Archive for the ‘Technology’ Category

Interview with Laura Niklason on Entrepreneurial Biotechnology

Thursday, December 14th, 2017

[This is the full interview with Laura Niklason which was published in our Kaizen newsletter.]

Laura Niklason on Entrepreneurial Biotechnology

Dr. Laura Niklason is the Nicholas M. Greene Professor at Yale University in Anesthesia and Biomedical Engineering. She co-founded Humacyte, a company which grows tissue replacements that could provide lifesaving improvements in treatments for vascular conditions.

Kaizen: Here we are here in Chicago. You were born and raised in Chicago?

Niklason: I was born actually in Evanston. I grew up in the south suburbs of Chicago. I went to college when I was sixteen at the University of Illinois and then I went to graduate school and medical school at the University of Chicago. I’m originally an Illinois girl, for sure.

Kaizen: Before you went to university, how would you characterize your schooling or your education?

Niklason: By and large, I went to public school. I had a couple of years stint at a private school during seventh and eighth grade, but, by and large, it was public school education. I would say it was a fairly good educational experience, with some exceptions, but I generally had enough challenges and enough opportunities to learn the things I wanted to learn. I did finish high school early, after three years because I had run out of stuff to take.

Kaizen: Were you strongly academically-oriented then?

Niklason: Well, there were some times early in high school where I had bad behavior, but we’re glossing over that period of time.

Kaizen: Despite the bad behavior, you learned what you needed to do to get your degree done.

Niklason: Yes.

Kaizen: Where do you think your academic motivation and focus came from?

Niklason: I think the expectation came from both of my parents. I think the assumption and the expectation was that all of their children, me included, would become very good at something. From the time I was very young, I had really good aptitude for quantitative things and scientific things. Those things were exciting and interesting to me and came easily.

Kaizen: Would you say it was broad-ranging into sciences or some sciences more than others?

Niklason: I would say fairly broad-ranging. Throughout life, I’ve come to be fairly good at biology and physics and math. I’m not as good a chemist, but I can cross across several disciplines, and that’s actually been really helpful and it’s actually been instructive and it’s provided direction actually in the ultimate research areas that I’ve chosen, because I’ve chosen a research area in adulthood that actually relies upon being able to draw inferences from multiple different disciplines.

I decided in college I was probably a jack-of-all-trades and a master of none. I could do any kind of science pretty well. I sought an area where I could put all that together.

Kaizen: It was back in secondary school when you were focusing on a career area?

Niklason: I always assumed I was going to go to medical school. I always assumed I was going to be a physician, and I always assumed I was going to be a research physician. I didn’t know what kind of physician or research physician I would be, but I always had a sense that I wanted to have impact and change the way the world worked. I felt that from a fairly young age.

Kaizen: You mentioned University of Illinois in Champaign-Urbana. How did you choose that for your university?

Niklason: I only applied to two schools. I applied to the University of Illinois and University of Chicago. Didn’t get into the University of Chicago, probably in part because of my bad behavior. University of Illinois was a great school and it didn’t cost very much, and so that’s where I went.

Kaizen: Then at the University of Illinois, what did you focus on there?

Niklason: I started off majoring in chemistry. I did that primarily because both of my parents were chemists, and I assumed I would be good at chemistry. I discovered midway through my freshman year that I actually wasn’t terribly good at chemistry, but I discovered, much to my surprise, that I was very good at physics, and I honestly did not know I was good at physics in high school. I’d taken physics, I didn’t feel like I was particularly good at it, but I think something about my brain changed.

All of the neuroscience that people talk about as far as your brain changing in its abilities during teenage years and even during age 20 to 25, I think that’s all actually true. I think that I was intellectually capable of understanding things at age seventeen and eighteen that I simply could not understand at age fifteen and sixteen. It wasn’t just a maturity thing; it was an increase in aptitude.

Kaizen: Because the brain continues to grow and develop too.

Niklason: Right.

Kaizen: Then your interests are shifting more towards physics in university time. Either of interest or as part of university requirements did you take courses in humanities and social sciences and arts and so on?

Niklason: I took several courses in philosophy. I actually tried to do a minor in philosophy, but I couldn’t quite pull all the course work together. I enjoyed philosophy very much. I took one or two literature classes. Those were mostly English requirements. I did not take really many courses in the arts or the social sciences very much. It was mostly philosophy, literature, and then the sciences.

Kaizen: At the graduate level, I know you got a Ph.D. at the University of Chicago and then a medical degree at Michigan. In what order did you do those?

Niklason: Well, I was in a combined M.D.-Ph.D. program at the University of Chicago. The way that works is you do two years of medical school and then you step away from the medical school curriculum and you become a graduate student, and you finish your Ph.D. and then you return for the last two years of medical school. I did the first two parts of that, I finished my Ph.D., but then I met a man who later became my husband while I was in graduate school, and he was at Michigan. I then transferred to Michigan after I got my Ph.D. and completed medical school at Michigan. My transcript reads a little funny in terms of time, but it was because of that move in the middle.

Kaizen: Your Ph.D. work—what did it focus on?

Niklason: My Ph.D. work was in biophysics in a very quantitative area. I was interested in developing new methods of X-ray imaging at the time to try to understand the physical dimensions and the degree of disease that’s present in blood vessels, for example, in arteries that supply your brain or supply your heart. I was interested in developing imaging methods and quantitative analysis to tell the physician how sick these blood vessels were.

Kaizen: That was the focus of your Ph.D. work at …

Niklason: Chicago.

Kaizen: Chicago, okay. Then when you transferred to Michigan, you had two more years of medical school there. Is this still general training or does one start to specialize at that point?

Niklason: I didn’t specialize then. This is just general medical training. When I finished my medical training at Michigan, I realized that I was very interested in work that involved taking care of the very ill, very ill patients either in the intensive care unit or in the operating room. I developed a passion for that specialty during medical school.

Kaizen: Could you say what made that so attractive to you and interesting?

Niklason: Very ill patients are always very complicated. They’ve always got a lot going on. There’s no two that are identical. Understanding how to take care of a very sick patient often involves bringing together a lot of information from a lot of different quarters and synthesizing it and then making a plan. That differs from the mental processes that underlie much of the rest of medicine.

For example, I can’t remember if I said this to you before … If I’m repeating myself, please stop me … but for much of medicine, you might walk into the doctor’s office and you have a single symptom. “My symptom is diarrhea or whatever.” The good internist will then automatically generate a list in his head of the top twenty things that might be your problem. Then he will go down and check off that list one by one.

My brain was never very good at that. I could never begin with a single fact and generate a list. What my brain was very good at was taking a bunch of information, some of which was coherent and some of which was conflicting, and synthesizing that and coming up with one or two or three possibilities and directions to go. That’s what I see medicine is. It’s assembling a lot of information in real time and making choices.

Kaizen: That’s a challenge, right?

Niklason: That’s a challenge, and every patient’s different.

Kaizen: Especially with the people who are very sick, as you were saying.

Niklason: Yes, because things change sometimes very rapidly in real time, and you have to respond in real time. Taking information and then modify your plans as necessary.

Kaizen: What year was it when you finished med school at Michigan then?

Niklason: I finished medical school in Michigan in ’91.

Kaizen: You became a professor at Yale in 2006?

Niklason: I went there as an associate professor in 2006 and was promoted to full professor, I don’t know, three years later or something.

Kaizen: Okay, 2009. Between 1991 and 2006, what did you do in those fifteen years?

Niklason: I finished training, my clinical training, at Michigan and then Mass General. I did a year of internship at Michigan in medicine until ’92 then I did residency and fellowship in anesthesia and intensive care unit medicine at Mass General. I finished that up in ’96.

Kaizen: Again, that’s in Boston.

Niklason: In Boston. During that time, I also became interested in my current research area, which is regenerative medicine and using cells to create functional tissues that might be used to help patients. I started that research interest around ’95, and that overlapped with my clinical training. I worked in that area as a post-doc trainee at MIT until ’98. Then in ’98, I went to Duke University, and I was there until ’05.

