2. research with commercial potential

Delivered by: Panos Fitsilis ([email protected])

Date: 9-10 October 2014

Venue: American University of Beirut (AUB)

mailto:[email protected]

This project has been funded with support from the European Commission. This publication reflects the views only of the author, and the Commission cannot be held responsible for any use which may be made of the information contained

therein.

This material has been developed in the context of IDEAL Tempus Project by

Panos Fitsilis ([email protected])

Table of contents

i. How do we identify research that has commercial potential

ii. What strategies can we use to first protect it and then make use of it in the marketplace

Slide 3

Chain-linked model of innovation (Rosenberg & Kline, 1986)

Source: www.uis.unesco.org

– Originality of the innovation

– Scientific return/opportunities for the laboratory

– Project feasibility

– Potential users

– Scientific relevance of the project

– Team aspects

– Risk management

– Profile of the key researcher

– Business opportunity

– Market opportunities/threats

A lot of criteria …..

– IP (protection issues, prior art)

– Lab support

– Realism of the announced plan

– Potential applications

– Social & economical impact

– Positive ROI/NPV calculations

– Venture value

– Regulatory constraints

– Business model

– Financial return

– Production issues

• A lot of criteria for evaluation are proposed in the literature, such as:

• According to MacMillan et al. the main criteria for selecting are:

– Characteristics of the market

– Characteristics of the product or service produced by research

– Financial impact

– Experience of research team

– Personality of the principal researcher

What are the criteria ?

Source: MacMillan, I. C., Siegel, R., & Narasimha, P. N. (1986). Criteria used by venture capitalists to evaluate new venture proposals. Journal of Business venturing, 1(1), 119-128.

• The target market enjoys a significant growth rate?

• The research stimulates an existing market?

• There is little threat of competition during the first three years?

• The research will create a new market?

Μarket driven criteria

Market(ing) Research: Definition

• The systematic design, collection, analysis and reporting of data and findings relevant to a specific marketing situation facing the organisation

• Main research activities (Source: British Market Research Association)

– Market Measurement

– New Product development/concept testing

– Usage and Attitude Studies

– Advertising developing and pre-testing

Types of Market Research

By Source

- Primary

- Secondary

By Objectives

- Exploratory

- Descriptive

- Causal

(or experimental)

By Methodology

- Qualitative

- Quantitative

Types of Market Research: By Source

Primary Collection of data specifically for the problem or

project in hand

Secondary Based on data previously collected for purposes

other than the research in hand (e.g. published

articles, government stats, etc.)

Types of Market Research: By Methodology

Qualitative Quantitative

Type of Question Probing Simple

Sample Size Small Large

Information per respondent High Low(ish)

Questioner’s skill High Low(ish)

Analyst’s skill High High

Type of analysis Subjective, Objective,

Interpretative Statistical

Ability to replicate Low High

Areas probed Attitudes Choices

Feelings Frequency

Motivations Demographics

Benefits of Qualitative Market Research vs Quantitative

Benefit Comment/Example

Cheaper

Probes in-depth motivations

and feelings

Often useful precursor

to quantitative research

Smaller sample size

Allows managers to observe (through one

way mirror) ‘real’ consumer reaction to

the issue - e.g. comments and

associations (e.g. Levis) regarding a new

product fresh from the labs

Gives the research department a low

cost and timely sense of which issues

to probe in quantitative research

Types of Market Research: By Objective

• Exploratory Preliminary data needed to develop an idea

further. Eg outline concepts, gather insights,

formulate hypotheses

• Descriptive Describe an element of an ideas precisely. Eg

who is the target market, how large is it, how

will it develop

• Causal Test a cause and effect relationship, e.g. price

elasticity. Done through experiment

The Market Research Process 1. Defining the

problem and

objectives

2. Developing

the research

plan

3. Collecting

the

information

4. Analysing

the

information

5. Presenting

the findings

Steps

Comments

Distinguish between

the research type

needed e.g.

- exploratory

- descriptive

- causal

Decide on

- budget

- data sources

- research approaches

- research instruments

- sampling plan

- contact methods

Information is

collected

according to

the plan (N.B.

it is often done

by external

firms)

Statistical

manipulation of

the data collected

(e.g. regression)

or subjective

analysis of focus

groups

Overall conclusions

to be presented

rather than

overwhelming

statistical

methodologies

If a problem is

vaguely defined,

the results can

have little

bearing on the

key issues

The plan needs

to be decided

upfront but

flexible enough

to incorporate

changes/

iterations

This phase is

the most costly

and the most

liable to error

Significant

difference in

type of analysis

according to

whether market

research is

quantitative or

qualitative

Can take various

forms:

- oral presentation

- written conclusions supported by analysis

- data tables

Other market analysis tools - PESTEL

Question?

