PHASE. 90% of Success. Let the Sun Shine In. A Look at the Nightmare that Can Occur When Ramping Up Manufacturing Without Proper Preparation

Transcription

1 PHASE COMMERCIALIZATION Winter % of Success is in the Preparation A Look at the Nightmare that Can Occur When Ramping Up Manufacturing Without Proper Preparation Let the Sun Shine In A Small Business Perspective on Going Solar A New Infusion of Innovation An Interview with Dr. Bobby Braun, NASA s Chief Technology Officer Overseeing the New Space Technology Program

2 contents The New NASA An Interview with Dr. Bobby Braun, NASA s New Chief Technology Officer in charge of The Space Technology Program Todd J. Farrar and Ian Roth The Nightmare What you don t know about your market can kill your business Robert F. Larsen and Terry M. McMahon A Strategy For Every Vision Who you are as a business owner should shape your commercialization strategy Jenny C. Servo The Sun Will Come Out Tomorrow Solar PV Systems for Small Businesses Is it the right time to install? Mitch Lairmore and Julie A. Smith 2 Phase III

3 Editor s Note As the image ON the COVEr suggests, everything is moving way too fast. How do you stay in the right lane, making sure that you prepare to turn just at the right moment, so that you don t derail? In business, knowing when decisions should be made, where to turn for assistance, and how to secure funding are vital to keeping you on track. In this issue of Phase III Commercialization, we highlight the new NASA, production pitfalls, commercialization strategies, and energy efficiency themes. We had the distinct pleasure of interviewing Dr. Bobby Braun, NASA s new Chief Technology Officer operating the Office of the Chief Technologist. This office oversees the new Space Technology Program, to which the NASA SBIR/STTR program reports. This article details how the Space Technology Program will affect small business and innovators. The Nightmare presents in stark relief the pitfalls that can befall an entrepreneur who makes decisions too quickly and without the guidance of critical information. A Strategy for every Vision shows the relationship between a founder s vision and the impact that this has on commercialization strategies. Sample strategies are presented for a variety of applications. Finally, we conclude with a piece that addresses the question When is the right time for a small business to consider converting to the use of solar energy? We hope you enjoy this publication. Our goal is to provide information and insight into issues small advanced technology firms find of interest, assisting those that are focused on commercializing, transitioning, or infusing their technologies into the marketplace. We would be pleased to hear your ideas for future articles. Please feel free to your suggestions, comments or questions to phase3editor@dawnbreaker.com Sincerely, Jenny C. Servo, Ph.D. President, Dawnbreaker, Inc. The Commercialization Company Phase III 3

4 CONTRIBUTORS Todd J. Farrar, MBA Todd Farrar has provided commercialization assistance and market analysis to more than 300 SBIR funded clients and has tailored specific services to assist a broad range of Fortune 500 companies, universities and government agencies. Farrar is a business acceleration manager at Dawnbreaker, where he consults with clients in the aerospace and defense arenas. He has a B.S. in Computer Science from Ithaca College and an MBA from the Rochester Institute of Technology. Robert F. Larsen Bob Larsen, a manufacturing consultant and skilled negotiator at Dawnbreaker, is focused mainly on manufacturing assessments and assisting small businesses in the sale of lines of business. Larsen has spent 25 years directing the growth of domestic and international original equipment manufacturing and service businesses, including serving as a vice president for multiple divisions of Lockheed Martin. His B.S. in business is from New York Institute of Technology. Ian Roth, MBA Ian Roth has 15 years of manufacturing, project management and engineering experience in glass manufacturing and e-learning. Roth s skill set ranges from advanced materials research to customer managment. At Dawnbreaker, Roth is a business acceleration manager for NASA and other clients, providing commercialization assistance to advanced technology firms. He has a B.S. in ceramic engineering from Alfred University and a MBA from the University of Rochester. Terry M. McMahon, MBA Terry McMahon, a Dawnbreaker business acceleration manager, has an extensive background in marketing, product development and both business and strategic planning. During his nearly 40 year career, he has, among many other things, served as a marketing director for an Eastman Kodak venture company and led business development efforts for a $190 million global parts and service business. McMahon holds an associate degree in electrical technology, a B.S. in business management and an MBA in finance. Reviewer Dennis Thompson Dennis Thompson serves as the executive director of the Doyle Center for Manufacturing Technology. For more than 30 years, he has held positions at Chrysler, Stanadyne, Advanced Drainage Systems, Remington Arms and Catalyst Connection. Thompson holds an M.S. in business management from Renssalaer Polytechnic Institute at the Hartford Graduate Center. 4 Phase III