Kaizen: Your time in Mass General is more practicing internship and then the time at MIT is more research-oriented?

Niklason: Yes.

Kaizen: Then you went to Duke University in North Carolina for a number of years. What was your position there?

Niklason: I was jointly appointed between the department of anesthesia and the department of biomedical engineering at Duke. I was a tenure-track assistant professor there and was promoted to associate professor with tenure after five or six years. I spent about 30% of my time working in the intensive care unit, taking care of the very ill, and then about two-thirds of my time running a research laboratory in biomedical engineering and teaching courses.

Kaizen: Running a lab side is an expensive operation. How does the funding go? Are you responsible for raising the funding, or is it a joint thing with the university or the department?

Niklason: In general, for most tenure-track professors at research institutions, there’s what’s called a startup package where they might provide you with a certain amount of money in order for you to get your operation running. My startup package was comparatively small, only because I wasn’t smart enough to ask for one that was suitably sized.

Kaizen: A learning experience.

Niklason: It was a learning experience, yes. I started with $50,000 a year for three years, which is actually, by today’s standards, obscenely small. Thereafter, any tenure-track faculty person in the sciences is responsible for getting grant money to support their own salary and also to support the salaries of the people who work for them and their research reagents.

I spent the first three years as an assistant professor working really diligently, desperately to try to get research funding. I probably wrote ten research grants a year without exaggeration for the first three years. I was writing grants, at the time, this very novel area of tissue engineering, this was in the late 1990s, and everybody pretty much thought it was just silly work and couldn’t be taken seriously. I had a very hard time getting funded. I came very, very close to bowing out of academia entirely after about three to three and a half years because I was simply not successful in getting funding.

Kaizen: What kind of organizations are you seeking funding from?

Niklason: Many. National Institute of Health—which is a federal agency, National Science Foundation—another federal agency, private foundations, American Heart Foundation, various anesthesia research societies, societies of aging research. These are private foundations. I managed to get small grants from private foundations that kept me alive, kept me on a minimum oxygen level for a number of years, but typically the large grants that can sustain a laboratory operation for a number of years are provided by federal agencies. It took me three and a half years to really land one or two of those and really have solid financial support.

Kaizen: Right. There’s like an entrepreneurial bootstrapping right here where you’re young and you have a lot of ideas and you’re hopefully working in a new area, but because you’re young you don’t have the track record yet of publications or the big name. If you’re working in a new area it seems speculative. What is the thing that, so to speak, enables you to leverage your way up?

Niklason: There’s a couple of things. I think your perception is exactly right. I think all young people who are trying to fund their research organizations, they’re all viewed as inherently risky because they are, and I was working in a risky area.

For me, in order to finally get some traction, it was dependent on a few things. One, and probably most importantly, was learning to partner with more senior people who were working not in my area, because nobody was working in my area, but who were working in related areas. By teaming up with them, I looked like I was a better bet, that I was a little bit less risky because I was viewed as having somebody more senior upon whom I could rely. In reality, I didn’t rely on these more senior people very much, but it certainly helped with the appearance of the thing.

Kaizen: It’s a seal of approval.

Niklason: Yes. In addition, I finally learned that what I wanted to work on was not necessarily what these research entities wanted to fund. I had to modify my research plans somewhat to be more palatable to my audience. I had to learn to be less of a Don Quixote jousting at the windmills, trying to get exactly what I wanted to do, and instead bend a little bit and understand what the funding agencies thought would be reasonable to support.

Kaizen: Then at about the three-and-a-half-year point you mentioned that’s when you got a big grant.

Niklason: Yes, I got two big grants.

Kaizen: Two big grants. What does big mean in this context?

Niklason: Big means roughly $250,000 a year in direct costs to my laboratory for four or five years. In addition to that, all universities charge what’s called overhead. For example, Duke charged 65% overhead. If I would get $250,000 in a year, Duke would get 65% of that in addition. That would just go to funding the building and the electricity and administration and whatever.

Kaizen: How much administration support would they be giving you?

Niklason: Almost none.

Kaizen: You still had to do all your own books and…

Niklason: Oh, absolutely.

Kaizen: The overhead really is a very high tax.

Niklason: Well, it’s a high tax, but it pays for the laboratories. If the roof-

Kaizen: Oh, all of the fixed capital, they’re providing that? I see.

Niklason: Yes, but the equipment I have to purchase. But, for example, there are facilities with microscopes in them that costs a million dollars. I can go over to that facility and I can use that microscope for $100 an hour. That support is distributed within the institution, but there’s not a lot of direct support that comes to me via that.

Kaizen: Out of that, you’re paying your salary and any research assistance that you hire and then…

Niklason: Pipettes and chemicals.

Kaizen: All of the those things…

Niklason: All those things.

Kaizen: All right, on 45% of the money that you bring in.

Niklason:  I would bring in $250,000.

Kaizen: Or 35%, sorry. 35%.

Niklason: I would bring in $250,000. That’s what I would write the grant for, and NIH would write a check to me for $250,000. They would then also write a check to the university for $170,000.

Kaizen: The overhead will be on top of that?

Niklason: Yes.

Kaizen: Okay, good. I was going to say you’re getting down below $100,000, and that’s…

Niklason: It doesn’t sound like very much money.

Kaizen: Yes. You have $250,000. You can live on that and get some stuff done.

Niklason: Right.

Kaizen: Then you’re in a position to publish as the research is coming out and going to conferences and build up your name and get some traction that way. Moving to Yale in 2006, you were working on the blood vessels at this point.

Niklason: I’ve been working on engineered blood vessels. When I went to Yale, I’ve been working on engineer blood vessels for a decade, or eleven or twelve years.

Kaizen: How did the idea of that particular engineering blood vessels come to you and what were your main steps, or what hurdles did you have to overcome and new knowledge that you need to acquire?

Niklason: That’s a very, very big question, and I could answer that for a very long time, but I won’t burden you with that.

Kaizen: But the two-minute version?

Niklason: The two-minute version. The two-minute version of where I got the idea was that, well, first of all, I’d been interested in blood vessels and their diseases since my graduate work. My graduate work had been in that area. I had a particular case when I was training in anesthesia where I was taking care of a heart bypass patient who needed a new artery for his heart. Typically, surgeons take a vein out of the leg to do that operation. They take a vein from the patient’s leg and they sew it onto the heart.

In this patient’s case, they opened up both of his legs and looked at his veins and they decided that they didn’t like them, so they sewed up both legs. They then opened up his arm, his whole forearm, looking at his radial artery, because they wanted to take one of the radial arteries, one of the arteries out of his arms and sew it into his heart. They decided that that would lead to complications, and so they sewed his arm back up and didn’t use it.

They then made a third incision and they cut into his abdomen. They peeled an artery off the surface of his stomach and swung it up into his chest to serve as a bypass artery for his heart. This all took many hours and looked really barbaric. In watching all of that, I thought there’s got to be a better way.

This was in the mid-’90s, but even at that time, twenty years ago, we really understood a lot, scientifically, about the cues that go into healing of an artery, growing new arteries, arteries as they develop in the embryo. My decision then was to try to leverage what we knew at the time about how arteries grow, try to bring those lessons into the laboratory and apply them so that we could grow new blood vessels essentially from scratch.

As time went along, I had to leverage other insights about certain biochemicals that we needed to apply that really weren’t appreciated at the time. Our work really clarified the importance of mechanical input. We learned that if we stretch these arteries while they’re growing in a way that mimics the heartbeat, that had a profound impact on how they developed. That wasn’t really very well understood before we did that. There were things that we learned about the basic under workings of how new blood vessels grow and assemble themselves. We had to learn those things along the way so that we could pull that trick off in the lab.

Kaizen: Are there synthetic competitors or alternatives here? I was thinking about some sort of engineered plastic tubes, for example.

