Small Business and Entrepreneurship - To Startup or Not To Startup Part I

"I've got a very bad feeling about this" -- Luke Skywalker

The decision of whether or not to start a business can be a very difficult one. To kick off our series on small business and entrepreneurship we thought we'd start with the beginning - to go or not to go, the choice of whether or not to start a business. We'll examine what factors should play into the decision, and how to alleviate as much doubt as possible prior to deciding. Over the next few weeks we will explore these topics in more detail but first we'll take a more general look.

First off is the idea - the product or service, the target customer and the business model. In other words, we'll need to clearly define:

• What it is we are selling
• Who we intend to sell to (and how to reach them), and
• How will we make money and just what will we do with that money

A new business idea can be anything - it can be opening an auto-repair shop down the street - it does not have to be a never-before seen gizmo to be successful. In fact, in an upcoming article we'll examine the idea of the myth of a "first-to-market" advantage for never-before seen gizmos.

Financial considerations will often be the most immediate make-or break factor when examining an idea. A quick "sell this much, cost this much" calculation can often identify an impractical idea before it gets too far and save time. After the quick "back of a napkin" type calculation however, a more detailed financial examination is necessary. We should determine:

• Pre-Launch vs Post-Launch Costs?
• Costs of continuing operations? Manufacturing? Employee or Labor costs?
• Which costs are fixed? Which costs are variable?

Reasonable sales and financial projections need to be determined. This usually involves determining the size of the market and product pricing and combining these with costs to establish a timeline that will ultimately allow for a look at our profit and loss, the break even point and the cash needs for this company.

Market analysis is very important. How many times have you seen a furniture store go out of business to be replaced with another furniture store in the same location?

• Is there really a market for this?
• How big is the market?
• Is it growing?
• What characterizes the different segments?
• Who are the customers and how are they reached?
• Who are the major competitors?

Both customers and competitors should be examined in more detail as well. Customers should be examined for what really matters to them when considering the product. What benefit does this product provide them? Analysis tools such as "strength weakness opportunities threats" (SWOT) and "Porters 5 forces" (entry, rivalry, substitutes, buyers, suppliers) can be very helpful in understanding the industry and the nature of competition in the industry.

To the entrepreneur himself there are additional considerations. Starting and managing a business can be extremely stressful. Being honest to yourself about the business' potential is important. Starting a business and having potentially no income for an extended period of time can be a significant strain on personal finances and also on family life. For that reason (and others of course), honesty with your spouse is very important. We will examine this topic, the personal strains and stresses of entrepreneurship and also what qualities entrepreneurs tend to share and which (if any) are or are not necessary for success.

This concludes our overview of the decision on whether or not to start a company. In the coming weeks we will look at each of these topics in more detail and also look at other aspects of small business and entrepreneurship.

Some Additional Thoughts on Commercialization -- Part 15 in our IP and Patents Series

This is the fifteenth in a planned 20-part series of articles on intellectual property.  In future posts, we will explore trademarks and copyrights.

In this posting, we will take a look at some additional things to consider during the commercialization process. 

In an earlier post, we noted that the commercialization process consists of the steps taken in the transition of an innovative technology or process from research to a competitive product or service.  These steps assume that there is a market for the product stemming from the technology and the resources are available to turn the technology into a product.  And, we noted that commercialization starts with an honest evaluation of the technology and the markets, followed by an evaluation of the steps that need to be taken to turn that intellectual property (IP) into a product. 

If all the numbers add up and everything look good, then the resource question needs to be addressed: do you have the money, the personnel, the facilities, the equipment, etc.?  Is the IP protected and, if not, can it be protected (or should it be protected; on rare occasions, it may make more sense to keep something as a trade secret rather than pursue a patent)?

Other questions to be asked include how long it will take to get the technology commercially ready, how the resulting product or service will be marketed, what the expected revenues and profits will be, and will it be worth the effort?

With the funding and resources secured, and with a plan in place, the commercialization activities can begin – thes einclude things like streamlining the production process, product testing and evaluation to maximize market reach, etc.