5 PHASE COMMERCIALIZATION Jenny C. Servo, Ph.D. The founder of Dawnbreaker, Jenny Servo specializes in designing government agency programs and assisting small, advanced technolgy firms with organizational development, market research and business and strategic planning. A frequent SBIR conference speaker, she has also written extensively on innovation and is the senior author of the books Business Planning for Scientists and Engineers, Knock Their Socks Off: Making Winning Presentations to Investors and Indicators of Commercial Potential. Servo holds an M.S. from the University of Kansas and a Ph.D. from the University of Rochester. Mitch Lairmore, MBA A former business development director at Eastman Kodak and principle in three startups, Mitch Lairmore joined Dawnbreaker as a business acceleration manager, utilizing his extensive experience in product/business development to assist our clients. He excels at strategic planning for new products, developing IP licensing plans and consulting with small high-tech firms. Lairmore has B.S. in Engineering from Univ. of Iowa and an MBA from the U of R s Simon School of Business. Executive Editor Dr. Jenny C. Servo Managing Editor Julie A. Smith Graphic Designers Adrienne Stiles Annie Tay Comments We welcome comments and questions from our readers. Please feel free to us: phase3editor@dawnbreaker.com. All mail should be sent to: Editor, Phase III Commercialization Dawnbreaker, Inc Buffalo Rd., Suite 193 Rochester, NY For more information, visit our website: Julie A. Smith Julie Smith has spent her 20 year career working in communications, fundraising and public relations for both public and private sector organizations, including a major research university and a Fortune 250 company. At Dawnbreaker, Smith is a senior analyst where she serves as a writer and editor for numerous Navy, Department of Energy and small business client projects and publications. She holds a B.A. in political science from Indiana University. Phase III 5

6 space The New by Todd J. Farrar and Ian Roth Robonaut2 (R2) is the first humanoid robot to head into space. R2 is designed as an assistant to astronauts on the International Space Station. 6 Phase III NASA s 2011 budget implements significant programmatic and structural changes to the way that NASA approaches not only space exploration, but also R&D. Changes include the cancellation of the Constellation Program and the shifting of funds to support the commercial space sector as it addresses future space transportation and exploration needs. Another significant change is the establishment of the Space Technology Program under the Aeronautics and Space Research and Technology Mission Directorate. Late last year, Dr. Bobby Braun was appointed as the Chief Technology Officer operating the Office of the Chief Technologist. This office oversees the new Space Technology Program. The Space Technology Program highlights NASA s new approach to the support and maturation of truly innovative and advanced technologies. The program is designed to accomplish a multitude of tasks, including reducing typical barriers to infusion of advanced concepts, offering greater infusion opportunities to innovators, mitigating risk for technology adoption by the commercial space industry, and helping the U.S. remain a leader in space technology development and future space exploration. Recently, Dr. Braun sat down with Phase III Commercialization and discussed the Space Technology Program and the effects that the program changes will have for NASA, technologists, small businesses and the commercial sector. The structure and goals of the Space Technology program were established largely on the recommendations made by four National Academy reports that have come out since With the start of the space technology program, we are trying to provide a critical mass of talented people from across the country working on what I call foundational technology activities, explained Dr. Braun. These are activities that may not affect the very next mission but are designed to strategically impact a whole suite of future NASA missions. The Space Technology Program changes NASA s budgetary focus for funding advanced technologies. In the past, each mission directorate in NASA (Science Mission Directorate, the Aeronautics Mission Directorate or Exploration) had a portion of their budget focused on technologies. According to Braun, It s no secret that over time, in particular over this past decade, that those budgets have been reduced and so the total technology activity at NASA has been reduced. NASA has been more near term mission focused. The new Space Technology Program is unique in that it is designed to reduce some of the previous barriers and potential valleys of death that NASA funded technologies or projects faced when moving from concept to flight readiness. The program is comprised of three main components: Early Stage Innovation, Game Changing Technology and Crosscutting Capability Demonstrations. Together these components provide a stage gate type approach that facilitates the realization of new concepts, figures out which ideas work and which do not ( proof of concept ), assists the maturation of technologies in a lab setting (prototype

7 TRL Ideas Possible Solutions Visions of the Future Does it Work? Is it Fight-Ready? Mission Directorates, OGAs, Industry Early-Stage Innovation Game-Changing Technology Cross-Cutting Capabilities and demo/test), and for the most promising developments provides opportunities for flight testing. Each of the three components provides a number of public and private funding vehicles and incentives for technology development and maturation efforts at specific ranges of technology readiness levels (TRLs). (For more information concerning TRLs, see Dawnbreaker s free portal of information at p3p/definitions/technology-readiness.php) According to Dr. Braun, There were many valleys of death. There might have been one at TRL 4 and another one at TRL 6 as you matured the technology from concept all the way to flight. The Space Technology [program] actually consists of an integrated suite of ten programs that are managed together by the Office of the Chief Technologist so that there are no gaps, and so that over time we can move an idea from concept all the way to flight. The integrated suite of ten programs that Dr. Braun refers to are targeted toward addressing the maturation of technologies at various TRL levels, and as such, are grouped under the three Space Technology Program Components. TRL 1 3 (approximately) The Early Stage Innovation Program focuses on low TRL initial technology developments. The program uses five different funding vehicles to support these efforts, all of which are competitively awarded to academia and industry, as well as to NASA field centers. Of note, the SBIR/STTR program now resides under the Early Stage Innovation Program umbrella. The FY 2011 budget request for the Early Stage Innovation program element within Space Technology is $298.6M, and $1,523.2M is included in the five-year budget plan. TRL 3 5 The Game Changing Technology program (see page 328 of budget) provides various support and funding vehicles to facilitate the maturation of technologies up to a TRL 4 and in some cases a TRL 5 or 6. The program focuses on demonstrating technology feasibility mainly through ground- or lab-based testing. More than 70% of the awards are made competitively under this program. Awards are fixed duration and are made to PI led teams comprised of government, academia and industry partners. It appears that the Game Changing program will make fewer awards, but will offer larger pools of money when compared to the early stage innovation program. As an example, the budget currently notes the Game Changing Developments project will provide two year awards of less than $45M with a third year option that cannot exceed $75M. The Small Satellite Subsystem Technologies project will also provide awards lasting two years that are less than $12M with an optional third year option that cannot exceed $18M. TRL 4 6 The Crosscutting Capability Demonstrations program enables a select few technologies to be matured to Phase III 7

