workshop 4; turning your idea into a product

Commercial Development Programme

Commercial Essentials

Workshop 4 – Developing Your Idea Into a Product

NORTHUMBRIA COMMERCIAL ENTERPRISES INNOVATION CAMPUS

Ross Golightly


Agenda

1.Recap on Commercialisation Project Management Cycle 2.Product Creation3.Product Development and Prototyping in the Commercialisation Process 4.The Role of a Prototype in Raising Funding and Commercialisation5.The Advantages of Strong Design and Product Development6.The Components of a Product 7.Working with a Developer / Prototyping Provider8.Case Study: Breeze Blockers9.Product Testing10.Concept Research11.Financial Considerations12.Prototyping and Licensing/Technology Transfer13.Creating a Product: Considerations for Licensing 14.Sources of Funding


Commercialisation Project Management Cycle

IP Exploitation

Concept Research Business

Plan

IP Protection

Funding Package

Product Dvpt

Commercial-isation

Working Capital

Strategy Dvpt

Market Research

Company Set Up

Idea Dvpt

Risk Management

Revenue Generation

Strategy


Product Creation

There are generally 4 stages that an early-stage company would go through in creating a product:

1.Development of the idea (product/service/technology)

2.Creation of a crude prototype (usually called a “mock-up” and created using DIY methods)

3.Creation of a pre-production prototype (using a third party rapid prototype provider)

4.Finished product/technology stage (the end-result that has been commercialised)


Product Development and Prototyping in the Commercialisation Process

• After company formation, prototyping/product development is one of the first activities you should undertake.

• This should be done in tandem with any protection of IP so the filing reflects the product concept being created.

• Create a technical project plan (either separate to or as part of your business plan) scoping out the interventions, providers and finance required to create your product.

• Don’t ever engage the market until the product is complete unless you have a very stakeholder-dependent idea (such as a technology platform that harmonises with another platform) and need market partners to be part of the process.


Where are you in the Process?

IP Exploitation

Concept Research Business

Plan

IP Protection

Funding Package

Product Dvpt

Commercial-isation

Working Capital

Strategy Dvpt

Market Research

Company Set Up

Idea Dvpt

Risk Management

Revenue Generation

Strategy


The Role of a Prototype in Raising Funding and Commercialisation

• Provides something tangible to show an investor, lender or funder

• Provides something tangible to show a licensee or market partner

• Makes the idea more investible (i.e. the product is more proven to a greater degree)

• Improves your credibility and professionalism in the eyes of a third party

• A business with a mere idea (no matter how strong) is still largely unproven and less investible (if at all)


What are the Advantages of Strong Design and Product Development? .....


Apple


“Great Design Makes People Love Your Company”

Business Week


“Innovation and design allow Sony to maintain market premium pricing, providing more cash flow from its product portfolio. This cash flow can then

be re-invested into more innovation”

Financial Times


The Value of Strong Product Design

• Design is not a cost – bad design is a cost

• Strong design holds premium prices – even against like for like products/brands

• Strong design makes your product more distinct and less likely to be easily imitated/copied

• Design can differentiate products that have the same functionality as another

• Design is now a strategic driver in major corporations


The Components of a Product

Set your brief around:

• Positioning Brief (Uniqueness, Innovation, Differentiation)

• Technical Innovation Brief (Function, Features, Technical USP, Specification)

• Product Design Brief (Aesthetics, Feel, Touch, Colour, Materials)

• Brand Execution Brief (Visualisation and Verbalisation of your product offer)


Working with a Developer / Prototyping Provider

• Always operate with Non Disclosure Agreements (NDA’s)

• Thoroughly investigate issues around ownership of intellectual property arising from the work together

• They will also be able to project-manage your first-stage production run – often a very time-intensive process

• Seek advice from your patent attorney – ensure the outputs of the work reflect the original filing for protection of the idea

• Always work to a clear brief – a supplier is only ever as good as the instruction you give


Case Study: Breeze Blockers

Stage 1: Development of Idea:

“Develop, manufacture and supply a range of bicycle accessories designed to keep a cyclist warm during the cold autumn, winter, and early spring seasons”



Stage 2: Mock Up Prototype

Development



Stage 3: Pre-Production Prototype (developer engaged)



Stage 4: Product Range Roll Out and Full Brand Concepts


The Importance of Product Testing: Success Rate of New Product Ideas

Development5

10

15

20

25

30

35

40

45

50

55

60

Num

ber

of S

urvi

ving

Ide

as

Cumulative time (percent)

Screening

Business analysisDevelopment

Testing

Commercialisation

One successfulnew product


The Problem with not doing Research

Development


Product Testing: The Subjective Massacre

Development

I don’t like change: We should make the same products…

forever!

