To begin a discussion of commercialization, we must begin with a few definitions. First, for convenience, the term “product” will be all inclusive of the following: technology, software, protein, textile, device, system, component, etc. Second, “commercialization” is having an end-user/purchaser/customer who has chosen your product as the answer to their problem or to fill their need. The customer is willing and able to buy your product at a price which includes profit.
In the context of the SBIR/STTR programs, there is an added dimension for commercialization in this definition. Commercialization is having a customer for the product which has resulted from the Phase I and Phase II funding. The customer may be the government, a private company, an institution, or an individual. The key is that the customer is buying a product which has been developed or reduced to practice from the research conducted and funded through SBIR/STTR sources. From the SBIR perspective, commercialization is “Phase III”.
Phase III is “the period during which Phase II innovation moves from the laboratory into the marketplace. No SBIR funds support this phase. The small business must find funding in the private sector or other non-SBIR federal agency funding”. Phase III work “may be for products, production, services, research/research & development, or any combination thereof.”
The labeling of commercialization as Phase III implies a sequential set of activities: Phase I – proof of concept; Phase II – product development; and Phase III – commercialization. The sequencing of activities from a product perspective is representative of the process. However, commercialization consists of more than the product; it includes the “business”. Think of commercialization as a coin having two sides that are inseparable. The coin exists with a face or head and the back or tail.
Focusing solely on one side makes commercial success a coin toss – heads or tails, someone loses.
Commercialization is about the business side as much as the product. Competing for a customer is not only about persuading the customer that your innovative product is going to solve the need. It is also about convincing the customer that doing business with you is no riskier than doing business with a long established business – or if the risk is greater, then the return, value, and/or solution, is worth the added risk.
On the business side of Phase III, the process is concurrent. It requires you to do many things to develop and build the business and engage the market of potential customers while you are proving and developing your product. Further, it requires you to pursue two very different customer groups:
- The user of your product
- The investor to fund your business to get to market
Fortunately, while the needs of these two groups are very different perspectives, the components that you assemble will, if done well, serve both. The business needs to demonstrate four things to both groups:
…of the business and the product.
Let’s talk about each of the factors. Viability means that there is real market potential – not just in the size of the market segment, but in the qualified prospects – those who can and will pay for what you have at a price which includes true profits. This is demonstrating that you have a product which is a realistic alternative – viable option – for market prospects to consider when they recognize their need. Viability positions the business for investment and for revenues. It means the business has a timeline and an expected return that is reasonable, given the type of business and the product. It also means the resources needed are available and can be acquired.
Obtaining the resources and reaching the customer necessitates visibility. Visibility is defined on many levels – market presence, innovative competitive positioning, knowledge, and awareness of the business/leadership team. The positioning of the product. Educating and informing the market. Entering the competitive arena through establishing connections with key decision-makers, government representatives, suppliers, strategic alliance candidates, investors, resources, distribution channels, production sources – essentially market members up and down the supply and demand corridors.
What is the message visibility needs to convey? Capability. Capability is a result, at least in part, of the resources, relationships, and operations which are necessary to deliver on the potential – the viability promise. Capability is about the core competency designed, developed, and executed on both the product and the business sides of the commercialization coin. It is about the ability to produce the product with quality, consistency, on time, and in sufficient quantities – keeping your commitments (timing) and promises (results) that position for success.
Ultimately, when given a choice, the market will not do business with an organization that is not credible, no matter how innovative the product. Without a degree of assurance that you are a credible offeror- one who can be relied on to be there to deliver the product and stand behind it, the investor and the customer will not put their resources at risk. The investor invests where the risk/return trade-off has the greatest potential for the money. The acceptable degree of risk is impacted by the credibility of the product AND the business.
So if you are an SBIR recipient, you are currently in the commercialization process – on the business side – whether you are engaged in pre-funding, Phase I, or Phase II on the product side. Your business will successfully “commercialize” if you do the following:
- develop an understanding of market needs
- identify potential customers
- talk to potential customers
- create and establish relationships with potential customers
- describe a business which has the processes, systems, people, and other resources to advance the product and do business
- establish a business model which clearly defines how to generate revenues, make profit, generate positive cashflow and an attractive return on investment
- do business by the “rules and regulations” of SBIR and other requirements
- protect your intellectual property and the government’s rights investing in the business and legal processes
- balance entrepreneurial spirit with sound business practices
- focus on a specific set of priorities with clearly defined milestones, timelines, and metrics
What are the key steps in the commercialization process?
- Know the market
- Understand the need
- Put the need with the product features
- Quantify resource needs – realistically
- Quantify and qualify opportunities
- Manage the business and the projects
- Establish a plan
- Understand how to adjust and correct for deviations from the plan
- Correct course when necessary – learn and adapt
- Understand the connection between the money and the rule
Finally, understand that no one is going to do this for you. SBIR funding and non-SBIR funding is your responsibility. The government does not guarantee to be a commercial customer at the end of Phase II. Finding, defining, and connecting with your market and its members is up to you.
The commercialization process requires business expertise which can be acquired or developed within the organization. The business side of commercialization – successfully achieving Phase III – will require proof of concept and development. Finding the balance between product and business means achieving proper timing in the deployment of resources. Failure to invest adequately in the business side will inevitably result in a limitation of resources and returns. To succeed you must do business well.
Copyright ©2006 Lea a. Strickland, F.O.C.U.S. Resource, Inc.