8 Solar sails, like the one pictured above, use radiation pressure from photons emitted by the Sun or harness the momentum of the solar wind. 8 Phase III TRL 6, flight ready. More than 70% of the funds are competitively awarded under this program. According to NASA s budget technical risk, technology maturity, mission risk, customer interest, and proposed cost are discriminators used in the selection process. Teams comprised of NASA and Industry participants are required to have a sponsor or sponsors that are willing to take on a 25% cost share of the development efforts. Relevant initiatives under this program element include Technology Demonstration Missions which will provide between 3 and 8 projects each year with $150M for flight test demonstrators, the Edison Small Satellite Demonstration Missions and the Flight Opportunities initiative, which does not offer direct award amounts but allots four flight weeks of time for technology flight (space station) demonstration and research. The new Space Technology Program clearly takes a very different approach toward advanced technology investment and maturation, which was emphasized by Dr. Braun. It is certainly a different approach from anything NASA has tried before, he explained. We crafted the approach to be open, to tear down barriers where they existed previously and to really start pumping these technology products through the agency and into our missions. This approach will also benefit small companies which have worked with, are currently working with, or plan to work with NASA, because the new program provides additional pathways for technology infusion and partnerships. Because of the infusion paths we will create, I think that small businesses will benefit greatly from the fact that now there is a space technology program, said Dr. Braun. There are multiple infusion paths that are already in place now, or will be in place beginning in 2011, so the possibility of a small business innovator somewhere in the country taking their idea all the way from concept to flight has dramatically improved. Infusion opportunities for small business in the past have been limited to a specific mission directive. However, in 2011, that same company could move their idea into one of the other components within the Space Technology Program and then mature the technology from there. This is especially relevant for SBIR/STTR awardees, because the NASA SBIR/STTR program will reside under the Early Stage Innovation Component of the Space Technology Program beginning in The Office of Chief Technologist will be the point of entry for small business, innovators and technologists looking to work with NASA. The Office of Chief Technologist s position as point will, Ensure that small firms do not need to worry about how large NASA is. They can just come to this office, Dr. Braun explained. And when I say this office I am not referring to headquarters necessarily, Washington, D.C., I am referring to the Office of the Chief Technologist, which is lead here in D.C., but has field offices at each of the 10 NASA centers. There are great ideas all around the country, and we want people to be able to get those ideas to NASA, hence the Center Chief Technologists are an extension of this office. They are an integral part of this office. Since the Apollo program launched men to the moon, the U.S.A. s space capabilities and development activities have changed dramatically. NASA had once been the hot bed for radical concepts, high-risk developments, where innovators such as Wernher von Braun, John Hubolt and James Webb truly helped NASA make a place in history for itself. Armed with government funding, NASA and its innovators were allowed to take risks when developing truly innovative, radical, disruptive technologies technologies that enabled new capabilities and allowed the U.S. to reach the moon first, establishing the U.S. as the worldwide leader in space technology. Today some our most innovative thinkers like Antonio Elias, Burt Rutan and Elon Musk do not work at NASA. They have built or are a part of commercial entities. Even though many commercial space companies such as SpaceX and Orbital have often been backed by VC or angel funding, the company leaders have not lost focus of the realities of cost and performance. These companies cannot afford to expend dollars on high-risk R&D efforts because of the need to sustain profit levels, which leaves these commercial enterprises with little incentive to adopt risk-laden advanced technologies and unproven concepts. However, investments in advanced or foundational technologies are necessary to sustainably achieve space exploration beyond low earth orbit, and solidify the U.S. s position as a leader in space technology. Moving forward, Dr. Braun clearly sees the role of NASA and the Space Technology Program as critical. The role of the government has always been to make those foundational investments in research and technology that enable these ideas, these seedlings of ideas, to be nurtured and to grow to a point where industry is willing to adopt them, taking the ideas to market, said Dr. Braun. The President s vision for human space exploration is not that we are just going up and down to low earth orbit, it s that we are going beyond low earth orbit. The way to do that, sustainably, requires technology investments today, so that we can get to those future missions tomorrow. NASA s Space Technology program appears well situated to provide a programmatic approach for technology maturation that ensures innovative, radical and disruptive technologies can be matured to a point where either commercial space companies or actual mission programs are willing to adopt. This means that NASA will be the place where unmet needs are met and improved capabilities are realized and where, instead of having incremental innovations, we can as a nation truly gain by leaps and bounds in terms of our space capabilities. For more information from NASA s Office of the Chief Technologist, visit,:

