Bringing New Technology to Market
1. As a product developer, what are the three most important things that should be remembered when formulating a product development strategy?
. Forming internal links between technical and non technical groups recognizing that it takes the effort and input of all areas of a company to create a successful new product. b. Involving customers and suppliers in R&D at very early stages of the process. c. Measure the effectiveness of the product development process and make continual improvements.
1. What are the key challenges a technology team faces when moving from R&D to operations?
. Operations require different skills than R&D, skills that most technical teams don't have. b. It takes a lot of planning to include manufacturing and organizational processes. c. Lingering technical issues must be dealt with simultaneous to the operations issues. d. The team may require different business partners
1. Why is it important today for any technology company to have a licensing strategy?
A licensing strategy is important today because licensing speeds the adoption of the technology and stimulates further innovation. Furthermore, it is often more profitable for the owner of a technology to become a licensor than to try to develop and market all the possible applications of the invention. There are also non-financial reasons to have a licensing strategy in place. Licensing lets the original manufacturer enjoy the benefits of reaching multiple markets without the expense of setting up distribution channels.
5. Why is it important to have a performance clause in the license agreement?
A performance clause specifies that the licensee must produce and sell a certain number of units by a certain date to meet the terms of the agreement. This clause is important from the licensor's perspective to ensure that the licensee feels the urgency to move forward and sell units.
4. What are the major advantages and disadvantages of outsourcing innovation?
Advantages of outsourcing include: a. Sharing the risk of product development with others b. Lowering the cost of product development c. Decreasing cycle times d. Developing a network of expertise. Disadvantages include: a. Daily familiarity that often distorts priorities and goals b. Internal groups want to protect their turf. c. Informal discussions are often not formalized in writing and, therefore, may be forgotten or not implemented. d. With the constant flow of ideas, the tendency to continually add new features and improvements may actually slow the development process. e. Face-to-face meetings are cancelled more often than electronic meetings.
1. When growing a company, why would an entrepreneur choose debt over equity?
An entrepreneur might chose debt as a growth vehicle to avoid giving up control of their company by selling equity. But today with more companies having fewer tangible assets, it becomes more difficult to secure debt. Debt is advantageous when the returns on the business exceed the cost of borrowing the money, which includes search time interest, fees, and conditions. The entrepreneur's company generally achieves a profit sooner with debt because they have to generate cash to service it.
2. In what ways has the product development process changed and why?
An increase in venture capital funding, globalization, customers are more sophisticated, technology is changing at an increasingly rapid pace, and new products are subject to shrinking product development timelines.
2. Compare the roles and goals of angel investors with those of venture capitalists.
Angel investors generally fill the gap between friendly money and venture capital up to about $1 million. Angel investors are private individuals, usually ex-entrepreneurs, who want to participate in the venture, so they are not passive investors, for the most part. Angels often band together in organizations to pool their resources. They also tend to mentor early stage companies more than venture capitalists do. They like to invest in industries with which they're familiar and like venture capitalists, they place a lot of importance on the management team. Also like VCs, they need a way to exit the business, though they often stay with a business much longer than a VC would. Venture capitalists manage professional pools of funds generally much larger than an angel investor would have. Recently we have seen several billion dollar funds emerge. What this means is that VCs typically make larger investments, usually in the second round when the risk is less. They are attracted to superstar businesses with a unique technology and a liquidity event such as an IPO or acquisition in its future. VCs require higher rates of growth and returns on their investment in a shorter period of time. They will require a big chunk of equity
1. Provide two examples that illustrate the difference between an idea and an opportunity.
Any idea for a product is just that—an idea, until the inventor figures out a way to apply that idea or commercialize it with a business model. That is precisely why so many Internet businesses failed in 2000. They were simply ideas with no viable way to make money by selling something of value to customers.
2. You have developed a new software product that more effectively performs natural language searches through databases using voice recognition technology. What would your plan be for test this product with customers?