Niklason: Sure. There are several types of engineered plastic tubes. There are plastic tubes made out of Teflon, plastic tubes made out of Dacron, and even some tubes made out of materials called polyurethanes. Primarily, Teflon and Dacron tubes are what are used now clinically when a patient needs a new blood vessel, but they don’t have a vein of their own, for example, to use as a replacement.

One of the big drawbacks with all of these forms of plastic is that when you sew a piece of plastic into the body, your body’s immediately aware that it’s not your own tissue. The body reacts by forming scar tissue around the implant, creating a lot of inflammation. Oftentimes, these synthetic blood vessels will clot because blood is running through them, but it’s running through a piece of plastic rather than your own blood vessel. That stimulates clot formation. The failure rates of these plastic tubes are actually quite high.

Kaizen: Was that an additional motivation for you?

Niklason: Yes, that was absolutely a motivation.

Kaizen: From that conception in the middle ’90s, at what point would you say you’ve solved enough of the science and the lab processes to be able to develop blood vessels realistically for medical application?

Niklason: Well, that’s also an interesting question because I believed I could do it after ten years of work.

Kaizen: This was around 2005?

Niklason: Around 2005. Indeed, that’s when I spun out my biotech company, Humacyte, in 2005. It turns out we couldn’t really pull it off for another four or five years after that because I think, as a scientist, you have to be very optimistic about your ability to solve problems and venture into new research areas that have never been done before.

I think I took that inherently optimistic mindset with me when we started up the company. I think that’s necessary. I think if you’re pessimistic you’ll never start a company in the first place. But I optimistically thought that getting the technology to a point, we were very much in a pilot-scale phase after ten years, and I thought that it would take us really only three years to get the technology to a point where it would be ready for first-in-man trials. In fact, we were eight years away.

Kaizen: Oh, okay.

Niklason: I can remember telling people when I started the company in 2005 that I would be able to mostly pull away at around 2008 or 2009, because, frankly, most of the problems would be solved by that time, and it would just be blocking and tackling. I can tell you for sure that twelve years later, most of the problems are still not solved, and it’s not blocking and tackling even yet.

Kaizen: All right. At this stage, 2005 or so, how many people are working in your lab?

Niklason: At my lab at Duke at that time, I had probably twelve or fourteen people. I took three of these people out of my lab when I started the company, and they moved over because they were wanting to. They were excited about it. I took two Ph.D.s and one technician out of my lab and moved them to this little tiny startup space, in a tiny incubator about twenty-minute drive from the university.

These folks started up. I begged some money from my parents and one of my first employees begged some money from her parents. We hung up the shingle. They walked into this room, and there were no pencils. I mean there was nothing.

Kaizen: That was your startup capital?

Niklason: Yes.

Kaizen: A lot of sweat equity, so to speak, a little bit of startup capital.

Niklason: Yes.

Kaizen: Was it the same thing then with Humacyte starting to seek venture capital?

Niklason: Yes. Humacyte has sought venture capital at several different points during its development, but we actually have never taken venture capital officially per se. As it turns out, Humacyte was funded by a combination of angel investors, friends and family, and various grants both from the National Institutes of Health, but also from the Defense Department, because the Defense Department is interested in our technology. It was cobbling together angel investors, friends and family, and grants for, frankly, the first nine or ten years of the company’s existence.

Kaizen: That would take you through about ’13 or ’14 or ’15?

Niklason: Yes, about 2015. We had our first really substantive external raise of capital in 2015, after the company had been in existence for ten years.

Kaizen: Wow! That’s still research and solving all the blocking and tackling and other science issues that crop up.

Niklason: Well, yes. The way Humacyte was developed is we basically spent the first two or three years developing robust methods to culture human arteries from human cells in the laboratory. The additional twist that we added was that after we cultured the arteries from human cells, we developed a way to treat the tissues and essentially wash the cells out of the tissue that we had grown in the lab. The reason we did that is because by removing the cells, we made the tissue non-immunogenic, which means that we could take the tissue and implant it into person A, B, C, or D.

Kaizen: It’d be a more generic tissue.

Niklason: Yes. It was a generic, universal donor tissue, and we expected that patients would not reject this tissue. It became a tissue that we could generate in the lab and then we could ship anywhere, and it could be implanted into any patient at any time without fear of rejection. That really became our product. We spent three or four years developing that.

Kaizen: At the same you were starting the company, you were making a transition from Duke to Yale University. How did that come about?

Niklason: That was by accident. I spun out the company in January of 2005. A few months later, I was asked to go up to Yale to give a seminar. Professors are asked to give seminars at different universities all the time. I went up to give a seminar and was really struck by the quality of the intellectual environment and the clinical environment. By late 2005, I had signed a contract to move from Duke to Yale. I got wooed away very shortly after I started the company. Note to self: do not start a company and then immediately move away, all you future entrepreneurs. That is not a life lesson that I would repeat.

Kaizen: Well, how portable is your company? It’s based in North Carolina, but you have people working there with families and so forth.

Niklason: About a year or two after I went to Yale, we looked very seriously at moving the company to New Haven, Connecticut. We went so far as to sign a lease on some new space in New Haven.

At that time, the company was only five, six, seven people, and the key people would have moved. The problem was their spouses because their spouses couldn’t find jobs in the New Haven area. I would have lost a high fraction of my key people in my then tiny company, so I decided not to do that. We backed away from that. That means that for the last twelve years now, I’ve been flying from New York to Raleigh almost once a week.

Kaizen: That’s quite a commute.

Niklason: Yes.

Kaizen: What is the business work when you are a faculty at Yale, but you’re also running a business, and there’s obviously a strong overlap in the research and funding issues and so forth. How is all that sorted out?

Niklason: There are several aspects to that. As a professor, it’s true of Yale and it’s true of many universities, tenure-track professors are allowed to carve out up to 20% of their time to function as consultants with outside entities. My official title at my company is as consultant or founder. I’m not an officer of the company. I have no people at the company directly reporting to me. I consult for the company and advise them.

Kaizen: I see.

Niklason: I do not directly run the company per se. We have a management structure, we have a CEO who runs the company. That said, with respect to inventions and intellectual property and patents, I have to be very, very careful and I have to draw very bright lines between work that’s done at my company and work that’s done at Yale, because Yale is a nonprofit institution. Professors get fired, if it’s discovered that they’re using their NIH-funded laboratory at a nonprofit institution to generate intellectual property, which they then take for their own enrichment in their own company.

I take that very seriously. The work that gets done at my company, at Humacyte, is physically separated. It’s in North Carolina. It’s its own free-standing thing. In my laboratory at Yale, if I invent anything at Yale, by definition, according to my employment contract, Yale owns the intellectual property. Anytime I invent anything, I fill out an invention disclosure and I carry it over to the Office of Technology Transfer and they file a patent and Yale owns that patent. I’m an inventor on that patent and my students might also be inventors, but Yale owns the intellectual property.

Kaizen: Does that hold even if you wrote the grant and brought in the money for that idea?

Niklason: Absolutely.

Kaizen: Okay.

Niklason: Absolutely. Anything I do on university soil is owned by the university and/or with university resources. However, if the invention would be useful to my company, then it’s in everyone’s best interest, including Yale’s best interest, to turn around once the patent is filed, they turn 90 degrees and pick up the phone and call Humacyte and they say, “Do you want to license this patent?” Often Humacyte says yes. When that happens, Humacyte then has to pay to Yale all of the costs of prosecuting the patent, but they also pay royalty fees and milestone fees.

Kaizen: Are there standard percentages that are worked out?

Niklason: There are semi-standard percentages; however, each negotiation is independent and new because the value of different patents can vary.

Kaizen: Sure. Everybody wants as much as they can get depending on the anticipated value of that patent.

Niklason: Yes.

Kaizen: Around 2015 you said it was another milestone. You got more significant funding.

Niklason: Yes, we got a lot of funding. We started our clinical trials in late 2012, and…

Kaizen: This is clinical trials to work with FDA?