9 manufacturing The Nightmare Potential Pitfalls of Scaling Up Production Too Soon by Robert F. Larsen and Terry M. McMahon The wolf is at the door of AAA Technologies LLC (AAAT) and the owner of the company, Dr. Albert Hippensteel has just hung up the phone with his bankruptcy attorney after a long, difficult discussion. As Dr. Hippensteel contemplates telling his family that they will be losing their house and that he cannot cover tuition for the last semester of his daughter s senior year, his mind wanders back to the exciting days when his technology was prototyped and was moving into low-rate production [LRIP]. Those were the days when it seemed that all the stars were aligned and that his technology was going to revolutionize this industry. He was on top of the world. The decision to ramp up production was such an obvious one. Who wouldn t want to buy a technology that was more efficient and less expensive than the market standard? Of course, there had been that consultant he talked with briefly that had cautioned him, but that guy didn t know the market like he did. The bank had not been much help with the necessary funding either, but he knew that this was the right thing to do. He had had to scrimp and save and look for money in unconventional places when he started AAAT, he knew he could make it happen. So, the house was mortgaged, the credit cards became his purchase power. AAAT moved forward. Dr. Hippensteel rented a larger manufacturing facility. Their laboratory facilities just weren t large enough for more than producing one-offs. He hired engineers and factory staff, had them design, build and test the machines he needed to produce his technology at Full Rate Production (FRP) and they were in business. Now as he looked around the facility, he could see boxes of his technology lining the walls. His desk was littered with invoices he couldn t pay and the two small orders that he couldn t fill because his suppliers would no longer deliver to a businesses that hadn t paid them. Two small orders. It was all that had come in for the month, but it was more than they had seen in the two months prior. AAAT was out of cash and Dr. Hippensteel was out of ideas and out of time. The keys to the facility had to be turned over to the landlord tomorrow. It was done. How could he have not known about that company in Des Moines that was developing a similar technology that was selfpowering and made of lighter materials? How had he missed the risks out there? Had he been so busy with all of the details of ramping up that he had lost touch with the market around him? As Dr. Hippensteel opened the last file cabinet drawer that he had to pack, a folder slipped to the floor. The folder left behind by that manufacturing consultant he talked to last year. He flipped it open, thinking that perhaps it held some of the answers that he had been looking for--the answer to where he had gone wrong. It had to be better than going home tonight. So he began to read Phase III 9

10 ACME Consultants Manufacturing Risk Assessment for AAAT LLC 2010 Can You Minimize Your Risk, Ramp Up Manufacturing, and Still Be a Reliable Supplier? Yes, if you have the KNOWLedge. Market research knowledge, to be precise. Market research is the pivotal factor for the foundation of success. Thorough up-to-date market research and the timely application of this knowledge can minimize risks associated with cost, product development, test and evaluation, transition to manufacturing, product delivery, product reliability and the customer. What market knowledge is necessary? Any amount of knowledge is helpful, but since time and money are always limited, answering the questions below provides some valuable insight and assistance. The Size of the Market Total volume in dollars / product, domestic and international (geographically) Are there spin markets that are associated with the product s core market? What are the barriers to market entry? Are there any environmental or other government regulations to be considered? How about IP or start up costs, does this market have special considerations? What are the product procurement drivers for a market of this size? The Competitors Who are your existing and potential competitors? What are the strengths and weakness of each competitor? What is your competitive position, relative to others in the market? Organized by market share, what is the size, annual revenue, number of employees, number of products, number of years in the business, number of locations, the go to marketing strategy, and public/private status for each competitor? What is the competitive advantage of your product vs. the competition? Keep in mind that reliability and product performance provides a stronger advantage versus a lower price. The Industry Trends Is this a growth, maintenance or declining market? By how much? What period of time? Once the above questions about your particular market, competitors and industry have been answered, it s time to focus on your business and your strategies moving forward.» 10 Phase III

11 Your Business Strategies What is your go to market strategy / process? Direct Market Strategy requires: Sales employees Advertising In-house order-takers Indirect Market Strategy requires: Dealers Distributors Independent representatives Bid and Proposal Strategy What is your product to market strategy? Is it PUSH, manufacturing the product in advance with possible warehousing issues? Is it PULL, manufacturing the product on demand? Will you have the Purchase Order in hand? What drives the product demand in your market? What will drive orders for your technology? What will drive the procurement process? To maintain a competitive advantage, plan for a short ramp up time to FRP and a short time from receipt of order to delivery. The Components of ramping up A well-run and financially stable company knows their market, competition, cost, competitive advantage and where their market is going, in the short term (1 to 3 years), and in the long term (4 to 10 years). Market research. will allow the company to build a comprehensive plan, with a necessary timeline and projected costs, that will minimize the risk of all the components of ramping up manufacturing, which include: Design and development of the end product Testing and qualifying the product Producing prototypes Conducting a pre-production quantity of product to prove: Producibility and repeatability of manufacturing the product Conducting tests to ensure that all manufactured products meet the design performance criteria Confirming the estimated cost to produce the product Mmaking changes to the product and product documentation prior to entering into Low Rate Initial Production (LRIP) and Full Rate Production (FRP) Plans necessary to carry out production scale up Quality plan Monthly manufacturing plan Materials procurement plan Shipping plan Annual Business Plan The plans listed at left would be incorporated with the financials, product design/development documents, quality processes, and the transition to manufacturing plan to make up the annual business plan. The information to develop this plan is driven by applying the market research to control cost and maintain business stability. Manufacturing Costs There are two major costs in a manufacturing business: material and labor. Material costs can be controlled by using annual blanket POs to suppliers, with monthly releases. Controlling labor at peak periods reduces idle time and improves efficiencies, thus maximizing labor output. Dr. Hippensteel woke up in a cold sweat. It had only been a nightmare. The first call he made when he got to his desk later that morning was to a market research firm and to the manufacturing consultant. AAA Technologies LLC was going to ramp up only if the market dictated a real need and only if they could truly compete. Phase III 11

