Bill Mahoney, CEO of SCRA

MidlandsBiz:
What does SCRA do? 

Bill Mahoney:
Our business model is what we call collaboration management.  We pull together multi-organizational teams from industry, academia, and government to solve complex technological problems.  We take basic science, discoveries and prototypes, out of the lab, and put them into production so they can be put into widespread use in the marketplace.  We earn our living by analyzing and then operating in pre-commercial markets.

We analyze pre-commercial markets and then go out and compete for applied research contracts out in the marketplace, not only with organizations like The Georgia Tech Research Institute (GTRI) in Atlanta or the Battelle Institute in Ohio, but also large corporations such as IBM and SAIC. 

We talk about assured outcomes. Let me give you an example. When the navy comes to us for a new composite weapons door for the F18 fighter plane, they know at the end of the day they are going to have a tangible deliverable – an operational, produce-able product, not a White Paper. 

We are very much entrenched in the defense supply chain; I doubt there is any entity in the country that knows more than we do about naval ship building and naval engineering to improve capabilities and reduce costs of Navy ships. 

We also develop standards for the International Standards Organization (ISO).  Twenty years ago, we developed ISO 10303 that allows manufacturers of heavy infrastructure such as ships, airplanes, and trains to plug disparate parts together independent of what CAD (computer aided design) system you are using.  Global Aeronautica and Vought Airline Industries in Charleston are using this very standard to define and put together the parts of the Boeing 787 Dreamliner.  

We also manage applied research and development teams, some of which have been operational and growing for 20 years.

MidlandsBiz:
What is the ownership structure of SCRA?

Bill Mahoney:
We are a non-stock, tax-exempt corporation operating under a public charter in South Carolina.  We have a similar function and structure to GTRI or Battelle.  We were formed by an act of the South Carolina legislature in 1983 to be a free-standing, self-sustaining organization that neither receives nor seeks any appropriations from the state government.

MidlandsBiz:
What are your total net sales?  Who are your biggest customers?

Bill Mahoney:
Overall, we receive about 60% of our revenue from the Department of Defense. Our annual revenues have grown from $78 M to $110 M over the past three fiscal years. In 2007, our maritime practice division was about 25% of our total revenue; we also have $20M a year relationship with the Office of Naval Research and a similar relationship with the Army Research Lab.

85% of our business is repeat business and our model is becoming increasingly attractive to private companies. 

MidlandsBiz:
Talk a little more about managing applied research and development teams.  What is that exactly?

Bill Mahoney:
It’s strange the way things work in this business these days.  Sometimes our competitors, SAIC and IBM, are subcontractors on work that we do.

We have a model that offers companies access to what could be called open-source R&D.  We form a consortium of companies in a particular industry (including competitors) to come up with solutions to industry problems.  Members make dues payments to the consortium and when a discovery is made, it is shared between all of the members of the consortium. 

The end result is a low-cost R&D channel that means new products and higher margins for the companies involved.  An example of this type of model is in the aerospace industry where Lockheed Martin and Boeing, fierce competitors at times, both belong to our composites consortium.

MidlandsBiz:
Don’t companies do their own in house R&D?

Bill Mahoney:
Sure, companies still do their own R&D, but in today’s economic environment,   corporations have been paring down their in-house R&D budgets and looking to establish alliances and partnerships to produce world-class, technologically advanced goods.  It’s too expensive to develop the level of expertise needed on your own. 

MidlandsBiz:
Give an SCRA success story to that people can better understand what you do?

Bill Mahoney:
Our solutions can be found in complex military machines and also in your car.  Through our composites consortium, we utilized the basic science at Clemson to help solve a problem that was occurring on the F18’s.  We needed to create a door that would open where the skin would actually flex without interrupting the aerodynamic qualities of the fuselage.  Recently we came out with new composite bow planes for the Virginia-class submarine that will save the Navy $100M.