Any plan should include customer input at every stage of development of the product through beta trials with early adopter types. With this type of product, simply using storyboards to illustrate how the software works will not be very effective because customers will not understand the concept of voice recognition and how it plays into the uniqueness of the product.
3. What issues need to be considered when outsourcing innovation or collaborating on inventions?
As more companies outsource noncore competencies in an effort to speed up cycle times and reduce time to market, they leave themselves vulnerable to those companies for critical components of their business. Traditionally, companies have cross-licensed intellectual property to avoid patent infringement claims, but today more of them are seeking patent protections. Trade secrets are far more difficult to protect under outsourcing arrangements. The company needs to albel trade secrets as such and take measure to preserve their secrecy. In the course of developing an intellectual property strategy, the level and type of protection required is determined, and of course, with outsourcing, extra precautions will need to be taken in the form of contracts and secrecy measures.
1. Why is continual innovation critical to business success today?
Continual innovation is required to meet the demand for better, faster, cheaper technology products in a rapidly changing marketplace. Intellectual property, once a cost center for most corporations, has now become an important revenue center and a critical competitive advantage for the firms that hold it.
2. In what ways can a company increase its chances of designing right the first time?
Entrepreneurs can increase their chances of designing right the first time by getting customers involved early in the design process so they can provide valuable input and insure that the company is building a product that customers will purchase. Involving the manufacturing, financial, and market areas of the business will make sure that the company has the capability to produce, market, and distribute the product and that the product design is congruent with those capabilities.
4. What are some ways that you can fill in the gaps in expertise and experience in the founding team?
Find a partner with the required expertise and experience b. Form an advisory board and fill it with people who have expertise in areas you're lacking. c. Outsource to another company for expertise you need.
1. In what ways can an effective patent strategy contribute to the success of a technology venture?
Give the company a temporary monopoly that lets it take advantage of a first-mover strategy in a market with no competitors. This position helps protect core technologies and leverage them to create a family of branded products. b. Improve the company's financial performance by better utilizing undervalued intellectual assets and finding new ways to generate revenues and cross-licensing agreements. c. Increase the company's competitiveness through cross-licensing and using patents as bargaining chips to avoid high royalty payments.
4. What steps should a company take if it suspects that an infringer is violating its patent?
If a company suspects that its patent is being infringed, it should do the following: a. Have your intellectual property attorney review the potential infringement. b. If warranted, send a cease and desist letter and, if appropriate, request for payment of royalties. c. If there is no response to the letter, your attorney can file an injunction to prevent further manufacture or use of the infringing product. The attorney can also go to court and seek to enjoin or close down the infringer's operation. d. You can attempt to seek a settlement or agreement between the parties that involves an agreed-upon royalty in exchange for permission to use the patented invention.
Suppose you have found a core technology that you want to license to develop and sell applications in your industry. In addition to the technology, what would you want to have transferred under the license agreement?
In addition to the technology, you would want to have the know-how transferred and receive assistance in implementing the technology. In general, you would want all of the information and tacit knowledge required to understand and use the technology.
3. Why is studying an industry one of the most important things you can do to find an opportunity?
It is generally agreed that increasing knowledge and experience in an industry in which the student is interested will enhance the chances that they will find an opportunity they want to pursue. In general most entrepreneurs discover their best opportunities in industries in which they have had experience.
Under what circumstances might a technology company not want to license technology it owns?
It may not want to license technology that it needs to maintain a competitive advantage in the market or technology that it uses in its processes to give it a unique advantage.