12 commercialization A Strategy for Every Vision $ by Jenny C. Servo This article is about commercialization strategies: How do you select a commercialization strategy and what is it anyway? In the world of Small Business Innovation Research [SBIR], companies are asked to develop and describe their commercialization strategy first in their Phase I proposals, and later, in more ample form, when they submit a Phase II proposal. Although never defined, SBIR proposers are asked to describe their company s strategy for converting the proposed research into a product or a non-r&d service with widespread commercial use including private sector and/or military markets. In our work, we have found it useful to define a commercialization strategy as the series of financing options that a company entertains to move its technology from concept to the marketplace. Commercialization strategies can be represented in tabular form by a series of milestones, each accompanied by a potential funding source. We have named the most common strategies by using the ultimate or last financing method implemented to facilitate widespread use. These include Licensing, Equity Financing, and Joint Venture. Milestones The milestones between concept and product launch are NOT arbitrary. Based on the work of Dr. Robert Cooper, it is recommended that the developer loop back in an iterative fashion to consider issues related to the technology, intellectual property, the market, certifications, production, and financials. No matter what the technology is, and irrespective of the target market, it makes absolute sense to revisit these issues again and again, as technology risk is reduced. Cooper, author of Winning at New Products: Accelerating the Process from Idea to Launch [3rd edition], has identified the milestones represented in Table 1 as important. It should be noted that a companion concept is Stage Gate. This implies that at each milestone [Stage], an assessment should be made on the data presented and the implications for continued financial support [Gate] considered. A gate then is a funding decision. In a Fortune 500 company, these decisions are often made by cross-functional teams. For small businesses relying on SBIR funding for high risk research and development, it is the Agency that will make the initial decisions about continued funding, based on the results to date. As you graduate from the SBIR program, and continue commercialization on your own, it is the management team of the small business and/or its investors that will make these decisions. 12 Phase III

13 Financing methods Milestones are half of the equation, with potential funding sources being the other vital ingredient which defines a commercialization strategy. Small businesses are not financially well-endowed and therefore, unlike large firms, must turn outwards when seeking additional funding for growth. Sources of external funding, to which small businesses often turn, include Federal Agencies, business angels, Fortune 500 companies, venture capital and state-level departments of economic development. When turning to these external sources for funding, it is vital that the small business understands the expectations that each funding source has and what criteria it uses to evaluate whether or not it will invest and/or provide funding to the small business. Figure 1 shows the most common financing options. The financing options available to a firm vary over time and depend upon a number of items, including the management s vision for the future, business philosophy, stage of technology development, market risk, competitive activities and window of opportunity. The manner in which these items affect the choice of financing options is discussed in the figure below. A sample strategy Table 2 represents a simple Licensing Strategy. Using Cooper s work as a guide, I recommend modifying the milestones based on your understanding of key hurdles for your specific technology. However, it is always important to include market and financial assessments. In the example to the right, the small business took the technology as far as it could and then licensed the technology to a Pharmaceutical company for all subsequent steps associated with FDA approval, Clinical Trials, GMA production, and the like. Table 1: Stages in the Commercialization Process, Robert Cooper Step 1: Initial Screening Step 2: Preliminary market assessment Step 3: Preliminary technical assessment Step 4: Detailed Market study Step 5: Predevelopment business/financial analysis Step 6: Product development Step 7: In-house product test Step 8: Customer test of products Step 9: Trial sell Step 10: Trial production Step 11: Precommercialization business analysis Step 12: Production start-up Step 13: Market launch Table 2: Licensing Strategy for a Pharmaceutical Application Milestone Financing strategy Concept development Phase 1 SBIR Preliminary market assessment General & Administrative [G&A] Animal Testing Phase 2 SBIR Intellectual Property Protection Retained earnings Clinical Trials Phase 1 NIH Grant Figure 1: Roadmap of Financial Options Predevelopment business/ financial analysis Clinical Trials Phase 2 All subsequent milestones G&A Licensee Licensee $ > > > Increased Technology Maturity > > > Sweat Equity Science for Hire Debt Equity Founders On spec Federal State Corporations Family / Friends Banks Leasing Accountants Association Attorneys Bankers Brokers Consultants Databases Print Media SBIR and STTR Funding Basic Science Mission Hybrid Applied NSF DoD DOE DHS NIH NASA DOT EPA ED USDA SBDC. Economic Dev. Licensing Partnerships Subcontracts Business Angels Venture Capital Investment Banker Other Profit Phase III 13

