What Are Business Plan Specifics for New Technology- Based Firms? A business plan should ask and answer the tough questions! cf. Module 11 of Technology.

What Are Business Plan Specifics for New Technology-

Based Firms?A business plan should ask and

answer the tough questions!

cf. Module 11 of Technology Entrepreneurshiphttp://ce.ioc.uni-karlsruhe.de/download/Chem_Entrepreneur_10_13.pdf

W. Runge 09/2008 2

What Are We Talking About?

• New Technology-Based Firms (NTBFs) and/orResearch-Based Startups (RBSUs)?

• Innovation?

• Invention (patents) to innovation?

• Science2Innovation?

W. Runge 09/2008 3

What Should We Talk About?

Value Creation and Capture

by

Science and Technology

(Technology for technical innovationand organizational innovation)

W. Runge 09/2008 4

Key Subjects

• Business Model• Value – Market and Technical Value• Technology Intelligence and Strategy• Technology Classes• Customers and Competitors• Commercialization and Revenue Models• Analogies between Entrepreneurship and

Intrapreneurship

W. Runge 09/2008 5

Key Questions to Be Addressed• What are value added components for the

offering?• Do we have or can we create the

organizational capabilities to deliver?(SWOT - self-assessment; feasibility)

• Is the offering a complete solution for the customer or only part of the solution?

• What if …– Development will take so long that money does not

suffice, competing technologies/products occur …– The original idea/plan does not materialize (modify

the venture concept and strategy until it fits?), or a different opportunity shows up (follow a new direction?)

W. Runge 09/2008 6

The Time and Digestion Factor

• Completing a business plan for an NTBF/RBSU easily takes 12 – 18 months!

• And the decision to commit to a new enterprise is not a single act, but a process that takes time to unfold(months or years from initial statement of entrepreneurial intent and commitment to start)

W. Runge 09/2008 7

The Business Model• How do you plan to make money?• An organization’s core logic for creating

value; a hypothesis how to create value• A set of planned arguments and

assumptions about how a firm will create value for all its stakeholders

• A decision and a process to transform scientific or technology ideas or opportunities into market value

W. Runge 09/2008 8

Mediating between Domain-Specifics and Drivers

Description,Modeling,Assessment and“Measurement”

Domain:Technology& Science

Business Model

• Technology

• Markets

• Value Proposition

• Value Chain

• Value System

• Revenues and Profits

• Technical and Market Competition

• Competitive Strategies

Description,Modeling,Evaluation and“Measurement”

Domain:Socio-Economy,

Policy

Value Drivers(External Parameters)

• Megatrends (+ Regulations)

• Market/Customer Insight (Actual and “Latent”)

• Technology Forecasting

• Industry Foresight

W. Runge 09/2008 9

Market value and technical valuedoes not necessarily match!

Value Creation: Market and Technical Value

Slide 9.6; Ref. Runge, p. 613

Market Value: degree to which a real customer perceives the need for the company’s offering (e.g. product) and after a cost/benefit assessment pays the offering price to purchase it.

Which customers (market segment)?

Technical Value:different perspectives for producer or supplier and customer

W. Runge 09/2008 10

More on Value• Value: worth, importance/relevance or usefulness• Value and Price: Value (what you get) = worth of

the social and economic benefits a customer pays (price; in monetary terms) for an offering

• Most technology-based products are initially focused on functionality and performance

Values Offered to a (Technical) Customer:• Product (Functionality, Performance)• Service (Technical Service, Consulting)• Price• Access (Sales Channels; Sales Cycle)• Experience

Ref. Slide 9.7; Dorf & Byers, p. 65

W. Runge 09/2008 11

Technical Value: PerspectivesProducer Perspective:

How protectable from the competition the product is orhow exploitable the product is as a basis for further offerings

Customer Perspective:• Meeting or exceeding

design specifications expressed by the price the customer accepts to pay

• Patents (Patenting Strategies!), trade secrets, technical reports; know-how, experience – “tacit technology”

• Imitation barriers (product complexity)• Synergy with other products,

lower cost of manufacturing• Related (technical) service that can be provided• Product switching cost with the customer

W. Runge 09/2008 12

Market Value: The Value Proposition

Value Proposition:a statement of how customer value can be created (by your NTBF) – usually one or two values (Slide 9.8) dominate,– Compelling reason to purchase– Provides profit margin– Quantification of customer benefits (money/time

saved; less repair, etc.)

