TTiB 2010 - Lecture %236 - Commercialization Strategies

8/8/2019 TTiB 2010 - Lecture %236 - Commercialization Strategies

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What is a good business strategy to

commercialize your technology?

Turning Technology into Business 2.0

17 December 2010

Daniel Kapitan ([email protected])


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This paper presents a synthetic framework identifying the central drivers of

start-up commercialization strategy and the implications of these drivers for

industrial dynamics. We link strategy to the commercialization

environmentthe microeconomic and strategic conditions facing a firm that

is translating anidea

into a value proposition for customers. Theframework addresses why technology entrepreneurs in some environments

undermine established firms, while others cooperate with incumbents and

reinforce existing market power. Our analysis suggests that competitive

interaction between start-up innovators and established firms depends on the

presence or absence of a market for ideas. By focusing on the operating

requirements, efficiency, and institutions associated with markets for ideas,

this framework holds several implications for the management of high-

technology entrepreneurial firms.

The product market and the market for ideas:

commercialization strategies for technology entrepreneurs

Joshua S. Gans, Scott Stern


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Product Market

vs.

Market for Ideas


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Who is more successful in commercializing

technologies: David or Goliath?

Factor A: can the start-up

effectively keep incumbent* from

imitating?

Factor B: does the incumbent haveassets that are valuable to the

value proposition?

Incumbent: the market leader c.q. dominant player in the market

Source: Joshua S. Gans & Scott Stern (2003)

The product market and the market for ideas: commercializationstrategies for technology entrepreneurs


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A simple strategy matrix to help out

Does the incumbent have assets that areessential to the value proposition?

No Yes

Can the start-upeffectively keepincumbent from

imitating?

No The AttackersAdvantage Reputation-based IdeasTrading

YesGreenfield

CompetitionMarket for ideas


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TheAttackers Advantage

in the hard-disk industry

New technology is disruptive i.e.

it will (eventually!) surpassperformance of current standard

Incumbents are faced with the

innovators dilemma

Start-ups have good chance to

become market leader of newtechnology standard (but with

very risky R&D!)

Source:Clayton M. Christensen (1995), Explaining the

attackers advantage: technological

paradigms, organizational dynamics and

value networks


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Disruptive Technology


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Typical issues in the case of

Attackers Advantage

Incumbent Issues & Strategies

Basis of Competitive Advantage is based onproducts not competencies

Sustainable market position requires constantreinvention and preemption

Organisation is subject to S-curve blind spots

and inertia Effective strategies require constant

monitoring; integration of market andtechnical knowledge bases

Start-up Issues & Strategies

Opportunity to capture market leadership byeffective development of competence-destroyingtechnology

Few opportunities to contract with market leader-- subject to the disclosure effect

Effective strategies involve stealth (choosingniche customers, reconfiguring the architecture,etc)

Expected Competitive Dynamics

Market leadership determined by technological leadership

High Levels of very risky R&D Investment Established firms may fall into competency traps and be subject to the Attackers Advantage

Start-up entrants will engage in seemingly duplicative investments in manufacturing, marketing, etc,as a part of establishing novel value proposition


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Market for ideas in biotech & pharma:

David and Goliath co-operate

0 0.1 0.2 0.3 0.4 0.5 0.6

Biotechnology

Industrial

Equipment

Electronics

Instruments

Computer

Software

level of co-operation

Benefits of trading inthe market for ideas

Avoiding Duplicative Investments

Costly Marketing & Manufacturing Assets

Imitative R&D Programs

Taking advantage of High-PoweredResearch Incentives in Small Firms

Product Market Assets v. Entrepreneurship

Softening product market competition

Extending product market franchises


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and as a result, Goliath stays Goliath

Sales Rank,

1997

Company Date

Established

Sales Rank,

1973

1 Merck 17th century 2

2 Bristol-Myers Squibb 1887, 1856 9

3 American Home Products 1926 6

4 Pfizer 1848 7

5 Abbott Labs 1900 21

6 Eli Lilly 1876 11

7 Warner Lambert 1852 3

8 Baxter 1931 79

9 Schering-Plough 1851 1510 SmithKline Beecham 1830 31

Sources: Various corporate web sites; BioWorld 1998; Adams, 1977.


