishing linkages between local business communities and high-tech places of employment and the regional academic institutions through the creation of a regional internship type program that is an easy access type program so that businesses know right where to go and know how to get access, essentially, to the program and also how to create winning internship programs that provide high quality opportunities for the best and the brightest young minds that are being produced at the regional academic institutions.
And I think we can go further than that. We can actually create a program that reaches out to the national centers of learning to bring entrepreneurs here or would be entrepreneurs and students that go to places like Harvard and Stanford or other places and bring them here so they can get a taste of what life is like at a high-tech business in Northeast Ohio. And the hypothesis is is that many of those highly talented, highly motivated individuals will come here, like what they see in terms of the quality of life and the economic opportunities that are in place here and they'll elect to stay.
I think another thing that we could do and should do is try and recreate the aura of something that existed here about a century ago. A hundred years or so ago, Cleveland and Northeast Ohio was the entrepreneurial center of the world. This was where entrepreneurs wanted to be as they started their companies. We've lost that and we need to get it back. I think we need to take some innovative that actually create powerful magnets, if you will, and powerful incentives for early, hungry, early stage, really hungry young entrepreneurs to come here so that they will think this is an ideal location to grow their business.
One of the things, Joe, that you mentioned earlier was the concept of business competition and it's really being delivered now on sort of a local scale. I think we need to do that on a national scale. I think we need to create very powerful incentives that actually allow us to reach out to some of the nation's and even internationally, actually, those talented entrepreneurs and we can convince them to come here and start their businesses and I think that's how we're going to grow the Fortune 100 and Fortune 500 companies of tomorrow here in Northeast Ohio.
MR. FROLIK: I think most of you, perhaps with the exception of Joe having the established firm, having all had the question come up, why are you in Cleveland. How do you answer that? Ed, I think you specifically said you've had some of the companies that you've worked with ask you that.
MR. YENNI: Obviously, I'm from here so it helps a little bit from that standpoint. I really enjoyed the time that I spent in southern California and wouldn't trade the experiences that I had professionally and otherwise away for anything. I think that, you know, for our particular company and what we do, it's very important that we're located somewhere here in the Midwest because we are taking devices that have been manufactured here for decades and we're able to add communications to them. It's an opportunity for our customers to be able to really take an old product line and give it some new life and allow it to play in a more highly integrated networked environment.
So I think where we're located is really key to being able to really maximize the opportunity that will be coming in this arena.
MR. FROLIK: Olu, you've had a number of your clients, in fact, I think all three of you do a lot of international work. You've got a big operation in Asia, Olu. From a location standpoint, does that work for you in terms of being in Cleveland? Is this a workable place for you to try to establish a business that has international reach?
MR. LAFE: I think it's working for us. Some of our potential customers have complained about the difficulty they have flying into Cleveland coming from Japan. They fly into Chicago and they fly into Cleveland, so they have complained about it. But when they come here and they see the quality of life and we tell them, we explain to them the history of the company, how things developed with us, then they say maybe Cleveland is a good place to be after all.
Another thing I would like to run with that Gil spoke about, one thing in this region is the energy here, this great energy, and if you want to test this, look what happened to the region when we lost the Browns briefly. When the leaders came out, there was a passion in the people. If we take a small percentage of that energy and devote it to trying to create in this region a great technology center, business center, I think we can succeed.
We have succeeded in sports and all that. We need to be able to bring some of those energies back into this thing that we're talking about and let the leaders lead. The Mayor of Cleveland took a great leadership position and said we're not going to let our Browns go and led the people until we succeeded in bringing the new Browns back. We need that type of leadership in this sector to bring confidence in to create. People look at the leaders and they know what's important to them.
There was a time when all that was talked about was how to build a new stadium. That's what people will think is important to you. As a leader, you need to be well rounded, say, okay, we have done this, we have done well in many sectors, we have a history in this region of success. The Rock Hall is right here and all that. Let's build it. This region can do it. Let's spread our word to the people, and I think the general culture of the people is very, very important. If we believing in ourselves that we can do it, then we can succeed. I think it's very important.
MR. FROLIK: How do we harness that energy and project that image?
MS. LATHAM: We have, you know, I think, a very positive direction with our outwardly accessing supportive technology. I get that asked that question many, many times why am I in Cleveland and it's a sort of a trite and easy answer to say it's home, but there is a lot that connects to having a network of people who know and understand that was the only really the way I was able to succeed was by people believing in me as a person and what they thought I could accomplish because I struggled with people really understanding where I was going and what my vision was. So that was part of what helped make us successful.
