In a previous life I set up a group at AT&T focused on investing non-core technologies developed by the Labs in interesting small companies better positioned to take these innovations to market. Some were technologies that needed to be instantiated in hardware in order for there to be something to sell, and AT&T no longer made hardware; others were simply good ideas but for markets that had not yet proven themselves or that were too small to meet AT&T’s internal return threshold for further development or investment. And some, like the technical contributions AT&T made to the MP3 and AAC audio codecs (combined with those of Sony, Franhofer and Dolby), simply made more sense as products for companies that were already in the music business than they did for AT&T.

During that time I met Ben duPont, who had recently started a new venture called Yet2.com (as in “yet to come”) designed to help both large and small companies find homes for intellectual property or technology-based products that, for whatever reason, just didn’t quite fit with the inventing company’s needs or plans.

We might not have had the right words for it then, but basically we both were pursuing Open Innovation—the idea that the ‘old’ model of entirely proprietary, in-house R&D no longer met the demands of an increasingly complex global marketplace, and that moving from the established “Not Invented Here” mentality to what Procter & Gamble’s Mark Peterson calls the “Proudly Found Elsewhere” model was where corporate research and development needed to go.

This morning I had a chance to catch up with Ben again, as he was in town as part of a day-long conference jointly sponsored by the Business Growth Alliance and the Port of Cleveland. P&G’s Peterson was there as well, along with several other presenters and companies interested in learning how small- and middle-market companies could build their businesses by accessing Fortune 500 company know-how, development support, and technology. The timing couldn’t have been better, since one of the things NorTech is working with MAGNET on is addressing exactly that same issue with our manufacturing companies.

The key takeaways:

Large companies around the globe are looking more aggressively at small and middle market companies as the “proving ground” for technologies they will then in-license. At the same time these companies are also looking at deals with smaller companies as the best exit strategy for technologies that don’t fit the corporation’s goals or capabilities.

Good technology is going quickly—the pace of innovation and the cost associated with developing new products, combined with more experience in doing these kinds of cross company/industry deals—is speeding things up. Still, much like venture capital, the number of proposed deals far exceeds the number of completed deals. With 1500 active discussions and 5 new ones being added each day, Yet2.com averages two deals a month. That’s not a slam on their abilities; it’s simply a benchmark that demonstrates just how difficult this kind of matchmaking really is.

For you golfers out there, think of it this way—a perfect round of golf would be 18. But since everyone knows that’s impossible, we’ve created a system around par that let’s you know how well (or badly) you’re doing. “Par” in this kind of deal making may well be 1 deal out of every 1000 possible deal discussions initiated. But the main thing is, these deals are happening, the do make sense and, as we’ve said before, can play a significant role in the revitalization of our regional economy. P&G has said that it wants at least 50% of its new products to come from outside the company. At best only about 25% aren’t invented in P&G labs today, but that’s way up from the 3-5% that existed just a few years ago.

Several examples of these large company/small company joint development efforts already exist: Nottingham Spirk developed the SpinBrush, but then sold it to P&G who was better positioned to take it to market globally. 6062 Holdings, a small Beachwood based start-up, has entered into an agreement with DuPont that positions 6062 (who hopefully will one day change their name) to take the lead in the global distribution of an artificial, biodegradable soil—something that could be a huge boon for agriculturally impoverished and drought-ridden areas around the world.

Other technology areas Yet2.com has identified as being of “high interest” match extremely well with our own areas of technological and market expertise:

- Batteries/energy storage
- Fuel cells
- Printing and authentication
- Image capture and display (can you say “Liquid Crystal Institute?” Sure you can…)
- Blood gas detection
- Heat transfer
- Water filtration and waste treatment (read the Cuyahoga Valley Initiative report lately?)
- Novel coatings and surface treatments, particularly biocompatible adhesives

Northeast Ohio already has many of the essential components to develop these “areas of interest” into global markets headquartered here in our region. But we don’t have all of them. Embracing the Open Innovation model advocated by large companies like P&G, Parker, Siemens, DuPont and service providers like Yet2.com and Nine Sigma could go a long way towards filling those gaps and positioning Northeast Ohio as a global leader in one or more of these expanding markets. It’s Fast Second and The Four Dimensions of Innovation in real time.

So, what are you waiting for?