I don’t like Fred: So I don’t like his ideas! I’m the boss

– therefore I’m right…


Product Testing: Scoring Attractiveness

Development

High Medium Low

size of market large modest small

regulatory compliance

High requirementHigh Value

Some requirement No requirement

importance of innovation

aesthetics =

salescost

compromise functional only

Component count Low Medium High

Buyer decisionprocess

identifiable and simple orexperienced

complex & slowor some experience

difficult to Define or noexperience

targeting customers Visible targets

Attractiveness

WorseOption

BetterOption

StrategicFactors

OperationalFactors

Some targets no visible targets

9 8 7 6 5 4 3 2 1


Product Testing: Opportunity Attractiveness

Development

High Medium Low

size of market

Attractiveness

regulatory compliance

Importance ofinnovation

Opportunity 1

Opportunity 2

Opportunity 3

Opportunity 4


Concept Research

Used when you haven’t yet enough faith ‘to make it real’:

• Concept research - though vital in development - not used to make decisions • Provides valuable insights – almost as useful as going out into the field

- Defining customer requirement - pre prototype- Prioritising requirements/ preferences - planning/ design brief- Preliminary price points - market will bear/expected price range- Challenge user issues - functionality/ usability/ practicality- Positioning competitors products - Ranking on customer Criteria

• Concept research is conducted with the prospective customers / market influencers themselves

• Face to face / Focus Groups are more forthcoming.


Product Research

• No-one would sensibly go into production without product research – but people still do. Or they research an idea in limited, artificial environments.

• Thousands of ill-researched new products have failed to survive the test of the real world.

• Research should be professionally carried out by objective third parties with real potential customers. It is essential but expensive.

• A bold product claim must stand up to scrutiny from customers, the trade, suppliers and the media.

• Think – Commercial testing: with potential customers.

• Think – Technical testing: stress testing, scenario testing, quality testing, live environments etc.


Creating a Product / Prototype: Financial Considerations

• Unit costs decrease as production runs increase

• Initial tooling is a one-off cost and will represent a high investment

• Consider all of your on-costs associated with the product – packaging, secondary packaging, distribution etc.


Development

80% of all future 80% of all future product costs product costs determined by this determined by this stagestage

Idea Concept design Detailed design & prototypes

Production ramp up

Actual spendActual spend

Costs committedCosts committed

On-going production

Total cost %

100 %

Costs in the Product Development CycleCosts in the Product Development Cycle


Prototyping and Licensing/Technology Transfer

• Having a prototype that has been created by a clear R&D exercise increases your negotiating position with a licensee or technology partner.

• A well developed prototype provides a clear revenue opportunity “handed on a plate” for a manufacturer to exploit – this de-risks the opportunity to the licensee and increases your bargaining power.

• Alternatively, an under-developed product at the idea stage, no matter how strong the idea, represents risk to the licensee because they will have to invest in R&D to get the idea/technology to production stage. This decreases your bargaining power in royalty negotiating.

• Always seek to develop your idea as far as humanly possible. Ultimately, aim to do the work that the licensee’s R&D department would have done themselves.


Creating a Product: Considerations for Licensing

• Consider things from the licensee’s perspective so that your product is commercially viable to them:

• Can it be manufactured cost effectively?

• Will it hold a price that the market will bear and that will provide a suitable margin for the licensee?

• Can the parts/components be easily sourced (whilst still creating novel value)?

• Is the right production technology available to produce the product competitively?

• Can this production technology be easily sourced?

• Always remember though: prototypes never represent a finished product – they can be manufactured cheaper and are often de-engineered in the interests of stretching margins further


Sources of Funding for Prototype Development, R&D and Product Design - Codeworks DEV Fund

• Launching April 2010 but currently being trialled with small intake of businesses

• Funding towards development of software prototype

• Businesses must be classified as high-growth and have an ability to scale to revenues of £3m within 3 years

• Business must not have in-house technical capability to produce a software prototype (i.e. idea but not know-how) and a well thought-through Business Plan to enter the fund

• Entry to DEV fund is selective – intake is based on 15 businesses over the next 12 months

• Initial market research to support prototype development is funded

• Software development provided by supplier on Codeworks panel who the business selects via quote process

• Codeworks fund provides 2:1 match – i.e. 66% towards supplier costs with client providing 33%


Sources of Funding for Prototype Development, R&D and Product Design - Innovation Vouchers

• Business Link grant towards any aspect of Innovation (e.g. product development, product testing etc.)