I think that -- I sort of lost my train of thought there.
MR. FROLIK: How about you, Joe, in terms of harnessing that energy? What are the kinds of things we need to do and do you see that happening?
MR. KEITHLEY: I'm pleased to see Governor Taft talk about his Third Frontier initiative. There is someone who is saying research and job creation are one in the same and, in fact, it's the young and growing companies in this high tech industry which are the ones to make a difference.
I think the matter of people recognizing what we're talking about isn't something that we need to get. If you look at the high-tech industry, there are 150,000 people employed in the electronics industry in Ohio today. It's one of the biggest industries that we have, so we aren't having to start from the ground.
When you talk about Rockwell and what you've done, you kind of built on an experience there in terms of applying electronics, and kind of the next part is to have people who work for the companies here, while we have this history of people who are employed for life at the companies, we ought to have a notion that it's okay to leave the company and to start, that people talk to their kids about that as opposed to that's something that you don't want to have and it comes as something on an incremental basis.
I think another is having the early stage capital, the Ohio Innovation Fund, as an example, our early stage partners, which combined have assembled about $50 million, I think -- maybe it's not quite that much -- to be invested at early stages than a typical venture capital firm would do. And they were here two or three years ago.
I think there's a bill in the Senate or the House in Ohio where there's the notion of actually taking some pension monies and having them allowed to be invested in, if not venture capitals, specifically this early stage venture capital so that you have several factors or forces, all of which I think can make a difference, and we're just having to take one step after another in a small way because I think we want to move over a 25 year period. I think we have to recognize this isn't something we're going to do over a two-year period
MR. FROLIK: Why don't we go to our next segment which is on Keithley Instruments.
Joe, in that piece, and in other parts of our conversation today, you've mentioned the research institutions, the universities, NASA Glen, perhaps not so much for your work, but certainly for Gil's, the outstanding hospitals in the region. How do we do a better job, perhaps, of connecting what's going on there, the knowledge that's there, that's being developed there, to what companies like yours and others around the table do on a day-to-day basis?
MR. KEITHLEY: Joe, that's a good question, and I think that one of the things that has been going on recently is BOCA Nortech, which is a set of companies and other institutions in Northern Ohio looking at how we can use technology and companies to go forward as well as the Growth Association has been doing this with their clusters projects of getting, for example, in our industry, people together to talk about things of common interest and to see what we can do in that context.
You know, when we think about entrepreneurs, we think about new companies and you think about dislocating technologies. If you think a lot of what the companies are in Northern Ohio right now, I call the NER&D sustaining technology. Because of the old industrial base that we have had and those of us around the table all deal with new industry which didn't have its roots in anything more than 25 years ago. So we end up looking to the research institutes to work with.
And so one of the things that I've been working on recently is having other people in our industry, we'll call it measurement control, or we were calling it instruments and we were calling it controls and electronics, was actually seeing what could be done at a research level that what might be of interest to our companies as well as well as to the universities where we could look for NSF funding, where we might like for look to the state to help us move forward. And it's in doing those sorts of things where you can clearly move ahead, get some focus, bring some people in, and from that then strengthen the companies that we already have, as well as being able to start new ones.
MR. FROLIK: Now, certainly in the location of Athersys here, I mean, what attracted you was the research base; correct? The researcher?
MR. VAN BOKKELEN: That's right. It was the specific component, I guess, of the research base. When Case recruited Dr. Hunt Willard to become the chairman of the genetics department at the medical school, they made a statement that they wanted to attract the best and the brightest and bring people like hunt that would build a strong foundation would create benefits for many years to come.
And, in fact, when Hunt was first appointed as chairman of the genetics department, they seeded him with I think it was something like $15 million of initial money to actually build up that department, and he turned that department into the world's second leading genetics department. It attracted a huge multiple, actually, that initial $15 million investment, of additional research funding funding that came out of the NIH and the National Cancer Institute.
We came here because of the Hunt's expertise and the infrastructure that existed at Case Western Reserve University that provided a suitable haven for us to really do some some of the early-stage technology development. But our plan was not to stay. We were going to go back to California, and it was really a variety of factors that lead us to that realization that hey, maybe aught to think about growing the company here in Northeast Ohio. A lot of the fundamental ingredients that we need to make this business successful exist right here and it's a very cost-effective location to grow the business. And I think it took a little while for us to see the potential that was there, but certainly we don't regret making the decision to stay here in Northeast Ohio.