Niklason: We got permission from the FDA in 2012 to begin implanting our engineered blood vessels in patients and to begin testing them in patients. Our first implants into human beings was in December of 2012. We implanted a total of sixty patients in six hospitals in Europe and the US. We followed those patients for several years. It was on the basis of that data that we raised a significant round of funding in 2015.

Kaizen: The patients in Europe, is that with an eye to getting approval to market the blood vessels in Europe?

Niklason: Yes, absolutely. The initial clinical trials that we did in sixty patients were really just to establish initial function and safety, but it was not any sort of comparative trial. We just finished enrolling a large trial, which was funded in part by this $150 million that we raised in 2015. We just completed enrolling a 350-patient trial where we’re comparing our blood vessel against the plastic blood vessel made out of Teflon. This trial has been underway in six countries in thirty-eight different hospitals.

Kaizen: Wow! $150 million in funding.

Niklason: But the trial really costs $20 million or $30 million. The $150 million pays for a lot of things, but part of the $150 million goes to that trial.

Kaizen: Is that from one source or a series of sources?

Niklason: There were multiple investors who came in with the $150 million. In fact, that was from a total of about twenty-five different investors.

Kaizen: Is there a venture capital firm that puts this all together, or how does that work?

Niklason: We work with an investment banking firm who specializes in helping small private companies raise money from wealthy individuals or from hedge funds or private equity funds. With the help of this bank, this bank functioned as a yenta or as a matchmaker, we were introduced to various investors who were interested in investing in this space. The investors were from all over the world.

Kaizen: That’s in 2015. Then what’s the anticipated timeline? Now we’re substantially through 2017 until the next milestone is reached.

Niklason: Yes. Our first milestone … The $150 million actually came in two pieces, in two tranches. We got the first seventy-five in 2015. We had to largely complete enrollment of this phase three clinical trial in order to get the second half. We recently secured the second half of funding based on our enrollment of this large trial.

We now have to follow all of the patients in this large trial for at least a year. In late 2018, we’ll have an initial read on, first of all, whether our product works and whether it’s safe, I fully expect it will be, but also will have the read on whether or not our product works better than a piece of plastic and, if so, by how much.

Kaizen: That’s a year and a bit by a larger number of patients, the initial sixty. How many patients are we talking about now?

Niklason: The total trial that we just completed enrollment in is 350 patients. Half of those patients got plastic that’s already on the market and half of those patients got our blood vessels.

Kaizen: Now this is to satisfy investors and your own personal goals. There’s also the regulatory agencies in the US and Europe. What’s the anticipated timeline for them, supposing you get the results you want by the end of 2018?

Niklason: When you design a trial like this, it’s always in very close cooperation with the FDA, and we also work closely with the European regulators, because you want to get some assurance from the FDA that if you complete the trial and spend the $30 million to do this, once you have your answer two or three years later, you would hope that if the data is good, the FDA would view the data as sufficiently strong so that they could give you approval based on that data. The trial was designed absolutely working in lockstep with the regulators on both sides of the Atlantic.

We’ll get results in late 2018. We’ll then have to do some filings with the regulators and hope to get approval in late ’19.

Kaizen: Then that means going into production in ’20?

Niklason: We will be in production in 2019, gearing up for an anticipated approval.

Kaizen: The math almost works perfectly then, if you started around 1995 down this road, twenty-five years later, finally, you have a marketable product.

Niklason: Yes.

Kaizen: Okay, wonderful.

Niklason: Yes, a big chunk of your adult life.

Kaizen: Yes, that is substantial. Then there are issues of scaling up in mass production, hopefully. It’s one thing to do things in the lab and then with even a few hundred patients working with industrial engineers who specialize in this. What was that process like?

Niklason: The process of scaling and making something very, very rigorous and reproducible and very highly documented is an almost orthogonal skill set compared to the research and discovery and pilot-scale processes that I’ve done as a university researcher. I can tell you that it takes absolutely a team of people who have been working in manufacturing and in pharmaceuticals for many years, and I can tell you that we’ve been working on the science and the engineering of scaling up our process for the last five or six years, and we’ve still got another two years of really intensive work ahead of us to be ready in 2019.

As with all cutting-edge drugs or biologic treatments, or even new complex medical devices, the scale up, and the reliable, consistent scale up, is one of the hardest pieces of the puzzle. It’s always much harder than people anticipate. It just takes a long time to get it right.

Kaizen: You mentioned when you started Humacyte, it was you and a few people who you took out of your lab at Duke.

Niklason: At Duke, yes.

Kaizen: On the Humacyte side, how many people are officially with the company?

Niklason: Ninety-five.

Kaizen: Ninety-five in your labs at Yale?

Niklason: Twenty.

Kaizen: That’s a total of 115 people that you work with?

Niklason: Yes, it’s a lot of people.

Kaizen: It sure is. You’re still back and forth significantly between Raleigh and Yale?

Niklason: Yes.

Kaizen: This might not be a fair question, but if you’re anticipating, say 2020, things would be in operation, are you thinking about what you will work on next or what you will be doing in those years?

Niklason: Well, I mean the beauty of being able to have one foot in academia and one foot in the private sector is that I’ve been able to maintain my research interests and my new R&D interests in my Yale lab all along. I’ve actually been commenting to several people, in my academic life, my research work is probably as exciting right now as it’s ever been. We have four or five projects that we’re working on in my lab at Yale that I’m very excited about. Only one or two are related to engineered blood vessels, most of them are on completely different topics, but they’re very exciting and compelling to me.

I’m also very fortunate now that I happen to have a really good team working for me. We’ve got great ideas and I’ve got great people. It doesn’t get a lot better than that. We’re working on cell therapies for lung disease, we’re working on cell therapies for diabetes. We’re working on engineering a new trachea, a new wind pipe.

Kaizen: Wow!

Niklason: I even have one project, it’s a crazy project that I’ve been working on for a number of years now, but trying to find molecules that might slow down cellular aging. It’s a very, very exciting time.

Kaizen: Wow!

Niklason: I will have no shortage of things to do.

Kaizen: That’s great.

Niklason: Yes.

Kaizen: We’ll get more philosophical about your career as a scientist. Looking back over the years, obviously a lot of knowledge, a lot of intelligence goes into being a successful scientist, things like perseverance or a question of the courage to be able to ask new questions or a willingness to fail a number of times and come back. Are there character things that stand out for you as essential to becoming successful in the sciences?

Niklason: I think success in the sciences is related to success in entrepreneurship. They’re not the same thing, but they do have some similarities. If I look at the similar qualities that bridge both, I would say they fall into three categories. The first is optimism, and I started with that earlier.

I think if you’re going to start a company or if you’re going to start research in a new area that nobody understands at all, you have to be imbued with some level of optimism that you’re going to find something that works or you’re going to figure out something positive, and it’s not all going to be a failure. One thing that people say about working in scientific research labs is that you have good days and bad months.

Kaizen: That a new one to me.

Niklason: That’s about the ratio. That’s about the ratio. If we knew what we were doing, it wouldn’t be called research. There’s a lot of stuff that doesn’t work. The only people who can stick with that ratio are people who are inherently optimistic that they’re going to get to a good outcome eventually. I think optimism is really fundamental.

Kaizen: That drives the perseverance.

Niklason: That drives the perseverance. That’s a part of the perseverance, yes, but going along with that, the optimism and the perseverance have to be coupled with realism, and that’s at least as important as the other two things, because being mindlessly optimistic doesn’t actually get you there. You have to temper your optimism with an unflinching willingness to look at the data in front of you and to interpret that in a clear-eyed fashion and to believe what nature is telling you and not have your optimism or your preconceived notions impinge on that and skew your view of what’s real.

Kaizen: A ruthless objectivity has to work with that optimism.

Niklason: Those two can exist in the same head more easily than one might think, but having them both there all the time is very important.