3. Which of the financial models for assessing value are most appropriate for a new technology venture? Why?
Market value is the most appropriate assumption for new ventures. Therefore, the most commonly used tool for valuing early stage companies is the discounted cash flow model. It calculates the present value of the company's projected cash flow for a period of 3 to 5 years. Several factors should be addressed with any financial model: a. the economic life of the intellectual property b. the economic life of the technology c. the transfer capability of the technology d. restrictions on commercialization e. the cost of developing a substitute product f. the return on investment commensurate with the type of technology
4. What role does the government play in the commercialization of new technology?
Most radically new technology begins as basic research funded by government agencies. Government grants also serve as seed capital for prototype development and testing. SBIR and STTR grants as discussed in the section "Small Business Innovation Research Grants" are specifically designed to encourage the transfer and commercialization of technologies of U.S. companies with fewer than 500 employees.
3. What are the unique issues related to biotech start-ups that make them different from other high-tech ventures in the start-up stage?
One of the unique issues related to biotech start-ups is the extraordinarily long research and development period, about 7 to 9 years for a new drug, up to 5 years for a medical device. This means that the venture team is constantly in fund-raising mode, which can detract from its research efforts. Most biotech is licensed from universities and research institutes and not owned by the company. It's also very difficult to calculate the value of biotech firms as their value is measured by intangibles such as their patent portfolio and the credibility of their scientific team.
2. From the licensor's perspective, what would be important to have in place prior to speaking to potential licensees?
Prior to speaking to potential licensees, you would want to have completed a business plan for the technology that defines a customer and supports a need in the market for the benefit that the technology provides. You would also want to describe the ideal licensee for the technology and the terms of any potential agreement.
2. Why is developing a mission statement so important to the new venture? What is the strategy for constructing a mission statement?
Research has found a positive relationship between a company's mission statement and its performance. It's a four-part process that includes determining what stakeholders contribute to the performance of the company, identifying the components of the mission statement (customer groups satisfied, customer needs satisfied, and the way in which customer needs are satisfied), development of the mission statement, and communication to the stakeholders.
3. Every R&D project carries with it some degree of risk. Suppose an entrepreneur is proposing to develop a wearable PDA that is unobtrusive and responds to voice commands. What are some of the risks in the development of this product? How should they be managed?
Risk #1: There is no market for the product Manage the risk by doing extensive market research before committing significant resources to the project. See Chapter 3 for information about conducting market research. Risk #2: The cost of R&D goes well beyond the budget due to design changes and re-engineering. Getting customers and other functional areas of the company involved in product design at the earliest stages, as well as early prototyping of the product, will help to keep R&D within budget. Risk #3: It takes too long to develop the product and get it to market. Some ways to reduce cycle time include 1) documenting the workflow associated with the product development process to uncover duplicated efforts, potential bottlenecks, and other problems that might delay the process; 2) set goals for completion times; and 3) make the team accountable for its performance.
2. An inventor has developed a new financial software application. What will determine if the inventor may apply for a patent or seek copyright protection?
Software does not present a straight forward determination as to patentability. In some cases patents can be obtained; in others, copyrights are the only mechanism for protection. Recall that utility patents protect functional works whereas copyrights protect expressive works. Software is both functional and expressive. Software can always be copyrighted, but, in general, patents are more difficult to obtain. Manufacturers now protect their investments in software development of test functions, test methods, and failure-analysis systems through patents.
How can strategic partners be used to speed up the process of innovation and commercialization?
Strategic partners can provide an infusion of capital or in-kind expertise and capability. Although cash from strategic partners is generally in smaller amounts, it can be the cement to a relationship that carries with it long-term benefits for the new company. Strategic partners can also supply a needed expertise that will help the new venture get to market more quickly: manufacturing capability and distribution, to name two.
3. Why would an inventor choose to file a provisional patent application rather than a disclosure document?
The provisional patent is more powerful legally than a disclosure document and permits the inventor to label the invention as patent pending. Therefore, it provides the same legal protections as a formal patent application, whereas a disclosure document merely documents the date of conception of an invention.
1. Suppose you want to launch a radical innovation. You have a working prototype and have begun to test the early adopter market. It will take a lot of capital to cross the chasm to mainstream adoption. What would your financial strategy be?