Typically, once the resources are in place, the process consists of developing the production plan (how will the production look – the steps to manufacturing the unit, design of the facility, etc.).  Once these are established, companies might produce alpha (α) units (i.e., the first version of a prototype), incorporate the needed changes to produce beta (ß) units (i.e., the first versions of how the item will look during production), followed by production units.

During all these phases, from IP protection to production, it is important to remember the following things:

Be passionately dispassionate – I know this doesn’t sound make a lot of sense on the face of it.  The balance one needs to maintain is very tough.  The inventor is almost always very passionate about the idea – he or she came up with it; it is their baby.   

It is almost like a religion – there is a lot of faith early on.  And this is important to the future success of the product.   Without the passion, the product likely would never have existed and the desire for someone to push it to commercialization simply wouldn’t be there.  There is a lot of faith and zeal involved, especially early on – the “believers” in the product are excited about the future success and what it means.  The belief is there that the product will bring about positive change.  Investors want to see that passion.  Potential customers want to see it as well.

But, if there is passion for an idea, but no market, then the idea of commercializing the idea likely should be abandoned.  Abandoning one’s faith is a very tough thing to do.  Left over believers become akin to followers of a false cult – they have their faith, but there is no rhyme or reason to their convictions. 

The market needs to be evaluated fully and properly.  It may be a terrific product but, if no one is going to buy it, why would a business pursue making it?

Make sure you have the resources – the number one reason for business failure is not that the idea was necessarily bad, but rather that the company ran out of money before it could attain positive cash flow.  There are a number of studies on this area and, while other factors certainly come into play, most businesses fail because they run out of money before they have a chance to succeed.

In addition, there may be technical, business, accounting or marketing expertise that may be lacking.  An honest assessment of your situation will point out the needs.  We have all worked with more than one person who felt he or she was an expert in areas where they were actually lacking.  There is no shame in admitting you need help in an area and getting it.

In future installments, we will discuss trademarks and copyrights.

Analyzing IP for Commercialization -- Part 14 in our IP and Patents Series

This is the fourteenth in a planned 20-part series of articles on intellectual property.  In future posts, we will continue to explore product commercialization and look at trademarks and copyrights.

In this posting, we will provide a discussion on the analysis of IP.  What should you look for in determining whether certain intellectual property makes sense to pursue for commercialization?

We’ve identified some basic issues to look at as you look for candidate IP to commercialize:

What can be sold with this IP?

Many times the IP itself is for something that makes something else better.  For example, Enable IPC has a patent pending on a method to create a certain kind of plate on various substrates without the use of dopants.  That’s all well and good, but the real advantage here is in making things like filters – and the technology’s effect on the resulting commercial product is what must be weighted here.  We didn’t look at the market for making thin plates on substrates – we looked at the advantages this should present in the filter markets – both in financial and performance improvements.

What is the value to the market of this IP?   

In other words, while the IP might make something better, will it jack up the cost too high to make it economically feasible?

For example, a couple years ago Enable IPC looked at some technologies that boosted the energy storage performance of certain kinds of capacitors.  There was one technology in particular that enabled significantly more energy storage than others.  And, on the surface, it did not seem too expensive to add to a process.

However, capacitance is typically measured in Farads – and when we looked at the final price per farad that the ultimate customer would pay for devices incorporating this technology, it was too high. 

The technology was terrific.  The price was not tenable in the market.

How much will it cost to get to market?

In our experience, this is a tough question for one major reason: you don’t know what you don’t know.
Whenever a technology is being developed, there always seems to be things that will crop up that were unexpected and not accounted for in the first analysis.  Many times, these surprises are mitigated by unexpectedly good outcomes but not always.

There’s an old saying in R&D:  Everything takes twice as long and costs twice as much as you expect.

Keep that in mind when analyzing the potential costs to get your technology to market.

What  are the likely successor technologies and what will they mean to your product?

The vacuum tube was replaced by solid state technology.   Dial phones were replaced by push buttons.  Analog TV is being replaced by digital.

Every product has a life cycle.  The graph below illustrates this:

How long do you have until a successor technology replaces the one you are commercializing, and how much can you expect to make it the window that you have?