The Army had a problem with secondary infections and also in hospitals, and secondary infections will soon not be covered by Medicare. We helped form a program that was half funded by the Army, half funded by the U.S. Copper Development Association to test the anti-microbial properties of copper.  We set up a pilot project in two wards, one at MUSC, another at the Johnson VA Center.  The Army has just risen the funding of this project up to $40M.

In the process, we discovered that if you put copper sleeves inside HVAC units you can eliminate any trace of legionnaire’s disease within 2 hours.  The Army now plans on using copper in most of its field hospitals and also at major Army hospitals such as Walter Reed and the San Antonio Brooke Army Medical Centers.  The result is better patient care and better economics for both the army and hospitals. 

The copper companies sell more products, too, so they are happy.

MidlandsBiz:
How do you measure your success?

Bill Mahoney:
We had a study commissioned in 2005 using an MIT methodology that showed that our economic impact to the South Carolina economy between 1983 and 2005 was about $6.9 billion, and that we helped create more than 15,000 jobs.  More recently, the USC Moore School has calculated that we now have a $1.4 Billion annual impact, and that we have created about 4,000 in-state jobs with an average wage of $77,000, and about 11,000 jobs with an average annual wage of $55,000.

For us, long term, success would be improving the per capita income of the state.  We are not sure we can do that, but are trying. Success is also improving the perception of South Carolina both in and out of the state.  We do have world-class science that is turning into world-class companies. Success is people from technology companies and venture firms calling me up from around the country asking me what is going on in South Carolina; it is very interesting to them.

MidlandsBiz:
What is your relationship with SC Launch?

Bill Mahoney:
SC Launch was formed as a collaboration between SCRA and the research foundations of our primary university research institutions: USC, MUSC, and Clemson.  SC Launch is a private 501 c (3) that was formed to provide high-potential knowledge-based companies the tools they need to be successful: formation services, advice, grants and investments and access to a powerful network of resources.  It is designed to be a bridge between the universities’ basic research and commercialization in the marketplace. 

Our expertise has been in picking early technology winners and getting them into operational status, so it was a good fit for both our core competency and founding mission for us to become involved in the push and promotion of the knowledge-based economy in this state. 

MidlandsBiz:
Did you fund SC Launch?

Bill Mahoney:
Yes, initially, but first, here’s a bit of history.

Around 2001, business and political leaders became increasingly concerned about the state of the South Carolina economy.  Among the dire signs in the period between the late 90’s and 2001, about 75,000 manufacturing jobs left the state, and per capita wages languished around 80% of the national average. 

The Palmetto Institute and the Council on Competitiveness (now New Carolina) were early leaders in the movement to change the direction of the South Carolina ship.  They brought in Harvard Business School strategy guru Michael Porter who pushed the importance of building sustainable competitive advantage around knowledge-based, localized areas of expertise called clusters.  Ideally, these sustainable clusters would continually innovate, based upon their own intellectual property and new intellectual property arising from basic research performed at in-state universities. South Carolina did have pockets of localized expertise:  automotive, textiles, tourism and chemicals, but needed to improve its record on research and innovation. 

Special credit is due to the Legislature and in particular Speaker Harrell, Chairman Cooper, Senator McConnell and Senator Leatherman for passing a sequence of legislation to help make Porter’s proposed strategy come to life between 2003 and 2006: the Life Sciences Act, the Research Infrastructure Act, the SC Education Lottery, the Endowed Chairs, the Industry Partners Act, and in 2004, the Venture Capital Act was passed with $50M in tax credits for venture firms investing in companies in the state.  

SCRA has been at the forefront of high tech (now called the knowledge-based economy) since 1983.  We are experts at pulling together multi-organizational teams from industry, academia, and government to solve complex technological problems.  We take basic science, discoveries and prototypes, out of the lab and off the bench, and put them into production so they can be put into widespread use in the marketplace. 

Our expertise has been in picking early technology winners and getting these innovators into operational status; it was a good fit with our founding core mission for us to become further involved in the push and promotion of the knowledge-based economy in this state. 

