What Are Business Plan Specifics for New Technology-Based Firms?

1. 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

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 oropportunities intomarket value W. Runge 09/2008

8. Value Drivers(External Parameters) • Megatrends (+ Regulations) • Market/Customer Insight (Actual and “Latent”) • Technology Forecasting • Industry Foresight Domain: Technology& Science Domain:Socio-Economy,Policy Business Model • Technology • Markets • Value Proposition • Value Chain • Value System • Revenues and Profits • Technical and Market Competition • Competitive Strategies Description,Modeling,Assessment and“Measurement” Description,Modeling,Evaluation and“Measurement” Mediating between Domain-Specifics and Drivers W. Runge 09/2008

9. Value Creation: Market and Technical Value 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 Market value and technical valuedoes not necessarily match! W. Runge 09/2008 Slide 9.6; Ref. Runge, p. 613

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 W. Runge 09/2008 Ref. Slide 9.7; Dorf & Byers, p. 65

11. Technical Value: Perspectives Producer 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. Valuable attributes belong to offeringsnot to technology! Offering,Solution Technology Market 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.) W. Runge 09/2008

13. Supplier Perspective:Cost reduction by 50% Customer Perspective: Before After Customer’s OverallExpenses Cost reductionof 0.02% Potential Price-Insensitivity Benefits:Supplier and Customer Perspectives Customer’s Economics Price increase by 50% Price Elasticity W. Runge 09/2008

14. Customers: Types and Roles Type: • 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 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 knowledgeand 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). Technology meets markets! 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: • An “educated guess” –or an extremely lucky guess • 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 protectablevalue 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 Functionality Functionality • 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 TechnologyA 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 TechnologyDefined 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) Skysails GmbH & Co. KG KiteShip Corp. “Sailing Ship Effect” 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. Scale Up Technology Commercialization “Commodization” Product Life Cycle http://asbdc.ualr.edu/technology/commercialization/the_model.asp W. Runge 09/2008

27. Nine Types of Revenue/Profit Models W. Runge 09/2008 Adapted from: Dorf & Byers, Table 16.3

28. Feedback/Learning:Post-Launch Review Whether … How … Concept Shaping Concept Analysis Validation NPD: Development Implementation Select for Concept Analysis Research Commit to Resources Select for Validation Commit to Develop? • Customer • Value • Business • Success Ideas Markets Ideas – Opportunity Crude Hypotheses Refined & Expanded Hypotheses with Critical Issues (and Economic Model) Verification of Critical Issues to an Acceptable Level of Confidence Demonstration of the Viability of the Project Business Plan Achievement of Business Startup Similar to “Business Plan” Corporate Staged InnovationProcesses (Stage-Gate, PhaseGate) Project Proposal: Shaping + Analysis (several addressees) Slide 12.23 W. Runge 09/2008

29. A PhaseGate Shaping Form • Opportunity Summary(Summarize opportunity hypothesis): • Value Proposition (Win-Win) (One sentence): • 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 … • Product / Service:Describe the product or service which you hypothesize will satisfy the market need (Sources of information!) - 12+ questions to be answered • Competitive Advantage:Describe how “our firm” could gain and sustain an advantaged position at potential customers (Sources of information!) - 12+ questions … • Market Attractiveness:Describe why this market would be attractive to any potential supplier -12+ ... • Business Attractiveness / Strategic Fit:Describe why this specific opportunity is attractive to “our firm’s” businesses – 12+ questions to be answered • Value Potential: (Value management, economic analysis; entry) W. Runge 09/2008