Once these questions are answered, and once the questions these questions raise are answered, you can answer the biggest question of all: does it really make sense to commercialize this product?

In future installments, we will look at some additional activities and analyses that may need to be done, followed by some discussions on trademarks and copyrights.

Spaghetti . . . and blankets

If you’re from a certain small town in the Northeast and work for ReMax, there's a good reason why you might have trouble getting ahold of someone at Enable IPC . . .

We get a lot of calls from companies peddling "stock promotion services".  Maybe we will expound on these scams in future blog posts . . .

Anyway, these callers stood out from the others for two particular reasons: 1) they called a lot -- much more often than the usual suspects -- and 2) their phone number always came up on the callerID feature as being from ReMax Real Estate.

So, in this town, there was (apparently) a ReMax office where one could walk in and buy or sell a house, and at the same time sign up for promotion services for a micro cap stock:  a couple of very dis-similar offerings.

It reminded us of a routine by one of our favorite comedians. Mitch Hedberg once said that he wanted to be a McDonald’s franchise owner who didn’t participate in company promotions; when people asked if he had cheeseburgers, he would respond, “Nope! We've got spaghetti – and blankets.”

Anyway, some of these "ReMax" callers were belligerent, some were friendly, but the common denominator among them all is that they wanted money or, preferably, shares to "promote" Enable IPC's stock. And, for quite some time, it seemed they wouldn’t stop calling.   So, we finally stopped answering calls from ReMax that came in from that particular area code.

We don’t do artificial stock promotion for a number of reasons; chief among these is that none of us look good in orange jump suits and we love our freedom. But, more than that, it is simply immoral to conduct activities that artificially inflate the stock price; the stock price should reflect the market value of the company. The playing field should be level and the players should be on the up-and-up, so to speak.

That being said, there is (in our opinion) a lot wrong with the way the micro cap market is managed and some of the rules make absolutely no sense to us. But, artificial promotion is, essentially, fraud (again, in our opinion) and we are not going to participate in that.

Some day we will visit this town in the Northeast again (we’ve been there a couple times; it’s a nice place). When we do, perhaps we will look for the local ReMax office and drop in to see exactly what is going on there. It might prove to be an interesting visit.

Commercialization -- The Selection of IP -- Part 13 in our Series on IP and Patents

This is the thirteenth in a planned 20-part series of articles on intellectual property.  In future posts, we will explore product commercialization.

In this posting, we will provide a discussion on the selection of IP.  What should you look for in determining whether certain intellectual property makes sense to pursue for commercialization?

Earlier this year, the US Department of Energy (DOE) held a patent clearance sale. 

Yes, you read that right – the DOE had a sale on its intellectual property (IP) portfolio, offering licenses to patents they had for the low, low price of $1,000.

The DOE runs 21 labs and technology centers (that are listed on the energy.gov website) whose primary job is to advance science and the defense and economic leadership position of the country.  These research centers have produced over 15,000 patents for the DOE, but apparently only about 10% of those had been licensed to industry.  So, the DOE launched a campaign that portrayed those technologies, in a tongue-in-cheek way, as though they were having a massive clearance sale, and these technologies were just sitting there, waiting to be adopted like pets at an animal shelter, only quite a bit more expensive and requiring a lot more work! 

Where Does One Find Technologies?

National laboratories seem to pump out technologies at a high rate, and so do universities.  Most of the larger universities have commercialization arms which are established to license technologies developed and owned by the institution.

One of the oldest and most active of these is WARF – the Wisconsin Alumni Research Foundation, which is established to partner with industry to license technologies developed at the University of Wisconsin.  There are many others, however, and they go by varying names.  They are usually called their Technology Transfer office, but may also be found online under “Research”, “Commercialization”, “Industry Partnerships” or some other moniker. 

A couple years ago, Enable IPC quietly researched over 300 universities in the US that had active engineering programs and found that about 80% of them had established such offices, and most of the other 20% seemed to think that establishing an office was important to do, but they simply hadn’t gotten around to it yet.