Kaizen: On that clear-eyed look at the data, we do know there’s a temptation among many scientists, they want to get the publication, they want to get the grant to fudge things or to set things aside, especially if you’ve been having a bad month, so to speak. How do you deal with those moments when they come up?

Niklason: I think it’s more of a temptation for people who are younger and who are more insecure and more desperate. The concept of scientists making up data and falsifying results, I’m sure that happens. I think that doesn’t happen very often.

What happens far, far, far more often is what I was referring to earlier, is a bias or a fervent belief that your theory is what’s operative in the universe. If you do six experiments and five of them “fail” because they didn’t give you the answer you were expecting, mentally you feel comfortable with throwing out those five results and publishing the sixth. Is that forgery and dishonesty and lying? Not quite …

Kaizen: Right.

Niklason: But it’s getting carried away with your own belief system, but what it leads to is the same thing. What it leads to is the fact that a very high fraction of publications out there cannot be repeated by independent laboratories.

Kaizen: You get built-in confirmation bias.

Niklason: Yes, it’s more confirmation bias than it is outright lying.

Kaizen: How about issues of social pressures? In many cases, you have to raise the questions that are new, and sometimes those can challenge existing big names in the field, sometimes it can challenge the general public notions of stem cells or various sorts of things. Did you run into those social pressures?

Niklason: Sure. I mean, interestingly, different scientific fields have different subcultures and different levels of social pressure. It’s remarkable. The social pressure in the vascular engineering space is actually not that high. There’s tremendous competition among scientists, but the social pressure to just conform to one intellectual view of the universe is not that high. In contrast, in some areas of lung biology, the social pressure to conform to a particular view of the universe is incredibly high. It can be incredibly difficult to publish in that area if your results conflict with the current dictum.

Kaizen: That’s by the leading editors or the main researchers in the field or the big names?

Niklason: The big researchers in the field who drive scientific opinion.

Kaizen: Okay.

Niklason: I’ve often had to … Not water down my results. I’ve had to underplay results that conflict with what people want to believe and want to read. I’ve had to take publication in much, much lower quality journals than I would otherwise have chosen or been able to publish because my results don’t conform with what people want to see out there.

Kaizen: Many young people who are interested in the sciences don’t necessarily think of themselves as entrepreneurs or even have a realistic sense of the business end of writing grants and managing people and managing money and so forth. Is there advice you would give to younger people who are in the sciences and they’re attracted to the sciences because they love science, but to be aware that they might very realistically be business professionals and/or entrepreneurs at some point in their career, especially in hot fields like biotech?

Niklason: I think that, again, there’s two parts to the answer to that question. Running any scientific laboratory, whether it’s in the private sector or in the university, involves two things that people don’t think of all the time with science. It involves managing people and getting teams of people to work on the experiments that you want to see done. It also involves writing so that you can tell people about what you did and so that you can raise money to do more of what you’re doing.

Kaizen: That’s a kind of salesmanship there.

Niklason: It’s salesmanship and telling a very clear and compelling story to a diverse audience, even a scientifically diverse audience. Management and writing are two things without which, at a minimum, you must become a compelling writer. If you’re not a compelling writer, you will fail as a scientist no matter where you are, full stop.

Kaizen: That will be a surprise, I think, to many of them.

Niklason: Yes. It takes time to become a compelling writer, and it’s painful. It’s like what Benjamin Franklin used to say about the amount of pain and suffering it took him in order to become a good writer and about how he had to write every day. There was no getting around it.

Kaizen: Yes, he’s right.

Niklason: Young scientists need to learn that even though writing is almost universally painful for them, because if they were verbal, they wouldn’t be in the laboratory. They have to learn that that’s really important, but also managing people is very important, and that’s a soft skill.

I tell people I think there are born leaders. I think it’s possible to be a born leader. There are very few born managers. There’s a few, but not many. Most people learn how to manage. It’s an acquired skill, and watching how other people do it and learning how to speak directly with people, but also to speak with them in a way that’s acknowledging what their motivations are. Being both direct and directive but also sympathetic, that takes time and maturity, but it’s critical to running your own operation.

Kaizen: Looking back on your own college education, is there anything you would have done differently with an eye to the writing skills, the people management skills on top of the science that you needed to learn that’s indirectly …

Niklason: I probably would have written more. I wrote as little as I humanly could in college. I took my one writing course, and I hated it. I got through it. It was fine. I probably would have written more. As far as being a manager, I’m not sure that’s something that a young person at that age should really focus on because, frankly, I think you’re still busy becoming your own person. I think in order to manage well, you have to know who you are first.

Kaizen: That’s nice. A huge amount of it is going to be just having a lot of social interactions. That’s not going to happen until you’re in a professional environment.

Niklason: Until you’re later and older.

Kaizen: Fair enough. Was there any advice from a mentor when you were younger that has stuck with you over the years?

Niklason: One thing is one mentor who really shaped what I’m doing said to me … He said basically all the easy stuff has been done. If you want to have a really satisfying career and if you want to do something that matters, then pick a big, important problem and spend ten or fifteen years and solve it. I took that very much to heart, and that’s exactly how I lived my professional life since that time.

Kaizen: Wonderful. Think big and be ambitious.

Niklason: Yes, and do not expect to be Mark Zuckerberg. Do not expect to become a billionaire in thirty-six months because that’s really not how it works 99.999% of the time.

Kaizen: Right. It might be twenty-five years.

Niklason: Yes, or more.

Kaizen: Yes, absolutely. Why don’t we stop there? Because that’s actually a really good ending point with that.

Niklason: Okay.

Kaizen: Great.That’s a lot of good stuff.

Niklason: Good. I’m glad.

This interview was conducted for Kaizen by Stephen Hicks. for more information on Laura Niklason and Humacyte, visit their website.

More Kaizen interviews with leading entrepreneurs are here at our site.

Interview with Zol Cendes

Monday, March 24th, 2014

Entrepreneurship and Software Development

k29 thumbDr. Zoltan Cendes was the co-founder, chairman and chief technology officer of Ansoft Corporation, now part of ANSYS. Prior to founding Ansoft, Mr. Cendes received his undergraduate degree at the University of Michigan and his M.S. and Ph.D. degrees from McGill University in Montreal, Canada. He was then an engineer with General Electric in Schenectady, New York, associate professor of engineering at McGill, and professor at Carnegie Mellon University in Pittsburgh, Pennsylvania. For his achievements in developing software tools for electromagnetic analysis and design, he received the Antennas and Propagation Society Distinguished Achievement Award.


Kaizen: You were a founder and chairman of Ansoft, whose mission is developing software?

Cendes: That’s correct. In 1984 I was a professor at Carnegie Mellon University (CMU) performing research in computer simulation technology. I was approached by a member of the research staff at Alcoa to develop a computer program to model electromagnetic casting. At the time, molten aluminum was poured through mold and cooled to form ingots. Alcoa wanted to develop a process where the aluminum was supported through the molten column by an electromagnetic field rather than by a mold. In this way, the aluminum would form better ingots since it was cooled without touching it.

I proposed to Alcoa that I recruit a graduate student to perform research in this area. Alcoa replied that they didn’t want to fund research — they wanted me to start a company and develop a commercial software program that they could use in their own design process. I started Ansoft Corporation with the initial funding from Alcoa, developed our first software program to simulate the electromagnetic casting of aluminum ingots. In subsequent years we expanded our simulation capabilities to address thousands of other products in electrical and computer engineering and grew Ansoft to a company worth $900 million.

Kaizen: Ansoft is now part of ANSYS, a $7 billion corporation, but it’s not a company that most of us know about. What does it do?

Cendes: ANSYS is the leading company in the engineering simulation market. It develops software used by engineers as an aid to design and development better products.

Consider the cell phone in your pocket. There are literally billions of components in this cell phone. It is impossible for anyone to understand all of the interactions among these components without using simulation software. Or consider the car you drive. Engineers use simulation software to determine the mechanical integrity of the components, the efficiency of the combustion in the cylinders, the forces due to airflow around the car, the interactions of the electrical components in the car, and thousands of other concerns.

