Cisco Pays Big for New Ideas

Competitions from the likes of Microsoft and Virgin are sparking innovation and drawing thousands of contestants from around the world

The Bean Cup, a coffee house on the southern edge of Indianapolis, is about as far as you get from Silicon Valley, culturally speaking. Shoehorned between an Arthur Murray Dance studio and a shuttered beauty salon in a nondescript strip mall, the Bean Cup bears faint resemblance to the storied Palo Alto work-play spaces where coders spend all night building what they hope will be the next big thing in tech. That's not stopping Douglas Karr, a bearded, burly Gulf War vet, from using the Bean Cup to incubate his own big tech dreams.

Karr and a group of friends hunker down weekly amid the Bean Cup's original art work, hung on Tuscan-gold walls, to perfect their software project, picked as a finalist in an innovation contest hosted by networking gear maker Cisco Systems (CSCO). The aim of the competition, the Cisco I-Prize, is to find an idea that could be the basis of a whole new business unit. Karr's is one of 1,100 pitches that poured in from 104 countries on six continents, and 1 of only 12 that made the final cut. "It's an international contest by a corporation, so you think your chances are one in a million," says Karr, 40, a single father of two teenagers who's still astonished he made it this far. The winner will be picked this month.

Idea Sharing

Cisco's innovation contest is one of at least a dozen corporate-sponsored competitions that have cropped up in recent years, all aimed at developing and rewarding innovation. Microsoft (MSFT), for instance, annually awards its $25,000 Imagine Cup to a student team that best uses technology to solve a real-world problem. Using money to reward technological innovation is hardly novel; historians say one of the first innovation prizes dates to 1714, when the British government offered £20,000 to the person who could devise a method for determining a ship's longitude. (The prize was officially awarded 59 years later.)

But the number of innovation prizes has multiplied, and their stature has risen, since 2004, when aerospace designer Burt Rutan and Microsoft co-founder Paul Allen led the team that built SpaceShipOne, the first privately funded human space flight. The team won the $10 million Ansari X Prize, the largest ever awarded by the X Prize Foundation, which specializes in innovation awards. Last year, Virgin Group Chairman Richard Branson upped the award ante with the $25 million Virgin Earth Challenge, encouraging development of a way to eliminate greenhouse gases.

Innovation prizes are no substitute for the expensive, painstaking research and development that's the lifeblood of a high-tech company, but companies find them a relatively low-cost way to generate potentially valuable ideas from around the world. Cisco's I-Prize was borne out of the Cisco I-Zone, an internal Web-based workspace where employees can submit new ideas. David Hsieh, director of marketing at Cisco's emerging technologies group, and Guido Jouret, the group's chief technology officer, pulled the whole thing together in just 30 days on a shoestring budget. The pair enlisted the help of, a hosted service where participants could submit ideas, discuss them with other contestants, and even meet potential teammates.

I-Prize finalists hail from all walks of life, from 10 countries on five continents. Jeremy Brown, a 21-year-old steamfitter from Toronto, would come home after 9-hour shifts to hone his team's idea, which focuses on home networking. Another participant, Anna Gosen, 31, lives in Karlsruhe, Germany, where she works as a student assistant.

Gosen came up with a new system for energy consumption and distribution that will make power lines safer and more energy efficient.

Ideas even emanated from Iran, North Korea, and the tiny Cocos Islands and Keeling Islands off the coast of Australia. "We got more ideas in two months from this mechanism than our internal site did in about a year and a half," Jouret says. Not bad for a contest advertised almost entirely through blogs and word-of-mouth marketing. "There are many markets, many new ideas, and one particular country or area doesn't have a monopoly on all the world's ideas," Jouret adds.

Unconventional Background

Karr's team includes Jason Carr, 37, co-owner of the Bean Cup, and married couple Bill Dawson and Carla Ybarra-Dawson, both 35, and former colleagues of Karr's. The winning team will get $250,000 in prize money and the chance to found an emerging technology business unit. Cisco has said it may invest up to $10 million over three years to staff, develop, and market a business based on the idea. For Karr and Dawson, starting a company has been a long-time dream that until now seemed out of reach. "We're average people," says the affable Karr, who's referred to by Bean Cup regulars as "coffee Norm," after the Cheers character. "I can't go to my dad and ask for a million dollars."