MR. FROLIK: In terms of building bridges to the research institutions, the others of you, do you find yourself frequently either turning to the universities for solutions or to work on projects? What type of --
MS. LATHAM: Yes. We're in a very applied business. We really -- it's material science and we solve problems with materials, but we depend on other research level endeavors to have state of the art materials with which to build what we do. So we work through Case, in particular, to help not only only on new material and new material development, but on material characterization. They have the equipment and the skills to help us understand what we have better once we build our materials and they also have research piece that helps us to be state of the art, particularly from a polymer, a polymer side of our materials. So that's been helpful, I think, in going forward we hope to take more advantage and be more receptive to what they may offer, particularly through the University of Akron.
So far, most of our connection has been through Case Western. We've also used, actually, Baldwin Wallace, through their MBA program, to help us from a marketing side. And they helped us with a marketeing study, some of their students, and that was also very helpful. So that's sort of a little different approach to using the university.
MR. LAFE: To Carol, the early days of our business, 90 percent of our staff was from Case. They were Case students. We had them as interns. At one point we had almost 20 of them working. And those early days we were building our products and they did a lot of the grunt work, coding and that. So Case was extremely useful for that. They have bright students who loved the fact they were helping us build new products.
So I think Case and Cleveland State and Kent State University, we have drawn people from those universities, I think can continue to give at the student level, at the professors level, who can come as consultants. I think it's a great asset we have in this region.
MR. FROLIK: Now, you had done some work with NASA before you started the company. Have you been able to continue the ties to that and are there ways that you see, perhaps, the technology-based companies can avail themselves more of what NASA is doing locally?
MR. YENNI: We have active efforts with NASA Glen right now, and it's not always technology going out. Sometimes you can but technology back in, and so there is a symbiotic relationship there. We have been very fortunate to be part of a number of collaborative efforts with companies, and I think one local company that needs to be cited as a perfect example of putting together collaborative efforts is Energizer.
Energizer, we've had the good fortune of being able to work with -- through working with Energizer with Cleveland State, with Case and with NASA as well, through some of the resources that are available there. So I think the opportunities are certainly there. We described, at a NEOSA, Northeast Ohio Software Association, event last year, I described four different models of how to work with the local institutions for technology transfer. And the good think about it, especially from a smaller company's standpoint, is you don't always have to be the one with the money.
MR. FROLIK: Very good. Quickly back to one thing that Gil said, I've heard from several people when we've had panels in the past of university folks, that the main way in which they do tech transfers is by producing bright students, and you know, that gets to the idea that Gil mentioned about plugging the brain drain and keeping the bright people here.
Has anybody, any particular thoughts in terms of, besides the internship program which, I think, is really kind of neat, things we can do to kind of plug that brain drain and to keep the smart young folks in Northeast Ohio or to come back when they finish their school if they go off somewhere?
MR. KEITHLEY: I think, Joe, the brain drain is a symptom of something else that's going on. It's not enough young, growing companies as opposed to that's the problem you've got to solve. And I think as Gil's company gets more revenue, he's going to need to add a lot more young people and they are going to be exciting people, and the same is going to be true for Carol, and Olu and Ed and me that we are regularly able to attract people back to Cleveland.
It's fascinating for me to see who we've hired. Because in terms of some of the young people we've hired, they have come from Austin, Texas and they've come from Dallas, Texas and they've come from the Bay area and Seattle and Boston. They were educated in Ohio, they left, like Ed did, to go work somewhere else. But the quality of life brought them back, but they needed growing companies to give them employment so they had reason to come back.
MR. YENNI: We talked a little about the buzz. What kind of buzz is there around the community? There are a number of events through Nortech and the other events that are around that are bringing people together, and it reminds me a lot of what I saw in the Bay area and southern California throughout the '80s where if you went into restaurants or bars or whatever in the evenings, you would see groups of people huttled together discussing technology, discussing what their next move is. And there are a number of local networking events that are occuring now and I can see this ground swell of activity. It's going to produce something. It won't fall on deaf ears I don't think.
MR. FROLIK: Okay. Well, our next move is to learn about Thermagon, so why don't we go to the piece on Carol's company.