Fifty years ago, products were designed by trial and error — engineers and designers would build a prototype of the product and test it to see if it worked. Today, simulation driven product development is the norm; most of the products you buy and use today — from computers to airplanes to medical devices — are designed using engineering simulation software.

Kaizen: Where did you grow up?

Cendes: My background is diverse. I was born in a Displaced Person’s Camp in Austria of Hungarian parents. We immigrated to Canada when I was three. We were deposited on a farm in October in the middle nowhere with no money, no food, no car, or anything. My father, who had two Ph.D. degrees but spoke no English, found a job in a automobile parts factory where he worked for several years. I grew up very poor with periods of hunger and deprivation. However, I always knew that life was full of possibilities. My father eventually became a Math Professor, first in Canada and then in the USA at Central Michigan University. My desire for learning was fostered by my parents who understood the importance of intellectual achievement.

Kaizen: Were you technically-oriented as a youth?

Cendes: Yes. One of my earliest memories is drawing pictures of rockets going to the moon when I was perhaps four years old. Growing up I loved to read books about rockets and all things scientific. I loved to build things with my Erector set, and built a telescope and electrical devices as a teenager. I was always fascinated by the world, wanted to understand it, and dreamed of inventing something that would change the world.

Kaizen: What led you to choose engineering as your undergraduate major?

Cendes: My path to engineering was not a straight line. As a youth, I was fascinated by physics and as an undergraduate drifted between taking engineering courses and physics courses. I actually began my Master’s study in the physics department at McGill University but was assigned a boring Master’s project. Looking around, I discovered groundbreaking research being performed by Professor Peter Silvester in the Electrical Engineering Department at McGill. Professor Silvester’s work was cutting edge. I switched departments to Electrical Engineering and never looked back.

Kaizen: What were you thinking your likely career path would be?

Cendes: As a youth, I did not know what my career path would be except that it would involve understanding how the world works. Once I encountered Professor Silvester, I fixed my chosen area of study and supposed I’d be an academic the rest of my life.

Kaizen: You then got master’s and doctoral degrees in electrical engineering from McGill. What was the focus of your doctoral work?

Cendes: My thesis advisor, Professor Silvester, was a pioneer in applying computer methods to simulate electromagnetic fields. Let me begin by saying that electromagnetic fields are one of the most fundamental quantities in nature. There are only four known forces in the universe — gravity, electromagnetics, and the strong and the weak nuclear forces. Electromagnetic fields are at the heart of all electrical engineering and, indeed, much of your life. The equations describing electromagnetic fields were discovered by James Clerk Maxwell in 1864 and describe macroscopic electromagnetic phenomena perfectly and completely. However, these equations are very difficult to solve except in the simplest of circumstances. My doctoral thesis was to solve Maxwell’s equations in more complex, real-life cases using a new computer simulation technique called the finite element method.

Kaizen: After that you became a professor?

Cendes: No, I first went to work at the General Electric Company in Schenectady, New York, first in the Large Steam-Turbine Generator Division and then in the GE Corporate Research and Development Center. At GE, I developed computer programs to simulate the behavior of electric power transformers and generators. Using the finite element method to compute the electromagnetic fields inside transformers and generators provides a much higher level of knowledge about transformer or generator performance than can be obtained by measurements alone.

At one point, I received a letter from the Vice President of GE’s Transformer Division stating that by designing more efficient transformers our software simulations had saved the company over one million dollars during the past year.

Kaizen: What motivated you to leave GE and become a professor?

Cendes: Professor Silvester asked me to return to McGill as a professor. The offer was very appealing because being a professor is much more entrepreneurial than working in a large corporation. While GE was an excellent place to work, it still had a large bureaucracy. A good professor is a mini-CEO — he is self-starting, sets his own direction, assembles a team of students, raises his own funding and achieves goals. I went to McGill and started teaching and doing research. Two years later, I received an even better offer from Carnegie Mellon University in Pittsburgh, Pennsylvania, and moved there.

Early entrepreneurial experience

Kaizen: You started Ansoft in 1984. Why did you decide to go entrepreneurial rather than remaining a professor?

Cendes: There were several reasons. I had always wanted to be an entrepreneur — Ansoft was third company I had started. And there was the nudge by Alcoa. But, beyond that, commercializing the research in computer simulation technology was in the air at that time. Several other professors, including my advisor Peter Silvester, started electromagnetic field simulation software companies at that time. I was fortunate to be working in this field at the dawn of a new industry.

Kaizen: Your specific challenge was to develop software to solve Maxwell’s equations. What does that mean, in layman’s terms?speedo-swimsuit-04

Cendes: As I mentioned earlier, Maxwell’s equations describe electromagnetics perfectly but they are very difficult to solve in real-life situations. The difficulty lies in the complex interactions that exist between fields in three-dimensional (3D) geometries. The finite element method on which I had worked on my dissertation solves this problem by breaking the geometry into a myriad of little pieces called finite elements. Maxwell’s equations are approximated over each finite element and the entire problem solved by assembling and computing all of the interactions on a computer.

Kaizen: What were the technical challenges in doing this from a commercial point of view?

Cendes: There were two principle technical challenges. The first came from the need to automate finite element mesh generation — the process of breaking complex 3D geometries into little pieces. Michael_PhelpsAt GE, we had developed specific programs to generate finite element meshes for individual transformer or generator geometries. However, commercial software needs to be flexible — the program designer has no idea of the geometries customers wish to solve. So we developed new algorithms to automatically subdivide any geometry into a finite element mesh.

The second challenge was the nature of the finite element approximation itself. It turned out that the standard finite element process developed by mathematicians earlier gave incorrect results in many situations. We invented new types of finite elements called edge elements that solve Maxwell’s equations correctly. The combination of automatic mesh generation and reliable electromagnetic solutions propelled Ansoft to lead in the electromagnetic field simulation industry.

Kaizen: Where were you geographically at this point?

Cendes: I was still in Pittsburgh at the time. I resigned my tenured professorship at CMU in 1996 — the year Ansoft went public.

Kaizen: You had a co-founder. Who was that?

Cendes: There were two co-founders — my brother Nick and his business partner Tom Miller.

Kaizen: What was the division of labor among you?

Cendes: Nick and Tom had business backgrounds so they were focused on administration, finances, and investor relations. I was focused developing the technology, products and markets.

Kaizen: How much capital did it take to develop and launch Ansoft, and what sources of funding were you using?

Cendes: Ansoft grew organically. In addition to our first funding from Alcoa, we received contracts from such companies as Kodak and Amp totaling over a million dollars. We also began to get revenue from software sales but this varied from around $10,000 to $50,000 a month in the early years.

pathlines-gt2Fortunately, the capital expense in launching a software company was small. We bought a couple of personal computers with the initial Alcoa money. The biggest expense was salaries. Because sales and contract revenues were erratic in the early years, some months Nick, Tom and I would have to borrow money on our personal accounts to meet payroll. In our fifth year, we did receive $500,000 from a venture capital firm, but this was a relatively small addition to the revenue we made by that time.

Kaizen: Did you have any early difficulties with the developing the software?

Cendes: A start-up company has a million difficulties. All of the people we hired were straight out of school, assignments were fluid and flexible, and everyone was jockeying for position and authority. At the time, personal computers had 640 kilobytes of memory — literally a million times less than a computer used to solve some engineering problems today — and there was no graphical user interface. We had to work around these and many other limitations.

Nevertheless, a start-up company is the most fun place to work imaginable. Every day is filled with challenges and adventures and each person can make significant contributions to the success of the organization.

Kaizen: Any special challenges marketing Ansoft’s software?

ferrariCendes: Ansoft entered a quintessential “blue ocean” market in which there were few competitors. We were pioneers in an entirely new landscape in which electromagnetic problems could be solved for the first time. A few visionary customers understood our value proposition and purchased the software readily.