14 Table 3, at right, also represents a licensing strategy, but for a Defense application. The specific milestones of importance vary depending on the technology and the market. However, in both cases the predevelopment business/financial analysis was important for helping the company understand what it would take to bring the technology to market. The implications of vision A useful heuristic to consider when developing a potential commercialization strategy is your 5 year vision. Based on the work of Robert Hisrich, Table 4 (at the bottom of the page) depicts three different visions for the future described as Lifestyle Firm, Foundation Company, and High Potential Venture. Some license has been taken with this typology to emphasize the implications that vision has for the choice of one s strategy. The first column indicates the purpose for which the company exists. For a Lifestyle Firm, the primary objective is to support the owners. Perhaps the founder was previously with a Fortune 500 company and started their small business strictly to pursue a particular line of research. Their goal is uniquely to solve a problem. The founder has little interest in growing a company per se or in generating a lot of revenue. As represented, perhaps their vision for five years out is to have no more than 40 employees and to have a modest revenue [less than $5M]. The founders are very concerned about control and wish the firm to remain privately held. By contrast, the founder of a High Potential Venture is interested in Growth and Value. This purpose translates into generating lots of revenue. It is understood that in order to do that the company will have to grow and that five years from now, the firm may have over 400 employees and be generating revenue of $100M or more. The founder understands that growth will require lots of cash and that the investors will most likely cash out by taking the company public. No problem. The Foundation Company is a hybrid. The purpose for the company is to lay the foundation for a new industry. The founders are not preoccupied with being small, but they are concerned about remaining privately held. This combination has implications for investment strategies. Well, what are the implications of vision for choice of a commercialization strategy? Equity investors such as venture capital or investment bankers are investing other people s money in your firm. They are doing this in order to make a significant return on the investment for those entities which they represent. If you are not interested in making a significant ROI, you should not consider equity financing as a potential source of funding within your commercialization strategy. You will notice that in the li- Table 3: Licensing Strategy for a Defense Application MILESTONE Concept development Preliminary market assessment Intellectual Property Protection SBIR Data Rights Prototype development Flight Testing Predevelopment business / financial analysis Operational Test and Evaluation Market Assessment Low Rate Production All Subsequent milestones FINANCING STRATEGY Phase I SBIR G&A G&A Phase II SBIR Phase II.5 G&A Phase III POR G&A Licensee Licensee Table 5: Initial Public Offering [IPO] Strategy for a High Potential Venture MILESTONE Concept development Prototype development Market test Market introduction Scale-Up New Facility Expansion Market Penetration FINANCING STRATEGY Federal funding Seed financing from business angels Retained earnings Equity financing Fortune 500 company Second Round financing from VC Private placement Line of credit, Profits IPO Table 4: Vision Typology PURPOSE REVENUE # EMPLOYEE PRIVATE/PUBLIC LIFE-STYLE Support Owners Modest (eg. Less than $10M) Private $ FOUNDATION Start New Industry Moderate Range (eg. $10M 30M+) Private HIGH POTENTIAL Growth & Value Large (eg. $100M+) 400+ Go Public *The numbers are not to be taken as absolutes, but as relative terms 14 Phase III

15 censing strategy examples presented, equity financing was not considered, because the vision was identified as Life Style. However, lifestyle firms that wish to solve problems and generate excellent intellectual property are good candidates for using a licensing strategy. They take the technology as far as they wish and then turn it over to someone else to fully exploit. A strategy for a High Potential Venture The financing strategies open to High Potential Ventures are amongst the most ample. In Table 5 at left, one readily sees the use of all forms of equity financing: business angels, venture capital, and investment bankers. The company that this commercialization strategy represents was developing a medical instrument. Concept development was supported with federal funding from NIST s Advanced Technology Program [ATP]. The market opportunity for this instrument was significant. This fact, coupled with the company s vision to be a high potential venture proved to be attractive to local business angels (wealthy individuals who invest their own money). As the technology matured, the firm used retained earnings to develop a breadboard that they took to a trade show. At the show, the product caught the attention of a Fortune 500 company that in turn invested equity funds though its venture capital arm to support market introduction. As the company wished to manufacture the instrument, additional funding was required for scale-up. A second round of financing was secured from a venture capital firm for this purpose. Growth quickly followed. A Private placement, regulated by the Securities Exchange was executed. Sales increased and ultimately, an Initial Public Offering [IPO] enabled the company to exploit the market opportunity and realize the founder s vision. The founder s vision effects the financing options that are available to fund the various milestones that comprise a commercialization strategy. For life-style firms the most common strategies are Licensing and R&D partnerships. Foundation companies often prefer joint ventures while, high potential ventures are good candidates for equity financing. Soul searching, recognizing who you are and what you want your company to become are important steps in developing a viable commercialization strategy. Strategies are dynamic. They can be mixed and matched and involve a consideration of many factors. In the next issue we will consider some of these complexities. Green Energy Dawnbreaker and new partner, Rochester Institute of Technology Clean Energy Incubator (CEI) have teamed up to provide an alternative energy information portal on the web. The content of this site is provided by Dawnbreaker and RIT as a service for those wishing to become involved with providing alternative energy solutions. There are several distinct sections of information provided on different green energy sources, reports on climate change and global environmental initiatives, as well as a robust news section and upcoming conference postings. Read the latest reports! Dawnbreaker and RIT Offer Energy Information for Small Businesses and Researchers Phase III 15