All right. Carol, one of the things coming out of that piece that really struck me is there is a weariness, I think, in parts of this community when people talk about having a high-tech economy or a new economy in Cleveland, that that's going to really good for people who have advanced degrees in science and engineering, but maybe not so good for the rest of us. Can you talk a little bit about -- I'm assuming a lot of the people that work for you, they don't have those advanced degree when they come to you, or that advanced training. How do you find your work force and how do you develop the work force you're going to need for your kind of business?
MS. LATHAM: Well, it's true we do have a high percent -- we do have a research function, and we do have, in addition to our workforce, trained engineers and chemists. But a large number of our people we take at entry level, really unskilled people, and we have brought them in from the neighborhood. And we work with Wirenet and we have had help with identifying people. We have taken recommendations from the original nucleus of people that we got. The people, in general, don't want to recommend someone who they really don't believe in. So we built on the nucleus we had originally.
We worked through Reserve Networks and bring people in, now, on a temporary basis for two or three months, and then assuming that they like our culture and it works out with them, we hire them full time. So those are some of the ways that we've been able to bring in our work force. And I really think that the work culture, the work ethic, the kind of dedication that I see in the people here is really outstanding and it's been a real asset for us.
MR. FROLIK: How about for you, Joe, in terms of finding workers with the technical skills, has that been a problem for you? And where do you go find our workers?
MR. KEITHLEY: Well, if you think of our manufacturing department, that function is maybe 150 employees of the 400 we have here in Cleveland. We have a great number of people with engineering degrees. And what we'll do is look for people who are from the University of Akron or from Kent State or Case or Cleveland State as graduates. But in terms of people who don't need an engineering degree to get their job done, there is a lot of people who have skills, whether it's in soldering or certainly just reading dimensions or being able no handle statistics or work with computers. In the extent that they don't have those skills, well, we provide training at several points during the career of an employee. So we are set up to do some training, and we find that we have a lot of skilled people who -- that we can hire.
So it hasn't been a major problem for us until we get to a very specific job, like an applications engineer who really understands optics or who is involved in improving the fabrication process of a semiconductor company. That's more difficult, but, you know, you count those on your hand.
MR. FROLIK: Gil, at Athersys, as you've been going, have you been able to the find skills both at the high end versus, perhaps, the production level, the entry level?
MR. VAN BOKKELEN: Our situation is a little bit different. We're not so manufacturer-oriented. We do produce things that are vital, actually, for our partnerships with companies like Pfiezer, and Bristol Myers Squibb and other companies that we have startegic alliances with.
But, the reality of it is about 40 percent of the people that work at our comapny have advanced degrees in a variety of different areas. Things ranging from MDs to PhDs to Master Degrees, JDs and others, and over 90 percent of the people that work at our company have an undergraduate degree. The realty of it is we have a very highly-educated work force at our company.
About 50 percent of the people that work at our company come from outside the midwest and we have shown that we can recruit talent here to Ohio to work at our company from some of the leading centers of the biotechnology and from the pharmaceutical industry around the world. And about 50 percent of the people that actually work at our company come from the midwest, predominately out of Ohio out of academic institutions like Case, like Kent State, like Cleveland State, Ohio State and others.
So I think that one of the things that people have to get used to is this concept that we can recruit talent here from around the world. Many companies, in fact, you are a perfect example of that, I think it's something that people have to get past this notion that we're limited, I guess, in terms of our regional capabilities. And I think it gets to the attitude, Joe, that you mentioned earlier. We are capable as companies and as a region of much more than I think people realize and recognize.
MR. LAFE: I think Cleveland is a fantastic area. I think being somebody who was not born in Cleveland, I don't think Clevelander's really appreciate the city they have. The culture here, the diversity, is incredible. We started doing a lot of intense product development in height of the boom. So it was very difficult to find high technology workers. So we had to go to Ukraine -- we actually grew our work force here in Cleveland to 50 because we needed so many people. We wanted work on so many products, there was time crunch and all that. And every individual that came here, from Europe or Asia, as soon as the come to Cleveland, they find a group they can identify with. There are Ukrainians here, there are Indians here, there are Africans here that they can identify with. So this region is great.
And I agree with you, Joe, that it's a region that does not fully understand its potential. Sort of, you know, feels inferior or whatever. There is no need for it. It's a region that can stand with its shoulders up, you know. This region does not need to look down at all. I think it's great potential here. People are willing to come here. And I think as soon as people find the secret of Cleveland area, northeast area, they love to live here. It's true you've heard all the jokes about Cleveland, but once they've been here and they live here and they see the quality of the school system and all that, it's fantastic. You know, it's really great. My four kids went to high school here and they went to good colleges from here because the school system is fantastic. It's a great system to raise a child and retain workers.