Karr is director of technology for Patronpath, a company that helps restaurants set up online ordering. He got his I-Prize idea from a problem faced often by customers. Small restaurant owners are flocking to touch-screen cash registers, known as point-of-sale systems. But the technology can be expensive, costing new restaurants an average $18,000 to get up and running, he says. So Karr suggested that Cisco begin selling the systems over the Web, charging subscription fees that would help small businesses distribute costs over a long stretch—and give Cisco a toehold in what Karr estimates is a $6 billion market. "True breakthroughs occur when you look at an industry or area from a completely new point of view," says Peter Diamandis, CEO of the X Prize Foundation. "It doesn't matter where you went to school, what you've ever done before, or whether you've ever gotten a government grant."

Exhibit A: Karr. He has yet to earn a college degree, though he attended night classes at Tidewater Community College in Virginia Beach, Va., for six years. After his stint in the Navy and before moving to Indiana, he worked as a database marketing manager for The Virginian-Pilot newspaper. In addition to his day job, Karr runs two social networks, including one for Navy vets. He writes a technology marketing blog, does social media consulting for the Indianapolis Colts, and recently volunteered on the team that helped convince the Super Bowl to come to Indianapolis in 2012.

Success-Failure Balance

While innovation prizes can be a low-cost way to generate great ideas, they're also fraught with potential legal and HR headaches. Hsieh and Jouret wanted to ensure participants retained ownership of their ideas if they weren't chosen as the winner. They had other matters to consider, including making sure an idea truly belongs to the contestant and that a winner isn't found to be a convicted felon. So Cisco hammered out ways to prevent fraud and notified candidates that they'd have to go through background checks if they made it past the semifinals.

Not everything went according to Cisco's plan. Initially, the I-Prize site let contestants vote on each other's ideas, à la news-rating site Digg. But then executives discovered that some contestants were trying to game the system. So Cisco decided not to use the community voting mechanism to influence the selection of semifinalists and finalists.

The big challenge in some innovation competitions is making the prize difficult enough that real innovation can be achieved, but not so difficult that the prize can't be won. The larger the challenge, the more likely people will try and fail. Northrop Grumman (NOC) has sponsored the Lunar Lander Challenge, a $2 million competition put on by the X Prize Foundation, requiring a vehicle to simulate trips between the moon's surface and lunar orbit. John Carmack, co-founder of id Software and a creator of popular video games Doom and Quake, came agonizingly close to winning the competition in 2006 and 2007 but was foiled by technical difficulties. Contest organizers have decided to create another competition later this year.

Spawning Businesses

The group assembled by Karr overcame its challenges through collaboration—and much coffee. They learned they had made it to the semifinals in late February, and a week later, on Mar. 6, the foursome found themselves again huddled at the Bean Cup. Karr came brimming with ideas and giant Post-It notes. Dawson brought his expertise in product management and Web-based software distribution. Ybarra-Dawson is a graphic artist skilled in user interface design. Karr also decided to pull in Carr for a restaurateur's perspective. They mapped out their own strategy but also pored over information on competitors culled from the I-Prize site.

San Jose (Calif.)-based Cisco equipped semifinalists with online collaboration tools, a business plan template, and regular in-person advice. The company wants to make sure would-be entrepreneurs get something out of the deal even if their plans aren't chosen.

Many people with good ideas have no idea how to write a business plan or get a business off the ground, Hsieh says. "In Silicon Valley we have this great built-up infrastructure of venture capital," he says. "You can go to Sand Hill Road, raise a bunch of money, and be off to the races. But there are huge swatches of the world where you can't do that." Brown, the steamfitter, reckons that "Cisco is going to make one team really happy and they're going to make 11 others develop competing businesses." He adds confidently, "Cisco could buy our idea for $250,000 now, or they can buy it 5 years from now for $20 billion."

Angels in the Wings

By May 6, Karr & Co. were ready for their final presentation, 150 miles to the East, in Cincinnati. At first, the Cisco judges didn't seem all that enthusiastic, Karr recalls. "But as we started explaining the industry, the problem, and the opportunity, we could see people get more excited, and at the end they gave us a round of applause," he says.

Hsieh won't let on who's in final contention for the prize, though he says, "Karr did a good job of putting together a team with domain knowledge; they understand their business and they have an interesting concept."

Karr knows his team faces stiff competition and says the contest has left them in good stead even if they don't win. "We've done all the legwork for putting together a presentation for venture capitalists and we've pursued that a little bit, we've met with some angel investors," he says. The team is prepared to approach venture capitalists if it doesn't win.

Karr and pals were nonetheless ebullient as they left the early May meeting. They high-fived one another and cranked up Queensryche as they drove back to Indianapolis, to the Bean Cup, where they eagerly await Cisco's verdict.

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