16 energy The Sun Will Come Out Tomorrow Solar PV Systems for Small Businesses Is it the right time to install? by Mitch Lairmore and Julie A. Smith As a conscientious small business owner, there have been recycling bins in your facility for years and over the past 24 months, a concerted effort has been made to address energy efficiency issues. An energy audit was conducted in your facility. The professional auditor estimated that there would be a monthly savings of between 10 to 40% in your energy costs, allowing a recoup of expenses within 18 to 36 months. Recommendations were followed and changes have been made that include replacing incandescent bulbs with compact fluorescent bulbs, replacing less efficient, older model equipment and appliances with Energy Star qualified models, and turning the HVAC units back during off-peak hours. The monthly energy bill has been reduced by nearly 20%, paying for the new equipment within 24 months. Seeing the savings has been inspirational, not to mention a nice little boost to the bottom line, but you want to do more. It may be time to move from just being efficient to actually drawing power for your business from a renewable source.» 16 Phase III

17 PV Modules Power Grid DC Isolator Inverter AC Isolator Electrical Box Utility Co. Meter For many years, solar energy has been discussed as a promising renewable source, but recent advances in the technology and increases in government incentives have brought it more into the mainstream. It has caught your attention. Perhaps now is the time to take the plunge? You just need information to make an informed decision for your business. Harnessing Energy from the Sun To better understand the potential role of a photovoltaic [PV] system to your business, it is helpful understand the science and mechanics it takes to actually harness energy from the sun. Theoretically, in one hour the sun provides enough energy to the earth to power the entire planet for a year. If only it were that easy. Capturing this power and then converting it to electricity is a complex and expensive operation. Another thing to consider is that the sun does not shine 24 hours per day. North America averages only 3 to 4 peak hours per day in the summer, which also varies by region. (solar maps are provided on NREL s web address found at the end of page 18). Also of consideration is the amount of energy lost in the conversion process of solar radiation to useable electricity. Energy conversion efficiency is the percentage of power converted (from absorbed light to electrical energy) and collected, when a solar cell is connected to an electrical circuit. In other words, it is the ratio between the useful output of a photovoltaic system and the input energy. According to the U.S. Department of Energy, the commercial PV cells currently available have an average energy conversion efficiency of 7 to 17 percent, though some in the experimental stages have reached 40 percent. The Advantages The advantages of solar energy are plentiful. After the initial investment in the system and nominal maintenance costs, the energy produced is essentially free of cost, and any extra energy produced can be sold to the power company this process is called net-metering. Most solar systems are engineered to last 20 to 30 years, so that can be a significant savings for your business over the life of the system. According to the National Renewable Energy Laboratory, over 20 years, a homeowner or small business would earn back between 76 and 109 percent of the system s cost. Another advantage to solar energy is that there is no fuel to buy for a solar system. This means that your energy budget is not susceptible to supply and demand cost spikes, like what occurred in 2008 when the cost for a barrel of oil was more than $140. Beyond the cost savings when utilizing solar, are the benefits to the environment. Solar energy use does not pollute the air. It does not negatively contribute to climate change, but actually contributes to the decrease in harmful green house gas emissions. A PV system can even operate independently, not requiring a connection to a power or gas grid at all, which is helpful for locations that are remote. Another benefit that PV systems provide is that they continue to supply your business even in the event of a power outage. The Disadvantages The initial cost is the main disadvantage of a PV system. The cost is driven by the semi-conducting materials, mainly silicon, used in building the system. Research to find a cheaper, better material for producing solar panels is still being conducted, incentives at the federal, state and local levels, as well as rebates offered by many power companies across the country to help offset costs. (See for a listing of these incentives and the policies that each state has for promoting renewable energy and energy efficiency.) It is also difficult, at this time, to find certified installers. The DOE cited the lack trained technical personnel, reliable installers and maintenance services as one of the significant barriers to the commercialization of solar technology. However, the North American Board of Certified Energy Practitioners (NABCEP) does offer a directory of available installers for consumers, which can be found at Another disadvantage is the electronics used in the PV system, including the inverter. The inverter is the connection between the solar array and the electric grid. DC power produced by photovoltaic solar panels must be converted to AC power for use by appliances and for feeding back into the electrical grid. DC-AC inverters perform this function and serve as the heart of the grid-connected PV system. However, inverters have been the principle point of failure for installed PV systems. As mentioned above, the fact that the sun does not always shine is a significant disadvantage for solar power. This can be mitigated Did You Know? For each kilowatt-hour (kwh) of electricity that you save through the application of energyefficient technologies, you are reducing the emissions of carbon dioxide, sulfur dioxide and nitrogen oxides. Some energy firms, such as National Grid, located in the Northeast, will provide businesses with free energy audits and will cover a percentage of the costs of new, energy efficient technologies. Phase III 17

