PTC (NASDAQ: PMTC), the Needham, MA-based product development software maker, said today that it has acquired East Moline, IL-based 4CS, a maker of software for warranty and service management. The financial terms of the deal were not announced. PTC said the 4CS technology will work with its existing product lines that enable manufacturers to keep track of their service procedures, parts lists, and training materials. Earlier this year PTC acquired MKS, a maker of technology for tracking the lifecycle and production of software focused products. PTC said it expects the 4CS deal to be neutral to its GAAP and non-GAAP financial results in fiscal years 2011 and 2012.

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There’s something about Estonia. Maybe it’s the Skype phenomenon—the Estonian-born company (now part of Microsoft) certainly helped create a strong culture of engineering there. But the Baltic nation of 1.4 million seems to have a greater concentration of engineers and technical talent than almost anyplace else.

That’s probably an exaggeration, but at least one recent Boston-area company hails from there—GrabCAD, a nine-person startup that graduated from the TechStars Boston incubator program in June. If all goes well, the company, which splits its staff between Cambridge, MA, and Tallinn (the Estonian capital), will do its part to advance a traditional strength of the local tech scene. That would be computer-aided design, or CAD software, the means by which most technical components we take for granted are designed and built—and the basis of iconic companies like Parametric Technology (PTC), SolidWorks/Dassault Systèmes, and Autodesk.

GrabCAD has built an online community and marketplace that connects mechanical engineers with people and companies who need stuff built—everything from auto parts and motorcycles to custom furniture, toys, and mobile devices. The startup provides a Facebook-style feed where users can see other engineers coming online, uploading their designs, and looking for business. That also means the company is accumulating a large library of CAD models and tutorials that engineers and companies can use as a resource, says co-founder and CEO Hardi Meybaum.

Last week, GrabCAD unveiled a new dimension to its offerings. It is letting companies host their own design contests to take on specific engineering challenges, such as building a new ventilation system for a luxury yacht or designing a new kind of electrical “superbike.” Engineers upload their designs in response, and the companies choose the winners and award them cash prizes.

Meybaum, 29, and his co-founder Indrek Narusk—they went to Tallinn University of Technology together—started working on a product development company back in 2007. They got some customers, but they found running the business took too much of their creative time.

Around 2009, when GrabCAD started working on its current idea, the founders “didn’t meet anyone who said it’s going to work,” Meybaum says. People thought (and still think) the company would get besieged by orders for impossibly complex designs like rockets, for example. But in fact its first order … Next Page »

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“I am not convinced that I would put my child in an incubator that is made of car parts.”

That’s Krista Donaldson speaking. She’s the CEO of Palo Alto, CA-based D-Rev, and the quote says a lot about the non-profit organization and its philosophy on designing healthcare equipment for the developing world.

You may have read about the incubator in question—it’s called NeoNurture, and is the creation of Cambridge, MA-based design studio Design That Matters. The device made a media splash and won design awards last year for its unique solution to the parts shortages that often render medical equipment inoperable in rural hospitals in developing countries. NeoNurture uses car headlights to keep neonatal infants warm, a dashboard fan for air circulation, and a motorcycle battery for backup power. The machine’s designers reasoned that since car parts and car-repair experts can be found almost anywhere, NeoNurture ought to be easier to maintain than a more specialized unit.

But to Donaldson’s way of thinking, the folks at Design that Matters forgot to ask a key question about their device: Could they imagine selling it to a U.S. hospital? “It’s a great example of a product that resonates with the techie community because it very cleverly solves a real need,” says Donaldson. At D-Rev, by contrast, “Our approach is that we are developing world-class products that meet quality standards here, but are designed to meet the needs of the environment there. With every project, we ask, ‘Is this something that could be used at Stanford Hospital? Is this something I would put my children in?’”