• Can you produce the PESTEL analysis for a spin-off company to be created at Lebanon from your university in relation to your research?

Market analysis for industry sectors

The Five Forces Model of Competition / Porter

Source: Crafting and Executing strategy, A. Thomson, A.J. Strickland III, J. Gamble

Factors Affecting Threat of Entry


Question?

• Can you identify the ENTRY threads for your spin-off company?

Factors Affecting Competition From Substitute Products


Factors Affecting Bargaining Power of Suppliers


Factors Affecting Bargaining Power of Buyers


• The product may be described as “high tech.”

• The product is innovative

• The research product is proprietary or can otherwise be protected.

• The product enjoys demonstrated market acceptance.

• The product has been developed to the point of a functioning prototype.

Characteristics of the product or service produced by research

Types of innovations

• Product innovation: introduction of a good or service that is new or significantly improved with respect to its characteristics or intended uses. This includes significant improvements in technical specifications, components and materials, incorporated software, user friendliness or other functional characteristics.

• Process innovation: implementation of a new or significantly improved production or delivery method. This includes significant changes in techniques, equipment and/or software.

• Marketing innovation: implementation of a new marketing method involving significant changes in product design or packaging, product placement, product promotion or pricing.

• Organisational innovation: implementation of a new organisational method in the firm’s business practices, workplace organisation or external relations.

www.uis.unesco.org

Degree of novelty

• New to the firm: – A product, process, marketing method, or

organisational method can already have been implemented by other firms, but if it is new to the firm (or in case of products and processes: significantly improved), then it is an innovation for that firm.

• New to the market: – the firm is the first to introduce the

innovation onto its market. – The market is defined as the firm and its

competitors. – The geographical scope is subject to the

firm’s own view of its operating market and thus can include both domestic and international firms.

www.uis.unesco.org

Degree of novelty (continued)

• New to the world: – the firm is the first to introduce the

innovation for all markets and industries, domestic and international.

– implies a qualitatively greater degree of novelty than new to the market.

• Disruptive innovations: – an innovation that has a significant

impact on a market and on the economic activity of firms in that market.

– focuses on the impact of innovations as opposed to their novelty.

– These impacts can, for example, change the structure of the market, create new markets, or render existing products obsolete. However, it might not be apparent whether an innovation is disruptive until long after the innovation has been introduced.

www.uis.unesco.org

Product Differentiation

• Incorporate differentiating features that cause buyers to prefer firm’s product or service over brands of rivals

• Find ways to differentiate that create value for buyers and are not easily matched or cheaply copied by rivals

• Not spending more to achieve differentiation than the price premium that can be charged

Objective

Keys to Success

Types of Differentiation Themes

• Unique taste – ???? • Multiple features – ???? • Wide selection – ????? • Superior service – ????? • Spare parts availability – ???? • Engineering design and performance – ???? • Prestige – ???? • Product reliability – ????? • Quality manufacture – ???? • Top-of-line image – ????

Types of Differentiation Themes

• Unique taste – Dr. Pepper • Multiple features – Microsoft Windows and

Office • Wide selection – Amazon.com • Superior service – Ritz-Carlton • Spare parts availability – Caterpillar • Engineering design and performance – BMW • Prestige – Rolex • Product reliability – Johnson & Johnson • Quality manufacture – Toyota • Top-of-line image – Ralph Lauren, Starbucks,

Chanel

http://www.amazon.com/

32

Two other factors also influence an industry attitude to innovation and

technology

•The Technology adoption Cycle - which describes the enterprise attitude

to technology (and possibly change in general)

•The Product life-cycle (if we can possibly imagine such a thing!)

• Return of Investment equal to at least IO times the initial investment within 5-10 years.

• Requires an investment that can easily be liquefied (e.g., new company goes public or acquired).

• It is not be expected to make subsequent investments

Financial impact

Financial evaluation methods

Liljeblom, E., & Vaihekoski, M. (2004). Investment evaluation methods and required rate of return in Finnish publicly listed companies.

Stage Of

Business

Expected Annual Return

on Investment

Expected Increase

on Initial Investment

Start-up business

(idea stage)

60% + 10–15 × investment

First-stage financing

(new business)

40%–60% 6–12 × investment

Second-stage financing

(development stage)


Third-stage financing

(expansion stage)


Turnaround situation 50% + 8–15 × investment

Source: W. Keith Schilit, “How to Obtain Venture Capital,” Business

Horizons (May/June 1987): 78.

