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Corporate Star Search

Start-up firm NineSigma uses Internet to match industrial clients with inventive partners

by Marc S. Reisch
March 20, 2006 | A version of this story appeared in Volume 84, Issue 12

Credit: Photo by Marc Reisch
Credit: Photo by Marc Reisch

In his 28 years at Procter & Gamble, Paul Stiros says he never doubted the wisdom behind connecting R&D to customer needs. As president and chief executive officer of privately held NineSigma, Stiros heads a firm committed to helping corporations acquire technical innovations that will quickly bring tomorrow's star products to market.

Competing firms such as InnoCentive and YourEncore also help corporations get research help outside the usual channels. InnoCentive posts specific problems for corporate customers on the Internet and pays a bounty for solutions. YourEncore connects technology and product development needs of member companies with retirees who have scientific backgrounds.

However, NineSigma, with revenues of about $10 million per year, is largely a business-to-business and business-to-academia matchmaker. The now-profitable concern arranges introductions between owners and would-be acquirers of technology. And it claims to be able to use the Internet in a way that connects technology seekers with unobvious or disruptive innovations.

Like its competitors, NineSigma has been at this game for only a few years. At its birth in 2000, it attracted a host of angel investors who continue to back the firm. Last year, it attracted $1.2 million in new financing from venture capital firm Blue Chip Venture. John C. McIlwraith, managing director of Blue Chip, says he invested in NineSigma because "the solutions it provides seem to be increasingly in demand by large corporations augmenting their research activities."

Small businesses in particular are an increasing source of new ideas, Stiros notes. In 1972, companies with fewer than 1,000 employees received 5% of new patents issued; by 2000, they were receiving 30% of new patents, he says. NineSigma is a conduit to such companies and to the growing number of academicians who are developing and patenting intellectual property.

To make a match, NineSigma undertakes what Stiros describes as "a massively parallel" invitation process over the Internet that typically takes about three months. During that time, NineSigma works with clients to describe their needs, sends invitations to potential partners, and arranges introductions. Projects include finding new chemistries, identifying external experts, locating prototype developers, and discovering toll manufacturers. Clients pay a fee for service plus a portion of the value of any contract reached with a technology provider.

Clients work with one of seven NineSigma employees with Ph.D. degrees in hard sciences, including chemistry, to write a clear and compelling request for a proposal from outsiders in nonconfidential terms. Two-thirds of NineSigma clients identify themselves, Stiros says, because requests that identify the client get a much better response.

NineSigma's clients include such blue-chip corporations as DuPont, Delphi, Avery Dennison, Unilever, and Kraft. Since 2003, NineSigma and Procter & Gamble have had a relationship designed to speed up P&G's "connect and develop" strategy, which seeks to get 50% of new ideas, products, and technologies from outside the company.

Air Products & Chemicals, a client since 2004, uses NineSigma "to seek expertise outside our traditional networks," according to Miles Drake, chief technology officer. The company is a potential contributor to challenges NineSigma has posted for other clients and thus may have opportunities "on both sides of the equation," he says.

Stiros, a chemical engineer with a master's degree from Massachusetts Institute of Technology, has a unique perspective on NineSigma. Before he joined the company in 2004, he was P&G's director of corporate function R&D and worked with service providers, including NineSigma, that supported the connect-and-develop strategy.

While still at P&G, Stiros says, he personally supervised a project to come up with a laundry product to prevent wrinkling of cotton shirts that were not previously treated with permanent-press resins. NineSigma helped Stiros' group find a University of Illinois professor-Stiros won't identify him-who was working on treatments for semiconductor surfaces and thought his technology could address the cotton-wrinkling problem. "It never would have occurred to me to look into the silicon-chip business for such a solution," he says.

Chemical and process industry clients that hire NineSigma are "not trying to reduce their R&D costs," Stiros stresses, "and they are not trying to outsource R&D." What they are trying to do is to extend their organizational strength "by tapping into expertise outside of their organizations."

Traditionally, Stiros explains, when companies look for outside ideas, they survey public information sources and build a network of potential contacts. But by using a proprietary database that is now at 1.2 million individuals and companies, "we identify the thought leaders and people working with state-of-the-art technologies," he says. "Instead of rediscovering everything themselves, it is far more efficient in terms of dollars and time spent for firms to gain access to preexisting knowledge developed by others."

Case Western Reserve University professor Mehran Mehregany founded NineSigma in the belief that "the Internet could be used to match technology innovators with the companies best positioned to exploit those innovations." Stiros adds that Mehregany, an electrical engineer, was familiar with the way governments contract for R&D, and since business had no comparable method to procure outside research, he incorporated government techniques into NineSigma's approach.

The business' name has a somewhat quirkier history. Like many in the business world, Mehregany and his backers were familiar with the Six Sigma quality-enhancement methodology. Stiros says they thought they could turn a phrase and capitalize on the cache of the then-increasingly popular business-improvement method. But others had beaten them to the trademark office and already owned the Seven Sigma and Eight Sigma names. NineSigma was still available, and they chose it to name a new firm that they hoped would connect large firms to star technology innovations that are off the beaten path.



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