MR. FROLIK: I think it seems to me what the technology does, and it gets to the issue of where other folks fit in, and what you would do, Ed, as I think an example of this, is making traditional industry, traditional manufacturing more competitive and able to be more players in a global economy.
MR. YENNI: I think that's very important, because traditionally, what we've done in Northeast Ohio is manufacture. We may be manufacturing something else, manufacturing information in the future as opposed to the hard, durable goods that we have been manufacturing.
I have to agree with Olu as well as far as the type of people that we have in this area. I would much rather teach someone a particular technical skill than how to be honest, how to be motivated in their work habits and things like that. And fortunately, we have a lot of people in this area that just simply are looking for an opportunity, they want to live a good life, you know, and I think we have a good basis for that here. They are other sections of the country where they aren't maybe as lucky that as we are here in terms of work ethic and that sort of thing.
MR. FROLIK: Well great. I think we've covered a lot of good ground here. I want to move on to just a couple of points that came up a few times that maybe we can amplify a little bit to either drop into the program, or perhaps use in some of the other things that are going to come of this.
Early on we talked about infrastructure. Traditionally, when people thought about a region's infrastructure, it's roads and bridges, and, obviously, from a safety standpoint, that's still obviously very important, and for heavy manufacturing that's important. For a 21st century economy, a technology economy, what's the infrastructure we need to be concerned about and need to think about developing in the next, say, decade in this region?
MR. VAN BOKKELEN: Well, I think a big part of the infrastructure is making sure that there is a good linkage between the academic institutions and the companies that comprise the backbone of the economy in the region, and right now that doesn't really exist. I think there is a certain amount of dislinkage, if you will, between the region's academic institituions and companies that are represented here in this forum today, and I think that really needs to change.
I also think that a big part of the infrastructure is simply investing more in the areas that will allow us to achieve a certian level of critical mass in the industries and opportunities that will be the core of our economic infractructure 20 years from now, the industries of tomorrow, if you will.
Unfortunately, the State of Ohio and Northeast Ohio have chronically under-invested in the opportunities that could and should be making up the backbone or hub of our economic activity, if you will, over the past several decades and we're paying the price for that right now. In terms of the erosion of our economic competetivness, we're truly in a global economy now. We're not just competing with the states next door, Pennsylvania and the other surrounding states. We are competing with the rest of the world, and I think we need to take that threat and that opportunity very seriously.
I think Governor Taft's $1.6 billion proposal for the Third Frontier Project is a fantastic start. I think, to his credit, Governor Taft has recognized that we need to begin to systematically invest and sow the seeds of our economic prosperity of the future and we need to do it right now. And it's going to take a sustained, I think investment over time that will probably outlast the tenure of any single politician if we're going to be making a difference.
But I think focussed investment in a variety of different areas will help us increase the amount of entrepreneurial activity, high-tech activity in a few core sectors that I think have a really good shot at being our economic foundation of the future. That's really what's required and we need to be doing that over a sustained period of time.
MR. LAFE: I would also like to say the communication infrastructure is very important. I understand there is a particular area in the suburbs that my cell phone doesn't get very good reception and they city doesn't want to install the towers there. I can't understand that. Even if you don't want to grow offices within the city, the residents of the city have to communicate on the cell phones. So I really don't understan the philosphy behind that.
I think you need to have a situation where broad band is now available, celluar telephone is very available so that the region catches up with the 21st century. I mean, that's the way it is.
MR. YENNI: That's an excellent point, and we had the same issue with our transportation referring to the airport complaints. Fortunately, something is being done to alleviate the problems we have had at the airport. But, you know, one criticism people have levied on in Northeast Ohio is it takes a long time to gets things done, and the airport was one example of that, but ultimately that will help all of us.
MR. FROLIK: The investment that you talk about in the cutting edge, do you think, is it investment in very specific industries or in creating in, again, sort of that in the research institutions and in the communications infrastructure that sort of sets the groundwork for the companies that are going to come here and prosper? Is it a specific handful of companies that perhaps show promise or general infrastructure or some combination of that?