SC Launch was formed as a collaboration between SCRA and the research foundations of our primary university research institutions: USC, MUSC, and Clemson.  SC Launch is a private 501 c (3) that was formed to provide high-potential knowledge-based companies the tools they need to be successful: formation services, , advice, grants and investments and access to a powerful network of resources.  It is designed to be a bridge between the universities’ basic discoveries and the marketplace. 

We took $12M out of our retained earnings to initially fund SC Launch.  Through the support of Industry Partners, donations to the SC Launch program have now assured us that us that we will be able to fund this program for the foreseeable future.  Our goals are company formation, company accretion and  job creation at higher per capita wages in South Carolina.

The first investments we made were in April 2006 and we have sustained investments to this day.  We now have 118 entities in the SC Launch program; 17 of these companies have broken the $50 M threshold in additional venture capital investment. 

Our target is companies that are exploiting a business opportunity based on world class science and intellectual property (IP), much of which is coming out of Clemson , MUSC and USC. We are primarily involved with companies that are linked up with the following strategic clusters:  alternative energy, including nuclear hydrogen,  fuel and fuel cells (USC), advanced materials and automotive (Clemson), and biomedical and bio pharmacy (MUSC).

Success for us is being measured by improving the number of jobs with high per capita incomes. Thus far, the average per capita annual wage for compensated jobs in SC Launch client companies is above $77,000 per year.

MidlandsBiz:
It sounds as though you operate similar to a venture capitalist (VC).  Is that correct?

Bill Mahoney:
No – we are more like a high-tech, economic development program with some very early, seed-stage capital. A VC is not likely to invest in your company unless you have between $5-$10M in revenue and $2M in EBITDA.  Our participation is not like an investment or a VC program where the expectation is a 10% rate of return every year.  Our goals are company formation and growth, job creation and the pursuit of higher wages in South Carolina.

We analyze projects from very early stages of the innovation pipeline and have the technical and business acumen to evaluate the viability of these ideas.   A VC might take 4 or 5 companies in a particular marketplace and place bets on all them.  If one of them makes it, then they win. Our job is to pick the one that is going to work best for South Carolina in terms of knowledge economy development.

We give cash to businesses, access to market channels and a network of low-cost resources to help them take off.    Our investments are typically a loan that converts to equity in the company, but unlike VC’s we are not looking for majority stakes in companies. 

We now have 118 entities in the SC Launch program; 17 of these companies have broken the $50 M threshold in additional venture capital investment.

MidlandsBiz:
Will these successful South Carolina start-ups potentially be bought and moved elsewhere?

Bill Mahoney:
Capital seeks returns so it is very likely that successful companies will be bought.  But the legislature was very smart in setting up these Acts to include large incentives for keeping the companies in South Carolina

MidlandsBiz:
What type of companies do you fund at SC Launch?

Bill Mahoney:
Our target is companies that are exploiting a business opportunity based on world class science and intellectual property (IP). 

We are primarily involved with companies that are linked up with the following strategic clusters:  alternative energy, including nuclear hydrogen, fuel and fuel cells (USC), advanced materials and automotive (Clemson), and biomedical and bio pharmacy (MUSC).

MidlandsBiz:
SC Launch just won a national award for best practices in promoting the knowledge-based economy?  What are these best practices? 

Bill Mahoney:
We were one of four programs nationwide which won the State Science and Technology Institute’s prestigious Technology- Based Economic Development (TBED) awards. We benchmarked our program after the Western Pennsylvania Innovation Works (one of the co-winners) and the collaborative work that they do with both Carnegie Mellon and the University of Pittsburgh Medical Center.  The judges were particularly impressed with the innovative use of tax credits by the state to support those contributing to the SC Launch Industry Partnership Fund. The panel was impressed that our organization had accomplished so much in so brief a time span with comparatively low levels of funding.

MidlandsBiz:
Do you have any success stories out of SC Launch?