More often than not, however, we faced a “missionary sale” in which we needed to convert the customer from his reliance on the old way of doing things to the new. It took a lot of effort in the early years to convince engineers that computer simulation of electromagnetic fields was real and that they could save thousands of dollars by buying our software instead of building prototypes.

Kaizen: A big step for Ansoft was a connection with Hewlett-Packard in 1989. How did that come about?

Cendes: Ansoft’s agreement with the Hewlett-Packard Corporation was the best thing that ever happened to us — and the most harrowing thing that ever happened to us. HP approached us in 1988 about developing an electromagnetic simulation software program for them to sell to microwave engineers. In the resulting OEM agreement, Ansoft would develop a program called HFSS for use by microwave engineers, HP would sell the software, and Ansoft would get a royalty on every copy sold. HP gave Ansoft a $325,000 advance on royalties to enable us to develop the product.

We were ecstatic. At that time we were a small, inexperienced company with zero marketing and sales force. HP was a large, top-of-the-line company with thousands of sales people around the world. We went to work feverishly and had everyone in Ansoft developing the product. The only problem was: HP’s standards were much higher than I had anticipated. Product shipment was delayed by over a year. We burned through the royalty advance and were running on vapors. Finally, HP shipped HFSS in October 1990.

Of course, our initial royalty revenues were cut because we had to repay the royalty advance. And HFSS sales were below forecast initially as well. We were running out of money, and HP approached us with an offer to buy the company at a very low price.

I am aware of two other microwave software companies that HP bought in this way. They too had developed software for HP using royalty advances and sold out to HP when their finances dried up. Fortunately I had put an escape clause into the HP agreement. HP wanted us to develop software for microwave engineers but I suggested that we develop software for antenna engineers as well. HP said no, that their initial interest was for the microwave market only, and so I added a clause into the agreement specifically excluding software for antenna design.

Fortunately, HP didn’t realize that with the simulation technology we were using, microwave design was a subset of antenna design. So we added antenna capabilities to HFSS and were allowed under the agreement to sell this improved, more capable product. The long and short of it is that we were able to generate a secondary revenue steam and started prospering. If I had not inserted the exclusion of antenna simulation software into the Ansoft-HP agreement, Ansoft would have become a small part of HP and you wouldn’t be talking to me today.

Kaizen: When you started Ansoft, how many people were involved?

Cendes: In the first year we had 5 people but this grew to around 25 in five years. Our growth was constant — our revenue and our personnel grew at roughly 30% year after year for many years.

Kaizen: And by 2008, how many people were working at Ansoft?

Cendes: Approximately 300 — roughly 200 in the USA and 100 around the world. An interesting aspect of modern technology is its international nature. We had direct sales and support offices in twelve countries. While we were a small company, we used to joke that the sun never sets on “the Ansoft empire.”

Kaizen: As Ansoft grew you became the head of a much bigger organization, which brings with it new management challenges. Did developing the necessary management skills come naturally, or was it something you had to work at?

Cendes: I believe that management skills are largely the same as interpersonal skills. You have to be aware of people’s strengths and weaknesses as well as their wants and needs. If you care about the people in the organization, and judge their abilities correctly, it is natural to grow an innovative, dynamic organization.

People who joined Ansoft were coming to a new, high-tech company that was changing the way electrical engineering was done. They were highly motivated and self-starting. Due to my academic background, we fostered an open, loosely-structured environment where every employee possessed a great deal of freedom and responsibility.

The IPO experience

Kaizen: You took Ansoft public in 1996. What goes into that process?

Cendes: The universe of high finance and the universe of academic engineers couldn’t be more different. In the IPO, the investment backers took us around in limousines to expensive offices in New York and other financial centers; as an academic, I was more used to the lower end of travel arrangements.

In the IPO, I was giving talks to one or two financers at a time, avoiding the use of equations (although I did have one slide showing Maxwell’s equations), and talking about industry trends; at academic conferences, my talks would contain lots of equations and engineering detail. As everyone knows, the uncertainty in business plans is high; an engineering paper presents definitive results.

To illustrate this point, our investment banker had just before us taken a company public called Legends of the Past — a company with Marilyn Monroe and Elvis Presley impersonators, among others. You can imagine that presenting the Ansoft story to an investor who has previously heard a pitch from Legends of the Past is different than presenting it to engineers.

The merger experience

Kaizen: Ansoft had been very successful, and that led to a merger with or sale to ANSYS in 2008?

Cendes: Yes. Interestingly, both Ansoft and ANSYS were headquartered in Pittsburgh and both Ansoft and ANSYS have similar names — Ansoft is an abbreviation of Analysis Software while ANSYS of Analysis System.

Kaizen: At that point, Ansoft was the world’s leading company in is field. By what criteria does one measure that? Revenues? Market share?

Cendes: Our revenue was over $100 million at the time. A number of smaller companies had entered the market but their combined revenue was less than ours. Similarly in market share — almost every Fortune 500 company in the electrical engineering space was using our software; much fewer were using our competitors’ software.

Kaizen: How did the merger process start — who approached whom?

Cendes: ANSYS approached us. ANSYS had started earlier than Ansoft, they were in the mechanical engineering design space, and were significantly larger. ANSYS wanted to round out their engineering design offerings by adding electrical engineering products to their existing mechanical engineering products.

Kaizen: How much was Ansoft valued at for the merger, if I may ask?

Cendes: When the deal closed on August 1, 2008, the combined cash and stock valuation was around $900 million.

Kaizen: What are the major factors going into determining the valuation?

Cendes: Since Ansoft was a public company, determining the valuation was relatively easy — ANSYS simply put a 15% premium on our existing stock price.

Kaizen: Was it difficult to decide whether to stay on with the to-be-merged companies or to leave?

Cendes: Yes. Ansoft had become a large part of my life and I regretted leaving it. On the other hand, the merger of Ansoft and ANSYS made a lot of business sense and I realized my role there couldn’t continue.

Kaizen: Was a non-compete agreement part of the merger deal?

Cendes: Yes. However, the merger agreement didn’t include any “golden handcuffs,” so I could leave Ansoft/ANSYS immediately if I wanted to.

Kaizen: And yet you stayed on for another two years to effect a smooth transition?

Cendes: I wanted to see the merger succeed. It would have hurt me very badly if everything I had built up over the years had been destroyed. I also felt close to my employees and wanted to do everything I could to ensure their continued success.

Navigating the waters between the former Ansoft culture and the new ANSYS culture was one of the most difficult things I have ever done. The ANSYS management initially didn’t understand our products, markets, and procedures. It was a long process, but eventually ANSYS management learned the needs in the electromagnetic market and most people and procedures continued on as before. Although it was very difficult for me, I’m glad I stayed on because the old Ansoft organization has continued to grow and prosper within the ANSYS umbrella.

Business success and the rest of life

Kaizen: Now that the merger is behind you, what is next for Zol Cendes?

Cendes: I have been pursuing my dream of reinventing the finite element method. While the finite element method is now over 60 years old, certain aspects of the method are still mysterious. I have discovered a new approach to the finite element method that solves some of these mysteries. It is like discovering a new landscape — the world is new in every direction I look. I am exploring these new directions — sometimes I find something beautiful, sometimes I reach a dead end — but it is always an exciting journey. I am in the process of writing a book describing the new theory.

Kaizen: Looking back on having been an entrepreneur for twenty-four years — what has been the best thing to you about being an entrepreneur?

Cendes: It is fun. There is nothing more enjoyable than having a dream and a direction to go, waking up every morning and building a solution to a fundamental human need. Few people realize the need for electromagnetic field simulation. Nevertheless, every day you use products and technologies that would not exist without electromagnetic field simulation. Every entrepreneur faces the challenge and opportunity of improving the human condition in some way.

Kaizen: What has been the most challenging thing for you about being an entrepreneur?

