Engineering 245 The Lean LaunchPad

1. Engineering 245The Lean LaunchPad Lecture 6: Partners Professors Steve Blank, Ann Miura-Ko, Jon Feiber http://e245.stanford.edu/

2. value proposition key activities customer relationships key partners customer segments cost structure revenue streams key resources channels 1 images by JAM

3. KEY PARTNERS which partners and suppliers leverage your model? who do you need to rely on?

4. Test Hypotheses: Key Partners

5. What defines a “Partner?” Shared economics Mutual success / failure Co-development/invention Common customer But remember - you’re a startup

6. Why have partners? • Faster time to market • Broader product offering • More efficient use of capital • Unique customer knowledge or expertise • Access to new markets

7. Partners – Physical Channels • Strategic alliances • Joint new business development efforts • “Coopetition,” (cooperation between competitors) • Key supplier relationships

8. Partners – Strategic Alliances • Reduce the list of things your startup needs to build or provide to offer a complete product or service. • Use partners to build the “whole product” • using 3rd parties to provide a customer with a complete solution • complement your core product with other products or services • Training, installation, service, etc

9. Partners – Joint Business Development • Joint promotion of complementary products • Share advertising, marketing, and sales programs • One may be the dominant player • Intel offered advertising fees to PC Vendors

10. Partners – Coopetition • Joint promotion of competitive products • Competitors might join together in programs to grow awareness of their industry • Tradeshows • Industry Associations

11. Partners – Key Suppliers • Outsource suppliers • Backoffice, supply chain, manufacturing • Direct suppliers • Components, raw materials, etc.

12. Startup mistake • Strategic alliances and joint partnerships • Not needed for Earlyvangelists • Are needed for Mainstream customers • Usually fail

13. Traffic Partners – Virtual Channels • Long-term agreements with other companies • deliver long-term, predictable levels of customers • “Cross referral” or swapping basis • Paid on a per-referral basis • Partners drive traffic using text-links, with onsite promotions, and with ads on the referring site • Partners sometimes exchange email lists

14. Partnership Disaster: Boeing Collaborative Looked great on paper. Worst business decision of the 21st century (so far!)

15. Mobile Location Based ApplicationsCollaborative Partner

16. Managing partners - risks Impendence mismatch Longest of partners schedule becomes your longest item No clear ownership of customer Products lack vision – shared product design Different underlying objectives in relationship Churn in partners strategy or personnel IP issues Difficult to unwind or end

17. Why Will a Large Company Partner? • You give them a competitive “leg-up” • In sales • Or “halo-effect” • You are on their technology road-map • You’re an economic opportunity for them • potential customer of large company • can leverage their existing products and sales • Change agent for the large company • You need to understand their motivation

18. Should I take an investment from a Large Company? • They are interested in their bottom line, not yours • Their objectives are not to make you a large company • Who’s the sponsor? What’s the motivation? • Needs to come from the business side • Not the venture side • Try to get sales deals not investment • Or try to offer warrants based on sales success

19. Startup Partner Strategies • Don’t confuse partners for Earlyvangelists vs. mainstream • Don’t confuse big company partnering with startup strategy • Find the one that gives you an unfair advantage • Air Supply strategy • Recognize you don’t matter to a large partner

20. What partners will you need? Why do you need them   Why will they partner with you? What’s the cost of the partnership? Talk to actual  partners Summarized in a 5 Minute PowerPoint Presentation Team Deliverable for Next Week

21. This is your brain on fluorine Ground Fluor Pharmaceuticals Team: Kiel Neumann (EL) Stephen DiMagno (PI) Allan Green (Mentor) I-Corps 11/15/11

22. Key Partners Manufacture GMP precursor manufactures GMP cassette manufacturers Radiopharmacies Clinical Trials St. Jude Children’s Research Hospital Sloan Kettering UCSF I-Corps 11/15/11