MR. VAN BOKKELEN: I think it's defintely a combination of those two things. I think that we need to be focussed. Obviously, we don't have unlimited resources and so I think we need to identify those specific opportunities that regionally we want to focus on as being the core parts of our foundation for the future, whether it be the life sciences or instrument controls or IT or advanced manufacturing technologies or things that relate to the semiconductor industry, and clearly something that's going to be a huge opportunity for many, many decades to come.
I do think we need to be pretty focussed about that. There is a certain amount of recognition and effort that's going in to to try and leverage the core opportunities that we recognize as a region are an important part of our economy now and going into the future. Things like the clusters initiative that has been sponsored by the Growth Association that a number of us here have actually been actively involved in the last several years, but I do think there is a lot of work to be done. And I do think that we can't -- you know, it's the type of thing we need to be investing about ten times more than we are right now.
Joe, you mentioned earlier the fact that the Ohio Innovation Fund, Early Stage Partners, for example, that together, make up about $150 million or a little more than that for in seed money, if you will, seed capital for early stage, high-impact technologies and opportunities and the fact that that didn't exist five years ago. That's an example of something that might be deemed as an essential infrastructure for investing in our regional economic foundation.
Unfortunately, that $50 million is a drop in a bucket that needs to be filled quickly over the next few years if we're really going to change the way things are headed over the next source of the next several decades. That $50 million should be something that is many, many, many times that in order to really make a difference.
MR. KEITHLEY: Absolutely. Another way to look at life is in the context of high tech. So I'll think of the engineering schools that are within Northeast Ohio and how much money is being spent on research in this area by these universities, and I believe it's less than $10 million and it really needs to be several hundred million dollars, and it's that sort of an engine, both within physics as well as electrical engineering and computer science and computer engineering, which are going to impact all of us, whether it's going to be medical devices or whether it's going to be IT or whether it's going to be measurements.
And whether you get eminent scholars or whether it's getting more MSNF Funding, universities that do some more top down initiatives as opposed to our research activities, the sum of the individual researcher's activity, I think those change in attitudes, those focuses that we can have, I think the best example at Case has been raising money for providing medical initiatives. And how much is there is $200 dollars for research and it dwarfs the research activities elsewhere.
And the extent that we can move the other up by a factor of ten while we continue to increase biotechnology, I think we can be much, much stronger. And I think not just one university, but across the universities here.
MR. LAFE: I remember about two, three years ago, because that was the height of the bubble in the Silicone Valley area, I understand they invested almost $1 billion at one point. So when we're talking about $5 to $10 million here, it's really --
MR. VAN BOKKELEN: If you look at the statistics, the regional statistics, the national statistics in terms of how much institutional capital is invested in the State of Ohio, it's actually scary. Because there are other regions that are very close by, Pittsburgh and many other regions right within the midwest that are investing a huge multiple of what this region is investing in terms of venture capital and instituional capital going into later stage enterprises. And those investments that those regions are choosing to make are really setting the table for what they are going to be able to accomplish a decade from now.
So, we really need to approach it, I think, differently and on a much grander scale than we have historically.
MR. KEITHLEY: To use your example at California, that was a focus on RF and communications technology, and it was $300 million by the state government and $700 million privately invested and $100 million came out of two device companies. So it's the private sector, it's us who have to be the initiators. We can't be looking for the government to find money to do things for us. It really has to start with the successful companies putting their money back in. So you have to be successful, you have to be large, you have to be forward-looking in this context.
MR. VAN BOKKELEN: The government can do things to actually help free up the capital flow. Earlier we talked about -- you actually mentioned the fact that right now it's being debated down in the state legislature about whether to free up some of the money that's in the pension fund so that a portion of that can -- actually, a small portion at that, can be directed towards supporting things like early stage venture capital funds. And I think that there are a number of things that Governor Taft can take the leadership on and already has and other members of the state legislature can actually get behind to try and break down the historical barriers and some of the things that really hold us back as a region in terms of access the capital, capital formation and investment in companies and institutions in the region that could really make a significant difference for the state economy as a whole.
MR. FROLIK: And this is sort to the capital issue which has flowed through a lot of the discussion today, getting those institutional investors to invest in this region, both people who are here, put their money here as well as to draw it, how do you change that dynamic? How do you change the habits, I guess, of the big investers of where they look and how they perceive an area as maybe for it's potential?
MR. VAN BOKKELEN: Well, I think capital will flow to whereever the best opportunities are. I think what you see here are examples of great opportunities that have been able to attract investment capitla in the capital market. Part of it is just breaking down that long held misconception that you can't get capital if your high tech business that's located in Northeast Ohio.