All this research, plus the corporate research and individual inventor activity, has combined to deluge the US Patent and Trademark Officer (USPTO) – they received nearly a quarter of a million utility patent applications from US filers in 2010 alone (over half a million when foreign filers, and design and plant applications are included in the total).  And, past blog postings on this site have discussed the USPTO’s backlog. 

There are a lot of ideas being protected.  The key is to find the ones that are worth investing in.

Determining the Right Idea

Finding the right concept to pursue is easier said than done.  It takes a lot of work and a lot of objectivity.  But, put simply, one needs to analyze a couple of very important things right off the bat:

Review the technology against the current state-of-the-art and what’s likely to come

No one has a working crystal ball.  It’s tough to see into the future and determine what the competition might be working on, or what it may have up its sleeve.  But, that’s part of the risk.  And it needs to be taken seriously and objectively.

Objectively analyze the assets and risks of the technology

What is the real advantage of the tehcnology?  Is it protected under the patent being licensed?  If not, can it be protected and what will it cost to obtain that protection?

What can be gained by this technology?  Are there work-arounds (i.e., can someone circumvent the protected idea)?  If so, what hkind of head-start in the market can you expect to get while the competition is catching up?  Once the competition catches up, what happens to your market share?  Does it go down by 10%?  20%?  50%?  Or worse, completely evaporate?  Will the head start gained by the technology be enough to make this effort worth while?

The assets and potential success of the technology must be weighed against the risks.  The likelihood of success needs to include an objective evaluation of the succeeding technologies – when will the technology be replaced by a new technology and what kind of profits can be realized in the meantime? 

In future installments, we will look at some additional activities and analyses that may need to be done, followed by some discussions on trademarks and copyrights.

An Overview of Commercialization -- Part 12 in our IP and Patents Series

This is the twelfth in a planned 20-part series of articles on intellectual property. In future posts, we will continue to explore product commercialization.

In this posting, we will provide an overview of commercialization – what it means and how it’s done.

What is Commercialization?

Probably the best definitions for the term “commercialization” (at least, the best that we’ve found so far) come from two fairly different sources: the Intergovernmental Panel on Climate Change and the Legislature of the State of Michigan. We combined the two and came up with the following which, in our experience, exactly defines the term:

Commercialization is the steps taken in the transition of an innovative technology or process from research to a competitive product or service.

The commercialization steps will vary widely from technology to technology and from market to market.

For example, we have had experience taking a sensor that was hosted on an integrated circuit (IC) from a lab to market that involved little more than developing some expanding some IC technology (so more units could be processed in a single run) and building some electronics around it.   We have had another experience where the commercialization involved taking an idea into a completely new design from scratch.   One took a couple months; the other took several years, but both werre successful and could be considered part of the commercialization process because both involved taking the existing idea or technology and turning it into a real, viable product (as opposed to continuing some level of research).

What Does the Process Typically Involve?

Commercialization can involve the following initial steps:

• an honest evaluation of the technology;
• an honest evaluation of the potential market(s);
  
  (we emphasized the word "honest" because it can be difficult to be objective about something that you've spent a long time developing; it can be hard to come to the realization that there is no market for an idea that you've spent a lot of time on . . .)

• an evaluation of the steps that need to be taken to turn that intellectual property (IP) into a product (the idea may be great but the market may not be there; or the market may exist, but the idea might not properly address it; or the IP might be ready, the market might exist, but is may simply cost too much to get to market to make it a viable product);

If all the numbers add up and things look good, then there are additional issues that need to be dealt with:

• is the money available?
• are the personnel available?
• are the facilities available?
• is the equipment available?
• is the IP protected and, if not, can it be protected (or should it be protected; on rare occasions, it may make more sense to keep something as a trade secret rather than pursue a patent)?

There are other questions to be asked, which can include:

• how long it will take to get the technology commercially ready?
• how will the resulting product or service be marketed, and who will do it?
• what will the expected revenues and profits be?
• and, importantly, will it be worth the effort?

If all looks good, then with the funding and resources secured, and with a plan in place, the commercialization activities can begin.

In future installments, we will look at some of the specific activities and analyses that may need to be done, followed by some discussions on trademarks and copyrights.