D-Rev isn’t building an infant incubator, but it is building a phototherapy device for treating severe jaundice, a condition that afflicts about an eighth of all newborns. And if there’s a simple premise behind that project and the others underway at the four-year-old organization, it’s that patients and healthcare providers in the developing world deserve access to the same high-quality technology available here—and that sometimes all it takes to make such technology affordable is a little Silicon Valley-style design and engineering thinking, matched with on-the-ground market know-how.

Indeed, if you visit D-Rev’s Emerson Street headquarters, just a couple of blocks away from world-famous design consultancy IDEO (where Donaldson once interned), it feels much like any other Palo Alto startup, with the requisite Macs, iPad, and overhead projector. The only sign that D-Rev is developing physical stuff, rather than software, is in the laboratory, where prototypes litter the floor and there’s a workbench complete with circuit boards and soldering irons. And the only sign that D-Rev is a non-profit is…well, there aren’t any.

D-Rev CEO Krista Donaldson shows a prototype for the Brilliance phototherapy device to doctors in India.

“One of the things that makes us a little out of the ordinary, and one of the things that makes us really successful, is that our methods are 95 percent business methods,” says John Dawson, chairman of the board at D-Rev (the name stands for Design Revolution). “It’s not like we are taking just a little bit of Silicon Valley and shoving it into a non-profit. Most of this organization operates like a startup.”

The main difference, Dawson told me when I visited him and Donaldson in Palo Alto in late April, is that D-Rev is aiming for social benefit, not big profits.

“Our currency is impact,” says Donaldson. “We collect minimal royalties on our products, we have licensing deals, but our measure is how successfully we treat children who wouldn’t otherwise receive treatment, and mobilize people who wouldn’t otherwise walk.” (That’s a reference to the JaipurKnee, D-Rev’s multi-axis prosthetic knee joint for amputees.) D-Rev depends on philanthropic grants to fund early product R&D that the market can’t support—the Bill and Melinda Gates Foundation is its largest supporter. But its product development methods are straight out of the for-profit world. And it doesn’t waste time on products that don’t have a market measuring in the millions of people, or for which it can’t find eager manufacturing and marketing partners.

Donaldson is a mechanical engineer who joined D-Rev in 2009 after working as a product designer with KickStart International (then ApproTec) in Kenya, a reconstruction advisor for the … Next Page »

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Mix one part consultancy with another part incubator and then toss that with an entrepreneur’s passion project. Sprinkle on some academia, too. And there you have New York-based Churnless.

The firm’s founders, Matt Wallaert and Avi Karnani, come from Thrive, a company focused helping consumers make better financial decisions. They sold it to Lendingtree.com in 2009. Wallaert left his PhD program to join Karnani at the startup, and used his behavioral psychology background in his role as lead scientist there. The duo spent several months at LendingTree after the acquisition, but then “came together to start Churnless to create products and partnerships that create behavior change in more than financial services,”says Karnani. They started Churnless in October 2009.

Churnless focuses on companies and products that don’t just offer solo interactions with customers, but long-term engagement and satisfaction. The name is a nod to a business’ churn rate, or rate at which they lose customers. Churnless is looking to slice that for its customers. Churnless started by coaching brands like American Express and AARP, then they began working on their own passion project, GetRaised. The algorithm-based service takes government data and information from job boards to help users determine if they deserve a raise, and then proposes the right way for them to go after it.

Then came the incubator portion of the whole operation, called Churnless Ventures.