23. The Business Model Canvas Technical Assistance (Image Atlas) FDA regulatory support SOPs for precursors and drugs Recruit clinical sites In vivo animal studies Develop regulatory plan for pre IND meeting ID cGMP CRO Fund-raising Nuclear Medicine and Radiology departments Radiopharmacies Equipment producers Prescribing physicians Radiologist who perform studies Accessibility (RCY) Purity Speed PET/SPECT Multiplatform Sensitivity (nca) Specific compounds cGMP manufacturers Radiopharmacies Technical assistance General methodology for adding fluorine to lead compounds of interest Direct sales of precursor Pharmaceutical development companies IP PoP data Drug developers Sales of packaged precursor in cassettes IP PoP data Regulatory plan Understanding of the regulatory process Radiologists Cassette manufacturers Sales of intermediates Technology license Product license (royalty) Contract cGMP precursor manufacture Salary, Rents Clinical trials I-Corps 11/15/11

24. We provide accessibility Could license precursor synthesis for incorporation in cassettes Food Chain Require GMP precursor (or cassette) to develop our product with their synthesizer Only want GMP precursor in cassettes without development I-Corps 11/15/11

25. Current Income Model GMP Precursor GMP Cassette Finished Imaging Agent Finished Imaging Agent Finished Imaging Agent $300 per cassette $10’s per cassette Patients Hospitals Finished Imaging Agent Finished Imaging Agent Licensing fee or nominal royalty ($50) per cassette One time setup $140,000 Revenue neutral thereafter Finished Imaging Agent $1700 per dose ~100 doses/cassette GFP GFP $500 fee per dose at existing price structure GFP I-Corps Presentation 11/15

26. Manufacturing Partners Contract Manufacture GFP One time setup $50-140K I-Corps Presentation 11/15

27. Current Income Model GMP Precursor GMP Cassette Finished Imaging Agent Finished Imaging Agent Finished Imaging Agent $300 per cassette $10’s per cassette Patients Hospitals Finished Imaging Agent Finished Imaging Agent Licensing fee or nominal royalty ($50) per cassette One time setup $140,000 Revenue neutral thereafter Finished Imaging Agent $1700 per dose ~100 doses/cassette GFP GFP $500 fee per dose at existing price structure GFP I-Corps Presentation 11/15

28. Manufacturing Partners Precursor use license GFP I-Corps Presentation 11/15

29. Current Income Model GMP Precursor GMP Cassette Finished Imaging Agent Finished Imaging Agent Finished Imaging Agent $300 per cassette $10’s per cassette Patients Hospitals Finished Imaging Agent Finished Imaging Agent Licensing fee or nominal royalty ($50) per cassette One time setup $140,000 Revenue neutral thereafter Finished Imaging Agent $1700 per dose ~100 doses/cassette GFP GFP $500 fee per dose at existing price structure GFP I-Corps Presentation 11/15

30. Customer/Partners GFP Fee per dose Technology license

31. Potential Market • 2.2 million doses per year • %10 of the market is 200,000 doses • $500 per dose = $100 million • Current sales $2 M/year because production is limited and costs are high. • Confidential financial Gannt chart prepared I-Corps 11/15/11

32. Product Food Chain I-Corps 11/15/11

33. ARKA Thermal SolutionHigh Performance Heat Pipe Technology Ideation/Consulting Firm that offers design and prototyping solutions in Thermal Management Scan and respond to market needs and provide innovative product solutions. Offer solutions to industries and organizations proactively by seeking new avenues to utilize heat pipe technology

34. Week 6 Canvas

35. Business Model (For First Product Idea – LED thermal management module) Market Manufacturer (Extension) Other Potential Markets Joint Venture Arka Thermal Communication of Design and Prototypes Design Sources Money Flow Physical Product Flows

36. What Partners will we need? Our partner in the new model is a Thermal Solutions manufacturer who is looking to extend into the heat pipe market. We require partners with production and distributionexpertise The distribution of this product also requires access to a dedicated sales force.