• Can only be accessed by trading businesses (although pre-orders can be classified as trading)

• Funding at 100% towards first £3,000 and 70% for a further £7,000 – fixed/guaranteed

• A business can only access the Innovation Voucher once and with only one provider

• Was formally only redeemable against public organisations but now redeemable against private sector providers

• Only redeemable against suppliers accredited to deliver Innovation Vouchers (i.e. always check with provider)

• Must show demonstrable economic and financial outputs to Business Link (i.e. high growth)


Sources of Funding for Prototype Development, R&D and Product Design - Business Link Solutions Funding

• Prototype creation is not normally funded strictly speaking, although “design consultancy” and such like can be

• Pre-start funding covers up to 6 months pre-trading and 6 months into trading

• Pre-start high-growth business (ability to achieve £500k in turnover within 3 years) receive up to 70% to a maximum of £45,000

• Non high-growth (i.e. lifestyle) receive up to 70% to a maximum of £8,000

• Existing trading businesses outside of “pre-start” stage receive up to 50% at an uncapped level within state aid rules

• Product development areas that could be funded include branding, concept creation, visualisation, product design consultancy, feasibility studies, technical consultancy and such like.

• Good private sector providers include Design Right Solutions, Redfox, Octo Design and Product

Group.


Sources of Funding for Prototype Development, R&D and Product Design – Design Network North

• Public programme managed by RTC North to co-ordinate product design activities in the North East

• 100% funding available to support design and development or innovative products

• Funding awards are selective / meritocratic and not guaranteed – businesses must “pitch” to a panel

• Must be able to evidence high market potential and value of creating the product

• “Design Exemplar” awards given to products with major design value

• This provides 100% funding towards engagement with a product development consultancy

• Material costs and purchases also paid for


Sources of Funding for Prototype Development, R&D and Product Design – DTI Grant for R&D

• Grant for businesses at the R&D stage (i.e. pre-prototype) needing funding for investigative analysis

• Must be a business operating in a high technology or science field with an element of risk – i.e. unprovable technology

• Can be for products and processes (but must be technologically innovative)

• Selective intake – businesses must complete an in-depth application form setting out R&D programme and selection process is based on level of innovation, commercial potential, exploitation prospects, management team capabilities, financial viability and financial case for the grant.

• Micro Fund (45% grant at between £5k and £20k) for companies with less than 10 staff and a turnover of £2m for a project of less than 12 months to develop a low- cost prototype


Sources of Funding for Prototype Development, R&D and Product Design – DTI Grant for R&D

• Research Fund (60% grant at between £20,000 and £100,000) for companies with less than 50 staff and a turnover of £10m to investigate technical and commercial feasibility of innovative new technologies, leading to an experimental model (not a pre-production prototype).

• Development Fund and Exceptional Fund also exist but for much larger businesses.

• Match to grant can be made from the business via attributable salaries, R&D expenses or other finance sources that have been accessed for the same project (e.g. POC).


Sources of Funding for Prototype Development, R&D and Product Design – Digital Factory

• ERDF funded programme to provide prototype and product development support

• Funded support at up to 50% with discretion to exceed this in some cases

• No application process and relatively easy to access


Sources of Funding for Prototype Development, R&D and Product Design – Manufacturing Advisory Service (MAS)

• Although not direct product creation, support is available on the manufacturing issues around this

• Initial diagnostic provided on a 100% funded basis

• Can support on finding manufacturing sub-contract partners

• Follow-on funding of up to 50% towards direct project interventions


Sources of Funding for Prototype Development, R&D and Product Design – Proof of Concept

• Debt, equity or convertible loan fund managed by North Star – not a grant

• For pre-revenue businesses at the concept development stage

• Usually accessed for feasibility work and product development

• Must have a well thought-out Business Plan to apply and be able to get to revenue quickly

• Investments made at flexible levels averaging c £90k per year


Sources of Funding for Prototype Development, R&D and Product Design – Technology Fund

• Debt, equity or convertible loan fund managed by IP Group

• Investment in early-stage technology development ranging from £50k to £1.25m

• Businesses far from market and needing intensive R&D would probably transact on an equity basis


Thanks for Listening ...

Q&A

Ross [email protected]

Tel: 07984 379 558 / 0191 4604126www.twitter.com/RossGolightlywww.spheraconsulting.co.uk

workshop 4; turning your idea into a product

Documents