Bill Mahoney:
There are so many great stories out there now I hate to choose.

In the Upstate, there’s a company called Sensor Tech that is using carbon nano-fibers in electro magnetic configurations as measurement tools.  The CTO, Andrew Clark, is a Clemson Ph.D. who  linked up with an experienced business executive (and former Chairman of the SCRA Board of Trustees), Chuck Pringle, and they are developing commercial applications that range from replacing the load cells in your car to improving the performance of prosthetics for the military. 

The Army loves it and has just awarded Sensor Tech a sizable contract.  GE Upstate awarded them a multi-million dollar R&D contract to test a larger version of the device on their applications.

Here’s another great story and an amazing example of how South Carolinians benefit from success in the knowledge-based economy. 

Four years ago, the Army came to us and said that the existing packaging for soldiers’ meals ready-to-eat (MREs) were inadequate, had too short of a shelf life and the foil packaging was causing the food to taste metallic.  One of our operating units, The Applied R&D Institute was working with Clemson at the time and they started testing to see whether Clemson composite discoveries could provide a solution. 

Turns out, John McClure of ISO Poly Films in Grey Court, South Carolina, was looking to reposition his business, ISO Poly Films into new areas of business with funding through an SCRA Army contract into new product and market areas. McClure licensed composite technology from Clemson and found a food packaging company,  Sopacko in Mullins, SC to put the food into his containers.  

Skip ahead to today, Sopacko is now a prime Army MRE contractor, and has recently been awarded a $154 M Army contract, and now employs 900 people in the plant. John sells the MREs sleeves to Sopacko and employs 50 people at over $50,000 a year, and Clemson gets their royalties on the technology. John also won an SC Entrepreneur of the Year award following this program.

According to the original Porter studies, for every knowledge-based economy job that is created, about 7-9 ancillary services jobs are needed. The SCRA-Clemson-ISO Poly-Sopacko example demonstrates this relationship.

MidlandsBiz:
Is there a new model of leader that has come out of these 21st century trends?

Bill Mahoney:
At SCRA, all of our program managers are certified project management professional (PMP) certified. It’s all about how do you work with other people to get things done. 

The X and Y generation as well as the Millennials don’t respond very well to a coercive style of leadership.  When the name of the game is collaboration, leaders have to take a more facilitative role versus a command and control posture.   Listening is a critical skill.

That said, if Solomon needs to divide the baby, a leader still needs to do it.   Facilitative does not preclude decision-making. 

MidlandsBiz:
What are the current roadblocks to future success in establishing a solid knowledge-based economy here in the state?  How do we overcome these roadblocks?

Bill Mahoney:
We need a deeper depth pool of entrepreneurs in South Carolina.  We are looking for CEOs who can step in and help grow companies.  It’s not that the science isn’t important, it’s finding the solutions, and sometimes the scientist can’t see the commercial path.  Many retired executives who quickly tired of spending their days on the golf course have gotten back into the business game in SC, and we are seeing more of that, but it’s not enough yet. 

We need to consider giving professors tenure for commercializing their research, rather than just longevity or being published.  This is something that they have been doing this in other parts of the country, but it’s a relatively new concept to South Carolina.  I think it would positively impact the innovation pipeline. 

We also need more access to venture capital, and more consistent funding sources for the entire innovation pipeline, everywhere from the universities to the Department of Commerce. In the end, one can focus on what we don’t have, but what we do have are significant early indicators that our programs are working. It’s early, but it’s working.

MidlandsBiz:
What are your favorite books about the 21st economy?

Bill Mahoney:
Richard Florida wrote The Rise of the Creative Class, which is a great book that many have read.  What people are less familiar with is his The Flight of the Creative Class.  That’s just as important a read. It tells you about mistakes to avoid, and that really helps.

MidlandsBiz:
What is the key to the success of this strategy to becoming a world-class knowledge-based economy?

Bill Mahoney:
(Pause) Persistence.