37. Why will they partner with us? Arka Thermal offers design expertise in heat pipe design Based on its talent, Arka Thermal proposes to offer novel and high-efficiency heat pipe solutions proactively to the market.

38. 1st Product Idea • LED Thermal Dissipation Module • Offers higher lumen intensity with a longer life enabled by novel thermal dissipation technology. • Replacement of current high lumen incandescent bulbs with LED equivalents without light quality/output compromises. • Offer a novel thermal dissipation technology modulethat can be used in different LED product families

39. Cost and Risks • Arka Thermal • The cost of the partnership lies is the design and prototype creation (for pitching purposes) • Research and Development costs: we need to provide contemporary design that OEMS can incorporate easily in their systems. • Effectiveness: the products needs to be efficient, meet standards and form specifications. The cost in this case is testing, certification and design upgrades to reflect OEM needs. • Recruiting and maintaining high level talent in ideation and design • The highest risk comes from not responding proactively to market change, or being first mover. Loss of design exclusivity. It is essential that design be protected. • The Manufacturer may choose to work outside of Arka Thermal’s contracts with in-house or other design agencies that offer more benefits

40. Cost and Risks • Manufacturer • The initial cost of setup and maintaining a product extension. • Risk lies in moving into a crowded established market. The market might not require our services.

41. Manufacturer Incentives Impediments Investments in joint venture is substantial ROI cannot be established at this point Presence of in-house R&D Solutions from other providers might be more lucrative Standards preclude use of heat pipes/ diminished interest in heat pipes • Potential increased sales through joint venture creation with Arka • Extended product line with access to ArkaDesigns, increased product extension development possibilities • Outsourcing R&D for product extension to Arka (greater efficiency due to specialization) • Customized solutions for each customer of the Manufacturer

42. Benefits of Exclusive Partnership Arka Thermal gains a partner with production and distribution expertise in thermal solutions manufacturing Manufacturer can extend product line through joint venture and explore new markets

43. Interviews Action Motion Planned Customer Interaction Meetings: Two C/A plant visits Eilis Jill Rosenbaum and Jonathan Levine, Hydrate Researchers Morty, CMU Facilities • Customer Interaction Meetings: • Regional Senior C/A Client Manager • Dr. Peter Foller, Former Director of R&D chemical and Optical, PPG • Eilis Rosenbaum and Jonathan Levine, Hydrate Researchers • Pine Liu, Entrepreneur in Smart Sensor Monitoring • Jim Miller, CMU Researcher • Frank Stienke, Schlumberger Affiliate Planned Hypothesis Testing: Wayne Meier, Matric Engineering Services Diane L. Magin, BlackBox Daedalus Designs Hypothesis Testing: Custom semiconductor grower Funding organization

45. C/A Market Industrial Plants Plant #1 Plant #2 Plant #3 Technology Supplier [Product Form] Bundled into larger product Standalone SenSevere can make bundle Monitoring Internal Pilot Test APPROVED Pilot Commercial Customer Test CONDITIONAL APPROVAL

46. Pricing Detection limit of the sensor required is different for each step of the process. Discussions are in cell technologies Each step process has different risk premium associated Cell Technologies Liquifaction Drying Towers #GOAL Price the same product differently based on what we protect as opposed to an agglomerate value add. Tunable sensor sensitivity

47. US Sensors Industry: $9.8B Projected Growth: 6.1%/year C/A Market Operating Specifications Cost / cell Downtime / incident Time betw/Incidents Average cost / year from incidents # of Units Price Market Size: [/year] $73,250,000 Partner Margin: 25% Sales Profit: [/year] $50,662,996 Prototyping COG

48. Other Markets! #KILLER APP Chlorine production #GOAL Achieve sales in both ends of the spectrum and all other applications fall within possible demonstrated capability Laboratory Industrial Hydrate research Micro-temperature measurement and heating Wireless smart building control C/A Transformer gas monitoring Wireless smart building control