“Because we spent so much time thinking about ideas that change behavior, we became a magnet for startups [focused on the same thing],” Karnani says. The team’s goal is to incubate about four pre-seed stage companies per year, offering them workspace, cash, and access to staff. They keep the classes small, and instead get directly involved in launching ventures. So, for example, rather than giving a talk on business development, Karnani will go to customer meetings with Churnless-incubated companies. Or, rather than … Next Page »

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Product lifecycle management software maker Dassault Systemes, whose U.S. headquarters are in Lowell, MA, said today that it has acquired Milford, CT-based Enginuity PLM, a maker of formula-based product development software. The acquisition expands Dassault’s reach to customers in the pharmaceutical, cosmetics, personal care, fragrance, and food and beverage spaces. Financial terms of the deal were not disclosed

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PTC (NASDAQ: PMTC), a Needham, MA-based maker of product development software, said it has agreed to acquire MKS (TSX: MKXX) for CDN$26.20 per share in cash, for a total purchase price of CDN$292.5 million. MKS  makes application lifecycle management technology for tracking the production of software-intensive products, by managing elements like requirements, models, and testing. PTC said the acquisition is expected to close this June, and will be neutral to PTC’s fiscal year 2011 non-GAAP results and slightly accretive to its non-GAAP financial results the next fiscal year.

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Boston is well known for its cluster of companies developing software for computer-aided design (CAD), and managing the lifecycle of a particular product (PLM). But Sue Welch says there’s a need for companies managing the development of not just individual products, but entire lines of merchandise. That’s the hole she’s looked to fill with her Gloucester, MA-based company, TradeStone Software.

TradeStone‘s software, called “merchandise lifecycle management,” is out to help retailers manage entire lines or seasons of merchandise from inception to design to sourcing to getting the items into stores. The company’s customers include Lowe’s, Kohl’s, Macy’s, Urban Outfitters, American Eagle, ShopRite, Shoppers Drug Mart, and are spread across 70 countries.

The technology is especially relevant as retailers have moved from the conventional practice of putting out merchandise lines that follow the traditional seasons of the year, to putting out new merchandise every few weeks. “The retailers are working within very, very compressed cycles,” says Welch, TradeStone’s CEO. “They used to have two to four seasons a year, now they have 16. We facilitate all that.”

TradeStone’s software helps retailers quickly respond to customer preferences in stores, and track which color palettes and fabrics of a certain line of merchandise are hot in stores in order to influence the next season of merchandise.

Welch, a serial entrepreneur, says she was working in retail in the mid 1980s when she first saw the need for technology that tracks imports for merchants. She started IMC Systems Group, whose software she says was one of the first business applications for PCs—and the first application focused on importing. IMC struggled to make money, and the venture investors behind the company ultimately took it over. Two days later Welch started her second company, Rockport Trade Systems.

Rockport, which tracked both importing and exporting for merchants, had greater success than IMC, and rose to become the top software technology for retailers in global sourcing, she says. It sold to … Next Page »

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Parametric Technology (NASDAQ: PMTC), a Needham, MA-based maker of engineering and product development software that goes by PTC for short, announced that its president and chief operating officer James Heppelmann will replace C. Richard Harrison as CEO, effective October 1, 2010. Harrison will take on the role of executive chairman of PTC. Heppelmann joined the company in 1998 when PTC acquired Windchill Technology, a product lifecycle management software company that Heppelman founded. (Disclosure: the writer of this story is a former employee of PTC.)

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Sequenom’s shares plunged nearly 70 percent in after-hours trading today after the San Diego biotech said it was postponing its launch of a Down syndrome test due to “mishandling” of R&D test data. The price of Sequenom (NASDAQ: SQNM) shares fell from $14.91 at the close to $4.69 at 7:36 p.m. ET.

Sequenom had planned to launch its genetic test, called SEQureDx, in June. In a statement released after the market closed, Sequenom described the delayed launch as a “temporary setback” and said the SEQureDx technology “is scientifically and technically sound.” SEQureDx is intended to test a pregnant mother’s blood sample.

But the company did not explain how research and development data for SEQureDx was mishandled. “All I can really say is that during a management review of the data we discovered inconsistencies, which led to the discovery of mishandling of data,” Sequenom spokesman Ian Clements said late today.