Technology Offering,Solution

Market

Valuable attributes belong to offeringsnot to technology!

W. Runge 09/2008 13

Benefits:Supplier and Customer Perspectives

Customer Perspective:

Customer’s OverallExpenses

Cost reductionof 0.02%

Supplier Perspective:Cost reduction by 50%

Before After

Potential Price-Insensitivity

Price increase by 50%

Customer’s Economics

Price Elasticity

W. Runge 09/2008 14

Customers: Types and RolesType:• Industrial customer (who makes the

purchasing decision; customers-of-customer?)• Professional customer

(may be end-user; e.g. craftsman, physician; also “academic customer”; retail etc.)

• Consumer ( “Normal Marketing”)Role:• Buyer, client, adopter (of innovation)• End-user• Cooperation partner, competitor• Source of capital, investor

Have abusiness plan!

W. Runge 09/2008 15

The Value Chain• The value chain categorizes the generic value-

adding activities of an organization• The set of (company-internal) activities

required to design, procure, produce, market, distribute, and service a product or service

Which activities can we do best?Which activities do we want to do?

W. Runge 09/2008 16

Technology meets markets!

Technology Intelligence (TI)“Intelligence is knowledge and foreknowledge of the world around us - the prelude to Presidential decision and action”(U.S. CIA Factbook on Intelligence; emphases added).

Technology Intelligence:• (what, when, how, where and who)

actionable knowledge and foreknowledge arising from systematic processes involving gathering, analyzing, hypothesizing and disseminating information on external scientific or technological developments, opportunities and threats that may affect a company’s competitive position (defined by its strengths and weaknesses).

W. Runge 09/2008 17

Market Data (TI)• Good data are rarely available for the

market you are after or envision• Almost never available for “disruptive

(“radical”) innovation” –“new-to-the-world”!

• “Good” data are from two sources:1. An “educated guess” –

or an extremely lucky guess2. Actually, get out in the field and talk to

people

Or a little of both

W. Runge 09/2008 18

Technology Strategy Basics

Firm Founding (NTBF) or an R&D Project in a Firm:Create protectable value for which real customers or specific organizations will pay money to the company rather than its competition

Value Creation• How does the scientific idea or technology

create protectable market and technical value?• Which product, process, application?

Value Capture

• Can we capture the market value inherent in this idea/technology in the face of competition?

W. Runge 09/2008 19

Technology and FunctionalityFunctionality• Single, intrinsic functionality• Combinable functionalities

(“architectural innovation” = combining features) • Smart/intelligent functionality (responding to

external stimuli)Substrate/Target• Human-Oriented (“environment-oriented”)

Regulations! (specifically, human exposure)• “Intermediate”: animals exposed• Non-Human-Oriented (“material”, e.g. paper, wood,

plastics, glass, metal etc.; devices, systems)

W. Runge 09/2008 20

Technology Classes: Opportunities• Key Technology

A crucial element in research/innovation; may involve the creation of fundamentally new capabilities (advantages)

• Platform TechnologyA core competency; basis for “exploitation strategies”

• Enhancing TechnologyIncremental shifts in product performance of existing materials, e.g. chemical nanotechnology (known markets!)

• Enabling TechnologySubset of technologies, prerequisite or essential for a specific phase of (chemical) science, product or process development, or manufacturing; also new functions for existing materials

• Pacing TechnologyA technological area representing a limiting factor in the progress of a particular program (project or innovation)

W. Runge 09/2008 21

Technology Classes: Threats• Generic Technology

Defined with regard to an end (function), a particular product, process or system;allows same result to be implemented through different technologies

• Emerging TechnologyA technology anticipated (or proven) to grow and expand and become important and valuable for an industry or industry segment

• Respond!– What is your protection layer around your technology,

offering, customers? (Threat by your competition)– How will you attack incumbents (your opportunity;

threat to your competition; competitive response)?

W. Runge 09/2008 22

Competition-1• There is almost never no competition!