18 however, by a battery back-up system and/or net-metering. Over the past 18 to 24 months, there has been an uptick in investment in the electronics of solar PV systems. According to a July 2010 article in Renewable Energy World with innovations in the electrical system, the price of full systems may become more commercially viable in the near future. The Costs Having a PV system installed is essentially pre-paying for 20 to 30 years of energy. The government incentives and decreasing costs are coming close to making solar power a sound investment. Depending on the size of the business, it may already make sense. It still needs to be considered that, according to the U.S. Department of Energy s (DOE) Energy Information Administration (EIA); solar is the most expensive form of electricity among current electricity generation technologies. Their calculations put solar energy production more than double the cost of wind and nearly four times the cost of coal. As it is in real estate, location, location, location is currently one of the major determining factors of the financial viability of solar in the U.S. In parts of the Southwest and in Hawaii, the cost of producing solar energy has already reached parity with the going electric rate, and is even lower at peak times. The other major cost factor is the materials that comprise a solar panel. The most widely used solar panel technology use silicon, but researchers are investigating replacing traditional technology with cadmium telluride thin film panels, which are less expensive to produce. Unfortunately, tellurium is rather rare and a rapid increase in production of this type of solar panel could easily increase the costs to the same level as the silicon panels moving the system back out of grid parity for most consumers. The right time to go solar? While it seems as though the process for deciding if and when to go solar should be straight forward, it isn t. According to Seth Darling, a DOE Argonne National Laboratory scientist, there is currently no one accepted way to perform a levelized cost calculation for solar.the cost of electricity is typically defined as how much a power producer would have to charge for electricity to earn back the money spent building a new generating facility. This is defined as a total system levelized cost calculation. There are many factors that determine the levelized cost of solar. How well will the chosen solar energy system perform? How long will the system last, and how much sunshine will it receive over the lifetime of the system? Right now, even the experts can only make educated guesses to answer these questions. Because there are a wide number of variables that determine the potential rate of return for a solar system, it is difficult to finance the installation of a system with a traditional loan. There have been some alternative financing inroads made, including leasing the system from a utility or third party, and as mentioned above there are government and utility provided incentives, but those are not equally available to everyone. So you must do your research to find what is available in your area. Moving forward with the installation of a PV system is far more complicated than deciding to change lightbulbs to enhance energy efficiency. However, periodically it would be worthwhile to reassess options. Bottom line? There is no clear, simple answer to the question, Is it time to consider solar? At this time, going solar will remain an individualized decision for the small business owner, based on weighing all of the potential costs and practicality issues relative to the long-term cost savings and the environmental impact. Tools to Help Determine If You Should Go Solar The Photovoltaics (PV) Value Clearinghouse was developed by NREL and Clean Power Research to provide users with a searchable database of analyses of distributed power applications with an emphasis on distributed power technology benefits and costs. This information will be helpful for anyone looking for analysis methodologies and results of solar power cost/benefit analyses. There is a growing interest in customer-owned PV systems, which has resulted in a number of analytical studies aimed at determining their value. Visit the site at: HEED: Home Energy Efficient Design a UCLA developed free software that analyzes how much energy and money and carbon you can save by making various design or remodeling changes to your facility, including the addition of a PV system: A primer on cutting your business energy costs by up to 30% with the Small Business Services program. A service brought to you by National Grid: html/shared_small_business_brochure.pdf Database of State Incentives for Renewables and Efficiency (DSIRE) DSIRE is a comprehensive source of information on state, local, utility and federal incentives and policies that promote renewable energy and energy efficiency. Established in 1995 and funded by the U.S. Department of Energy, DSIRE is an ongoing project of the N.C. Solar Center and the Interstate Renewable Energy Council: North American Board of Certified Energy Practitioners Dawnbreaker Alternative Energy Portal portals/altenergy 18 Phase III

19 About Us Dawnbreaker, Inc. Dawnbreaker specializes in providing commercialization assistance to small advanced technology firms and their investors. Since 1990, we have worked with over 2,500 firms that have received funding from the Small Business Innovation Research (SBIR) program, the Small Business Technology Transfer (STTR) program, the Advanced Technology Program (ATP), and others. Dawnbreaker s depth is in understanding the intent, method and objectives of the SBIR and STTR programs. Having worked within large corporations and small businesses, our staff understands the perspective and financial imperatives of both and is uniquely well-prepared to assist companies in planning for and succeeding in transitioning to Phase III (Commercial phase). The success of our services is reflected not only in our track record, but also in the percentage of companies that receive investment and/ or increased sales within month of a programs culminating Opportunity Forum. To date, over $2 billion has been secured by participating firms. For more information, visit our website at Phase III Commercialization Magazine Phase III Commercialization magazine is a publication of Dawnbreaker, Inc. and is meant to provide information, gleaned from our highly knowledgeable staff, to advanced technology firms, prime contractors, program managers and investors in the areas of medical, energy, defense and space exploration. Imagine what could have been Lenny KNEW there was a market for flight, but his idea never quite got off the ground. The 15th century was a haven for new inventions, but marketing not so much. The Marketing Communication Group at Dawnbreaker specializes in communicating novel concepts to well targeted audiences. Fortunately, da Vinci s other inventions managed to pay the bills mankind had to wait nearly 500 years to book that discount flight to Vegas. It's too late for Lenny, but we're here for you. Contact Lyn Barnett via phone or to discuss how Dawnbreaker can help you with your Marketing and Communications needs. Lyn Barnett Business Acceleration Manager P: lbarnett@dawnbreaker.com

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