The amount of money needed and the cost of capital at any point in time is a function of the stage of the venture. During product development, the risks are generally related to the technical feasibility of the technology and whether an effective and efficient means of manufacturing is available. At this stage, friendly money, private investors, and government grants typically fund the activities of the company. Once the business is launched, the focus shifts to the market and the risks associated with entering the market and capturing enough customers to create a critical mass for product acceptance. That critical mass is required to push the product into the mainstream market. At this stage, private investors and venture capital come into play as well as strategic partners.
What is the primary disadvantage of cost-based valuation and how can it be rectified?
The biggest disadvantage of cost-based valuation is that there is no correlation between the amount of money spent on researching and developing a new technology and what the actual market value of that technology is. Cost-based methods are best used as hurdle rates coupled with other methods to provide more accuracy.
1. Why is it important to define the business broadly but focus the business concept?
The business should be defined broadly enough to allow for change when the business environment changes. In the HeadBlade example in the text, Greene did not say that he was in the razor business because that would limit the potential of the business going forward. Instead, he chose to say that HeadBlade is in the consumer products business, which allows for the opportunity to move in a number of different directions as the company grows: accessories, apparel, and other branded items.
3. Compare the commitment organizational model with the Silicon Valley model. Which is more effective for a start-up company? Why?
The commitment model consists of an informal peer group that controls the activities of the organization and becomes the cultural center of the organization. The Stanford research discussed in the chapter found that the commitment model was the best predictor of an initial public offering. This model also had the highest success rate among all the models tested. By contrast, the Silicon Valley model relies on a mobile labor force, independent contractors, signing bonuses and stock options, and draconian working hours. In other words, it is a free agency model that does not encourage commitment, so it's difficult to develop a sustainable corporate culture.
2. How do the drivers of value integrate with the business model?
The drivers of value are both tangible and intangible and they affect the valuation of the company at every stage. The rate of growth will affect the business model; high rates of growth require large infusions of cash through debt or equity vehicles. They also produce higher valuations. In general, R&D can provide annual returns of 20 percent or more. Building the business model for an emerging technology is a precursor to any valuation of technological intellectual property. The IP must be identifiable and distinguished from other company assets. It must also be capable of producing future economic benefits. A balanced portfolio also provides value because a diversified and balanced portfolio provides a lot of flexibility, especially if one project generates a lot of free cash flow. It can fund the launch of a new product. A solid licensing agreement can also enhance the value of the technology and the company.
4. What do we mean when we speak of the economic life of a technology product? How does that compare with technology life and product life?
The economic life of a technology product is the length of time during which it can generate revenue for the business. As the chapter points out, that earning period is affected by a. the probability that the competition will be able to design around the patent and develop competing product. b. the probability that the patent will be challenged c. higher than estimated technology development costs d. the potential impact of new laws e. the escalation of supply pricing or actual loss of supply The technology life is generally determined by the patent period, which is 20 years from the date of application, although some technologies have survived far beyond their patent life. The product life is the length of time that an application of a technology survives before it is made obsolete by new technology entering the market.
5. What are the advantages and disadvantages of a first mover or pioneering strategy? Under what conditions would first mover be essential?
The first mover or pioneer disrupts the technology that preceded it and requires customers to identify with a need they didn't know they had. The primary advantage to this strategy is that it provides the pioneer with a temporary monopoly or quiet period in which to establish the technology in the market before competitors enter. Disadvantages of the first-mover strategy are that it is more costly to execute (disruptive technologies often do not reap their full value until they achieve mass-market acceptance and the valley of death is much longer), the pioneering products typically display poor performance and address a latent need that the customer has yet to recognize, and, therefore, it's difficult to get the mainstream market to switch to the new technology.
1. An inventor has just developed a new type of collapsible furniture that will be useful for students in college dormitories where space is limited. What kinds of protections should the inventor consider for this product and the business that would be developed to commercialize it?