– At least “state-of-the-art”; functional equivalents; the “realities of the market”; “import regulations”

– Even for the “first mover” (serendipity; “Holy Grail”; etc.) there is only “lead time”

• Reviving “old ideas” clash(worldwide; incl. converting the perspective)

“Sailing Ship Effect”KiteShip Corp.Skysails GmbH & Co. KG

W. Runge 09/2008 23

Competition-2

Coincidence of scientific or technical discovery and innovation is not so rare!( technology watch; technology intelligence!)

W. Runge 09/2008 24

Technology Strategy Orientations

• How can we create and keep competitive advantages?

• Potentially complementary aspects:– Resource-oriented

(Resources of the firm push)– Market-oriented

(The market drives)– Interrelation-oriented

(Alliances are key)– Opportunity-oriented

(Fast opportunity identification and exploitation drives)

W. Runge 09/2008 25

Revenue Model andCommercialization Model

(Technology) Commercialization Model:• Technical, marketing and business activities that must

be considered as you move through the overall process to enter into sales and distribution of your anticipated offering – to achieve profit and business growth

• Revenue Model:The various revenue streams your business will be putting in place and how each will bring in money, e.g.– Sales of Offerings (including how to … prices, sales

cycle)– Royalties (e.g. from licenses, selling IP)– Contractual Revenues (contract research, contract

manufacturing)– Consulting, other services (also technical service?)

W. Runge 09/2008 26

Sc

ale

Up

Technology Commercialization

http://asbdc.ualr.edu/technology/commercialization/the_model.asp

“Commodization”

Product Life Cycle

W. Runge 09/2008 27

Nine Types of Revenue/Profit ModelsName Description Example Firm

1. Installed base Build a large installed base of customers (and sell consumables or upgrades)

Henkel KGaA (Persil),HP (printers)

2. Protected innovation

Create a unique, innovative product and protect it using patents and copyrights

Merck KGaA (liquid crystals; FPD); WITec

3. New business model

Find unmet customer needs and build a new business model

ChemCon, Vitracom

4. Value chain or value system specialization

Specialize in one or two functions on a value chain or system

Polymaterials AG;most large chem. firms; Closure Medical

5. Brand Create a valued brand for your product BlueBiotec; most large chem. firms; Henkel KGaA!

6. Blockbuster Focus on creating a series of big winners Large pharmaceutical firms

7. Profit multiplier

Build a system that reuses a product in many forms [platform technology]

IoLiTec; Nano-X, Nanogate, SiGNa; large chem. firms

8. Solution Shift from product to unique total solutions(incl. process chains of customers)

BASF, DuPont, 3M,GE etc.

9. Low cost Create a low-cost product to offer; low price per unit of value

Dow Chemical (China, India!), BlueBiotech

Adapted from: Dorf & Byers, Table 16.3

W. Runge 09/2008 28

Corporate Staged InnovationProcesses (Stage-Gate, PhaseGate)

Project Proposal: Shaping + Analysis (several addressees) Feedback/Learning:Post-Launch Review

ConceptShaping

ConceptAnalysis Validation Development Implementation

Ideas

Select forConcept Analysis

Select forValidation

Commit toDevelop?

• Customer Value• Business Success

Ideas – Opportunity

CrudeHypotheses

Refined & ExpandedHypotheses with Critical Issues (and Economic Model)

Verification of Critical Issuesto an AcceptableLevel of Confidence

Demonstration ofthe Viability of the ProjectBusiness Plan

Achievementof Business Startup

Commit to Resources

Whether … How …

Research

Markets

NPD:

Slide 12.23

Similar to “Business Plan”

W. Runge 09/2008 29

A PhaseGate Shaping Form• Opportunity Summary (Summarize opportunity hypothesis):

• Value Proposition (Win-Win) (One sentence):1. Market / Customer Need:

Describe your hypothesis of the need and identify the customer type or market group with the need (Sources of information!) – 12+ questions …

2. Product / Service:Describe the product or service which you hypothesize will satisfy the market need (Sources of information!) - 12+ questions to be answered

3. Competitive Advantage:Describe how “our firm” could gain and sustain an advantaged position at potential customers (Sources of information!) - 12+ questions …

4. Market Attractiveness:Describe why this market would be attractive to any potential supplier -12+ ...

5. Business Attractiveness / Strategic Fit:Describe why this specific opportunity is attractive to “our firm’s” businesses – 12+ questions to be answered

6. Value Potential: (Value management, economic analysis; entry)