You’re a founder of a startup developing what you’re certain is going to be an impactful new technology. Off to a great start.
You’ve now taken the next step. You’ve done the proof-of-concept work. You even have samples that you can send to big companies to get them interested.
And finally, you’ve convinced yourself, and your technical counterparts at your corporate partner, that the technology works – and what’s more, that it should work as intended in the end-use that the partner is interested in. Congratulations! You’ve passed a significant hurdle on your way to the market. Should be smooth sailing from here… right?
I’m Mike Fuerstman, the newest Principal at Rhapsody Venture Partners. Before I joined, for nine years I ran business development for Nano Terra, a startup out of Harvard University that co-developed innovative products in collaboration with market leaders like 3M, Boeing, Bayer, Honeywell, and dozens of others. Most of our technology development programs operated similarly to the early phases of a startup: we had an idea, found non-dilutive funding for it through government grants or corporate partnerships, and worked hard to make it pass all of the requirements that could enable it to become a product.
And, let me tell you, we developed some great technologies! Innovative custom-fit systems for sports equipment. Low-VOC paint formulations. Better hydraulic fluids. Water purification systems. Novel motor oil additives. High-resolution printing technologies. Triggered-release microcapsules. Antireflective coatings. New adhesion technologies. And many, many more.
But, out of more than 80 of these promising technologies – 60+% of which could be considered successes from a technical standpoint – less than 10% made it to market. The failure of these products to get there was a shock to many of us at Nano Terra, but wasn’t at all surprising to many of the people we worked with who had been part of product development or R&D organizations at big companies for most of their careers. They learned the hard way what we didn’t yet know: many more products don’t reach the market than ones that do.
Paul Simon sang about 50 ways to leave your lover. I’ve seen 50 ways for a promising innovation to miss the market – or to underperform once it gets there. And the most frustrating thing is that, as the group doing the technical development, it feels like there is very little you can do to influence the vast majority of those paths to failure. But, with some foresight and effort, you can mitigate these risks. In this post, I’ll talk about five categories of things that can derail your technology’s path to market. In my next post, I’ll talk about ways to reduce your risk.
In a large company, the process of bringing a new product to market is like landing an aircraft on a carrier, except the plane has very little fuel left and the weather is awful. It involves a lot of steps carried out by people with very specific jobs to do, the target is always moving, and if you mess up there is rarely a second shot to make it happen in the right way.
Nano Terra worked with one very large company that followed a thorough process to commercialize new technologies. This corporate partner invested a significant amount of money and effort into scaling up to production scale a technology that Nano Terra had worked out in the lab and demonstrated at a small scale. But in the 5+ years it took to get that done, Chinese manufacturers crashed the price of competitive products, forcing Nano Terra’s partner out of the market entirely. Even though this partner had turned Nano Terra’s innovation into a remarkable, marketable product in those 5+ years, it would never see the light of day.
You’ve formed meaningful relationships with key personnel at a corporate partner – maybe a technical lead or a scout. Those people believe in your technology, and they’ve worked hard with you to show that it can work. But corporations are not static entities; people move, change jobs, retire, are laid off. The person who advocated on your behalf could be relocated half a world away, or moved to a different business unit, bringing someone else into the job who might have very different priorities. And your technology may very well not be one of them.
If you’re a technology-focused entrepreneur, you usually feel most comfortable working with the research and development team at a big company. After all, they see your technology for the scientific or engineering wonder that it is! Unfortunately, R&D is just one of many functions in a company that decide whether a product will get to market. And those other functions often think about the company’s portfolio in a very different way – especially in consumer-facing businesses, where the strength and positioning of a brand is a critical component of product-related decisions.
If your technology fulfills a significant product development need for your partner, there is a decent chance – especially within bigger companies with bigger R&D and corporate development organizations – that your partner is pursuing other approaches to fill that need. This could mean independent competition from within your partner’s own R&D group, or corporate development activities evaluating outside technologies to acquire.
Nano Terra developed a compelling water purification technology that would have provided our partner with a technically differentiated product with which to enter a growing, high-margin market. Ultimately, however, the challenges of adding or retraining sales staff, ramping up manufacturing, and creating servicing and installation infrastructure proved to be less compelling of an option for the partner than simply acquiring a bolt-on business in that space. In the end, Nano Terra’s technology sat on the shelf, while the partner got the access to the new market that they were looking for.
Sometimes, no matter how well you and your partner plan your lab-scale tests, nothing can substitute for trying things out in the real deal. In one co-development program, Nano Terra spent two years developing a new material for batteries. The partner, a battery manufacturer, provided a detailed set of specs and testing protocols to probe lab-scale samples. Everything seemed to be in promising shape – until the partner put the material into an actual, full-scale battery. The technology failed because of a property of the material that no one had thought to test during the two-year development process.
At Nano Terra, we learned quite a few lessons the hard way about commercializing new technologies through partnerships. But, learn we did! The large majority of Nano Terra’s successfully commercialized products were completed in the past few years, as we figured out how to mitigate the many risks that can cause a startup’s technology to miss the market. With some best practices regarding the directions along which you pursue your technology development, the ways you form and manage relationships with development partners, the terms you look for in agreements, etc., you will improve the chances that your startup sees product revenues at the end of the sometimes long process of product co-development. I’ll review some of these best practices in my next post.