Indicative ROI (example)

• The research team has substantial expertise

• The research team has a well established reputation and track record

• Research team has good collaboration and

• Research team has links with industry

Experience of research team

• Capable of sustained intense effort.

• Able to evaluate and react to risk well.

• Articulate in discussing venture.

• Attends to detail.

• Demonstrated leadership in past

• Thoroughly familiar with market

Personality of the principal researcher

Roles and Tasks of principal researcher

40

• He is responsible for organizing, staffing, budgeting, directing, planning, and controlling the project. – shape goals

– obtain resources

– build roles & structures

– establish good communication

– see the whole picture

– move things forward Buchanan & Boddy, (1992)

Types of competence

20 Technical competencies

15 Behavioural competencies

11 Contextual competencies

=> 46 competencies

Common activities and skills

42

• Leadership

• Management

• Customer Relations

• Technical problem solving

• Conflict Management

• Team Management

• Risk and Change Management

• Introducing our research to the market is a

new project

• We need to put all data, information and research together as check

is the project

FEASIBLE

Project feasibility

05 44

CONCEPTION

FEASIBILITY

IMPLEMENTATION

OPERATION

TERMINATION

Define the Project

Design the Project Process

Deliver the Project

EVALUATION Develop the Process

Reminder

45

Feasibility Analysis

1. Technical Feasibility;

2. Financial Feasibility;

3. Risk & Uncertainty Feasibility.

4. Environmental feasibility

The most frequently used evaluates these

three key areas, BUT others might well be

used!

46

Process

Project Brief Generate Scenarios

Undertake Feasibility Studies for Each Scenario

Technical Feasibility Study

Financial Feasibility Study

Risk & Uncertainty Feasibility Study

Collate Results

and Select Best

Scenario by

Weighted

Analysis

Comprising of:

47

Project Brief

Generate Scenarios

Feasibility Study

Technical Feasibility

Financial Feasibility

Risk & Uncertainty

Feasibility

Feasibility Study Feasibility Study

Technical Feasibility Technical Feasibility

Financial Feasibility Financial Feasibility

Risk & Uncertainty

Feasibility

Risk & Uncertainty

Feasibility

Select Best Option by Weighted Analysis

Project Brief

Generate Scenarios

Feasibility Study


Financial Feasibility

Risk & Uncertainty

Feasibility

Feasibility Study Feasibility Study

Technical Feasibility Technical Feasibility

Financial Feasibility Financial Feasibility

Risk & Uncertainty

Feasibility

Risk & Uncertainty

Feasibility

Select Best Option by Weighted Analysis

48


• A Technical feasibility study can only be based upon current information concerning the product, material, or services life. Information availability stages are:

– Fully mature – considerable data is available for evaluation of new proposal.

– Semi-mature – limited data available to be used in feasibility study.

– New Technology – at prototype stage, limited information available.

The PMBOK

• “Project Management Body of Knowledge”

– sum of knowledge within the profession of project

management

– used to document and standardize generally accepted

project management information and practices

• produced by the Project Management Institute

(www.pmi.org)

• revised and reprinted every 4 years – fifth edition is

the current one

The 10 subject areas of PM

• an area of project management defined by its knowledge requirements and described in terms of its associated process, practices, inputs, outputs, tools and techniques

• identified subject areas 1. Project Integration Management 2. Project Scope Management 3. Project Time Management 4. Project Cost Management 5. Project Quality Management 6. Project Human Resource Management 7. Project Communications Management 8. Project Risk Management 9. Project Procurement Management 10. Stakeholder Management

CRITERIA FOR EVALUATING VENTURE OPPORTUNITIES

Attractiveness

Criterion Higher Potential Lower Potential

Market Issues

Need Identified Unfocused

Customers Reachable; receptive Unreachable or loyal to others

Payback to user Less than one year Three years plus

Value added or created High Low

Product life Durable; beyond time to recover investment plus profit

Perishable; less than time to recover investment

Market structure Imperfect competition or emerging industry

Perfect competition or highly concentrated or mature industry or declining industry

Criteria for evaluating venture opportunities

Source: Entrepreneurship, Miroslaw Malek

Attractiveness


Market Issues (continued)

Market size $100 million sales Unknown or less than $10 million sales or multibillion

Market growth rate Growing at 30% to 50% or more

Contracting or less than 10%

Gross margins 40% to 50% or more; durable

Less than 20%; fragile

Market share attainable (year 5)