But I think that there is a lot of capital that exists within the state that is not being deployoed within the state in institution and high quality investment opportunities here because of some historical constraints that have existed that really sort of hold that back or impede it and I think we need to address those squarely and actually try and re-educate people. Stakeholders in the state -- we should be investing aggressively in our own economic future. If we don't do that, then we're going to continue to go down a path I don't think any of us wants to see us continue down.
MR. FROLIK: That maybe gets again to something, I think the inferiority complex, you know, I compare sometimes this region and even the state, if you have kids, to Eeyor in Winnie of the Pooh, you know, the idea that it won't work if we come up with it, somebody else must be doing it. I don't know how you -- I think one of the real challenges for the region is breaking that mentality.
MR. LAFE: And I think you break it by having a few successes. Succeed at a few things and promote success.
MR. FROLIK: And then that comes back to maybe take the whole thing all the way to vision. You know, what makes you an entrepreneur? My sense, as I listen to you, is the most important thing might be that vision of the entrepreneur. You know what you want to achieve and the drive to get you there.
MS. LATHAM: And you find a way. You have to believe.
MR. VAN BOKKELEN: That unwavering confidence and determination that says, I see that distant point, that distant location, and I'm going to get there and nothing is going to stand in my way. And I think that's the most critical thing in the success of any entrepreneur.
In fact, the first institution that made an investment in our company, it's a west coast investment fund that specializes in biotechnology companies, and I'll never forget a meeting that I had with the person that manages that fund. He said, I'm making this investment for you and the team that you put together because I believe that for you failure is not an option. You will figure out whatever is necessary to make that company successful and that's the bet that I'm making.
We need to spread that attitude, that winning confidence, that unwavering determination that I think entrepreneurs have to possess in order be successful and sow it more broadly in the region, I guess as you were talking about, Ed, through advanced educational forums, highlighting the regional entrepreneurial success stories that we have, as well as bringing in national leaders to comoe here and coach some of our best and brightest young minds and teach them about what being an entrepreneur is all about so that they can follow that path if they choose to.
MR. YENNI: Gil is exactly right. When we first started going out and talking with people, we all like to refer to investers as this monolithic entity that's out there, but what they really are are people like the rest of us and they all have different strengths and weaknesses and tolerance for risks and things like that. And I think that's a very important thing to consider. You don't have to stay in this region to look for money necessarily, and you are obviously evidence of that.
But, you know, I think there is a loosening up. We are traditionally not a technology town. It's very important to tell your story, to tell it very succinctly to the right people. And what it really comes down to is do they believe in you and success is the only way to go forward, failure is not an option? Do you have a good idea? And are you in an environment that, I guess, is basically conducive to being able to scale your business model. It really just comes down to those three things. If you can make that case, I think you will attract money.
MR. KEITHLEY: And I think perseverance, what Carol was talking about earlier, is another attribute that the individual has to have and I think that the region has to have. If you look at Georgia or you look at the research triangle in North Carolina, the legislature went through several governors, from what I hear, from Luis Proenza, the president of the University of Akron, 25 years to take that from nothing to where it really is quite an engine of economic development.
MR. FROLIK: Right. Right. And I think it's that being willing to stay the route because, you know, people want sort of instant gratification, and from a political leadership, I think they tend to think in four-year cycles, but research triangle was in the early '50s, and then you see how the jobs grow geometrically as you go through the decades.
MR. VAN BOKKELEN: That's exactly right. It's a huge multiplier affect. Every -- in fact, in a way, I guess Athersys is sort of a microcosmic way of what can happen. We have attracted, in that $100 million of investment capital that we have attracted from around the world from institutional investors that range from location in terms of Azwa, Norway to Singapore, about $20 million of the money that's been invested in our company today comes from the midwest, from within actually the borders of Ohio and about $80 million has come from the institutions outside the midwest around the globe, and that's exactly what you want to achieve as a region. You want to become a net importer of talent, of ideas, of technologies and of capital, because that investment capital, the reality of it is the vast majority of it could be deployed here in the State of Ohio, and that will will have an amazing multiplier affect and that will reap benefits, really, for many years to come.
MR. FROLIK: Okay. Well, great. On that note, I think it's been a good discussion, I appreciate all your input and why don't we call it a day. Thank you, very much.
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