The disclosure prompted the board to form a special committee of independent directors to oversee an investigation “of the employees’ activity related to the test data and results.” Sequenom said the incident also has prompted a review of data supporting its Cystic Fibrosis, Fetalxy, and Rhesus D tests, which Clements said also is expected to push back the release of those tests. “We don’t currently believe that data is affected, but we don’t want to take any risks,” Clements said. As a result, those tests are now anticipated to begin launching in the third quarter of this year.

Sequenom said the questioned data has not changed its plans for using parallel RNA- and DNA-based methods to test for Down syndrome, and the company will endeavor to have a validated test completed by the end of this year.

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Focus groups are such a standard part of our market-driven culture that they’ve long since become the subject of parody. Decision-makers are seen as being afraid to act without consulting them; surely, no political party would pick a candidate, no legislator would introduce a big policy initiative, and no movie studio would green-light a big-budget film without focus-grouping it first.

But while they may be ridiculed, the truth is that business organizations—especially consumer product companies—still spend quite a bit of money on focus groups. Such ensembles are considered a crucial way to identify products people will buy and weed out bad ones before they’re brought to market.

The rise of the Internet, however, has created faster, cheaper alternatives to the classic eight-people-around-a-table-and-a-whiteboard scenario. Since 2000, Waltham, MA-based Invoke Solutions has been one of the companies running online surveys that, in effect, let market researchers assemble focus groups that are hundreds or thousands strong.

Until recently, Invoke’s surveys were still real-time affairs, conducted at scheduled times. Groups of researchers huddled in control rooms, administering questions, interacting with participants directly, and watching the data pour in. Last year, though, Invoke introduced a new “asynchronous” survey system called Engage that allows volunteers to participate in market studies at any time they choose. And in January, it enhanced the system with new reporting and analytics software that lets Invoke’s clients view and explore the results, via instant PowerPoint presentations and other types of visualizations, as they come in.

Invoke’s president and CEO Ben Cesare, who came by Xconomy’s office a couple of weeks ago, says the response to the new reporting software has been “thrilling.” Within 60 days after Invoke rolled out the Engage Analytics tool, 120 Fortune500 clients were already using it, says Cesare, who joined the company in 2005 and became CEO a year later. The veteran of Apple Computer, Psion, and Agile Software says he’s “not a research guy”—meaning he isn’t steeped in the strategies of giant market-research firms like TNS or Ipsos. But he says he does understand “innovation that works, capturing the information that matters. That’s what I really care about, and that’s what attracted me to Invoke.”

Cesare (pronounced like “Caesar”) argues companies need to embrace market research systematically, the same way they’ve embraced enterprise resource planning (ERP) or customer relationship management (CRM). In fact, he’s got his own three-letter term for what Invoke does—RDM, for research data management.

During his visit, Cesare gave me the basic download about the venture-funded, 55-employee company (which raised a $7 million round one year ago) and its latest accomplishments in the young discipline of RDM. But I started out asking him about the competition—the old fashioned focus group. A greatly abridged version of our conversation follows.

Xconomy: What’s wrong with focus groups?

Ben Cesare: The problem with focus groups is that they are time-consuming and expensive and they give you a small sample size. You could spend a month and a half flying around to six cities and talk to eight people in each city and then find that only three of those eight do all the talking. Are you going to make a call based on the opinions of 18 people? We’ll put you in front of 1,000 people over a week at a fraction of the cost, and all the answers will be believable. There’s no groupthink, no bias in the room. You’re not traveling.

X: So why do companies keep doing them?

BC: You know the old saying—nobody ever got fired for buying IBM. There’s a lot of safety in the same old stuff. People will say, “I have to do my focus group, I have to look those eight people right in the eye.” I submit the opposite. My point of view is that people will … Next Page »

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Creating a new diet soda, deodorant, or dish soap is a notoriously chancy business: consumers are unpredictable, and experience and intuition can only get a product designer so far. But what if you could apply the power of evolution to product development—subjecting various ideas to generation after generation of Darwinian competition, with consumers themselves as the agents of selection, picking which attributes of each product survive into the next generation?