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Typical issues in the case ofmarket for ideas

Incumbent Issues & Strategies

Start-up technology can serve as a criticalsource of improvement to the current productset

Sustainable market position requires co-optingpotential competitors through participation inthe ideas market

Challenge is to balance internally developedand externally available technologies in PDprocess

Start-up Issues & Strategies

Question is not if but when to contract with moreestablished firms

Performance will depend critically on ability tosecure and use bargaining power (playing offincumbents against one another, etc)

Product market strategy would be both costly andless profitable than partnering with incumbent


Frequent changes in technology leadership and the sources of innovation, potentially few changes in

market leadership Start-up firms compete with each other for priority in negotiations with market leader

New technologies tends to build upon and reinforce existing platforms rather than challenge theplatform itself


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Reputation-based Ideas Trading

in the automotive industry

The paradox of disclosure

When trading in ideas, the willingness-to-pay of potential buyers depends

on knowledge of that idea

Yet, that knowledge implies that the buyer need not pay at all

Intellectual property protection (patents) is far from perfect

Other ways to defend your intellectual capital

Threaten to partner with other companies (e.g. Audi vs. Porsche vs. Ferrari)

Trade secrets

Not only R&D, design and engineering but also production of (smaller) key

components


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All options are open in the case of

Greenfield Competition

Incumbent Strategies

Basis of Competitive Advantage is basedon products not competencies

Low bargaining power vis--vis entranttechnologies

Sustainable market position often involvessharing profits to upstream technologyproviders

Start-up Strategies

Ideal opportunity for entrant to choose betweenpartnering (with strong bargaining power) orestablishing product market position

Favourable environment for introducing integrative

standard product architectures


Changes in market leadership are less important than changes in the distribution of power in thevalue chain

Technology providers can use their strong bargaining position to buy the incumbent


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So, typically, what position would start-ups

take in the value chain in each case?

After-salesservice

Marketing& sales

Outboundlogistics

Operations &production

Inboundlogistics

Design &engineering

R&D

Attackers advantage

Market for ideas

Reputation-basedtrading

licensed

partner ?

start-up incumbent

key

components ?

Greenfield competition


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Some data:

The MIT Commercialization Strategies Survey

(Figures represent therate of cooperation

within each cell)


No Yes


imitating?

No 14% 30%

Yes 34% 56%

Attackers Advantage Reputation-Based Ideas Trading

Greenfield Competition Market for Ideas


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Possible start-up strategies in a nutshell


No Yes


imitating?

No Stealth valueproposition

Only invest if established

firm is stable & has goodreputation

YesMany strategies(few examples)

Focused research,identify strongest partner

Attackers Advantage Reputation-Based Ideas Trading

Greenfield Competition Market for Ideas


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Possible incumbent strategies in a nutshell


No Yes

Can thestart-up

effectivelykeep

incumbentfrom

imitating?

NoPre-emption &

reinvention are key!

Focus on internaldevelopment ORbuild

reputation & technologyplatform for ideas trading

Yes

Avoid earlycannibalization;

attempt todifferentiate & build

value chain

Encourage technicaldynamics & market

stability; downstream

and upstream assets arecomplementary to one

another


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Guideline of financial project plan

Type of

function

# people

involved

Milestone1 Milestone 2 Milestone 3 Milestone 4

TOTALHOURS

1.

2

3

TOTALHOURS

Total project size based on man hours of different function types

Average cost per man hour = total cost of wages + total indirect cost) / totalhours available

Account for other costs specifically, e.g. machines, 3rd parties, licensing/patents,

travel cost, general overhead


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Some basic finance

Profit & Loss(Dutch:

exploitatierekening)

Revenues-/- Cost of Goods Sold

= Gross Margin-/- Operational cost

= EBITDA-/- Depreciation-/- Tax

= Net profit

Developmentprojects(gates,

activities)

Cashflow(Dutch:

liquiditeitsrekening)

Total cash in:sales, licences, contractresearch, subsidies,credit facilities frombanks etc.

minus

Total cash out:same as in P&L but alsopre-financing of working

capital, capitalinvestments in projects

= Net cashflow


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now go do it yourself!

Documents

TTiB 2010 - Lecture %236 - Commercialization Strategies