Cendes: I’ve always focused on the opportunities rather than the challenges so it’s hard to say. I suppose the times that we were running out of money to meet the monthly payroll were the most stressful part of my career.

Kaizen: Entrepreneurs have to have initiative, guts, resourcefulness, perseverance, the ability to recover from setbacks, and so on. If you had to choose, which of those would you say is the most important?

Cendes: While all of these characteristics are important, more important than all of them is vision. An entrepreneur must have some idea of where he is going and what the purpose of the enterprise is. Once you have a vision, it still takes initiative, guts and all of the traits you mention — but without a vision, no amount of these traits will lead to success.

Kaizen: What advice would you give to potential entrepreneurs about how to cultivate those traits in themselves?

Cendes: Potential entrepreneurs need to think long term. What are the needs in the world and how do you satisfy them? You do this by looking at the world as it is and thinking about how it ought to be. Once you have a vision for the future, you need to focus on your goals rather than the difficulties. It is easy to have initiative, guts, perseverance, etc., if your mind is focused on your dream.

Kaizen: Many entrepreneurs have technical backgrounds, but they don’t typically learn much about business in university. Is that a problem?

Cendes: No. Many successful entrepreneurs — Bill Gates and Steve Jobs come to mind — never took a business course in their lives. The most important aspects of business — having a vision, selling your product or service, raising money, managing a team of bright people — are not taught in business school. Entrepreneurs can hire people to do the technical aspects of business such as accounting and finance.

Kaizen: Is there anything your engineering education could have better prepared you for?

Cendes: That’s an interesting question. Basically, no. While much of what I learned as an undergraduate is irrelevant today — in electronics I was taught about vacuum tubes — the fundamental thing in learned in engineering school was how to think. Technology changes so rapidly that the specifics you learn are not important. What is important are the fundamental principles you learn that govern the world.

Kaizen: On the other hand, we live in a high-tech world of science and engineering, but not many people are scientifically literate. Is that problematic?

Cendes: Ignorance is never useful. It can even be destructive if a person lives and acts in a fantasy world removed from scientific reality. An interesting example is the current “singularity movement” — the notion that computers will overtake people in intelligence in a few decades and we will be able to live forever by downloading our brains into computers. This notion is scientifically illiterate — electronic computers are as different from biological brains as cars and trucks are from horses and oxen.

Computers are built with a central processing unit (CPU), random access memory (RAM) and data buses. They process data linearly with access only though a data bus, they never lose a bit of data or make a mistake, and operations such as two plus two equals four are hardwired. In contrast, neurons in brains have thousands of connections, people often forget things and make mistakes, and people need to think to perform math and other operations.

On a fundamental level, people have free will and think in terms of concepts; computers are deterministic and don’t think at all. At this point, we don’t even know how the atoms in our brains form concepts, let alone how to make a computer think.

Kaizen: What is the best advice you’ve been given from a mentor?

Cendes: The mentor in life was my Ph.D. advisor Professor Peter Silvester. He was the only genius I ever knew. He taught me that reality is knowable through thought and that we can achieve goals by focusing on the fundamentals.

Kaizen: In closing, what advice would you give to young people just starting out in their careers?

Cendes: Follow your dream. Life has amazing possibilities — don’t waste them. My advice is to focus on your goal of changing the world and not on any money that you might make. If you are successful, you will be rewarded for your efforts. It is mistake to pursue wealth without achievement.

Remember that the world rewards value with value, so you must produce something valuable before you can become rich.

This interview was conducted for Kaizen by Stephen Hicks. An earlier version of this interview was published in Kaizen, Issue 29, February 2014.

© 2014 Stephen R. C. Hicks. All rights reserved.

Kaizen 29: The Zol Cendes interview

Friday, February 1st, 2013

k29-coverThe latest issue of Kaizen [pdf] features our interview with Zol Cendes on the theme of Entrepreneurial Software. We met in Naples, Florida, to discuss Mr. Cendes’s experience founding Ansoft, a $900 million software company that revolutionized engineering modeling. Images from this issue show the uses of Ansoft’s software in improving the air and fluid dynamics for products such as Ferrari sports cars and the swim caps used by Michael Phelps in the Olympics.


Also featured in this issue of Kaizen are guest speakers John Chisholm and Robert Lawson, along with two students, Amour Muro and Alex Patnou, who were the co-winners of CEE’s essay contest in Business and Economic Ethics.

pathlines-gt2ferrariPrint copies of Kaizen are in the mail to CEE’s supporters and are available at Rockford University. Our next issue will feature an extended interview with Guillermo Yeatts on the theme of Entrepreneurship in Latin America.

More Kaizen interviews with leading entrepreneurs are our site here.

Five Technologies to Watch in 2013

Monday, January 7th, 2013

MIT TechReview lists five technologies that should make a big impact this year:

1. Wireless charging

2. 3D Printing

3. The stylus

4. Leap 3D

5. The Nook

Check out the article for details about each technology.

How Entrepreneurs Can Master the Creative Mind

Thursday, December 13th, 2012

To become a great entrepreneur, one needs to be creative and innovative. The Creativity Post has a list of 8 tips to cultivate and maintain creativity, including:

1. Forever curious. Endless curiosity is the number one indication of the creative mind-set. It allows entrepreneurs to challenge what is already “known” to extrapolate that to an original idea. Curiosity infuses you with the determination needed to figure out or learn how to turn an original or innovative idea into a reality.

2. Always open to new things. Thinking this way can be viewed as quieting the opinions of the judgmental mind long enough to allow the creative mind the time and space it needs to generate interesting insights, associations, and connections. This opens creative possibilities, rather than categorizing new things into self-limited dead-ends.”

Read the rest here.

Related: our interview with Judy Estrin on innovation.

Also related: watch Dr. Stephen Hicks outline the entrepreneurial process and the role of innovation within it.

12 Lessons Guy Kawasaki Learned from Steve Jobs

Monday, December 10th, 2012

The day after Steve Jobs’ death last year, Silicon Valley VC Guy Kawasaki gave a speech about the two times he worked under Jobs and what he learned. Some highlights from his list: Don’t listen to the experts; all that matters is whether something works or not; and value is different from price. Watch his talk below:

Actress-Neuroscientist Mayim Bialik on the Need for Science Education

Thursday, December 6th, 2012

At Take Part, Blossom and Big Bang Theory actress (and neuroscientist) Mayim Bialik talks about the importance of STEM (science, technology, engineering, and math) education.

Read the interview here.

Related: our interview with scientist R. Paul Drake on Entrepreneurial Research Science.

Avi Millman, Innovative Co-Founder of Stray Boots

Friday, October 26th, 2012

Entrepreneur interviews Avi Millman, co-founder of the startup Stray Boots. Stray Boots is an innovative service that turns your smartphone into an unconventional tour guide. This “gamification” of major cities sends users challenges and trivia questions that result in a self-paced, scavenger-hunt-like tour. Different teams can even compete to see who can finish the tour first.

Read the interview here.

FindTheBest CEO Kevin O’Connor’s Reddit IAmA

Thursday, October 18th, 2012

Last week, Kaizen interviewee Kevin O’Connor, former co-founder and CEO of DoubleClick and current CEO of FindTheBest, engaged in an extended question and answer session (“IAmA”) on the social news site Reddit. Here is Mr. O’Connor on internet ads:

“Yes, I’m fully aware people don’t like ads but they prefer free content even more. How do we know people like targeted ads? Because they vastly outperform untargeted ads.

Better performing ads->more revenue to publishers->better content->better user experience.

Without targeted ads, most publishers would die and the internet would be a really crappy or expensive place to be.”

Read the full IAMA here [occasional adult language from reddit users].

Which New Educational Technologies Are Worth Betting On?

Monday, September 24th, 2012

Arnold King explores the positive and negative aspects of cutting-edge educational technologies — what types are overhyped and what types are likely to be effective? Why does he label massive open online courses “losers” and tablets “winners”?

Read the article here to find out.