This exact idea was one of the hottest trends in product development—in the year 2000. That was when a group of entrepreneurs and researchers from MIT, with backing from Cambridge, MA-based Flagship Ventures, founded a startup called Affinnova with the goal of applying a new form of mathematics called evolutionary algorithms to the traditionally expensive and time-consuming process of market-testing of new products. The company grabbed a few big clients such as Procter & Gamble, and even attracted imitators like Cambridge’s Icosystem. But eight years on, the field of evolutionary algorithms still hasn’t produced a smash-hit startup; after three rounds of venture financing totaling some $25 million, Affinova is only now approaching profitability.

But the company’s roughest years may be over. While Affinnova (pronounced ” AFF-i-NO-va”) doesn’t release actual sales figures, it says sales in the first half of 2008 were up by more than 60 percent compared to the first half of 2007. Its client base grew by one-third in the same period, and the company is in position to bring in $25 million in revenues next year, according to chief marketing officer Steve Lamoureux.

This growth can be attributed largely to changes made since the arrival of CEO Waleed Al-Atraqchi in 2005, Lamoureux says. (Al-Atraqchi replaced David Andonian, who went on to found Dace Ventures.) “Waleed is a turnaround guy,” he says. “There was an underlying asset that was being underleveraged in the business world. We were top-loaded with PhDs making advances in evolutionary algorithms, but we were putting fewer resources into making that technology understandable and adoptable. One of the things Waleed has done is to balance that out. We’ve taken the technology and made it really streamlined and sticky, and as a result we get a lot of repeat business.”

So, what exactly has Affinnova been doing to evolve its own strategy? Lamoureux and Al-Atraqchi filled me in about two of the company’s initiatives last week when I visited their offices in Waltham. The first, it turned out, was to stop helping companies come up with new product ideas, and start helping them pick between the ones they already had.

When I first became aware of Affinnova around 2002, the company was already a couple of years old, and had been focusing largely on helping designers dream up new product ideas that stood out from the crowd. In one example, the company’s Web-based software created thousands of variations on an old standby–the plastic water bottle—and asked participants in online focus groups to pick the ones with the most exciting combination of shapes, contours, and label colors. The process had the potential to arrive at radical combinations that no human designer would have bothered (or dared) to try, but that tested well with consumers anyway.

But Al-Atraqchi says that when he arrived at Affinnova, “I said, in a sense, let’s not confuse ideation with optimization. Most studies say that companies don’t lack for ideas. Which ones are the best, and what to do with them, are really the big issues, and that’s the problem we should try to solve.”

The company has found a niche, according to Lamoureux, by helping consumer manufacturers bringing out new products find the sweetest spot within a fairly narrow range of pre-determined options. Dannon, for example, came to Affinnova a few years ago for advice on the best way exploit the low-carb craze then sweeping the nation. The company knew it wanted to bring out a new brand of low-carb yogurt; the only question was how to package it. Should the label be teal, as Dannon’s experts thought, or some other color? Should the package hold 6 ounces of yogurt or 8? Should the product be called “Carb Control” or “Carb Smart” or “Carb Oh”?

Affinnova tested combinations of all of these options and more, and was able to determine not only which overall product concept was most appealing to consumers, but which elements were most important to their choices. The winner: a red package branded Carb Control, which went on to become one of the year’s top new food products, earning Dannon $75 million in its first year on shelves. A competing product, Yoplait Ultra, came out in a teal package and failed within a year.

Affinnova has refined its evolutionary process to the point that it can create competitive concepts even for products no one has heard of. As an exercise, Lamoureux paid a design firm to come up with three concepts for the packaging for a hypothetical new product—a cleaner for stainless steel kitchen appliances. The three designs ranged from bright and cheery (targeted at general consumers) to elegant and understated (targeted at older, more affluent consumers). In Affinnova’s tests on real consumers, participants gravitated to … Next Page »

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There’s endless debate about how to encourage more innovation inside technology companies. But in Waltham, MA, there’s a startup that says, in effect, don’t bother: innovation can be outsourced to a global community of freelancers.