The inventor may be able to apply for a utility patent on the functionality of the furniture if the collapsible feature presents a novel approach. He may also be able to apply for a design patent to protect the appearance of the furniture. Certainly, the inventor will want to trademark the name of the company that will produce and market the furniture and may even trademark a name to describe the furniture. The inventor will want to protect through secrecy any proprietary methods for producing the furniture unless the process involves something unique and novel, which then may make it eligible for a process patent. Promotional materials can be copyrighted.
2. What two challenges do you face in becoming more creative? How will you deal with those challenges?
This question is designed to get students to look introspectively at who they are and the role that creativity plays in their lives. After asking the typical question, "are you a creative person?" and getting the typical response of no, it's time to explore the kinds of environments that students put themselves in during the day
4. For what reasons might an inventor decide not to patent an invention that is clearly patentable?
This question will spawn a variety of responses including the following suggested in the chapter: a. the patent process is relatively lengthy and costly b. The patent would not be strong enough to withstand assault by copycats. c. The company doesn't want the proprietary technology or process disclosed through a patent to the public.
3. When it comes time to commercialize an invention, what options are available to an inventor to navigate the business side of commercialization, and what are the advantages and disadvantages of each?
Three options come to mind: 1) the inventor handles the business side himself; 2) the inventor seeks partners with business expertise; 3) the inventor connects with a university or other organization that may be able to provide business expertise.
4. What effect does the timing of funding have on a growing venture's success? Why?
Timing is everything. VCs typically stage an investment and tie funding to milestones to reduce their risk. If the entrepreneur achieves the first milestone, which is usually tied to profit and/or revenues, the VC will release the next stage of funding. From the VCs point of view, timing the funding helps the venture achieve a consistent pattern of growth without any stops and starts. From the entrepreneur's point of view, it means planning growth in stages and estimating the correct amount of capital required at each stage.
4. What is the purpose of a marketing plan? What is the value of compressing the plan into one paragraph?
Timing is everything. VCs typically stage an investment and tie funding to milestones to reduce their risk. If the entrepreneur achieves the first milestone, which is usually tied to profit and/or revenues, the VC will release the next stage of funding. From the VCs point of view, timing the funding helps the venture achieve a consistent pattern of growth without any stops and starts. From the entrepreneur's point of view, it means planning growth in stages and estimating the correct amount of capital required at each stage.
5. What important tasks must take place prior to undertaking an IPO?
To undertake an IPO, the entrepreneur must have a compelling need to raise a significant amount of capital for a specific purpose. The company anticipating an IPO must immediately start acting like a public company; that is, it must begin to manage the expectations of its investors and improve its ability to accurately forecast earnings on a quarterly basis. It must also develop methods for communicating regularly with stakeholders. The entrepreneur should also consult with many people who have gone through the process and make sure that accounting systems and controls are in place.
5. What role does branding play in the promotional strategy of a new high-tech venture?
To undertake an IPO, the entrepreneur must have a compelling need to raise a significant amount of capital for a specific purpose. The company anticipating an IPO must immediately start acting like a public company; that is, it must begin to manage the expectations of its investors and improve its ability to accurately forecast earnings on a quarterly basis. It must also develop methods for communicating regularly with stakeholders. The entrepreneur should also consult with many people who have gone through the process and make sure that accounting systems and controls are in place.
2. What is the value of developing a trademark strategy?
Trademark infringement is increasing at a rapid rate are companies are now having to exercise greater care in protecting their trademarks. Moreover, the growth of the Internet has made the protection of trademarks much more challenging. To protect a trademark against infringement, the chapter suggests that the company do the following: a. Conduct an Internet audit of domain names and trademarks on the Web and the company's email system to check for infringement. b. Monitor the company's domain name portfolio on a monthly basis c. Perform a monthly audit of the Web, UseNet, and other areas where infringers are likely to operate. d. Check to make sure that appropriate trademark and copyright notices are posted. e. Make certain that the company is entitled to use any images or content that appear on its Web site.