20% or more; leader Less than 5%

Cost structure Low cost provider Declining cost




Attractiveness


Economic/harvest issues

Profits after tax 10% to 15% or more; durable Less than 20%; fragile

Time to:

Break even Under 2 years More than 3 years

Positive cash flow Under 2 years More than 3 years

ROI potential 25% or more/year; high value 15%-20% or less/ year; low value

Value High strategic value Low strategic value

Capital requirements Low to moderate; fundable Very high; unfundable

Exit mechanism Present or envisioned harvest options

Undefinded; illiquid investment


Attractiveness


Competitive advantages issues

Fixed and variable costs:

Production Lowest Highest

Marketing Lowest Highest

Distribution Lowest Highest

Degree of control:

Prices Moderate to strong Weak

Costs Moderate to strong Weak

Channels ofsupply/resources

Moderate to strong Weak

Channels of distribution Moderate to strong Weak



Attractiveness


Competitive advantages issues (continued)

Barrier to entry:

Proprietary protection/ regulation advantage

Have or can gain None

Response/lead time advantage in technology, product, market innovation, people, location, resources or capacity

Resilient and responsive; have or can gain

None

Legal contractual advantage

Proprietary or exclusive None

Contacts and networks Well developed; high-quality; accessible

Crude; limited inaccessible



Attractiveness


Management team issues

Team Existing, strong proven performance

Weak or solo entrepreneur

Competitor`s mind set and strategies

Competitive; few; not self-destructive

Dumb

Fatal flaw issue

Fatal flaws None One or more



Source: Stanley Rich and David Gumpert, Business Plans That Win $$$ (New York: Harper & Row, 1985), 169.

Level 4 Fully developed product/service

Established market

Satisfied users

4/1 4/2 4/3 4/4

Level 3 Fully developed product/service

Few users as of yet

Market assumed

3/1 3/2 3/3 3/4

Level 2 Operable pilot or prototype

Not yet developed for production

Market assumed

2/1 2/2 2/3 2/4

Level 1 Product/service idea

Not yet operable

Market assumed

1/1 1/2 1/3 1/4

Level 1 Individual founder/

entrepreneur

Level 2 Two founders

Other personnel

not yet identified

Level 3 Partial

management

team—members

identified to join

company when

funding received

Level 4 Fully staffed,

experienced

management team

Riskiest

Riskiest

Status of Management

Stat

us

of

Pro

du

ct/S

ervi

ce

Concluding – Top 10 criteria Criterion Percentage

Capable of sustained intense effort 64

Thoroughly familiar with market 62

At least ten times return in five to ten years 50

Demonstrated leadership in past 50

Evaluates and reacts to risk well 48

Investment can be made liquid 44

Significant market growth 43

Track record relevant to venture 37

Articulates venture well 31

Proprietary protection 29


STRATEGIES FOR INITIAL PROTECTION OF RESEARCH

61

What is intellectual property?

• Intellectual properties are intangible products of the mind. These include:

– inventions (devices, compositions, plants, designs)

– publications

– Software

– works of art.

Must be tangible in order to be protected.

62

How do we protect intellectual property?

Source:http://melfiassociates.com/which-is-which-copyright-patents-trademarks-trade-secrets/

63

What we can do in advance?

• Create protection practices such as

– Establish correct employment agreement

– Have a well established and royalty policy

– Enforce physical and electronic security guidelines

64

Employment Agreements

• Typically are a condition at hiring & include salary, benefit details.

• Often include trade secret & confidentiality language for a term that exceeds termination from the company.

• Includes IP ownership information.

• May include non-compete language to prevent you from working for a competitor for a period of time.

http://www.egr.msu.edu/egr/research/techtransfer.php

http://www.egr.msu.edu/egr/research/techtransfer.php

65

Example Royalty Policy

• First $5000 goes to the inventor(s).

• Patent expenses are then recovered.

• Net Royalty Inventor(s) Academic University

Next $100,000 33.3% 33.3% 33.3%

Next $400,000 30% 30% 40%

Next $500,000 20% 20% 60%

Excess >$1M 15% 15% 70%

Physical and electronic security guidelines

• Control physical access

– Notebooks

• Control electronic access

• Do Have ALL Entries in the Notebooks Witnessed and Dated

• Do Implement Document Control/Destruction Policy

Follow course on coursera Technology Commercialization, Part 1: Setting up your Idea Filtering System From: University on Rochester https://www.coursera.org/course/techcommercialpart1