Stage III — Developing access to the supply chain

The first thing the new team leader should do at the start of stage III is to sit back and rethink the project, and then review and update the business plan taking into account the results from the product demonstration and adding detail to the requirements for delivering the product to the market. The review will include identification of the new capabilities required for business development and commercialization, and the options for creating access to the supply chain. The key issue will be whether to invest in fixed assets for manufacturing, distributing, and selling the product or to develop partnerships for creating access to such facilities. If the choice is for the former, capital intensive option, the business plan will have to show that the required investments are economically sound and can be financed.

During the development process in stage II, the emphasis will have shifted from R&D to design and engineering. In stage III, the lead in the innovation quest will shift further and have to come from the business development and commercial side and this makes it important that the leader of the innovation project is changed. This does not mean that the role of research is finished; it has to remain involved but at a reduced level to be able to adjust the product when commercial considerations or customer feedback so dictate.

The next step is to build up the team with the new capabilities. For a start-up company, this will usually mean changing the capability mix of the whole company. This will lead to difficult decisions. Money is limited and bringing in new staff with manufacturing, logistics, and marketing expertise may have to be done at the expense of technical staff. The option to start another innovation project to keep the key technical staff happy and occupied is alluring, but this option could be in conflict with one of the key rules for a start-up company:

Rule 9 - Do not start a new project before the first one is a success

In general, success will mean generating a robust cash flow. Starting another project before generating adequate revenues will drain the working capital even faster and this can create a serious threat to the success of the first project and consequently of the whole enterprise. But even if the second project can be adequately financed, the new project can take away too much time and attention of the management team to the detriment of the first project.

One option for keeping the R&D staff could be to start developing Mark II of the product if there are good leads that the performance can be improved or the cost reduced significantly. But this option will also increase the cash burn of the company and should only be considered when there is adequate working capital. Another option is doing technological development work for other companies. This can be an attractive option that allows maintaining a high level of technical expertise without creating a liquidity problem, but care should be taken that it fits the business plan.

The above human resource and capability problem can also be approached from a different angle. Rather than build all the required capabilities to full strength in-house, it may be better to look for a partner that has the required capabilities and limit the in-house commercial staff to a core level. Finding a partner can have several advantages:

• • The partner will already have access to the target market or other valuable assets in the supply chain, for instance, manufacturing or distribution facilities, and in this way reduce capital requirements.
• • It will reduce the time to market, assuming the search and negotiation process does not take too long. And reducing time to market will increase the value of the innovation.
• • A good partner can reduce the chance of making mistakes, assuming the partnership is desired by both parties and communication is and remains good.
• • A good partner will in general be a strong point for convincing the provider of the required risk capital.
• • One of the best things that a partner can bring, is being a launching customer.

A good partner will improve the chances of success considerably. Partnership can take a variety of shapes (see Section 7.4). The simplest option is a strategic cooperation whereby the partner provides access to or handles part of the supply chain. Another is creating a joint venture for the shared activities and the most extreme option is a complete takeover.

The key challenges for the commercial staff in stage III are assessing the market conditions and understanding the business and competition. The former can be done with the feedback from potential customers on the final prototype product or from a pilot test in a small market. Probably the best way for assessing the market is finding a launching customer that is willing to be the first user of the product, usually against the benefit of a discount or a degree of exclusivity. Not only can a lot be learned from the launching customer, but also it will facilitate and accelerate the introduction and penetration of the market. A launching customer is a prime strategic partner.

Other preparations will include establishing quality control systems, conditions of sale, business procedures, terms for doing business, and recruiting and training sales staff. The basic aim of all these activities is to be able to launch the new product into the market without a hitch. Obviously, being able to meet the demand at minimum cost is important, but avoiding mishaps and negative news is more important because that can easily make an unsuccess of a successful launch of a good product.

The challenge for the technical staff in stage III is to hold back on further product development. Although the demonstration tests with the product were successful and showed that the product was fit for purpose, undoubtedly points for improvement had been identified as well. In principle, the product as tested and approved should not be changed because that gives the best chance that the product will work as designed and promised to the customer. But comments from customers should be considered. A successful demonstration is not a guarantee that it will work in practice. Customers expect a high degree of reliability and ease of operation. Fifty or hundred years ago, customers were used to factory-produced goods such as cars, radios, and washing machines that were needing repairs regularly and that operating them needed experience. Customers today expect that operating the device should be simple and selfevident, as well as trouble free during the lifetime of the product.