3. What is meant by control rights and how do venture capitalists exercise them?
Venture capitalists protect their investment during high risk stages through control rights, which specify the allocation of control over the company and its decisions. Typically, VCs exercise s disproportionately large share of control over the entrepreneurs; control rights are not static but rather are changed and refined over time; where significant asymmetric information exists, greater control rights are assigned to the VC.
3. When pricing high-technology products, what factors should be taken into consideration?
Venture capitalists protect their investment during high risk stages through control rights, which specify the allocation of control over the company and its decisions. Typically, VCs exercise s disproportionately large share of control over the entrepreneurs; control rights are not static but rather are changed and refined over time; where significant asymmetric information exists, greater control rights are assigned to the VC.
5. Suppose you determine that there are not enough customers for the new product. What could you do, short of abandoning the product?
You need to reconsider the initial target market you defined to see if perhaps you missed a larger niche with customers who better understand your product. You would certainly want to get input from your customers as to how you might modify the product to encourage more sales. Finally, you should reconsider the business concept to see if you can modify the conditions in such a way as to make it more feasible from a revenue standpoint. Identify what is keeping you from gaining more customers and work to change it, whether it be the distribution channel, something about the product itself, or the value proposition, which may not have come across clearly to customers.
3. Based on the product in question 2, what would you want to know about the industry to feel confident that you could enter it with a new venture? Be specific.
a. Is the industry growing? b. Where are the opportunities? Trends and patterns of change? c. How does the industry respond to new technology? d. How much is spent on R&D? e. Who are the major competitors? f. Are young firms surviving? g. What are the long-term trends? h. What are the threats to the industry? i. What are the gross margins in the industry?
4. Why is the corporate form the most popular for high-tech ventures?
a. It is a legal entity so it can survive the death or separation of its owners. b. It offers limited liability and multiple classes of stock c. It permits employee incentive plans such as pension plans and stock options. d. It gives the business more clout, which makes it easier to form alliances and raise capital.
1. How do the characteristics of high-technology markets affect the marketing strategy of a new venture?
a. Market uncertainty results from the difficulty in correctly assessing customer needs and matching those needs to a particular technology application. In addition, customer needs are changing at a more rapid pace and in unpredictable ways, so customers will not adopt a new technology until they're certain it will be the standard. This means that entrepreneurs must be in constant communication with customers and develop a variety of niches and licensing agreements to establish the technology as the standard. b. Technological uncertainty speaks to the question of whether the new venture can deliver on its promises and meet the needs of customers. Customers are also concerned that the technology will be rendered obsolete by new technology, given the rapid pace of technological change. The technology company must develop a careful marketing plan that secures its brand in the market and delivers on its promises to customers.
1. What should an effective business model accomplish?
a. Provide for multiple revenue streams b. Reflect the company's position in the value chain c. Reflect the company's ability to defend what it is doing.
5. What kinds of things are best protected through trade secrets?
a. novel and useful inventions for which the company chooses not to seek patent protection b. computer source code c. manufacturing processes d. designs and drawings e. technical know-how f. business information such as customer lists, vendors, supply sources, marketing plans, and in-house talent
2. What is the most effective strategy for collecting market intelligence?
a. vision of where the company will be in five years b. identification of milestones for first customer, multiple customers, and multiple products. c. trigger points or what must happen to achieve each milestone d. amount and timing of money to achieve milestones and five-year goal e. the sources of funding most appropriate for the business and at each milestone f. the appropriate financial instruments g. the least amount of money required at each milestone
2. What elements should an effective financing strategy contain?
vision of where the company will be in five years b. identification of milestones for first customer, multiple customers, and multiple products. c. trigger points or what must happen to achieve each milestone d. amount and timing of money to achieve milestones and five-year goal e. the sources of funding most appropriate for the business and at each milestone f. the appropriate financial instruments g. the least amount of money required at each milestone
