Lessons Learned in Technology Assessment…Lesson 2…

This is the second of a series of posts to share with you six important lessons we’ve learned through our experiences working with numerous commercial clients in a variety of situations. On the path to your success in developing and commercializing technologies, they will help you avoid common pitfalls, unwarranted assumptions, and other sources of technical and commercial bias that could add up to business failures.

Lesson Two.

Avoid Single-Point Projections.

Whether you’re talking about sales, profit, or manufacturing cost projections, single point projections can be misleading.

Lesson Two Case Study:

Client:  Producer of bulk fine chemicals with new, developmental production technologies

Situation:

  • This producer believed that its family of 10-12 developmental production technologies provided a cost advantage over its established competition.
  • This “belief” was based on single-point manufacturing cost projections for each of its developmental production technologies.
  • The client had already invested almost half of the required time and financial resources needed to take the technologies to a commercial stage.

Technology Assessment Need:  The client was uncertain about possible problems in production scale-up, which could affect manufacturing cost, and wanted an outside third party to assess the technologies before further investments were made.

Our approach:

  • Utilizing an analysis tool called “technical cost modeling”, we developed manufacturing cost probability curves for each of the production technologies.
  • We also developed cost probability curves for the production technologies already in use by our clients’ competition.

Here is what our cost modeling analysis revealed:

  • Even though there were differences between the average cost of our client’s production technologies and the technologies of its competition, there was significant overlap in the cost probability curves, i.e., the likely production costs for both our client and its competition were much closer than our client’s single-point cost projection led them to believe.
  • Among our client’s 10-12 developmental production technologies, only 3 or 4 possessed manufacturing cost differences distinct enough to be a basis for competition in the marketplace, although the client had invested in scale-up for all.

Outcome: Our client chose to commercialize only those few technologies that showed significant and sustainable cost advantage.

For more on best practices in moving from lab-to-market, see http://www.prakteka.com/category/technology-assessment/

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Are you about to make decisions regarding investments in R&D scale-up? In manufacturing?

Are you basing those investment decisions on cost projections? Sales projections? Profit margin projections?

We’re ready and able to help you make your decisions with confidence. Contact us at http://www.prakteka.com/contact-us/

or via direct email at mah@prakteka.com

Lessons Learned in Technology Assessment…Lesson 1…

Treat Your Technology Assessment Conclusion as a Hypothesis – and Proof-Test It!!!

This is the first of a series of posts to share with you six important lessons we’ve learned through our experiences working with numerous commercial clients in a variety of situations. On the path to your success in developing and commercializing technologies, they will help you avoid common pitfalls, unwarranted assumptions, and other sources of technical and commercial bias that could add up to business failures.

No matter who does your technology assessment, whether you perform it internally or externally, whatever conclusion you come to, treat that conclusion as a hypothesis. Here is a case example:

Client:  Industrial, Automotive, and Aerospace Manufacturer and Marketer

Situation: Client was about to make a significant investment in a potential target acquisition. The target company owned a unique thermal barrier coating technology for aircraft turbine blades which the client judged to be a significant and attractive market differentiator for them.

Technology Assessment Need: Client was concerned about their internal ability to assess the new, cutting-edge coatings technology, and wanted additional “vetting” of this technology.

Our approach: We took our client’s conclusion, that this coatings technology was worth their investment, and treated it as a hypothesis by asking the following questions:

What could go wrong? Could we find aspects of the technology that would invalidate this hypothesis?

Here is what our research uncovered:

  • One of the coatings facilities our client would acquire was actually a joint venture: someone other than the target company owned the intellectual property!

 

  • A competitor of our client had recently bought access to a non-U.S. 300-man facility with a technology that threatened to upstage the target technology

These two findings alone were sufficient “red flags” that our client put a “caution” light on the acquisition plans and directed additional due diligence on these two investment hypothesis-busters.

In this case, treating the conclusion of the client’s technology assessment hypothesis led to the discovery of new, highly relevant aspects of the potential technology acquisition. These new findings prevented a premature investment – an investment that likely would not have produced the financial and commercial results that motivated it in the first place.

Are you facing a technology investment decision?

We’re ready and able to help you with your due diligence. Contact us at http://www.prakteka.com/contact-us/

or via direct email at mah@prakteka.com

 

Maximum Affordable Royalty Rate – A Useful and Underutilized IP Valuation Method

Challenge: You have software and hardware patents that are licensable to as many as a dozen different prospective licensees already established in the industry. You have reason to believe that your patent portfolio could become a standard in the industry. How do you determine a royalty rate to maximize your royalty income ?

Approach:

  1. Think of the adoption of your patented technology as a new commercialization project within each of the prospective licensee companies.
  2. Evaluate each prospective licensee’s projected discounted cash flow resulting from commercial use of the technology.
  3. Include in the financial model a line item for royalty payment.
  4. The maximum affordable royalty rate (MARR) is the value of the royalty payment, expressed as a percent of net sales, that yields a net present value (NPV) of zero for the project.