InnoCentive was set up by Eli Lilly in 2001 as an experimental way to farm out some of the giant drugmaker’s biggest product development challenges by posting them on the Web and inviting people around the world to submit competing solutions, with a substantial monetary prize as the reward for the winner. Two years ago, Lilly spun out the company as an independent venture, and it has since diversified beyond the life sciences to a range of disciplines, such as computer science and cleantech. And today, the organization announced that it’s raised a new pile of venture money—$6.5 million altogether, which it will use to upgrade its platform and expand its network of “solvers,” people who submit solutions in hopes of winning awards that range from $10,000 to $1 million.

It works like this: Companies (called “seekers”) work with InnoCentive to craft a well-defined challenge and pick a dollar amount for the award. InnoCentive then alerts its network of solvers, and those who choose to engage in a particular challenge are given access to online project rooms containing proprietary details about the seeker’s project. At the end of the challenge period, the seeker evaluates the solutions and chooses one as the winner; InnoCentive then helps transfer the rights to the solution from the solver to the seeker’s organization.

It isn’t “crowdsourcing” in the typical Web 2.0 sense of throwing open a problem and soliciting thoughts and contributions from thousands of random Internet surfers. It would be more accurate to describe InnoCentive’s platform as a mechanism for soliciting RFPs (requests for proposals) from a much broader cross-section of experts than any company could reach through the traditional business consulting process. Companies like Procter & Gamble use Innocentive’s system to find new product ideas faster than they might on their own, and the model has even inspired imitators such as Ohio-based Planet Eureka, which launched last month.

The problems posted at InnoCentive range from grand challenges (one seeker is offering $1 million for a biomarker that can track the progress of amyotrophic lateral sclerosis, or Lou Gehrig’s Disease) to utterly practical, small-scale problems (the Rockefeller Foundation offered $20,000 for a design for a solar-powered wireless router for use in developing countries). To date, solvers have collected over $3 million in awards, according to InnoCentive.

The lead funder in the funding round, InnoCentive’s second, was Spencer Trask Ventures, a New York-based investment network that includes scores of high-net-worth individuals. Lilly also contributed to the round. On Monday I had a phone conversation with InnoCentive CEO Dwayne Spradlin about how the organization plans to use the funds—and about the effectiveness of the prize-based innovation model in general.

Xconomy: It would be great if you could talk a bit about InnoCentive’s current direction, how that has changed over the past few years, and how you plan to use the new cash infusion.

Dwayne Spradlin: The company has been around for about seven years. We were founded under Eli Lilly and spun out as a standalone company a few years ago by Spencer Trask. As you point out, the company is a fair bit different today from a few years ago. The last several years were really about proving the concept—that is, that open innovation could drive remarkable outcomes for organizations that are innovation-hungry and that need better, faster, cheaper product development and time to market.

Now it’s ready for prime time. In the past six months, we’ve added challenge categories including business and entrepreneurship, engineering and design, physical sciences, and mathematics and computer sciences. We’ve increased the number of tools we offer—we used to focus on deep research-type tools but now we also offer “ideation” tools that help large numbers of people brainstorm very quickly, and electronic RFPs so that clients can find business partners very quickly, and help managing intellectual property rights. So we’ve gone beyond the proof-of-concept stage to the stage of getting InnoCentive into the hands of as many organizations as possible. We and the investors in InnoCentive believe this is the time to expand.

The $6.5 million is earmarked for expansion in three areas: First, our sales and marketing footprint, really getting feet into the street to evangelize the product. Second, expanding our solver community, which is 140,000 strong, but we have about 5 billion … Next Page »

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