Lessons Learned from Case Studies:

  • The maximum affordable royalty rate can vary widely across different companies in the same industry. In one case involving storage area network technologies, the roualty rates ranged from 3% to 20% of the annual revenues of the prospective licensees.
  • Inputs to the financial model can be based on public information as well as industry expert judgement regarding revenue growth rate, internal discount rates, and the percentage of total company revenues attributed to products embodying the technology
  • For prospective companies with negative free cash flow, affordable royalty rates can be assumed equal to those of peer companies with positive cash flow

A Strategy to Maximize Income

This usefulness of this technique of financial modeling to arrive at maximum affordable royalty rates company by company is that you now have a starting point for developing and quantitatively assessing various licensing (and sub-licensing) strategies for impact on licensing income. Some discrete scenarios to consider:

  • Establish your technology as an industry standard via licensing to as many prospective licensees as possible
  • “Outsource” licensing by allowing sub-licensing to one primary licensee, perhaps the one company that can afford to pay the highest royalty, based on its financial model
  • Limit the licensees to those companies with the fastest time to market

Use of MARR has been particularly helpful to companies with valuable technology-based IP but little to no experience in licensing. Interested in finding out how MARR can help you, too?  Contact us at https://www.prakteka.com/contact-us/

See also: DCF Analyses in Determining Royalty, Daniel Burns, les Nouvelles, Journal of the Licensing Executives Society, September, 1995, accessed November 7, 2018, http://www.danielburnsassociates.com/wp-content/uploads/2011/08/DCFAnalysisInDeterminingRoyalty.pdf

And for more on what matters when you’re working at the technology/business interface, see our content on technology assessment, technology commercialization, technology valuation, and “seeing the future” on our website: https://www.prakteka.com/

Follow us on Twitter… https://twitter.com/prakteka

Coyright 2018

All rights reserved

Engineering-to-Own-the-Space…a Best Practice Innovation Strategy

Engineering to Own the SpaceSM is a forward looking innovation and invention strategy. The objective of this strategy is to develop a proprietary position in target user/consumer benefit areas: instead of inventing just a new product, invent a new product space.

This invention strategy supports forward looking and commercially valuable patent strategies, by expanding the scope of innovation around specific inventions to gain broader patent protection and to inhibit “fast follow” by competition: instead of patenting to protect an invention, patent to protect the business area.

Key ANALYSIS steps in Engineering to Own the Space:

  • Gaps Assessment…..Detect vulnerabilities in existing intellectual property folios, focusing on linkages between IP and expected basis of commercial competitiveness
  • Cross-DomainSM Audit…..Identify context-shift possibilities for specific innovations and technologies (yours or others), developed for use in one industry or application that can be re-directed to your target markets and applications
  • Own-the-Space Audit….. Identify the larger pool of innovations and technologies (patented or public domain; yours or others), all of which could functionally satisfy the high value market need you’ve targeted
  • “Design-Around”…..Develop alternative technical paths to the same functionality, all of which could functionally satisfy the high value market need you’ve targeted

These key analysis steps produce some powerful results, including revealing:

    • “Holes” in patents that might allow competitors to innovate outside the protection of your patents
    • Existing functionally equivalent inventions that have gone unnoticed because the underlying IP was developed in/for completely different end-use applications
    • Novel technical paths to the same, or similar, end result as your original innovation

 

 

Use of Engineering to Own the Space (ETOSSM) has helped numerous businesses build value, from technology start-ups to Fortune 100 companies.  Interested in finding out how ETOS can help you, too?  Contact us at https://www.prakteka.com/contact-us/

And for more on what matters when you’re working at the technology/business interface, see our content on technology assessment, technology commercialization, technology valuation, and “seeing the future” on our website: https://www.prakteka.com/

Follow us on Twitter… https://twitter.com/prakteka

Engineering to Own the Space, ETOS, and Cross-Domain are service marks of Prakteka LLC.

Coyright 2018

All rights reserved

The Seven C’s of Open Innovation Excellence

Open innovation is both a philosophy and a practice. It involves reinventing R&D by building a portfolio of relationships and networks that provide access to technology, meet technology needs, and capture related opportunities.  Practicing open innovation for business advantage is classic strategic technology management.

The business decision to practice open innovation obviously and prominently has a technology component: do we or don’t we expand our potential sources of technologies and related capabilities beyond the walls of our own R&D? Once the decision has been made to engage with external partners, particularly in relationships that are not simply arms-length acquisition transactions (you sell, we buy), achieving excellence in open innovation requires (repeat: requires) other organizational characteristics and inter-organizational behaviors. Some of these key characteristics and behaviors are summarized in the following seven C’s of open innovation excellence:

  • Compatibility of inter-organizational goals: Establish a shared understanding and commitment with each partner
  • Complementarity between in-house skills and external partners:  Ensure in-houseskills exist to absorb and exploit the new technology
  • Champions:  Establish someone as personally committed to ensuring uptake of new technology
  • Common language:  Develop a shared understanding of terminology and assumptions between staff in both companies
  • Challenging internal constraints:  Encourage staff to view use of external technologies as good practice rather than as competition to internal R&D
  • Customer pull:  Involve potential users of the external technology early and often
  • Charter for innovation:  Articulate top management views on the role and importance of technology in achieving business success

Organizations practicing open innovation are outwardly focused not only on their markets and customers, but also on potential sources of technologies that enable them to continue in these markets. In addition to managing customer interfaces, they must also establish and manage interfaces with external technology partners, in order to achieve excellence in open innovation.

For more on what matters when you’re working at the technology/business interface, see our content on technology assessment, technology commercialization, technology valuation, and “seeing the future” on our website: https://www.prakteka.com/

Follow us on Twitter… https://twitter.com/prakteka

Coyright 2018   All rights reserved